28 Years Ago : eBay (& Amazon by Comparison)
Whilst eBay’s market cap is dwarfed by that of Amazon (i.e. circa 24 billion dollars compared to circa 1.4 trillion dollars), it’s easy to forget eBay helped shape online purchasing too.
Before it was rebranded as eBay in 1997, the site was originally called AuctionWeb. Founded by Pierre Omidyar in 1995, it was an experiment to create an online venue for person-to-person auctions and lacked any heavy investment. In fact, the hosting company were just charging thirty dollars per month to for the entire website when he started up, until they said they’d no longer host it for that price due to the growth in traffic, thereby forcing him to monetise his website via his sellers, which worked.
With his degree in computer science behind him and having worked in a subsidiary company of Apple, he was also working on various other web projects. He’d also co-founded another company called Ink Development, a company initially focused on developing software for pen-based computing. The company transformed its direction and became an e-commerce platform named eShop, which was later acquired by Microsoft in 1996.
In short, Pierre was the right person in the right place at the right time. And so was Elon Musk (more on him later).
The Unexpected First Listing
The first item ever listed on AuctionWeb was a laser pointer. To be more precise, it was a broken laser pointer. This wasn’t a mistake or an oversight. Omidyar had bought it for his own use but found out it was faulty. Rather than discarding it, he decided it would make an interesting first listing on his experimental auction site. He listed it clearly mentioning it was non-functional. To his astonishment, the laser pointer garnered bids and finally sold for $14.83.
Intrigued by someone paying for a known broken item, Pierre out to the buyer who simply responded that he was a collector of broken laser pointers. This quirky initial transaction showed the potential of a vast, unpredictable, and diverse online marketplace.
The Beanie Baby Phenomenon
While the broken laser pointer was AuctionWeb’s first sale, it was the Beanie Baby craze in the mid-90s that truly skyrocketed the platform’s popularity. Beanie Babies, those small plush animals filled with plastic pellets, became a massive collector’s item. AuctionWeb became a primary marketplace for these avid collectors, providing them a platform to buy, sell, and trade these toys.
The Beanie Baby phenomenon showcased the strength of the platform in bringing together niche audiences globally and the success also signalled the beginning of a new era where the average person could become an entrepreneur from the comfort of their own home.
From AuctionWeb to eBay
Seeing the growing potential, Omidyar soon renamed AuctionWeb to “eBay,” which was short for Echo Bay, the name of Omidyar’s consulting firm. The rest is history! eBay went public on September 24, 1998.
On its first day of trading, the stock’s price of $53.50 soared well past the initial target of $18, emphasising the optimism investors held during the dot-com boom. Unlike many that fell by the wayside, eBay is now a business that operates in over 30 countries with a market cap peaking at 80.6 billion dollars.
Amazon and eBay – Different Approaches.
While eBay and Amazon both started as online marketplaces in the 1990s, they evolved with different business models and strategies that have influenced their trajectories. eBay started off as an online auction place, although plenty of people and businesses sell via their ‘Buy Now’ function as an online shop.
There are many possibilities as to why eBay hasn’t reached the same magnitude as Amazon and here are a few :
- Business Model: eBay began as a peer-to-peer auction site, allowing individual sellers and buyers to negotiate prices. This gave eBay a unique identity but also meant slower and less predictable transactions. Amazon, on the other hand, started as a book retailer and then expanded its product range, focusing on selling new products at fixed prices.
- Fulfilment and Logistics: Amazon invested heavily in fulfilment-centres and logistics, creating a vast and efficient infrastructure for storage, packing, and shipping. This allowed them to ensure rapid delivery, leading to services like Amazon Prime. eBay, on the other hand, relies on individual sellers to handle shipping and logistics, which can be more variable in terms of speed and reliability.
- Private Label & Product Expansion: Amazon developed its own private-label products and expanded into diverse categories. They also encouraged third-party sellers to use their platform, ensuring a vast product range.
- Ecosystem Development: Amazon diversified its business areas, venturing into hardware (Kindle, Echo), streaming (Amazon Prime Video), cloud services (AWS), and more. This diversification created multiple revenue streams and bolstered its market presence.
- Trust and Reliability: Amazon’s emphasis on customer service and consistent delivery times built significant trust with customers. While eBay has made efforts to ensure product authenticity and seller reliability, the peer-to-peer model sometimes leads to inconsistencies in product quality and delivery.
- Global Expansion Strategy: Both companies pursued international expansion, but Amazon’s aggressive strategy of setting up localized versions of its site, fulfilment centres, and tailored services for different countries gave it a strong global footprint.
- Subscription Model: Amazon Prime, a subscription-based service, not only offers faster delivery but also includes streaming, exclusive deals, and other perks. This has fostered customer loyalty and increased purchase frequency.
- Feedback System: While eBay’s feedback system was innovative and built trust in the early days, some argue that it’s become less effective over time due to potential biases and reluctance from buyers and sellers to leave negative feedback.
- Acquisitions and Divestitures: While both companies made acquisitions, their strategies differed. Amazon’s acquisitions like Zappos, Whole Foods, and Twitch were integrated into its ecosystem. eBay, on the other hand, made some large acquisitions, such as Skype (see below), which were later divested as they didn’t align with eBay’s core focus.
What can be seen is that eBay seems to have plateaued insofar as the gross merchandise volume (GMV) (i.e. the total amount of ‘stuff’ sold via the platform) is concerned whereas Amazon’s GMV is steadily rising and so is the share of that GMV being sold by third party sellers (rather than Amazon directly) so doubtless they’re eating some of eBay’s lunch.
Perhaps the different share prices reflect the differing optimism because if there’s one thing that investors like, it’s growth.. One thing that’s clear … both companies did well over the pandemic.
While eBay didn’t reach the same dizzying heights of Amazon, it’s nevertheless a true rags-to-riches success-story that’s worth studying, including a couple of their better-known acquisitions. Even if the acquisitions were later sold, it’s interesting to try and appreciate the thinking behind the strategy and synergy.
Payment Provider : X Marks The Spot
The X Factor Elon Musk’s wealth originated from a critical acquisition made by eBay in 2002. In the late 1990s, Musk co-founded X.com, an online payment company. X.com would later become known as PayPal after a series of developments and a merger.
It was this very company, PayPal, that eBay acquired in 2002 for $1.5 billion in stock. At the time of the acquisition, Musk held 11.7% of PayPal shares, translating to roughly $165 million from the sale. Not too shabby for Mr Musk and it certainly helped springboard his wealth to be in the same league as that of Jeff Bezos from Amazon.
Communications Considerations : Skype
In late 2009, eBay finalized the sale of Skype for an impressive $2.75 billion. This strategic move allowed eBay to refocus on its core e-commerce operations, while the deal also highlighted Skype’s significant growth and potential in the telecommunications sector.
Whilst Amazon seems intent on taking over the world by expanding relentlessly into eBay’s territory (and many others), eBay will likely remain a trusted corner-of-the-web for people to buy and sell goods for many years to come.
All of which started 28 years ago (this week), with a good idea and a broken laser-pointer.