The Early Days of eBay

certain myth. There's a legend in Silicon Valley that eBay, the auction website that was one of the notable survivors after the dot com crash, was founded because of Pez dispensers. The legend is a pretty charming one, and it tells

the story about Pierre A Midier. He's the son of Iranians who had moved to France to pursue higher education, and Pierre's fiance, Pamela, was a fan of Pez dispensers, those little plastic candy dispensing toys that frequently take the form of licensed characters like Mickey Mouse or Batman or hundreds of others. Pam was having trouble finding fellow enthusiasts

in the San Francisco area. She had previously lived in the Boston area, and she knew a lot of other collectors over on the East coast, and so Pierre designed a website meant to allow people to post items they wished to sell and auction them off to the highest bidder. Which is a cute story, but it's not true. It was actually all a pr thing that was made up to kind of give eBay this sort of charming history. So today we are going to explore the full story behind eBay, how it came to be, and how it

survived when so many other websites failed. Our story does begin with Pierre omidi Are, the man who would build the first incarnation of eBay. He was born in Paris, France, in nineteen sixty seven, and when he was six years old, his family immigrated to the United States. They moved to the Baltimore area, and Pierre's father took up a urology residency at Johns Hopkins University. In school, Pierre was known to kind of sneak off during gym class in order

to use the teacher's TRS e D home computer. This was an old Tandy radio shack computer, thus the TRS name, though it had a rather unfortunate nickname, not just at Pierre's school, but worldwide it was sometimes kind of affectionately referred to as the Trash eight. Pierre told himself how to program in Basic as the basic programming language. He was fascinated with computers and with programming in general in middle school. He lived for a short while in Hawaii

and then returned back to the East Coast. When he returned to Washington, d c. For high school, he began working on Apple two computers and he learned to program in Pascal, which was a big step up from Basic. He even lay ended a gig at his high school computerizing the card catalog for the library. And he graduated high school and enrolled in Tufts University, which is outside of Boston, and he majored in computer science and that's where he met his future wife, Pamela, who was studying biology.

Pierre was a devotee of Apple, and he eschewed the IBM compatible PCs that were beginning to dominate computer labs, so he didn't really have any desire to go into

the computer lab, even though his major was computer science. Instead, he preferred to work on a Macintosh computer and he created a programming utility as an exercise in his junior year, he began looking for a potential job as a Mac programmer, and he applied to a company called Innovative Data Design, which offered him an internship based off his application and the Mac utility he had created. That led to a full time position, and Pierre took a semester off to

get more experience in the programing world. So he leaves school for a short while and works for a semester in the private sector. He returned to Tufts for another semester, but then transferred to the University of California, Berkeley to finish out his undergraduate degree, and he moved out West Pamela. His girlfriend, slash fiance, continued her studies at the University

of California, Santa Cruz. She had already earned a bachelor's degree in biology and now was studying plant molecular genetics. Smart Lady Pierre then went to work for a company called Clariss. Interesting little side note, Claris was a subsidiary of Apple, so I covered this a little bit in the Apple story about how the company was trying to

deal with software for its Macintosh line. It had formed Claris in nineteen seven when Apple needed to devote resources to creating updates to aging software packages like Mac draw and Mac Project. Pierre was a Mac programmer working for Apple sort of by way of a subsidiary, and there

was a sweet deal that was on the horizon. Claris was poised to spin off from Apple and hold its own initial public offering or i p O. Employees who had a stake in the company would end up making a lot of money if the i p O went well. So things were looking up, and this is generally how initial public offerings go. You normally have employees who have some sort of ownership in the company, and when it goes public, they end up getting a reward of stock

in the company. And if the i p O goes really well, then the stock's value increases, and thus you can end up becoming wealthy overnight. But then in Apple decided it was not going to spin off Claris after all, and the company would remain a subsidiary under Apple. That decision prompted the company president, that is, Clariss's company president, to leave Claris, and that initiated something of an exodus

of employees throughout ninety ninety one, including Pierre. He decided he was going to leave the company and try something new. So the year was nine and Pierre was partnered with some friends to launch their own business. They decided they were going to try and create their own company, and this one was called Ink Development Corporation. This company specialized in programming software for pen based computers, that is, light pens as an input device, and specifically they were developing

for the PenPoint operating system from a company called Go Corporation. Now, at the time, Pierre was banking on the pen input system to become the next big thing in computing. For one thing, using a pen is at least seen as being far more intuitive than using a keyboard, same sort of thing as touch interfaces with screen based designs like

like tablets and smartphones. That was the reasoning anyway, But it turned out the team was way ahead of their time on this bet and it just never really took off. But fortunately they had not put all of their eggs in the pen computer basket. They had also started to develop software for the burgeoning online market in ninety three, when it became pretty clear the pen based computing thing

wasn't going anywhere. The Internet was starting to get a lot of buzz and the team rebranded their company and called it E Shop lower case E big S. One thing that was interesting about the shop was that it was not directly connected to the Internet. You would not log onto the Internet and then use something like Google or some other web search program to go over to

the shop and then peruse the virtual aisles. It was a network, but one that you would have to access directly through a Windows application that dialed out through CompuServe and Sprint network links. So in other words, instead of going to the Internet, you were essentially dialing directly into this service. That made it closer to something like a

bulletin board system from back in the day. Multiple users could be on at a single time, but only through that direct connection, so it was not yet an Internet shop. Pierre figured that the Internet was really the future. He figured, this is really where things are gonna go, and he was a little frustrated with how reluctant his partners were to bring a shop fully online, and so he left the company in nineteen but he still held on to

a stake in the company. He still had some ownership, which ended up being a really good decision for him because in nineteen ninety six, which was a year after eBay would launch. I'm just skipping ahead for a second here, Microsoft would acquire e Shop, and that acquisition was done in part through stocks, meaning Microsoft would grant stocks to people who shared ownership in the shop and they would get a certain number of Microsoft shares. That turned Pierre

into a millionaire overnight. He had the free him to work on whatever he liked at that point, and of course by then eBay was already a thing. I thought it wasn't called that yet anyway. The other thing he ended up working on after he left the shop was a company called General Magic that was founded by Bill Atkinson, Andy Hurtzfeld, and Mark Poor at Now, Hurtzfeld and Atkinson were two of the members of the original Macintosh team.

They actually designed the original Macintosh, and Pierre was gonna get to go work for the men who designed the computer he had grown to love so much and the one that he had cut his teeth on when he was really getting serious about programming, so he was pretty excited about it. General Magic was developing small handheld computing devices.

There were sort of a predecessor to personal digital assistants or p d a s. If you remember those and PDAs in turn were sort of the predecessors for smartphones. Pierre's job was to kind of act as a liaison between General Magic and third party programmers, so he was kind of helping third party programmers who wanted to build software for this platform. The platform was called Magic Cap and the company had created this in an effort to

get more software developed for the technology in general. So in other words, you had Pierre standing there as kind of an aid, someone who could give expertise to people who wanted to develop software for this brand new platform, and uh, he was deriving a lot of pleasure out of that. In his spare time, he was brainstorming ways to leverage the Internet. And by the mid nineties, everyone was pretty sure the Internet was going to change everything, but no one had really cracked how that was going

to happen yet. It was still an early adoption period for the Internet and e commerce hadn't quite taken off yet. And this is when the story of Pamela and the Pez dispensers would come into play. When it was when it was presented as eBay's actual past. But while that could have potentially played a part in Pierre's brainstorming if it had been true, the actual truth of the matter was way more complicated and messy, and I'll explain how in just a second, but first let's take a quick

break to thank our sponsor. So Pierre O Mindiar, who had recently left the shop and now was working for General Magic, would occasionally take on consulting or freelance work. So he created a sole proprietorship business and he called it Echo Bay Technology Group because he thought the name sounded cool. He didn't actually live anywhere near any place called echo Bay. He tried to register the domain echo bay dot com but discovered that it was already taken

so he couldn't have it. So he decided to register eBay dot com instead, as that was readily available. And this was an early nine there was no market place on the site just yet. There was no eBay auction site, so the name actually came before the business. At the time, eBay dot com was sort of a catch all site containing a midier's interests. He had information about his consulting gigs on there, so you could hire him based off that site, but he also had a section about the

Ebola virus. It was an information page about Ebola that had links to news items. The website contained pages dedicated to a biotech company that employed his fiancee, Pamela, and he also had a page dedicated to the Alumni Association of Tufts University because Pamela was president of that association. So, in other words, eBay dot com was sort of a hodgepodge of web pages, and really only Pierre and his fiance were the common connectors among all the different pages.

It was actually really reminiscent of a lot of early websites. If you were online during the early days of the web, you would frequently encounter early websites created by people that had a web page devoted to each of their interests, and there'd be no real common thread between the interests except for the fact that one person had all of them. That happened a lot in the early days, and eBay

dot Com started out that way. Pierre had also been thinking a lot about free markets because a few years earlier he had decided to invest in the company three d O that was a video game console company. I've talked about three d O in the past. It was

one of those consoles that launched. It made a big impact, and it was incredibly expensive, and it didn't stick around for very long, but it still was pretty interesting and Pierre was really kind of fascinated by it, so he ended up investing in it back in a mediator put in an order to buy stock with his brokerage firm.

The opening price went three DEO was holding its initial public offering was supposed to be fifteen dollars per share, but by the time omitt Year's order was processed, the stock price had already gone up by fift so he was buying it at a more expensive price than he had originally intended. Now he was still able to sell his stock off at a profit anyway. Later on, but

it got into thinking how was this fair? Because privileged buyers were able to get hold of shares at the fifteen dollar price point well before they would become available to the general public. You had organizations that could buy stock before the I p O officially launched, and he felt like this was really unfair. When the public finally gets a chance to buy stock, the price would have already grown, which means they would see smaller profits than the big wigs who were able to get in early

because they had really good connections. So Pierre started to think about auctions and how they operate. He had not real the attended auctions, but he liked the concept behind them, because at an auction, the potential buyers decide what they are willing to spend on any given item or service. If someone else wants that item or service more, they will pay more, assuming they have the funds to do so. So if a seller sets an opening bid price that's at too high a level, no one's going to bid.

So it's a free market approach that felt fair to Pierre. You could place your bid, and if you got outbid, you could decide if it was worth increasing your bid again to stay in the auctions. No one would be able to beat out anyone else just because of their connections. Really, if someone has deeper pockets and a real desire to own something, they could outbid everybody else, But you know you and usually way how much is the thing worth versus how much am I willing to pay for it?

He got to work coding in an effort to build out a website that would allow people to post items for sale and support an auction environment, and he worked all over the labor day, weekend and on Labor Day itself. In he launched it under his eBay dot Com site, but it was not called eBay dot com itself. It was called auction Web, so it was one site under eBay dot com. I believe it was eBay dot com slash a w if you wanted to go there directly upon its launch. It was a bare bones service. It

was mostly blue text against a gray background. There are only three things you could do on the site. You could list a new item for sale, you could view the items that were available, and you could place a bid on an item. A media are supported the service as a hobby. He had no real plans to make it a business. He promoted the site on various news groups, but many of them required a moderator to review a post before listing a post, and everyone was on vacation

because it was the long weekend. By the end of Labor Day weekend, auction Web had received precisely zero outside visitors. But again, this was a hobby, so a media wasn't really discouraged. He was just continuing on with his day. Word did gradually get out, In fact, it didn't get take very long at all. By the middle of September people were talking about it, and people began to list

items for auction on the site. According to the book The Perfect Store, a medior visited a newsgroup at misq as m I s C Dot for Sale dot non computer and gave a complete rundown on all the non computer items that were currently up for auction, along with their current bids over at auction Web, and here is a list of the things that you could have been on during that week. Superman Metal lunchbox nineteen sixty seven used good condition. The current bid was at twenty two dollars.

Autographed Marky Mark underwear. Current bid was at four hundred dollars. Autographed Elizabeth Taylor photo. Current bid was at two hundred dollars. Autographed Michael Jack and poster. Current bid at four hundred dollars. A toy power boat late fifties early sixties, current bid sixty dollars. A Hubily five twenty cast iron hook and ladder truck, current bid three hundred dollars. Collectors multicolor reflection hologram, current bid five thousand dollars. A check vase, current bid

five dollars. And cobalt clear cut glass rose bowl current bid twenty five dollars. That was the sum total of all the non computer elements, all the non computer items that were available on eBay dot com at that point eBay dot com slash a W that is, but none of those items would be the first one actually purchased

off of auction web. According to the company's own history, the very first item ever bought at auction at eBay dot com slash a W was drumroll please, a broken laser pointer, a laser pointer that was, as advertised broken. What's more, we know who bought it. The name of the person who purchased this broken laser pointer was Mark Fraser, and I've seen some articles that suggested he was a

collector of broken laser pointers. In fact, according to at least one story, Pierre omidy Are actually called up Mark Frasier personally and said, hey, you won this aunction, but did you know that this is for a broken laser pointer, And supposedly Fraser responded, I collect them. But that's not what Mr Fraser has said in interviews following this event.

According to a video Mark Fraser appeared on as part of eBay's twentieth anniversary celebration, the story goes like this, Frasier was traveling as part of this job and watching a lot of presentations, and at some of these presentations, the people were using laser poinners, and Fraser thought they were pretty neat, so he wanted one, but at the time, they cost more than a hundred dollars and he really didn't have that kind of money to spend on something

as frivolous as a laser pointer. So, being of an engineering mindset, he decided he would make his own. He got hold of a laser diode and he designed a circuit and built his first prototype, but there was a problem. The light wasn't focused in a tight beam like a

laser and that's when he heard about auction web. He popped on there and he saw that someone was selling a broken laser pointer, and he figured he could get the broken pointer and use it to complete his own d i Y project, and so he made a bid and he won the auction for fourteen dollars and eighty three cents, So it's not quite as ridiculous a story

as some outlets made it out to be. One week after a Metier had shared that list of non computer items that were available on auction web, he had an update, and that included a warehouse in Idaho had an opening bid set at three D twenty five thousand dollars. In addition to crazy things, auction web was picking up traffic. Word was spreading throughout the end of nine and by the close of the year, just a few months after launch, the site was receiving thousands of visitors and items had

received tens of thousands of bids. This ended up being a problem. However, a Midier was still operating auction web as a hobby. He was happy to have it hosted under his eBay dot com site. With his other interests. He was paying about thirty dollars a month in hosting

fees for all the sites collectively. But auction web was starting to get serious traffic and a Medier's hosting service, a company called Best, was complaining that this increased traffic was slowing down their network, so they told a Medier they were going to transition him to a commercial account, which would cost two d fifty dollars a month, not thirty dollars a month. A Medior tried to contest the decision.

He said, auction web isn't a business, and at that time it really wasn't It was a marketplace, but it was. There was no way to make money from it. There was no cut of sales going on. But Best was not going to play ball, and a Mediora had a tough decision to make. He was gonna have to either walk away from this community that was starting to grow, knowing that he couldn't really afford to pay two fifty

dollars a month just to support a hobby. He had not yet come into all that money from the acquisition of the shop. That hadn't happened yet, So he was either gonna have to walk away or he was going to have to charge users for auction Web. But how would he do it? Well, I'll explain in a second, but first let's take another quick break to thank our sponsor. A medior didn't want to discourage people from using auction Web and he wasn't crazy about the idea of charging

people a fee to use it. So his solution was to create a system in which people could view and list items online for free. There was absolutely no charge to shop around or put an item up for auction. The fee would only come in after an auction ended with a successful buyer. At that stage, auction web would take a percentage of the final bid. For bids that were less than twenty five dollars, auction web would take

a cut of five percent. For auctions that ended above twenty five dollars, the cut would be two point five percent, and a medior kind of came up with this on his own. Sellers began to send in money after successful auctions. Sometimes it came in the form of a check. Sometimes a Medior would literally receive cash or change in envelopes. It wasn't terribly elegant, but it was working. In fact, it was working so well that he was making more than the two fifty dollars at cost in hosting fees,

so auction web was officially a profitable business. By February nine, the site was doing pretty well. A midier was smart enough to realize he didn't have the experience or business education to run auction Web successfully on his own, so he was spending nearly all his time either making sure the site wasn't going to crash or building out new features. So he looked around for someone who could join the company and help him out by taking on a leadership role.

He reached out to a friend of a friend named Jeff Skull. Skull had attended the University of Toronto and earned a degree in engineering before he went on to grad school at Stanford and earned an NBA. In between undergrad and graduate school, he launched two companies successfully and so he was doing pretty well. A midier had reached out to Skull earlier in n to ask him to work on auction Web, and at that time Skull turned down the offer. He didn't think people were ready to

use the Internet for commerce. He then went on to work for a newspaper chain, but when he did that, he saw that the newspaper business was terrified of the Internet and its potential impact on the classified business. A website could post the same sort of stuff as a classified ad without the restriction for space, and with dynamic pricing. Skull rethought his decision and in February nine he began

to do some consulting work for auction Web. A media are meanwhile, tried to instill in his users a sense of community, and in fact that community began to coalesce. Some have even gone so far as to call eBay one of the first social networking platforms. A media or was still running the show all by himself at this point with some consulting work from Skull, and when problems popped up, he was the only point of contact. His

email address was on the website. He had to deal with the site issues as well as disputes between buyers and sellers, and so, in an effort to make things run a little more smoothly and to help remove himself from the equation just a little bit, he created the Feedback Forum for auction Web. To participate, a user would first need to register with the Feedback Forum. The purpose of the forum was to provide feedback to the community

about various buyers and sellers. Media are encouraged people to praise those who practiced good habits in buying or selling, and to warn others for those few who might be taking advantage of the platform or just behaving in a poor way. He also reminded users that humans don't always make the right choices and it's not always a malicious or intended action, so in other words, they should try to be understanding and sympathetic before leaping to the conclusion

that they were getting scammed on purpose. In the forum, users could rate one another. The rating system was pretty basic. You could give a user a plus one, meaning the experience you had with that user, whether you were dying from them or selling to them, was a positive experience.

Or you could give a negative rating, indicating something did not go well, perhaps someone failed to pay or failed to send an object, or you could just go with neutral if there was nothing remarkable to say about the experience. They could also expand upon that rating by writing a comment and explaining the situation further. The rating would become a tag for each user. Whenever that user interacted with the site by listing an item or placing a bid,

their rating would appear next to their name. This gave everyone else a quick glance at who was trustworthy and who was not. And if your rating got too low, too low being minus four points, although that was not actually uh explained or communicated to the community, then omidi

are would drop the ban hammer on you. You would become known as a not a registered user or nauru in a r U. The site also introduced a bulletin board system designed to help answer questions in the community such as what shipping methods would be the most economical or reliable, and how do you handle situations in which something has gone wrong. The community itself would respond to those messages, so you'd have users answering the questions of

other users. It was almost like auction web had built out its own customer service department, but instead of using employees, it was the fellow users of the site who were doing all the communicating. Six months after auction Web went live, and just a few months after a Metier had instituted the fee for successful auctions, the site was pulling in

about five thousand dollars per month. In June, Meteor hired on Chris Agarbo to come in to a midiers home and essentially open up envelopes filled with fees because remember these were often small amounts, sometimes just a few cents at a time, and the gar pal collected the funds and he would deposit them into the business's accounts. So essentially he was coming in twice a week, opening up envelopes, gathering up money, and going to the bank to deposit it.

By the end of June, auction web was generating ten thousand dollars and so many people were using the site and bidding on items. Remember this is just a small percentage of those bids so ten dollars that that represents a lot of stuff going on. So it was beyond anything a Midier had hoped for when he first launched this hobby and it changed from hobby to full time job. He was making more money overseeing the site than he was in his day gig, so he quit his day gig.

In July, n a Midi are convinced Jeff Skull to step up as the first president of auction Web, and in August Skull would quit his gig at the newspaper chain to focus solely on the company that would become eBay. Not keep in mind this is also the year that Microsoft would acquire e Shop and turn a Midier into a millionaire. But this was just the beginning of which is for the French Iranian immigrant. I have a lot more to say about that journey, and we will continue

this story in the next episode. I hope you guys have enjoyed the early days of eBay. The story gets way crazier as we go on, so I hope you joined me for the next episode. If you guys have suggestions for future episodes, please let me know send me an email. The address for the show is tech Stuff at how stuff works dot com or draw me a

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