E-Commerce Success Story: eBay, Exclusive Interview with Kevin Pursglove

Q How did your company get started selling over the Internet? A There’s a great Silicon Valley story here about a gentleman named Pierre Omidyar. He was working as a software developer here in Silicon Valley, and he had always been fascinated by how you can establish marketplaces to buy and sell goods and services. He had also been fascinated by how you can bring together fragmented audiences. Because of his interest in the Internet, and his background in software, he developed a software program that allowed people, in one spot, to list items of various interest and various degrees. It allowed people to be able to come to that very same site and look at what’s for sale and bid on and buy those items. He used the auction process as the method for establishing how merchandise is valued and eventually how it is exchanged between buyer and seller.

A key component that prompted him to do this was at the time his fiance — now wife — was interested in her Pez collection. She was experiencing a frustration that many collectors have experienced, and that is often times when you’re collecting a particular item or you have a passion for a particular hobby, your ability to buy and trade or sell with other people of similar interests is limited by geographical considerations. Or if you trade through a trade publication, often volunteers produce those publications, and the interval between publications can often run several weeks if not months.

All of that was shortened down when Pierre, at the prompting of his wife and interest in Pez dispenser collections, used his interest in fragmented markets and efficient marketplaces as a laboratory for what eventually became eBay.

Q Where is eBay located, and how many employees does the company have?A San Jose, California is the headquarters for eBay, and overall we probably have something in the neighborhood of 400 employees now.

Q What does eBay offer online consumers? A eBay is the world’s largest online trading community. What we’re offering our users is an opportunity to come together in one Internet site and be able to buy and trade a wide range of items, including fine collectibles. It allows people to pursue their interests and their passions in the areas of their hobbies and their collectibles.

We have found, since we started the service back in 1995, that it has received great favor among the population. We zoomed from something in the neighborhood of a very small handful of users in the very early stages of 1995 to nearly eight million users as we come to the close of 1999.

Q What type of store software products are you using on your site, and how do you process your payments? A We mostly use Oracle software, and payment processing is outsourced.

Q What has helped to make eBay as successful as it has been?A I think that it really allows people to often times connect with some very fond and special early childhood memories. It could be anything from collecting baseball cards to toy soldiers to Barbie dolls to doll houses, and so forth. It allows people to make that connection and relive a lot of those very vivid and very fond memories that they have from an earlier period of time.

Another factor to consider, I think, is that people really enjoy the experience of the shopping bazaar. They enjoy the hunt. They enjoy looking around for merchandise. The other component is that I believe they really enjoy the competition of the bidding process. Everybody likes to get a bargain, and everybody, I think, in some way, shape, or form, likes to haggle a little bit over the price. Our auction format allows users to do that.

The other thing is that as it has grown, it has become a very practical place to buy and sell collectibles or commodities.

Q What unique challenges exist for companies in the online auction space? A I think the first challenge that always confronts an online merchant is the idea of creating trust and confidence among users. There are still a large number of people who do not use the Internet on a regular basis, and there are, of course, a large number of people who have no interest in the Internet at all. Sometimes they stay away from it because they are worried about confidentiality, privacy issues and the broad area of trust and safety. I think that each Internet site that is going to engage in commerce must create an environment of trust and safety that will allow the users to come back over again and over again.

That’s one of the biggest challenges facing e-commerce sites right now, creating an environment so that a novice online shopper can come to a particular site and feel comfortable shopping there and feel comfortable that they’re getting a good price and a bargain and getting the merchandise that they want.

Q eBay has suffered a number of outages. What do you attribute this to, and what steps have been taken to prevent outages in the future? A Quite simply, it’s growing pains. We have grown at a phenomenal rate, both in terms of the amount of people who are using eBay, the amount of items that are being listed for sale every single day, and also the amount of transactions that close every single day.

So, with the phenomenal increases in all of those areas, we have attempted to listen to our users and develop and provide new services in addition to the ability to just buy and sell. Those new services include everything from allowing our users to list their items by a photograph in the eBay gallery, the feedback forum, establishing categories that deal with higher priced items and collectibles and automobiles. We’ve been attempting to provide those services for our customers while at the same time maintaining this level of growth that is just really phenomenal for any business, let alone an Internet business.

At one point — and that point came in June of this year — we realized that we were experiencing some growing pains. And part of that was creating new architecture and enlarging our infrastructure to provide the new services and continue to allow us to grow.

Q Whom does eBay view as its major competitors? A We’ve got a very healthy respect for virtually all of the online trading auctions that have been established since eBay started back in September of 1995. They all offer different types of services and unique specialties that attract their users. They all know how much of a challenge it is to operate a site that is as dynamic as eBay.

With that said, clearly, doing $8 million (US$) a day in gross merchandise sales gives us quite a lead over the other competitors. We have looked at some other sites, however, and have noticed that Amazon.com auctions do about $300,000 a day in gross merchandise sales and Yahoo!’s auctions are somewhere in the neighborhood of $480,000 a day. So, in terms of gross merchandise sales, which is the key factor in determining success in the Internet space, they’re probably the two closest competitors to eBay.

Q What unique problems have you encountered, and what has been done to address those problems? A From time to time, we have found out that individuals are attempting to list items that are in direct violation of our user agreement.

In many cases, we’ve looked into and investigated the listings and have found out that they are isolated incidents in which an individual user opens an account on eBay for the sole purpose of listing an item, such as the couple in Chicago that were going to put their baby up for auction and the person who put a human kidney up for auction. In each of those cases, they were pranks. But that does generate a good bit of media interest in eBay.

Although we were able to find those individuals and suspend their accounts, suspend them from eBay and remove the items from the auction site, we continue to develop new ideas, new programs and new services, in cooperation and conjunction with the eBay community, that will allow us to reduce those infrequent occurrences to a much greater extent. Earlier this month, we required all new users to eBay, who are going to sell items, to provide us with a credit card.

I think that’s going to do two things. It’s going to discourage people from coming to the site to engage in fraud or listing pranks. The second thing is that if they get that far, we now have a credit card to assist us in working with the law enforcement community.

Q What have you done on a regular basis to promote eBay? A We have had isolated campaigns through radio and print, and we’ve also done some tradeoffs and some banner ads on other sites. But the really unique thing about eBay is that when you compare us to traditional businesses or other e-commerce sites, we have done very little external promotion to build membership.

eBay is such a unique community that we’ve been able to build our membership through the word-of-mouth of our users and we’ve also attracted new members due to the amount of media attention that has come to the site in the past four years. We’re very, very fortunate.

Q What has been your biggest surprise in doing business online? A The surprises never end. It’s a fun place to work because, firstly, the great majority of people who are selling on eBay are really warm, decent, trustworthy and honest people. It’s great to see how they interact and show those same characteristics toward their fellow eBay users. We also know that a lot of folks have been creative in how they sell items on eBay.

For example, one of our favorites is the fact that somebody, somewhere along the line, decided to list and eventually sell a used bulldozer on eBay. It went for $23,000.

We also had a person earlier this year that was doing their annual spring cleaning and pulled out the cushions from their sofa. They found pretty much what you would find in your sofa and I would find in my sofa, and that’s a discarded piece of gum or two, a crumpled piece of paper, a few scattered notes, a broken pencil, a cap to a ballpoint pen and some loose change. They got it all together and arranged it rather nicely, took a photo, scanned it and listed it with eBay. I think that six or seven days later, whenever the auction expired, the “merchandise” had sold for about $7.00.

Q What has surprised you most about the impact that your business model has made?A I think that eBay has had a phenomenal impact. It is probably the best hands-on example of how the Internet has changed commerce. People have been talking about this for a good number of years now. There have been many pundits and experts that have suggested that the Internet is going to change the way that business is conducted in the United States, and then we can certainly see that in a number of ways.

But eBay might be the first example where a commerce site has actually been built around a community where people are exchanging information and exchanging goods, services and merchandise. It’s changed people because although we certainly have our share of hobbyists and very serious collectors, we have also learned that people who have established additional brick-and-mortar businesses are slowly moving a lot of that business over to eBay.

We’ve also heard that people with traditional businesses found that eBay was so enticing, so much fun and in many ways profitable that they created a brand new business for themselves on eBay. They’ve left behind their profession or careers and started a new business on eBay. I think that those are demonstrations where people have really changed their lives and changed the way that they are doing things and they way commerce is conducted. eBay has made that possible.

Q What are the traffic levels that you’re seeing at your site? A As of October, we were seeing 1.4 million unique visitors every single day.

Q Where do you see that traffic coming from? A It comes from virtually everywhere. It comes from people of all economic backgrounds and from virtually every demographic group. We now have eBay members who are actively buying and selling on eBay and they have registered in 19 different countries. We have seen virtually all age groups on eBay. We have also heard, anecdotally, that many parents spend a Saturday or Sunday morning with their children on eBay, buying and selling goods. You have to have a parent, because on eBay, you have to be 18 years of age to be a member.

Q Have international auction orders brought up any unexpected challenges? If so, how were those handled? A We now have trading sites in Canada, the United Kingdom, Germany, New Zealand and Australia, and of course people across the globe can access the core eBay site through the Internet. We’re also moving into the Asian market in the early portion of the first quarter next year.

We sit down with people in each of those countries — market specialists and government specialists — to understand what particular rules and regulations may apply. I don’t want to go into too much detail about that, but we generally try to get a lay of the land to understand how a business may or may not operate or what considerations a business may have to factor in, and then we proceed from there.

Beyond that, we’re certainly working on ways to address the different languages and the currency exchanges that take place. For the most part, our sites are set up to allow for people to trade and buy in the appropriate language of the country and deal in the appropriate currency of the country.

Those are certainly challenges that we will face. We do find, to be quite honest, that there is a global marketplace for buying, selling, collecting and engaging in one’s hobbies. We think that’s going to be a real great opportunity for us as we move into the New Year. When you’re getting into the business now of shipping merchandise across international boundaries, it’s a little bit more difficult than shipping within your own state or from one state to another. But so far, we’ve been able to address those challenges and come up with solutions that allow people to join the eBay community and be very active and very efficient at it.

Q After going online, was there a specific turning point for your business when sales really began to increase? A We started in September of 1995, and perhaps over the last 18 or 19 months we’ve really seen phenomenal growth. I’d say 19 or 20 months ago, you were looking at maybe 700,000 to 800,000 registered users who were buying and selling on eBay. Now here it is, in a very short period of time, and we’re pushing eight million customers.

Certainly there was a tremendous amount of interest generated around eBay in the fall of last year as more and more reporters became aware of it, its unique features and functions and the unique community that was developing on eBay. There was a tremendous amount of media attention and then that was followed in September of 1998 with a little more attention as eBay offered its IPO.

Q What can you tell us about your strategic partnerships? A We have many strategic partnerships, chief among them is America Online. We’ve created a series of co-branded sites through the AOL properties, and we have a number of arrangements with smaller sites that go back several years as an exchange to encourage people to come into the eBay site.

Q What, if anything, is eBay considering to improve or expand upon its business model? A Well, there’s nothing that we would want to disclose at this point. But I think you can look back at our track record and see that we, as a fairly small company compared to other large businesses in this country, are very flexible and are able to react to market conditions and to our users in a very rapid manner.

Earlier this year, we purchased Butterfield & Butterfield with the precise goal of creating a new service online for eBay, which is now called eBay Great Collections. It is designed to bring higher valued items to the site. We also purchased a company called Cruise International Auctioneers, which is an automobile auctioneer company in Auburn, Indiana, and we have since created an automobile site on our site that serves two functions. Firstly, it allows people to list automobiles in a separate category, and it also creates a site where collector automobiles can be auctioned off on eBay.

Those are just two examples, and in each case, the idea for those purchases came from our user community because they were sending signals to us that they were interested in listing additional higher priced items. We noticed that the higher priced items were not only being listed, but they were very active in the number of bids placed on them, and then there was a very high percentage of sales taking place in that area.

The same occurred with automobiles. We did not have an automobile category back in January or February. But we did notice that more and more users were listing cars on eBay, and more and more of those cars were being sold. We were prompted to look at that, begin the negotiations with Cruise and then eventually we purchased Cruise. Those are two examples of how our business changed.

Our primary goal and mission is to be an online person-to-person community, and that’s really where we’re going to stay focused. But we’re certainly going to keep our options open.

Q Where do you see eBay one year from now? A We’re going to stay focused on the personal, online trading environment. We’re also going to continue to offer new services to eBay users and to enhance those services that are already available to them. I think that’s really going to be our goal. We really believe that we are just at the very beginning of the online trading business, and using the auction process as a format to conduct commerce.

We really see the opportunity to expand our core business. The opportunities over the next year are going to continue to expand into global regions, and also to expand the regional services that we started here within the past couple of months. We now offer about 50 to 55 markets on a regional basis. That’s strictly within the United States.

Q What developments do you foresee over the next year that will have an impact on the world of e-commerce? A Clearly, people are becoming more and more comfortable with shopping online. A lot of analysts use the holiday season as the benchmarks, and certainly the amount of online shopping this holiday season is predicted to swamp the amount from last year. So, I think more and more people are shopping online and they’re getting more and more accustomed to doing that.

I also think you’re seeing more and more traditional brick-and-mortar types of businesses making entryways into the Internet space. They’re recognizing that this is going to be a critical component of future commerce. It doesn’t mean that e-commerce is going to totally replace traditional retail outlets, or traditional commerce. But I think really sharp entrepreneurs and sharp business operators will recognize that the Internet can complement the success that they’ve experienced in the traditional retail world. So, I think you’ll see more and more retail businesses complementing their traditional business by moving into the Internet space.

Q What advice do you have for beginners who are interested in getting started selling over the Web? A The one piece of information that I hear from our sellers over and over again is, despite the fact that the Internet can be such an efficient means of commerce, there are still some old principles that carry over from the traditional world. That is, basically, customer service, knowing your product — being able to develop that product and address concerns that your customers or users may have.

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