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REAL WORLD eBay Inc.: Managing Success in a

CASE 1 Dynamic Online Marketplace

I t began as a trading site for nerds, the newly jobless, home-

bound housewives, and bored retirees to sell subprime
goods: collectibles and attic trash. But eBay (www.ebay.com)
quickly grew into a teeming marketplace of 30 million, with its
own laws and norms, such as a feedback system in which buyers
1999, he quickly realized that such high-ticket items would
require a different strategy than simply opening a new cate-
gory. To jump-start its supply of cars and customers, eBay
immediately bought a collector-car auction company, Kruse
International, for $150 million in stock, and later did a deal to
and sellers rate each other on each transaction. When that include listings from online classifieds site, AutoTrader.com.
wasn’t quite enough, eBay formed its own police force to patrol Rothman also arranged insurance and warranty plans, an
the listings for fraud and kick out offenders. The company escrow service, and shipping and inspection services.
even has something akin to a bank: Its PayPal payment- This approach worked wonders. Sales of cars and car
processing unit allows buyers to make electronic payments to parts, at a $5 billion-plus annual clip, are eBay’s single largest
eBay sellers who can’t afford a merchant credit card account. market. That has catapulted eBay in front of No. 1 U.S. auto
“eBay is creating a second, virtual economy,” says W. Brian dealer AutoNation in number of used cars sold. “eBay is by far
Arthur, an economist at think tank Santa Fe Institute. “It’s one of my better sources for buyers,” says Bradley Bonifacius,
opening up a whole new medium of exchange.” Internet sales director at Dean Stallings Ford in Oak Ridge,
eBay’s powerful vortex is drawing diverse products and Tennessee.
players into its profitable economy, driving its sellers into the And for now, the big corporations, which still account
heart of traditional retailing, a $2 trillion market. Among for under 5 percent of eBay’s gross sales, seem to be bringing
eBay’s 12 million daily listings are products from giants such in more customers than they steal. Motorola Inc., for exam-
as Sears Roebuck, Home Depot, Walt Disney, and even ple, helped kick off a new wholesale business for eBay last
IBM. More than a quarter of the offerings are listed at fixed year, selling excess and returned cell phones in large lots.
prices. The result, says Bernard H. Tenenbaum, president of Thanks to the initiative of established companies such as
a retail buyout firm, is “They’re coming right for the main- Motorola, eBay’s wholesale business jumped ninefold, to
stream of the retail business.” $23 million, in the first quarter.
So what started out as a pure consumer auction market- As businesses on eBay grow larger, they spur the creation
place, is now also becoming a big time business-to-consumer of even more businesses. A new army of merchants, for ex-
and even business-to-business bazaar that is earning record ample, is making a business out of selling on eBay for other
profits for eBay’s stockholders. And as the eBay economy ex- people. From almost none a couple of years ago, these so-
pands, CEO Meg Whitman and her team may find that called Trading Assistants now number nearly 23,000. This
managing it could get a lot tougher, especially because eBay’s kind of organic growth makes it exceedingly tough to predict
millions of passionate and clamorous users demand a voice in how far the eBay economy can go. Whitman professes not to
all major decisions. This process is clear in one of eBay’s know. “We don’t actually control this,” she admits. “We have
most cherished institutions: the Voice of the Customer pro- a unique partner—millions of people.”
gram. Every couple of months, the executives of eBay bring
in as many as a dozen sellers and buyers, especially its high-
selling “Power Sellers,” to ask them questions about how Case Study Questions
they work and what else eBay needs to do. And at least twice
a week, it holds hour-long teleconferences to poll users on 1. Why has eBay become such a successful and diverse
almost every new feature or policy, no matter how small. online marketplace? Visit the eBay website to help you
The result is that users feel like owners, and they take the answer, and check out their many trading categories,
initiative to expand the eBay economy—often beyond man- specialty sites, international sites, and other features.
agement’s wildest dreams. Stung by an aerospace downturn, 2. Why do you think eBay has become the largest online/
for instance, machine-tool shop Reliable Tools Inc., tried off-line seller of used cars, and the largest online seller
listing a few items on eBay in late 1998. Some were huge, of certain other products, like computers and photo-
hulking chunks of metal, such as a $7,000 2,300-pound graphic equipment?
milling machine. Yet they sold like ice cream in August. 3. Is eBay’s move from a pure consumer-to-consumer auc-
Since then, says Reliable’s auction manager, Richard Smith, tion marketplace to inviting large and small businesses to
the company’s eBay business has “turned into a monster.” sell to consumers and other businesses, sometimes at fixed
Now the Irwindale (California) shop’s $1 million in monthly prices, a good long-term strategy? Why or why not?
eBay sales constitutes 75 percent of its overall business.
Pioneers such as Reliable prompted eBay to set up an indus-
trial products marketplace in January that’s on track to top Source: Adapted from Robert D. Hof, “The eBay Economy,”
BusinessWeek, August 25, 2003. Reprinted from 8/25/03 issue
$500 million in gross sales this year. of BusinessWeek by special permission, copyright © 2003 by the
Then there is eBay Motors. When eBay manager Simon McGraw-Hill Companies, Inc. And Adam Lashinsky, “Meg and
Rothman first recognized a market for cars on eBay in early the Machine,” Fortune, September 1, 2003, pp. 70–78.