overview

This note considers eBay, the dominant online C2C auctioneer that has expanded into payment and phone systems.

It covers -

• this overview
• trading - questions such as whether people can make a living on eBay
• expansion
• paypal
• regulation
• reputation - feedback, fraud and consumer protection

The note supplements the broader discussion of digital currencies and of online auction mechanisms, markets and issues.

     introduction

eBay was founded in 1995 by Pierre Omidyar as a peer to peer, C2C venue through which he could sell his partner's Pez dispensers (Pez, for non-specialists, are what granny would describe as 'things to rot your teeth') and at the height of the dot com bubble was a multibillion dollar corporation with a positive cash flow. eBay's revenues from listing fees and advertising in 2001 were US$749 million, with the value of all transactions supposedly valued at an aggregate US$9.3 billion. Wal-Mart's sales at that time were US$220 billion.

As of mid-2004 eBay had a market capitalisation of US$53 billion. It boasted 114 million registered users, of which 90% were buyers.

Apart from the eBay.com flagship it has local sites forAustralia, Austria, Belgium, Canada, France, Germany, Ireland, Italy, Korea, the Netherlands, New Zealand, Singapore, Spain, Sweden, Switzerland, Taiwan and the UK. It has a presence in Latin America through MercadoLibre.com and in China through EachNet.

     development

EBay's development has involved deepening and (more successfully) broadening its activities.

Extension upstream through sale of high-value collectibles or acquisition of one of the major auction houses has been underwhelming. Speculation that eBay would buy the ailing Sotheby's or Christies was not substantiated. eBay paid US$260 million for offline collectibles auctioneer Butterfield & Butterfield in 1999 but sold it to Bonhams in 2002 after disappointing results.

It has had more success in expanding from collectibles to auction of other consumer items and building a position as a retail portal in partnership with manufacturers and some offline retailers.

That is evident in the auction figures for the year to August 2004. Collectables accounted for US$1.4 billion of its global turnover, less than motor vehicles at US$9.8 billion, consumer electronics at $2.5 billion and clothes & accessories at US$2.2 billion. Business buying increased to an estimated US$2 billion in global gross merchandise sales in 2003 from US$1 billion in 2002.

In 2002 eBay it acquired online payment system provider PayPal (founded 1998) for around US$1.5 billion. As of 2000 PayPal had US$100 million revenue, US$1.5 billion transactions and 17 million customers. That had increased to 20 million customers by 2002 and 45 million customers by mid-2004, with services available in 38 countries. In 2004 it announced that would offer instant credit lines to US customers through an agreement with consumer credit provider GE Consumer Finance. PayPal Buyer Credit would fund purchases made on eBay or other sites accepting PayPal.

In 2003 it acquired Eachnet, China's leading e-tailer, for US$180 million. In 2004 it paid approximately US$50 million for Baazee.com, claimed as the largest online marketplace in India, and US$149 million for mobile.de, a leading German online classifieds site for vehicles. During the same year it acquired 25% of craigslist, founded 1995, and paid US$415 million for Rent.com, a housing rental listing service launched in 2001.

In September 2005 it agreed to pay US$2.6 billion for Skype Technologies, the softphone/messaging company founded by the developer of KaZaa.

     reputation, fraud and consumer protection

A 2006 Communications Law Centre report, disputed by eBay, commented that 48% of auction site participants claimed that they experienced problems. Around 22% said they did not receive an item for which they had paid and a further 20% reported receiving an item different to that advertised.

eBay's reputation system has attracted considerable academic attention. Examples include Mary Calkins' 2001 paper My Reputation Always Had More Fun Than Me: The Failure of eBay's Feedback Model to Effectively Prevent Online Auction Fraud, the 2001 Trust Among Strangers in Internet: Empirical Analysis of eBay's Reputation System paper by Resnick & Zeckhauser and 2002 paper The Value of Reputation on eBay: A Controlled Experiment by Resnick, Zeckhauser, Swanson & Lockwood.

Other research includes The evolution of trust(worthiness) in the net (here), The Digitization of Word-of-Mouth: Promise and Challenges of Online Feedback (here), Reputation distribution and consumer-to-consumer online auction market structure: an exploratory study (here) and The Dynamics of Seller Reputation: Theory and Evidence from eBay (here).

A broader discussion of consumer protection in online markets features elsewhere on this site.

     culture

eBay is of interest for its assimilation by popular culture and the enthusiasm of some fans. Patti Waldmeir of the Financial Times thus confessed in 2004 that

I hate to shop but I love to eBay - and the bargains are the least of it. Trading on eBay is like living in a medieval village in cyberspace: a place where the cash is cold but the hearts are warm, where every transaction has its story. For eBay, arguably the world’s most successful dotcom, is so much more than a global auction site. It is a place where 114 million people go to buy things - but also where they go to chat and bicker and gossip and gripe, and generally enjoy the camaraderie of the marketplace. Most of all, like the internet itself, eBay is a paradox: a world where anonymity fosters fellowship and machines make us all human again. eBay gives us back our past. It helps us recover an older, more personal relationship with commerce.

eBay has generated a minor genre in 'show & tell' literature, of which the best examples are perhaps John Freyer's All My Life for Sale (London: Bloomsbury 2002) and Marc Hartzman's Found on Ebay: 101 Genuinely Bizarre Items from the World's Online Yard Sale (New York: Universe 2002).

     studies

eBay is been lauded in works such as The e-Bay Phenomenon: Business Secrets Behind the World's Hottest Internet Company (New York: Wiley 2000) by David Bunnell, The Perfect Store: Inside eBay (New York: Little Brown 2002) by Adam Cohen, Reinventing the Bazaar: A Natural History of Markets (New York: Norton 2003) by John McMillan and EBoys: The First Inside Account of Venture Capitalists At Work (New York: Crown 2000) by Randall Stross. We preferred the more modest 1999 Wired profile by William Gibson. One author in Everyday eBay: Culture, Collecting, and Desire (London: Routledge 2006) edited by Ken Hillis & Michael Petit denounced it as "a neoliberal facilitator of global consumerism".

For PayPal see Eric Jackson's PayPal Wars: Battles with eBay, the Media, the Mafia, and the Rest of Planet Earth (New York: Worlds Ahead 2004).

     landmarks

1995 eBay founded by Pierre Omidyar

1999 eBay pays US$260m for offline collectibles auctioneer Butterfield & Butterfield

1999 buys auction auctioneer Kruse International

2001 buys 19.5% stake in Latin American auction service MercadoLibre (est 1999)

2002 sells Butterfield & Butterfield to Bonhams

2002 acquires online payment system provider PayPal (founded 1998) for around US$1.5bn

2003 acquires Eachnet, China's leading e-tailer, for US$180m

2003 sells Kruse International back to Kruse family

2003 market capitalisation is equivalent to 110% of General Motors

2004 PayPal announces that will offer instant credit lines to US customers through agreement with GE Consumer Finance

2004 eBay acquires Indian online marketplace Baazee for US$50m

2004 pays US$149m for mobile.de, German online classifieds site for vehicles

2004 acquires 25% of craigslist, founded 1995

2004 pays US$415m for Rent.com (founded 2001)

2005 pays US$620m for Shopping.com (founded 1998)

2005 agrees to pay US$2.6bn for Skype

2006 agrees to buy sports ticket reseller StubHub for $310m

2007 PayPal gains Luxembourg banking licence

2007 eBay pays US$75m for recommendation site StumbleUpon

2007 introduces Kijiji online classified ad service in US

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