Grow Your Business, Not Your Inbox
Founder of eBay Inc.
"I never had it in mind that I would start a company one day and it would really be successful. I have just been motivated by working on interesting technology."-Pierre Omidyar
Pierre Omidyar didn't expect to make a dime-let alone become a billionaire-when he set up a small online auction on his private Web site. He just wanted to score some points with his girlfriend. But within five months, what had started out as a hobby had become a $3 billion empire with more than 2 million subscribers, and Omidyar found himself at the head of one of the most popular and profitable Web-based businesses in Internet history. And it all started with Pez dispensers.
Omidyar was born in Paris in 1967, but moved to Baltimore when his father began his medical residence at the Johns Hopkins University Medical Center. A precocious teen, he became interested in computers and would regularly sneak out of physical-education classes to play with his high school's PCs. Rather than punish Omidyar for ditching class, the principal hired him to write a computer program to print catalog cards for the school library at $6 per hour. It wasn't much, but it was a beginning.
His entrepreneurship proved a little more lucrative a few years later when, while working on a bachelor's degree in computer science at Tufts University, he wrote a program to help Apple Macintosh programmers manage memory. He distributed it online as "shareware," asking users to pay on the honor system, but the few checks that dribbled in barely covered the cost of the post office box he'd rented to collect them.
In 1991, Pierre and three of his friends founded a company to write programs for the pen-computing market. As a lark, he set up an early e-commerce site called eShop on the company's Web site. Pen computing turned out to be one of the more notable technology flops, but the eShop site proved lucrative enough to attract the attention of Microsoft, who later bought the company.
Fed-up with start-ups, Omidyar took a job as a developer relations engineer for software-maker General Magic in 1994, and was making a little money on the side as a freelance Web page designer. It was about this time that he met his spouse-to-be, Pamela Wesley. An avid collector of Pez dispensers, Wesley complained that she was having difficulty finding like-minded souls on the Internet. Eager to help out, Omidyar included a small online auction service on his personal Web page so Wesley could communicate, buy from and sell to other collectors from all over the United States.
Launched on Labor Day 1995, the fledgling auction site which Omidyar dubbed eBay (for "electronic Bay," a reference to the San Francisco Bay area) bore little resemblance to the company that would make Omidyar a fortune. Back then, Omidyar made no guarantees about the goods being offered, took no responsibility and settled no disputes. He simply offered a place where users could go online, interact and bid for items.
Much to Omidyar's surprise, collectors of Barbie dolls, Beanie Babies and household junk of all sorts seized upon eBay almost immediately. By February, the site had become so popular that it outgrew Omidyar's personal Internet account. With the help of his friend and fellow computer programmer Jeff Skoll (who would later become eBay's president) Omidyar moved eBay to a much more expensive business site and to cover his increased costs, began charging a few cents to list an item and collecting a small commission if it was sold.
Traffic on the site continued, and eBay Inc. was immediately profitable. Omidyar began to think he had finally stumbled onto a way to turn his penchant for computer programming into some real cash. "The biggest clue was that so many checks were piling up at my door that I had to hire part-time help to open them all," he told The New York Times.
Unknowingly, Omidyar had tapped one of the richest veins in the online world-the desire of people to connect with others who share their interests. And he quickly realized that few interests generate more passion than collecting. "I thought people would simply use the service to buy and sell things," he says. "But what they really enjoyed was meeting people."
Encouraged by this early success, Omidyar quit his day job, and he and Skoll devoted their time to building eBay's community and technology. The duo rationalized that as long as the system worked, the community (and the profits) would continue to grow. And grow they did. By mid-1997, eBay had become the one of the most visited sites on the Web, with more than 150,000 users bidding on 794,000 auctions every day. The average eBay shopper was spending nearly 3.5 hours per month on eBay, longer than the average shopper on any other site.
With the company doubling every three months, Omidyar and Skoll decided they needed venture capital backing and a savvy management team. In June 1997, they took the eBay business plan to Benchmark Capital and got a $4.5 million check for a 22 percent share of the company. Benchmark also promised to find a CEO to help run eBay, tapping Margaret Whitham, an executive with the Hasbro toy company, for the top spot.
Whitham quickly turned what was a ragtag band of sellers hawking stuff from their basements into a lean, mean corporate machine. She created a new marketing division and placed all firearm and pornography auctions on separate, age-restricted sites. With new marketing energy and the dirty laundry safely hidden away, she took eBay public on September 24, 1998.
The stock single-handedly revived the market for Internet initial public offerings. On its first day of trading, it rolled out at $18 per share. Four months later, it cracked the $300 mark, thrilling investors and making Omidyar an instant billionaire.
From its humble beginnings trading Pez dispensers, eBay has become one of the hottest sites on the Internet and has revolutionized e-commerce. Its success has spawned dozens of imitators hoping to cash in on the online auction craze. Yet even with increased competition, eBay's growth has not slowed one iota. By late 1999, eBay boasted nearly 8 million registered users trading an average of 33 million items per year, ranging from Beanie Babies to fine antiques. As for Pierre Omidyar, he's just as amazed by eBay's astounding growth as everyone else. "I didn't set out to create a huge business on eBay. When it happened, I just took advantage of it."
Rules Of The Game
A rarity for Internet start-ups, Pierre Omidyar developed a business model that let eBay Inc. become profitable quickly, while still delivering what users regarded as good value. Here's how it works. Both buyers and sellers pay to use the service. Each "for sale" listing costs 25 cents to $2. Potential buyers submit bids in an "electronic auction" that runs for multiple days. If the goods are sold, eBay collects a commission of 1.25 percent to 5 percent from the seller.
A Whole Lotta Trading Goin' On
From the company's founding in 1995 to late 1999, $2 billion worth of merchandise was sold through eBay Inc.'s auctions. Some of the stranger (and not necessarily legal) items offered through eBay have included a 1998 Volkswagen Beetle, a Russian space shuttle and a human kidney.