Sold! to the highest bidder

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eBay Inc. was founded in September 1995 in the living room of software developer Pierre Omidyar.

Now based out of offices in San Jose, Calif., eBay boasts 30 million users who transacted more than $5 billion in annualized gross merchandise sales last year and employs 2,000 people in 15 countries. But what really sets it apart from other dot-coms is that it has been consistently profitable since Day One.

Arguably the largest, oldest and most successful auction site on the Web, eBay has changed the way goods are bought and sold for both online and offline companies.

Gary Bengier, eBay’s senior vice president of strategic planning and development, spoke last month at Kent State University’s commencement. A 1977 Kent State graduate, Bengier joined the company as CFO in 1997 and spent his first three years there building the financial team and processes, and leading the funding efforts for its IPO.

Today he is responsible for planning and leading the company’s longer-term strategy.

What is eBay’s mission?

To create a marketplace where people can trade practically anything on Earth. The mission has remained remarkably the same. We had a really strong vision from the beginning of what the company would be, and that’s been very stable.

How is revenue generated?

Our users can list items for sale, and when a user lists an item, we charge a small fee for listing, and then if they’re successful and sell the item, we charge a small success fee — a percentage. It starts at 5 percent for the first $25, and it declines, based on the price, to 1.24 percent. It’s a transaction-based model, and that’s where we get almost all of our revenues. It’s really a bargain by comparison with other ways of buying and selling.

How do you think the eBay business model has changed commerce?

I think it’s changed commerce for the average person. Our philosophy is based upon having a level playing field, so that everybody can compete equally, so that the average individual person can compete on an equal basis with Kmart.

How do you maintain or monitor the quality and authenticity of the products that are sold on the site?

Let me first explain how a trade works. If you see something that you’re interested in, you have to register before you can bid, so that the people who have registered to be a user have an economic interest in buying or selling. Let’s say you bid and you win the item. Typically what happens is, during the time that the auction is going on, the seller and the potential buyers exchange e-mails.

There’s a conversation that very frequently happens around the item. One of the things you as a buyer would do is check (the seller’s) feedback. The feedback is essentially an online reputation, and that’s created every time someone has a transaction.

From the very beginning, we were measuring that there were fewer than 30 irregularities per 1 million items listed, and that’s dropped down into the 20s. We’ve just spent a lot of effort to make the site safer.

Some of the stories you hear about are because we work so closely with state and local law enforcement on all kinds of levels. It’s actually a silly thing to try to do something (illegal) online because, in many cases ,it’s violating federal postal laws, and we’re talking about felonies. Someone pointed out that if you look at our percentages, you have a greater chance of having a problem at a shopping mall than you do on eBay.

Do you have people on your staff randomly checking the quality of the items that are sold?

No. It’s a community of users that came together. This gets back to how we started. We started from the founders’ belief system, which sounds very idealistic, that most people are basically good and that you have to give people the benefit of the doubt.

It seemed like we got a large number of good people at the beginning and then we continually impressed upon the community of users what was the right behavior at eBay. I think good people brought good people to the site, so we had a community culture of being very polite and looking for the best in people.

How is the whole auction format going to change in the future? Is it going to become more or less predominant?

I think it’s going to become much more a common part of the way people think about buying and selling things. If you think about this historically, 150 years ago in America, you went down to your local town square, you shook hands with the cobbler, and you made an individual agreement with the cobbler about the quality of shoes and the price.

There were no fixed prices in the United States until 1870 when Mr. Ward of Montgomery Ward published the first fixed price list. That was when we had mass manufacturers in New York and Chicago and other industrial cities creating mass manufactured goods.

With that there was a need to figure out how to distribute those goods, and we had a disappearance of the small local store where we knew the person individually. It was replaced by the Sears Roebucks and the large mass market retailers, where you depended upon their reputations for things.

What we had then was interestingly a very small part in all of human history — less than 150 years — where we’ve had fixed prices as the only way we’ve fundamentally bought and sold things. For the prior 4,000 years of human history, it’s been much more flexible.

Do you think eBay is in the forefront of changing consumers’ dependence upon fixed pricing?

I think it’s a revolutionary change about how people think about buying and selling things. You can think of buying things at a more flexible price as a different mechanism, and you think about buying things that might be used more than you might have before, because now there’s a medium to make that possible.

Who is eBay’s biggest competitor?

We think we’re in a pretty strong position competitively. We’re less and less challenged, particularly in the United States. You always have to watch for competitors. ‘You have to stay paranoid,’ as Andy Grove (co-founder and chairman) of Intel liked to say. We think that our community is just safer, and has a much broader selection of merchandise and it’s just easier to use. It keeps growing bigger.

How will eBay continue to evolve?

We are continuing to look at that vision, which we think is really changing the world. Think about how we build that marketplace to be better, safer, faster and easier to use in many dimensions. One is, we’re moving further into fixed pricing.

On that dimension, we did two things recently. One, we acquired a company called Half.com, which offers person-to-person fixed prices. It started out with CDs, books, movies, videos, games, and we’ve just recently expanded that into computers and a whole list of new categories. It allows you to buy and sell at a fixed price very quickly. That’s our initiative on moving into fixed price.

We also launched, in the fourth quarter, a new feature called Buy It Now. Buy It Now allows people to, rather than wait for an item to finish an auction where they might lose, immediately buy the item and be sure that they were winning it and be sure of the timing. That’s been extremely successful. One-fourth of the listings on our site now use the Buy It Now feature.

The economy has not been too kind lately to dot-coms. How has that affected eBay?

It’s been positive, because we have such a powerful business model. eBay has made money since the very beginning, consistently. The weakness among others has meant that it’s been easier to recruit good talent.

What advice would you give to an entrepreneur who was considering starting a dot-com division or a dot-com company?

I’d say first make sure that you have a solid business model, and that starts with a real need of the consumer that you are meeting. That’s the heart of any solid business, whether it’s an online or offline business: Customer needs.

Is there any one message that you hoped to get across to the graduating students at Kent State, who are about to enter the business world?

Take risks. How to reach: eBay Inc., ebay.com

Connie Swenson ([email protected]) is editor of SBN Magazine in Akron and SBN Magazine in Stark.