Online Extra: Q&A with eBay's Meg Whitman

We focused on spending money like it was our own and requiring a return on every investment that we made

eBay Inc. Chief Executive Margaret C. Whitman heads what may be the Internet's only undisputed success story. But she's not resting on her laurels. Instead, she's quickly pushing the online flea market to expand into new products, such as autos, and new locales, such as Japan and France, while also moving beyond auctions into fixed-price sales. In a recent interview with Senior Correspondent Robert D. Hof, she outlined why she thinks eBay's growth has only just begun. Here are edited excerpts of their conversation:

Q: What is driving eBay's success?

A:

I think what we have created is a very efficient global online-trading marketplace. What keeps the growth going is that sellers find success every day selling products on eBay. And buyers find a breadth of product they could not find in their local marketplace. And in turn, they tell more people about the eBay marketplace. That's what keeps the market growing.

Now what we do is, we watch what our users are doing and then try to create the aspects of the marketplace that enable them to be successful. So, for example, in the car business, when we saw our users buying and selling used cars in the miscellaneous category, we said, you know what? The least we could do is give these guys their own category. And then ultimately that evolved to the specialty site that we now call eBay Motors. So, our job is to really help our users be successful. And if they're successful, the marketplace is going to continue to grow.

Q: eBay has recently emphasized fixed-price sales, a big change from the auction format? How important will fixed-price sales be to eBay in the future?

A:

Our business definition has actually always been the world's largest online-trading community. And there was no auction ever in that vision for the company. Auction is a great format. As you point out, it's really fun. It has the thrill of the hunt. You know, did I win? Didn't I win? And it really does help put a price on items of unclear value. So, it's a very efficient pricing mechanism.

So, we think it's always going to be a very big part of overall eBay. At the same time, there is a segment of consumers, buyers and sellers, who like fixed price. They want the immediacy and the convenience of buying it right now. And there are some items that are just better suited, commodity items that are better suited to fixed price. So, we felt to fully create the overall objective of an online-trading community, we needed both the auction format as well as the fixed-price format.

Q: Apart from the appeal of eBay itself, what do you think you have done as a manager to make eBay successful?

A:

I think the No. 1 thing that I have done best over the last three years is the team of managers that I have built here. This is an A-plus world-class executive team.

Secondly, because I think I brought a lot of experience in running businesses to the company, we really operated eBay, in many ways, along the same rules of operating really good companies for time immemorial. We really focused on growing expenses lower than revenues. We focused on profitability from the beginning. We focused on spending money like it was our own and requiring a return on every investment that we made, whether it was a marketing or a technology investment -- and really built this company to last. We built it slowly and carefully, even during the white-hot heat of the Internet bubble.

When you're growing a business like this one so rapidly, it's very important to have a clear strategic focus. It might actually be more important in a fast-growth company than a slow-growth company. But you are very clear about what you are, and what the value is that you're delivering to customers, and what businesses you're going to be in. We were very clear that we were a marketplace.

Q: You've set a goal to reach $3 billion in revenues by 2005. Is that too ambitious?

A:

We actually think that is eminently achievable. First, the market that we address on a global basis is enormous. We think it's about $1.7 trillion of goods and services being bought and sold today, growing to about $2 trillion by the year 2005. Today we have a tiny sliver of that market. And actually, to reach our goal of $3 billion, we will have still a tiny sliver, between 1.5% and 2.5% of that marketplace.

We also believe that we have created a global-trading platform that consumers and businesses really like. We think that that is going to continue as we enable new kinds of products and services, new geographies, both local and regional. New trading formats, like fixed price. And then making this all easier to do by providing end-to-end trading services.

Q: One way you're trying to keep the growth growing is international. But it looks like one important market, Japan, has been a struggle.

A:

I think the Japanese market is often difficult for American companies. And we were late to that market behind the leader in that market, which is Softbank Yahoo!. And we just didn't get in there fast enough with the right amount of critical mass. So, we are definitely in a catch-up mode there. We have the view that this is in fact a marathon, not a sprint. And that if we are No. 1 in every country of the world five years from now, ultimately we will figure out how to be No. 1 in Japan. But you know, if there is a weak international market, that is certainly the one.

Q: Given the downturn, are you looking at managing any differently at eBay?

A:

We have always been a fairly conservative management team in the way we forecast revenues -- and therefore, the way we built our cross-structure behind that. And we are very watchful for any signs of revenue slowdown. We have not seen any signs of slowdown in our core business. I would say we're a little more attuned to a slowdown in the external environment that could translate into a slowdown in our revenues, and we are probably managing our cost even a little tighter than we historically have. But fundamentally, there's not a huge shift.

And you know, if you study business history, great companies usually come out of recessions stronger, because they have been able to consolidate share, build even stronger management teams, and come out in a stronger overall position.

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