In the early days of the consumer internet, Pierre Omidyar launched an experiment in online commerce that would end up transforming person-to-person trading worldwide. What began as AuctionWeb, a website to facilitate virtual garage sales and connect collectors, grew into the eBay we know today.
The now-iconic brand has a fascinating origin story rooted in community and innovation. Over 25 years, it revolutionized peer-to-peer transactions and paved the way for small-time sellers to find global audiences.
Let’s explore the history and future possibilities of this trailblazing company.
Founding eBay: A Marketplace Experiment
Pierre Omidyar was born in Paris to Iranian immigrant parents in 1967. His interest in computers emerged early on as his high school prized its new programmable model. He later likened this early coding experience to “mind magic” – fascinated by the idea you could tell a computer what to do.
After moving to Washington, D.C. as a child, he studied computer science at Tufts University. There, Omidyar co-wrote an Apple Macintosh game called Ink which he leveraged to land a software job at Mac publisher Claris.
Fascinated by technology’s potential to empower people, he soon left to co-found an early pen computing startup in 1991 called Ink Development (later rebranded as eShop). But in this early venture, he learned people yearned for tech that met their goals, not vice versa.
In 1995, Omidyar was brainstorming a new experiment over Labor Day weekend. He began coding an auction website to test the efficiency of an open, perfect market governed transparently by supply-and-demand.
This first version was called AuctionWeb. Omidyar listed a broken laser pointer, expecting little interest. But the listing sold for $14.83 to a collector. Surprised, Omidyar contacted the buyer and learned of niche online groups for obscure items. He realized he’d stumbled onto an opportunity to directly connect buyers and sellers of all kinds.
By 1996 AuctionWeb saw blistering growth as word of mouth spread. Omidyar hired Randy Adams, Bob Kagle and other team members still with eBay today. Bringing on his first employee marked the start of a meteoric rise for his modest auction experiment.
eBay’s Early Years: Surprise Success Forces Reinvention
In 1996, Omidyar brought on software developer Chris Agarpao as his first full-time employee to handle the site’s operations. With growth exponentially increasing traffic, servers struggled to keep pace. The fledgling company soon relocated from Omidyar’s living room to an office space.
Revenue from seller fees were coming in quickly enough for Pierre to soon quit his day job in 1996 to manage AuctionWeb. He brought on Jeff Skoll, a Stanford MBA, as the company‘s first president to sharpen operations. Meg Whitman would fill the CEO role through a decade of explosive expansion.
The newly-formed team prepared AuctionWeb for even faster adoption, officially registering “eBay” as the domain name in 1997. As Skoll recalls, they settled on “eBay” after Omidyar’s first choice EchoBay was taken. The name stuck, forming part of the lexicon for a generation of internet users.
That year saw over 1 million auctions on the site as usage continued snowballing. Still in its infancy, no one knew this quirky marketplace would soon have near universal brand recognition. But the team realized their technology and business model could scale something never before possible.
eBay went public on September 24, 1998, just three years after launch. The IPO raised over $63 million at $18 per share, valuing the young startup at over $700 million already. Shares doubled by day’s end, launching Omidyar’s net worth over a billion dollars before age 35. eBay entered the lexicon as an overnight tech success story.
Powering this rise was a ruthlessly efficient marketplace matching buyers with niche sellers globally – no matter how obscure the item. Beanie Babies, mint baseball cards, personalized license plates…sellers quickly realized anything imaginable could find eager buyers on eBay.
As BusinessWeek later characterized it, Pierre Omidyar’s empire unified garage sale fanatics and nimble small businesses alike:
“EBay has turned the dreary world of garage sales and classified ads onto its head and made everyone a small businessperson.”
The company continued expanding rapidly through the late 90s/early 2000s. Spin-off sites launched tailored to Australia (1999), the U.K. (1999), and Germany (2000). Under Meg Whitman’s leadership as CEO, eBay spread globally and extended beyond collectibles into vehicles, luxury goods, and mass consumer items.
It was cementing itself as the definitive person-to-person marketplace when the rise of ecommerce giants like Amazon marked a whole new brand of competition…
The eBay Business Model: How Does eBay Make Money?
In its early days, eBay needed to focus on explosive user growth above all. So listings and transactions were completely free to encourage network scale. But to support surging traffic, Pierre Omidyar and team soon had to nail down an enduring business model.
Their solution? Take a small cut of transactions as fees from the sellers benefitting most from the platform.
So how does eBay make money off all those listings and bids?
For buyers: browsing listings and bidding remains completely free (then and now).
For sellers: eBay charges fees to list items for sale and takes a cut when those items sell. As of 2023, sellers can post up to 250 listings per month for free. Beyond that, inserting an additional listing costs $0.35 each.
There’s also a final value fee charged when an item sells. This fee is a percentage of the final sales price plus $0.30 per order. For most product categories, that percentage fee ranges from 10-15% of the selling price. Cars, real estate and heavy equipment tend to be around 5%.
For example:
- You sell a rare vintage comic book for $400 on eBay
- eBay charges you:
- $0.35 listing fee
- Sale fee = $40 (10% of the $400 sale)
- $0.30 transaction charge
- Total fees = $41.30
In 2022, eBay processed over $100 billion in gross merchandise volume. They can afford to enable millions of small businesses on an ecommerce platform for around 3-15% commissions per transaction. Plus buyers consistently return due to network effects – knowing eBay as the marketplace to discover rare goods.
Revenue from these seller fees is what has kept the platform humming along since the 1990s, even as competitors rose around it.
Strategic Acquisitions Fuel eBay‘s Global Empire
A significant driver of eBay‘s global rise were strategic acquisitions to expand its capabilities and fend off early rivals:
1. PayPal
eBay’s 2002 acquisition of PayPal for $1.5 billion gave it a payment processing engine years before Stripe or Square existed. Originally, Pierre Omidyar considered the Elon Musk-founded PayPal an eBay competitor until realizing how uniquely complementary the services were.
This move proved hugely visionary, as PayPal now processes over $1 billion per day in ecommerce transactions across marketplaces. When eBay spun off PayPal back out as a standalone company in 2015, shareholders rewarded what was now a proven global payments innovator with rich stock dividends.
2. Half.com
eBay acquired Half.com in 2000 for $374 million to own a dedicated marketplace for books, music, movies and games. Half‘s simpler listings and integrated supply/demand attracted mainstream audiences vs. eBay’s early reputation for niche auctions.
The buy also injected innovative DNA. Half’s founder Josh Kopelman later launched First Round Capital in Philadelphia to focus on early stage consumer startups. This blossomed into one of the most active East Coast venture firms, showing Pierre’s knack for identifying entrepreneurial talent.
3. Skype
In 2005, eBay paid $2.6 billion to acquire Skype Technologies and embed voice over IP directly into its platform. Skype already offered free voice and video chat between any users worldwide. eBay hoped seamless communications would increase engagement and trust for buyers/sellers.
The synergies did not play out as expected, so eBay sold most of Skype at a loss to an investor group in 2009. However, the company retained 30% ownership in Skype, reaping over $2 billion when Microsoft acquired the firm just two years later.
While not all M&A moves panned out long-term, eBay’s willingness to integrate and experiment with emerging technologies helped it stay on the pulse of online marketplaces.
Other Major Acquisitions
- Billpoint (Payments Tech)
- Shopping.com (Comparison Shopping)
- StubHub (Ticket Resale Marketplace)
- Corrigon (Visual Commerce)
- Honey (Coupons/Discounts Browser Extension)
eBay has acquired over 60 companies since the 1990s, consolidating strategic startups across payments, mobile marketplaces, pricing analytics, machine learning and more.
They spun off PayPal in 2015 to better focus on core commerce and sold StubHub in 2020. But for eBay, strategic acquisitions remain a key way to embed new innovations across its global commerce experience…
eBay by the Numbers: Quantifying an Commerce Empire
In 2022, eBay processed over $87 billion in gross merchandise volume across 1.2 billion live listings. Over 147 million buyers use eBay each year across over 190 global markets.
To conceptualize the scale of of peer-to-peer commerce eBay enables:
- Every 60 seconds:
- 138domain name renewals
- 225 iPods sold
- 19,000 miles driven by eBay cars
- $89,740 GMV sold
- 900 bids placed
- 450 feedbacks left
Since 1995 inception:
- Over 1 billion items sold
- $100+ billion in annual merchandise volume
- 800+ million downloads of eBay mobile apps
- $2+ billion in donated transaction fees
- 1 million+ eBay-enabled small businesses
Despite its longevity to date, eBay leaves ample room for disruption still. Just as it revolutionized classifieds and auction platforms in the 1990s internet, its model must continue adapting to new innovations in decades ahead…
The Future of eBay: Where Next For Global Commerce?
eBay has transformed from an experiment in virtual garage sales to a global commerce leader. What’s next for this commerce pioneer?
eBay On Emerging Tech
eBay frequently speaks to investing in emerging capabilities across payments, logistics, authentication, virtualization/augmented reality and more.
For example, integrating AR and VR more deeply could let buyers preview items in 360 degree detail before purchasing. Some eBay sellers already offer 3D visualizations of high-end collectibles using digitization partner 3D Hubs.
eBay also frequently partners with payments startup Adyen to test advances like local currency acceptance in key markets. And computer vision startup Entrupy uses microscopy and AI to authenticate luxury items. eBay has invested in the firm to experiment with building trust/quality assurance for high-value goods.
Stiffer Future Competition
Looking ahead, analysts expect sites like Amazon, Shopify, Etsy and Walmart to pressure eBay’s market position. These platforms enable small businesses while also leveraging enormous volumes for logistics/inventory advantages.
Still, healthy acquisition interest affirms belief in eBay’s future. A 2022 bid to buy eBay by consortiums led by Jamie Iannone and Elliot Management valued the firm at over $30 billion amidst growth projections. eBay expects 2023 revenue alone to exceed $10 billion.
The Coming Creator Economy
Perhaps most interesting is how sole proprietor/entrepreneurs using eBay may evolve. Knowledgeable “creators” are leveraging platforms like YouTube, TikTok and Instagram to build loyal niches. These same trends around passion economy content enabling microbusinesses could reshape eBay’s role.
Expect continued experiments in leveraging video and augmented reality to help home businesses build authenticity and trust. eBay’s enormous scale and recognition empowers millions who create unique goods to find their community – no matter how niche.
While risks remain, eBay retains distinct advantages in empowering the individuals and makers defining commerce’s next generation.
Final Thoughts
eBay began as an experiment in an open marketplace and unexpectedly morphed into global phenomenon enabling millions. Powered by LEGO-loving collectors, cunning flippers, and charming crafters alike, it altered how commerce functions.
Pierre Omidyar’s vision has grown eBay beyond online auctions into an economic force enabling the many people and passions too niche for mass retailers.
Over 25 years, it pioneered peer-to-peer trade at global scale. And it continues adapting to new technologies in transactions, communications and logistics that lower barriers for small businesses.
Much work remains improving trust/quality and ensuring model sustainability against aggressive competition. But the next 25 years will further unlock potential at the intersection of ecommerce tools and human imagination, curiosity, and creativity.
Powered by the enduring market principles behind one broken laser pointer, eBay’s story continues capturing the world’s imagination. The little marketplace that could has plenty trailblazing still ahead…
What are your hopes for the future of buying/selling online? Which company innovations might empower more uniqueness and humanity in global commerce? I‘d love to hear perspectives in the comments below!
