BOOK EXCERPT – The Perfect Store: Inside eBay

In this brisk, engaging chronicle of one of the most stunning success stories in American business history, Adam Cohen takes us inside eBay the corporation as well as into the community of eBay’s passionate users.

The Perfect Store: Inside eBay
by Adam Cohen
ISBN: 0316164933
Paperback (trade)

CHAPTER ONE

Pierre Omidyar was born in Paris in 1967 to a French-Iranian family that placed a premium on intellectual pursuits. Omidyar’s parents had been sent to France by their families as young adults to get a better education than was available in Iran in the early 1960s. Omidyar’s father attended medical school; his mother studied linguistics at the Sorbonne. They met for the first time in their adopted land-an encounter that was all but inevitable, given the size of the city’s Iranian community—and eventually married. When Pierre, their only child, was six, they emigrated to the United States so that his father could begin a urology residency at Johns Hopkins University in Baltimore.

Growing up in and around Washington, D.C., Omidyar was a typical American child, except for his early fascination with computers. In seventh grade, Omidyar used to sneak out of gym class and make his way to the unlocked closet where his science teacher stored a cheap Radio Shack TRS-80. While his classmates played dodgeball and practiced layups, he used the “trash 80,” as it was known, to teach himself to program in BASIC. Omidyar lived in Hawaii during eighth and ninth grades, while his mother did linguistics fieldwork. When he returned to Washington, he graduated to an Apple II, and he was programming in PASCAL, a step up from BASIC. Omidyar used his skills to get his first paying job, computerizing his school library’s card catalog for six dollars an hour. “I was your typical nerd or geek in high school,” he says. “I forget which is the good one now.”

Omidyar arrived at Tufts University, a few miles from Boston, in the mid-1980s, just as the tech world was about to explode. His major was computer science, and his passion was Apple programming. At the time, identifying with Apple was a statement of personal values as much as a choice of technology—the computer-lab version of participating in a 1960s march on Washington. Under the charismatic leadership of Steve Jobs, Apple had styled itself as a hip, iconoclastic alternative to IBM and the other computer behemoths. Apple’s view of itself was captured in a now-legendary 1984 Super Bowl commercial in which a lone woman, pursued by storm troopers, hurled a hammer at a Big Brother figure on an enormous television, shattering the screen. Omidyar did his own small part to rebel against mainstream computing by staying out of the Tufts computer lab, which was stocked with PCs, and working from his dorm room on a Macintosh. He eventually wrote his first Mac programmer’s utility, a tool for use by other programmers.

In his junior year, Omidyar decided he wanted to spend the summer as a Macintosh programmer. He searched ads in Macworld and sent out letters to companies that used the Mac platform, enclosing a copy of his programmer’s utility as a work sample. Omidyar got an interview, and a summer internship in Silicon Valley with Innovative Data Design, one of the first companies to write programs that allowed Mac users to draw images with their computer. The internship led to a full-time job, and he took off the fall semester to keep at it. Omidyar fit in easily in Silicon Valley’s programmer subculture. With his ponytail, beard, and aviator-style glasses, he had the look. He also had the worldview. Omidyar was politically libertarian, and he liked talking about philosophy, UFOs, and space aliens. After one more semester at Tufts, Omidyar moved out West for good, finishing up his undergraduate degree at the University of California-Berkeley.

After he left Innovative Data Design, Omidyar took a job at Claris, an Apple subsidiary that developed consumer-applications software. Claris was supposed to be headed to an IPO, but while Omidyar was there it ended up being reabsorbed by Apple. The change in plans led to a mass exodus of talent, and Omidyar was among those who headed out the door. For his next venture, Omidyar teamed up with friends, including a former Claris colleague, in 1991 to found a startup called Ink Development Corporation. Ink Development was producing software for what looked like the next big thing in technology: pen-based computers. The thinking was that users would abandon their keyboards and use a stylus for writing, an approach Palm would popularize years later. “It was going to be great; it was going to bring computers down to the rest of us,” says Omidyar. “Of course, the market didn’t think so.”

A year and a half into their great experiment, Omidyar and his partners realized that pen-based computing was not about to take off anytime soon. As it happened, Ink Development had also put together some software tools for online commerce, and this marginal project now seemed to be the most promising part of the business. The company relaunched as eShop, an electronic retailing company. EShop was moving in the general direction of the Internet, but not fast enough for Omidyar. It was still stuck on the idea of conducting e-commerce on proprietary networks-close to, but still distinct from, the actual Internet. In 1994, Omidyar left eShop. He wanted a job that would let him “do Internet things,” he says, as well as put him in more direct contact with people than he had been in his string of programming jobs. Omidyar retained a sizable equity stake in the company he helped found. Two years later, Microsoft bought out eShop, and the stock Omidyar received from the software giant made him a millionaire before he turned thirty.

Omidyar’s next job gave him the greater exposure to the Internet that he had been seeking. He joined the developer-relations department at General Magic, a hot mobile-communications start-up. General Magic, which had been started in 1990 by a group of Apple veterans, was trying to take Apple in a post-Macintosh direction by building a new generation of small, communication-oriented Apple computers that would work with telephones and fax machines. In his new position, Omidyar also had contact with people: his job was to help third-party software developers-programmers outside the company—write software that worked with General Magic’s Magic Cap platform. It was while Omidyar was at General Magic, working with both the Internet and with people, that he created AuctionWeb.

It started, legend has it, with PEZ.
In the summer of 1995, Pierre Omidyar was having dinner at home in Campbell with his fiancée, Pam Wesley. Wesley collected PEZ dispensers, and she mentioned that since they had moved from Boston to Silicon Valley, she was having trouble finding fellow collectors to trade with. It occurred to Omidyar that the still-fledgling Internet could provide the answer. He came to Wesley’s rescue by writing the code for what would one day become eBay.

The PEZ dispenser story has been told and retold in countless popular accounts of eBay’s history. But it is, Omidyar concedes, the “romantic” version of eBay’s founding. The truth is, in the summer of 1995 Omidyar was doing what every other smart tech person within a hundred-mile radius of San Jose was doing: obsessing about the Internet and the uses to which it could be put.

Omidyar had not come west with Internet dreams. He had intended to program for the Macintosh, the computer platform he had fallen in love with in high school. But Silicon Valley in 1995 was, like Boston in 1775 or Sutter’s Mill in 1849, a place caught up in an intoxicating shared vision of what the future would look like. The Internet was fast gaining critical mass. Dial-up service providers like AOL, CompuServe, and Prodigy were bringing millions of Americans online. Stanford engineering graduate students Jerry Yang and David Filo were attracting more than one million page views a day with a search engine they had named Yet Another Hierarchical Officious Oracle, abbreviated as Yahoo! If there had been any doubt about the commercial viability of the new medium, it was dispelled —for several years, anyway—when Netscape went public in August with a red-hot IPO that was widely regarded as the opening salvo of the Internet revolution.

Omidyar was ready to enlist. He was no stranger to cyberspace: he had been online for years, going back to his undergraduate days at Tufts. Back then, the Internet was a geeky backwater, the online equivalent of a high school audiovisual lab, where engineering students hung out in Usenet newsgroups trading jokes with punch lines like “3.14159,” and Star Trek aficionados whiled away the early morning hours debating Klingon history. In college, Omidyar himself had been a regular in one of the geekiest newsgroups of all, a Usenet newsgroup for Macintosh programmers.

By the mid-1990s, however, a new Internet was emerging. Lowkey newsgroups were being pushed aside by something far glitzier- the World Wide Web, which suddenly gave anyone with a PC and a modem the power to call up documents stored on computers anywhere in the world. This new Internet, which was making the letters www a fixture of everyday conversation, had the power to connect everyone on earth—not through static postings left on a message board, but interactively and in real time. It was clear to anyone who was paying attention that this new Internet was about to change the world.

And all of Silicon Valley was paying attention. It seemed, that summer, as if people talked of nothing else. Programmers and entrepreneurs brainstormed about what the killer application was for this new technology, and plotted how to get in first with a business plan. Selling books or drugs or furniture. Delivering news or groceries or pet supplies. Mixing in celebrities or gambling or pornography. The millions—the billions—would pour in. Compared to the hot ideas bouncing around the Valley that summer, the application Omidyar was wrestling with had all the sex appeal of a college term paper.

In most times and places, creating a perfect market would have seemed like an arcane exercise. But in Silicon Valley in the midt 1990s, financial markets were as much a part of the culture as routers and microchips. New companies seemed to be going public daily, and freshly minted millionaires were everywhere. Omidyar kept hearing about company insiders, often friends and family of the founders, getting rich through stock purchases that were not available to average investors. This was standard practice for IPOs, but it struck him as unfair.

Omidyar had experienced the process firsthand. A few years earlier, he had been closely following a hot new video-game company called 3DO. Like many techies, Omidyar had been intrigued by its bold vision of creating a universal standard for the video-game industry. When 3DO announced plans to go public in May 1993, Omidyar placed an order for stock through his Charles Schwab brokerage account. What he had not counted on was that 3DO-whose high-flying CEO, Trip Hawkins, would later be named one of People magazine’s “50 Most Beautiful People”—was about to become one of the most hyped IPOs of the tech boom. 3DO went public at $15 a share, but when Omidyar checked his account, he learned that the stock had soared 50 percent before his order had been filled. It all worked out in the end; Omidyar later sold his shares at a profit. But it struck him that this was not how a free market was supposed to operate —favored buyers paying one price, and ordinary people getting the same stock moments later at a sizeable markup.

Omidyar’s solution was an online auction. He had never attended an auction himself, and did not know much about how auctions worked. He just thought of them as “interesting market mechanisms” that would naturally produce a fair and correct price for stocks, or for anything anyone wanted to sell. “Instead of posting a classified ad saying I have this object for sale, give me a hundred dollars, you post it and say here’s a minimum price,” he says. “If there’s more than one person interested, let them fight it out.” When the fighting was done, Omidyar says, “the seller would by definition get the market price for the item, whatever that might be on a particular day.”

Since he was still working at General Magic, Omidyar had to do the programming for his perfect marketplace in his spare time. He was used to tinkering with Internet applications in his evenings and on weekends. He had already written a chess-by-mail program, which he was offering for free over the Internet. He had also completed the coding for a program he was calling WebMail Service, which allowed owners of small-screen computer devices like the Newton to get access to Internet pages through standard e-mail. More recently, he had created WebMail Watch Service, which monitored web pages users were interested in, and notified them when the pages had changed.

With Labor Day approaching, Omidyar made the program for a perfect marketplace his project for the long weekend. On Friday afternoon he holed up in his home office, a converted extra bedroom on the second floor of his modest town house, and began writing code. By Labor Day, he had created an auction website. The site was not much to look at. Its blocky blue-black text against a dingy gray background gave it all the graphic charm of a Usenet newsgroup. Omidyar had no real idea what people would want to sell, so he just created categories as they occurred to him—computer hardware and software, consumer electronics, antiques and collectibles, books and comics, automotive, and miscellaneous. The computer code Omidyar wrote let users do only three things: list items, view items, and place bids. The name he chose was as utilitarian as the site itself: AuctionWeb.

Since AuctionWeb was only a hobby, and he intended to offer its services for free, Omidyar tried to keep costs low. He wrote the program by patching together freeware he found on the Internet, and he ran the site from his home, off of a $30-a-month account he already had with Best, his Internet service provider. Rather than create a new website, he added AuctionWeb to one he was already operating. That spring, Omidyar had formed a sole proprietorship for his web consulting and freelance technology work, which he had named Echo Bay Technology Group. The name was not a reference to Echo Bay, Nevada, the wilderness area near Lake Mead, or to any other real-world Echo Bay. “It just sounded cool,” he says. When he tried to register EchoBay.com, however, he found he was a few months too late. Echo Bay Mines, a Canadian company that mined for gold in Nevada, had gotten to it first, and was using echobay.com for its corporate home page. Omidyar registered what he considered to be the next best thing: eBay.com.

At the time AuctionWeb launched, Omidyar already had three other home pages running on eBay.com. One was for a small biotech start-up for which his fianc?e, Pam Wesley, a management consultant, had been working. Another belonged to the San Francisco Tufts Alliance, an alumni group of which Pam was president. The third was Omidyar’s own: Ebola Information, his offbeat tribute to the Ebola virus. The site had a photograph of the virus that he had found on the Centers for Disease Control website, and it linked to news stories and data about Ebola and Ebola outbreaks. If users typed eBay.com/aw into their browser, they would be taken directly to AuctionWeb, which the home page called “eBay’s AuctionWeb.” But if they typed in only eBay.com, they would have to wade through three home pages, including Omidyar’s homage to a loathsome disease.

On Labor Day, when AuctionWeb was up and running, Omidyar got to work trying to publicize it. He posted an announcement on a Usenet newsgroup that tracked new sites, and another on the National Center for Supercomputing Applications’ “What’s New” page, where it ran alongside Battery World, “a one-stop source for all battery needs,” and CARveat Emptor, a site that provided consumer advice about automobile sales and services. “The most fun buying and selling on the Web,” Omidyar wrote in the “What’s New” listing. “Run an auction or join the fun of an existing auction.” But both listings were delayed. The moderator of the new-site newsgroup had taken Labor Day off; the AuctionWeb listing did not appear on it until the following day. And because the “What’s New” page had a heavy backlog, the announcement did not go up until October. That meant that on AuctionWeb’s first day, there was no publicity at all. Of course, even if there had been, many of the site’s potential users were spending the last holiday of the summer outdoors. Given these obstacles, Omidyar was not discouraged when, at the end of AuctionWeb’s first day of operation, it occurred to him that it had not attracted a single visitor.

After its traffic-free Labor Day launch, AuctionWeb started to attract a slow trickle of visitors. Omidyar had none of the slick marketing devices other websites were starting to employ-no advertising budget, no public-relations advisers, no deals with other sites to drive traffic. But he was continuing to post announcements in Usenet newsgroups for what he was calling his “free web auction.” In these early posts, Omidyar described the items on the site, lists that remain one of the earliest records of what was for sale on AuctionWeb.

The items that showed up for auction in the first few weeks were a strange mix of computer-related and noncomputer-related goods. In a September 12 post on misc.forsale.noncomputer, Omidyar listed the noncomputer items on the site, along with the current bids for each. It was a small, eclectic assortment:

Antiques, Collectibles
Superman metal lunchbox, 1967, used good condition Current bid: $22.00

Autographed Marky Mark Underwear
Current bid: $400

Autographed Elizabeth Taylor Photo
Current bid: $200

Autographed Michael Jackson Poster
Current bid: $400

Toy Power Boat, late 50’s-early 60’s
Current bid: $60.00

Hubley #520 Cast Iron Hook and Ladder Truck
Current bid: $300.00

Collectors Multicolor Reflection Hologram
Current bid: $5000

Czech Vase
Current bid: $25.00

Cobalt Clear Cut Glass Rose Bowl
Current bid: $25.00

The list was not a representative sample—it was every noncomputer-related item on the site. A week later, Omidyar updated the list, which had grown from eighteen to thirty items, a 66 percent increase, in just seven days. Among the new listings: a 35,000-squarefoot warehouse in Caldwell, Idaho, for which the bidding started at $325,000. In early October, Omidyar posted a notice on misc.forsale. pc-specific.misc that listed the computer-related items. It was a larger, but less colorful, lineup, which included hard drives, antivirus software, and a used Sun-1 workstation.

Throughout the fall, both listings and traffic on AuctionWeb increased steadily. While Omidyar was putting up his newsgroup posts, AuctionWeb was also starting to benefit from the marketing force that would drive its growth for years to come: word-of-mouth publicity. Computer geeks and tech-savvy bargain hunters were e-mailing one another the AuctionWeb URL, and inserting hyperlinks on their websites that took web surfers directly to the AuctionWeb home page. By the end of 1995, AuctionWeb had hosted thousands of auctions, and attracted more than ten thousand individual bids.

Copyright © 2002 by Adam Cohen