When Pierre Omidyar sold a broken laser printer to Canadian native Mark Fraser in 1995, neither party realized that history had just been made.
Originally called Auction web, eBay was founded by Omidyar on Labor Day weekend in 1995, when he listed his laser printer for $1. For a week, there were no takers, then bidders began weighing and driving the price of the battered printer up to $14.83. Immediately, Omidyar knew he was on to something big.
And 25 years later, history has proven Omidyar right. The company has a market capitalization of $29 billion at the end of 2019, and the company’s founder now has a net worth of $13.1 billion. That’s not a bad haul for a startup owner who sold his first product for $14.83.
How did eBay grow so fast and soar so high? Let’s take a look at the history of eBay, and see how the novel idea of creating a bid-based online retail site changed the course of e-commerce history.
The History of eBay
Legend has it that Omidyar founded eBay as a way to get rid of his wife’s substantial collection of Pez candy dispensers. Urban legends do die hard, and the Pez myth is no exception.
The real deal is that Omidyar founded eBay in his San Jose home on Sept. 3, 1995. He was interested in the potential for web-based commerce and began testing that potential with his own online marketplace that would sell goods and services to the masses – if he could get the masses interested.
The French-born Omidyar considered eBay a hobby at first – something to do on weekends to make a few extra bucks. But after his first online sale, volume began accumulating to the point where Omidyar’s internet service provider insisted he switch to a business account because of the growing number of buyers and sellers on his site.
By switching to a business internet account, Omidyar’s monthly internet bill rose from $30 to $250, which led him to start charging eBay users to conduct transactions on the site. Users happily paid up and eBay grew even larger, causing Omidyar to hire his first employee, Chris Agarpao, to process checks,.
In early 1996, eBay had grown to become a million dollar business and its first president, Jeffrey Skoll was brought aboard to steer the e-commerce company to higher growth. EBay soon branched out, selling plane tickets via a third-party licensing deal. By 1997, eBay had crested two million auction transactions.
Later that same year, the company’s name was officially changed to eBay as it received $6.7 million in funding from Benchmark Capital, a venture capital firm.
1998 saw a new chief executive officer, Meg Whitman, take the helm with eBay now recording revenues of $4.7 million with 30 employees on board. Whitman led eBay to a 1998 public listing with the company’s share price standing at $18. The initial public offering made Omidyar an instant billionaire, as the stock price soared to $53 per share on the first day of trading.
At the time, Omidyar and other company officials gave credit to the Beanie Babies craze, as frenzied collectors from around the world logged on to eBay to buy and sell Beanie Babies – and wound up staying to buy and sell other products, as well.
Under shrewd guidance from management, eBay spent the next decade perfecting the digital consumer auction site model.
With more and more managers coming from high-profile companies like Disney (DIS) - Get Report and PepsiCo (PEP) - Get Report, eBay was able to shed its “collectibles” reputation and become the primary online site for people to buy and sell pretty much anything, including high-end commercial products from companies like General Motors (GM) - Get Report, Sun and Disney, building the company brand and giving it cache in the process.
What eBay wouldn’t sell were items like Nazi paraphernalia, guns, alcohol, drugs, and passports or other legal documents, among other banned items.
Honing the Business Model
EBay also spent the decade honing its simple, yet highly effective, business model – bringing buyers and sellers together in one online platform and charging a fee for any transactions completed. Sellers could register to participate on the site and, in a matter of minutes begin selling goods and wares online.
While bidding is free, the seller was charged an immediate insertion fee and an additional promotions fee to sell products with bold fonts that allowed the item to stand out from competitors. Lastly, a final fee was attached at the close of a transaction, which ranged between 1.25% to 5% of the final sale price, depending on the item sold on eBay.
All eBay had to do to earn its fees was to list the item and notify sellers when their auction price level was met or exceeded. The buyer and seller took matters from there, closing the deal independent of eBay.
Gradually, eBay-inspired terms like “Buy it Now”, “Seller Rating” and “Best Match” entered the digital lexicon, and paved the way for other online consumer retail exchanges like StubHub and Amazon.com (AMZN) - Get Report to take the eBay model and use it as a blueprint for their own retail platforms.
In 2008, Whitman stepped down as CEO as the company kept growing. EBay had already purchased PayPal, (PYPL) - Get Report the online financial transaction site, along with Craigslist, thus consolidating its brand as the main user-to-user online retail company in the U.S. By 2012, eBay had grown into a $3.3 billion company and five years later revenues had grown to $9.56 billion, and had added Skype and StubHub to its brand.
Almost eight years later, eBay has grown into a global e-commerce powerhouse, with 182 million registered users, and a highly successful mobile app that’s been downloaded 476 million times, according to company data.
It boasts $10.7 billion annual net revenues (2018 figures) with almost half that figure coming from U.S.-based buyers ($4.4 billion.)
eBay – a Timeline
Here’s a thumbnail sketch of eBay in timeline form
1995 – The company is founded by Pierre Omidyar – it’s known as “Auction Web.” It makes its first sale in September, with a broken printer (sold by Omidyar himself) auctioned off for $14.83.
1996 – Jeff Skoll is brought it as a business partner, with Meg Whitman coming aboard as CEO in 1998. The company goes public the same year.
2002 – eBay and PayPal merge, with Rajiv Dutta was named as the President of PayPal. The acquisition is valued at $1.5 billion.
2008 – eBay revenues rise to $7.7 billion and the company sells Skype for $2.7 billion.
2010 - eBay is slapped with a $3.8 billion lawsuit by XPRT Ventures, which accuses eBay of stealing information shared privately by the inventors on XPRT's own patents
2011 – PayPal reaches 100 million users.
2012 – eBay’s annual charity auction for a power lunch with legendary financier Warren Buffett sells for a record $3.46 million.
2014 – A rare Superman comic book sells for a record $3.2 million on eBay.
2017 – eBay introduces “guaranteed delivery” to buyers.
2019 – eBay lands on the list of “Top U.S. Workplaces” by Indeed.com and Scott Schenkel is named as interim CEO.
eBay Stock at a Glance
In 2019 eBay (EBAY) - Get Report stock has been in general growth mode, starting out under $30 per share in January and fluctuating between $25 and $40 a share through the year. It’s currently trading at $35 in late December and one-year price growth is pegged at $40 a share.
EBay has a fairly bright financial picture, with $900 million in cash on hand, and has generated over $300 million cash flow over the course of 2019. Its return on equity is robust, as well. During the past year, the company has clocked in with a return on equity rate of 61%, meaning that for every $1 in share equity, the stock has produced 61 cents in profit.
However, its sale of StubHub for $4 billion wasn’t well received by shareholders, who viewed the online ticket sales giant as a big asset for eBay. That could be holding the stock back at the end of 2019.