Pierre Omidyar started one of the world's most unusual businesses in late 1995 as a way for his girlfriend (now his wife) to trade Pez dispensers online. Now, eBay Inc. is the biggest Internet marketplace, hosting sales of everything from $1 baseball cards to $4.9 million Gulfstream jets. This year, some $9 billion worth of merchandise will be auctioned off on eBay.
Omidyar's early methods of dealing with problems and handling growth seemed impossibly naive at the time. Essentially, he used the Internet's communications power to allow eBay's customers to do most of the work -- not just listing products they wanted to sell but suggesting new features and even policing the site through an innovative rating system. Even he wasn't sure it would work, but eBay has remained profitable while many of its Internet contemporaries struggle to stay afloat or fall by the wayside.
eBay's continuing success through the dot-com crash holds potent lessons for other businesses looking to do business online. In a recent phone conversation from Paris with BusinessWeek Senior Correspondent Robert D. Hof, Omidyar talked about how he tried to establish eBay's corporate values from the start. Following are edited excerpts of their conversation:
Q: What made you decide that a community approach would work in creating an online marketplace?
A: It would be nice to say it was positively motivated, but in fact, it really wasn't. It was my reaction to some of the negative things that I saw happening very early on. The birth of the values that we later crystallized came as a reaction to a necessity that I saw, that sometimes people were a little quick to react and didn't give a lot of thought to the fact that most people are honest and good and trying to do the right thing.
It was just a matter of communicating to folks what I felt about how people should treat one another, and about how most people feel they should treat one another, just reminding folks of those values and hoping that they would buy into them and live that way.
Q: How did you communicate those values, which remain so important to eBay today?
A: It was all through e-mail. Quite often, I would receive an e-mail saying, "Hey, this guy clearly ripped me off because it's been a week since the auction ended, and I haven't heard from him, and I've sent him a dozen e-mails in the last three hours, and he hasn't responded to a single one." I would say, "Put yourself in the other person's shoes, maybe they don't turn on their computer every day. Don't jump to negative conclusions, maybe there's a reasonable explanation." In almost all cases, eventually I would get back an e-mail saying, "Oh, you were right, everything's fine."
Q: eBay is so much more influenced by its own customers than other companies. How did you make that happen?
A: It was of necessity, frankly. I had the idea that I wanted to create an efficient market and a level playing field where everyone had equal access to information. I wanted to give the power of the market back to individuals, not just large corporations. That was the driving motivation for creating eBay at the start.
But then beyond that, I didn't have a whole plan for how it would evolve. How it did evolve was that users would write to me and say, "You should do this, you should think about this, you should deal with these issues." I had the very luxurious job of saying, "That's a good idea, and that's a good idea, and let me go do that."
It was letting the users take responsibility for building the community -- even the building of the Web site. That's the kind of thing I tried to keep and encourage as we started building our product marketing teams. We wanted to remind people that the best ideas came from the community. They're the ones that are out there actually using the product and, in some cases, making their living off it. They know what it needs more than we do, generally.
Q: I gather you used to answer all these inquiries and then rewrite the site software to incorporate the changes that night -- a pretty fast feedback loop.
A: That's exactly right. From a customer-loyalty point of view, I learned later, it's wonderful when you write into a company, and somebody who's responsible responds to your e-mail and says, "You know what? That's a really good idea. Let me work on that." And then in a couple of days, you actually see the changes on the site. That gives you, as a user, a sense of ownership of the site. And it makes you a very loyal customer.
Q: What other things did eBay's customers suggest early on?
A: One of the most important things about eBay, the thing that keeps the community together, is the Feedback Forum (a system by which buyers and sellers publicly rate each other on transactions). I had a bulletin board at that time as well, in February, 1996, where members could talk to each other. Members were saying, "Gee, how do we know these other people are good? We need a way to get to know people." I came up with the idea of the Feedback Forum. But I really credit that to the community.
I didn't necessarily think that was really going to work, but to my surprise, it did. Most of what I saw was positive ratings, not negative ratings. That's when it hit me: You know what, people really get a good feeling themselves when they can give praise to people who deserve. That is more powerful than the need to complain about somebody. It was a wonderful revelation.
Q: What has made this community keep working as it has grown into the size of a small country?
A: As much as we at eBay talk about the values and encourage people to live by those values, that's not going to work unless people actually adopt those values. The values are communicated not because somebody reads the Web site and says, "Hey, this is how we want to treat each other, so I'll just starting treating people that way." The values are communicated because that's how they're treated when they first arrive. Each member is passing those values on to the next member. It's little things, like you receive a note that says, "Thanks for your business."
If you want to think about it technologically, it's like peer-to-peer and distributed networks, where there's no centralized control. Those tend to be more robust than ones that are centrally controlled. Same here: The values are distributed throughout the community. They're not centrally controlled by eBay.
Q: Will that method continue to work as eBay gets millions upon millions more customers?
A: I think it will. There is a question and concern that if, for example, we bring in a lot of new people all at once who are only attracted to eBay because of the commerce aspect, because they can get good prices or certain types of merchandise or whatever, it's much more difficult to communicate to them the values on a person-to-person level.
What we do have to be cautious of, as we grow, is that our core is the personal trade, because the values are communicated person-to-person. It can be easy for a big company to start to believe that it's responsible for its success. Our success is really based on our members' success. They're the ones who have created this, and they're the ones who will create it in the future. If we lose sight of that, then we're in big trouble.
Q: EBay seems to be becoming more of a government, though, with explicit "laws" against certain conduct, such as selling firearms.
A: Our role at eBay has become more political. The community really is no longer the way it was in the early days. My philosophy then was, let the community govern itself. That philosophy didn't really scale up. I would have wanted it to. But I realized in early 1998 that at a certain point, you have to say, well, there is a part of the community out there that isn't appropriate, such as alcohol and firearm sales.
That was a role that I think the vast majority of the community wanted us to take. It was something that they felt that they couldn't do themselves. We did that very reluctantly. So we were very careful always to involve the community in everything that we do. We bounce every idea off the community.
Q: How do you make sure eBay's managers keep doing that as you bring on more and more new employees?
A: The key is keeping the community not only in mind, but involved. It has a lot to do with giving up a bit of control. It's very different from, say, a retail environment, whether you're online or offline. You control the inventory, you control the way that inventory is merchandised to your customers, you control the way the salespeople are trained. Everything is under your control. But at eBay, the customer experience is really not under our control. You can only influence it.
Q: Is that tough for traditional managers to handle?
A: It's a very different way of developing product or marketing plans or whatever than most people are used to. Whenever I talk to people who are relatively new to [working at] eBay, there's always a certain amount of time of adjustment. These people have to get used to not being able to predict exactly what's going to happen and not being able to have complete control. It sometimes take months of deprogramming for our new marketing people to get rid of that instinct.
Q: It seems ironic that eBay started out intending to level the playing field for small businesses and individuals, and now eBay is a big corporation. How do you make those jibe these days?
A: It sure is ironic. I like to think we're a different kind of big company, because of the way we interact with our community. If we lose that, we've pretty much lost everything. If you're starting a revolution and you succeed, then are you still a revolutionary? It's a little bit weird, but I think we still have a long way to go, bringing the level playing field to the rest of the world.