Meg Whitman on eBay's Self-Regulation

The CEO explains how the site is all about the millions of entrepreneurs who maximize their own business on eBay

When eBay CEO and President Margaret C. Whitman started at the online seller in 1998, its top-selling category was Beanie Babies. Today, eBay (EBAY ) is on track to host more than $20 billion in gross annual sales of everything from cars to industrial refrigeration units. Yet it isn't just the quality of merchandise -- or the quantity of business -- that distinguishes the online auction outfit. Whitman describes it as a "self-regulating marketplace" and points out that it's eBay's buyers and sellers -- not management -- who determine its direction.

In a recent interview with BusinessWeek Silicon Valley Bureau Chief Robert D. Hof, Whitman explained eBay's appeal and outlined her vision of its future. Edited excerpts of their conversation follow. (For more on eBay and Whitman, see BW, 8/13-25/03, "The eBay Economy" and the rest of "The Future of Technology".)

Q: You've called eBay an economy. What do you mean?


It is in some ways a small economy. There are 62 million players [registered eBay members] that meet to do business every single day. The law of supply and demand absolutely works on eBay. A while back, people were saying, "Aren't you concerned that the price of collectibles on eBay is going down?" My answer was "not really." It's an economy: Categories get hot, categories get cold. It's absolutely an efficient market that runs like an economy.

We don't control the pricing on this platform. It's perfectly transparent. This is truly the most efficient pricing anywhere. If prices are going up in a category, then sellers automatically bring more product to the marketplace. If prices are headed down, then sellers automatically reduce the amount of product they have because they're only willing to sell products at a certain price.

Q: So like a free-market economy, it somehow regulates itself?


It's a self-regulating marketplace that functions like a free economy, with increased transparency and a more level playing field than many national economies. Every day, we're struck by how the economy regulates itself. When I first came to eBay and Beanie Babies were a high percentage of items on the site, people said, "What are you going to do when Beanie Babies fade away?" I said, "nothing."

It's not something we can manage. The economy manages itself. Our users are on to the next idea, the next hot thing faster than we could ever be as a company. It's the millions of entrepreneurs who maximize their own business on eBay, which in turn maximizes the economy. They have built this small economy.

Q: Empowerment seems to be a prime motivator for people to keep coming back to eBay. How do you encourage that?


I think eBay offers buyers and sellers true functionality, but it also works at an emotional level, whether it's empowerment or whether it's validation with the feedback profiles [ratings users get on each transaction from other users].

People really pride themselves on their feedback profile. I was at Deutsche Asset Management two days ago, and we walk in and say we're with eBay, and the receptionist, who was looking a little bored, looked up and said, "My feedback is 160!" It happens to me every day.

Q: Does managing what amounts to an economy require different methods from managing a traditional company?


Internally, the same things are relevant: Focus, focus, focus. Financials. The right people in the right job at the right time. The thing that's different here is that we have a partner in building this business, and that partner is the community of users. You have to have an extraordinary appreciation for the power of the community to manage effectively here. You have to be able to understand and celebrate what eBay is.

Q: Is that tough for new hires to comprehend?


When we hire people, they often don't understand what eBay is. It takes six months for people to actually understand. Often your instincts coming from more traditional companies are wrong. We have to enable the community, we can't direct them. Our community is people, not wallets. The people who end up not being as effective as they otherwise might be are ones that try to control and direct as opposed to listen and enable.

Q: Do you still get direct feedback yourself from the community?


Yeah. First of all, the community has my e-mail address. It's I read all my own e-mail -- anywhere from 100 to 500 e-mails a day -- many of which are from the community. So I have a pretty good pulse of what's happening out there. Also, at least a couple of times a week, I check the eBay discussion boards. I can get a real good pulse there. And I often sit in on Voice of the Customer groups [which bring in sellers and buyers and polls them on site features and plans].

Q: Why has eBay expanded its Voice of the Customer groups?


Part of it is the new complexity that our acquisition of Paypal [an online payment system] added. But also, we're adding lots of features and functionality. And we've learned that the best ideas and the best feedback come from our community of users. We're far more effective if we interact with them much more frequently than if we sit in conference rooms and think about it by ourselves.

Q: Now that eBay is so large and broad, what's your main competition?


If we were a retailer, we'd be the 27th-largest in the world. So our sellers are competing [with retailers] for consumer dollars. If you're thinking about buying a set of golf clubs or a tennis racket or a jacket or a pair of skis, you decide whether you're going to do that at eBay, at Wal-Mart (WMT ), a sporting-goods store, or Macy's. I would define our competition more broadly than ever before.

Q: Are you focusing more on getting brand-name sellers onto eBay, or does eBay's future still remain with individual and small-business sellers?


Traditional brand names account for less than 5% of the gross merchandise sales on eBay. That will only inch up over time. If you're IBM (IBM ) or Dell (DELL ), you want to move 1,000 laptops. That hasn't been a perfect market for eBay, because our buyers are consumers. Now we have wholesale lots, which is a very interesting opportunity [that could lead] to a larger percentage of sales from big-name manufacturers.

The surprising thing is how empowering the Net in general has been for small business. Four years ago, everyone thought IBM (IBM ), Home Depot (HD ), Target (TGT ), and the big companies would dominate the Net like they do in the physical world. And they do well on the Net. But small business has a bigger presence on the Net than you might imagine.

Edited by Douglas Harbrecht

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