Meg Whitman smiles for the hundredth time. The camera flashes. She hugs the eBay user posing with her, thanking him warmly. Her gaze shifts to the next person in line. One after another, dozens of users of eBay are lining up to meet the online marketplace's celebrity CEO. They want to talk to Whitman, shake hands with her, take a photo with her or, simply, thank her. Whitman obliges them all. The smile flashes again and again, followed by friendly words, and lots of body contact. There is no hint of tiredness on her face. No signs of boredom, either. She seems genuinely pleased to meet everyone on that line.
On this day, over 11,000 eBay users have gathered at San Jose, US, for what is popularly called eBay Live. These users buy and sell lots of stuff quite regularly on ebay.com. Some of them make a living doing this. They meet every year to share tips, learn more about doing business on eBay, network with other users, and generally have a good time. There are classes, stalls and lounges. There is also fun, food and frolic for the ever-growing community. There are 150 million eBay users all over the world. If members of the eBay community formed a country, it would be the seventh largest in the world. Whitman manages to meet only about 150 members in the morning. Other top eBay officials like Bill Cobb, president, North America, will meet more later in the day.
It's fairly obvious why Whitman is trying to charm members of the eBay community. They have always been the key to eBay's phenomenal success. In 1995, Pierre Omidyar, then a software engineer, developed an online trading system for people to buy and sell things. Two thousand users signed up, 6,000 items were listed and 10,000 individual bids were placed in the very first year. Encouraged, Omidyar quit his regular job and took to running eBay fulltime.
Today, eBay is one of the most popular online marketplaces where users can buy and sell almost anything. About 150 million members have listed millions of items - cars, toys, collectibles, paintings, antiques, literally everything under the sun - for sale in more than 50,000 categories on ebay.com. Once, even a $4.9 million Gulfstream Jet was sold on eBay. This year, the community members are likely to buy and sell goods worth $40 billion. eBay will make a profit of $1 billion by facilitating those transactions. And it is the eBay community that has made it all happen.
Whitman knows that. But there is also a less obvious reason behind her charm. eBay, one of the world's largest and most admired Internet businesses, has two distinct forms. eBay the company, represented by the popular Whitman and her team. And eBay the community, represented by the people who lined up to meet Whitman. And increasingly, it is eBay the community, not Whitman or eBay's board of directors, that is influencing the course of the firm.
Over the last few years, an intricate balance of power has been struck between eBay the company and eBay the community. And eBay Live is a rare opportunity to observe, understand and analyse the unique way in which the two interact with each other, shaping each other's destiny. The success of these interactions, more than any competition, will determine the fate of this corporation, which is worth $47-billion on the market.
At eBay Live in San Jose, John Crocker is waiting to meet Whitman. Crocker is an unusual sort of a person, slightly eccentric. Today, he is wearing his life on his T-shirt. Pictures of eBay events, eBay merchandise, logo, and even Whitman and Omidyar, are printed on it. eBay is his life. He depends on it for his living. He is an eBay Gold Power Seller. He sells antiques, postcards, paintings and collectibles on the site. He also helps a lot of others sell a lot of their stuff too - for a fee. He used to work nine to five as a retail manager. The rest of his wakeful hours were spent eBaying. "It's an addiction," he concedes. Last year, Crocker quit his job to become a full time eBayer. Now, he spends 12 to 15 hours every day on eBay, doing business worth $60,000, which he hopes to take that up to $100,000. As Crocker's turn to meet Whitman comes, he takes two steps forward and utters two soft words - 'thank you'.
There are at least 500,000 entrepreneurs like Crocker, for whom eBay is a big source of income. These entrepreneurs are online auctioneers and shopkeepers on the eBay site. They source their merchandise from all sorts of places and sell them on eBay, mostly for a nice profit. The huge traffic that eBay attracts helps their business. But Omidyar never built eBay for such entrepreneurs. He created eBay for ordinary people to buy and sell ordinary stuff, like his own broken laser pointer which he sold for $14 on eBay. He never intended the site to become a source of livelihood for thousands of professional entrepreneurs. In fact, for many years, the eBay team had no clue that such entrepreneurs were thriving in the eBay economy. How Whitman and her team discovered their existence is an interesting story.
In the early years, the eBay website was prone to crashing every now and then. But someone would get it back up again soon enough, without worrying unduly. Sometimes, eBay officials would put limits on how many items every user could list. (How stupid, eBay officials concede now!) But still the website would fail. Then, one Thursday in June 1999, the website not just crashed, but disappeared. For the next three days, eBay did not exist. The community was outraged. About 30,000 to 50,000 emails came in everyday demanding immediate action. "That was when we realised that eBay wasn't just fun anymore. This had become people's business. Without eBay their incomes were affected," recalls Jim Griffith, dean of eBay Education and one of eBay's oldest and most colourful personalities. That realisation prompted Whitman to overhaul the website's architecture in order to make it scalable and robust.
The story underscores a simple point. eBay, the company, never really understood its full potential as an online marketplace as well as eBay, the community, did. It never saw eBay as a breeding ground for thousands of entrepreneurs. The community did. Even in those early years, the community was shaping eBay's destiny much more than the corporate ever did.
There is another story to prove this. When the first car was listed on eBay, Griffith's immediate reaction was: "This will never fly. You can't sell a car on eBay!" But the eBay community believed in the power of this online marketplace. Slowly, more cars got listed. And as eBay did not have a separate category for cars, these popped up in the toy cars category! Yet they were being sold. It was only later that the company woke up to the potential and created a category for cars. Now, cars sales on eBay are more than $10 billion. "We did not have the vision. It was the community that was smart," concedes Griffith.
It is now an accepted fact that the community gives the cues for the company to start new categories on the eBay site. Health, beauty and gardens were started based on community feedback. Not surprisingly, these are among eBay's fastest growing categories. "Our category growth has come from the community," says Rajiv Dutta, eBay's CFO.
Quite often the community has also spotted dangers much before the company. For example, a few years ago a law was passed in North Carolina requiring all auctioneers to register with a board. This could have made it very difficult for many to trade on eBay. Community members spotted this new law first and started lobbying against it. The company got into the act much later.
Nobody understood the dynamics of eBay as well as the community did; not Omidyar, not co-founder Jeff Skoll, and not even Whitman. In fact, after a few interactions with Omidyar and Skoll in 1998, Whitman initially declined to join eBay. One reason was she was based on the east coast of the US and eBay was headquartered in San Jose on the west coast. She was living with her husband, a neurosurgeon, and two teenage kids. But part of the reason was about what she told Omidyar and Skoll: "I know it is a cool idea. But frankly, I don't understand what you do."
But a few months later, Whitman's husband decided to take up a job on the west coast. It was then that Whitman decided to join eBay. Now most agree that she was the best thing to have happened to the company.
Investors, too, had a similar problem understanding the eBay business model. During eBay's pre-IPO roadshows, Griffith recalls that most investors would ask Omidyar and Whitman one question. "Do you mean to say that one stranger will send money to another stranger over the Internet and expect the stranger to ship the product he wanted?" Each time Omidyar and Whitman would nod their heads and say 'yes'. Omidyar would sum it up with his oft-repeated line - people are basically good. At that point, most venture capitalists would politely bid goodbye
How eBay's DNA was created |
Pierre Omidyar, eBay's founder, could never have imagined his start-up would grow into as big a corporation as it has today. But he got one thing right. From the early days, Omidyar instinctively believed the community would play an important role. In 1996, he invited about 15 eBay users for a chat. The feedback and insight they shared with him left him speechless. That day, Omidyar understood that the community would always have a richer perspective on eBay. He realised that the company and the community were two different entities. And that the company had to listen, pay heed to and act upon everything the users said. He put in place several systems that continue even today in hundreds of eBay offices across the world. 'Voices', for example, is an eBay system where company executives often listen to the feedback of selected community members.
Omidyar, and later Whitman, have managed to imprint this philosophy into eBay's DNA. So, every executive sees his job as having two different roles - corporate-facing and community-facing. Tod Cohen, vice-president and deputy general counsel, government relations, explains the two components of his job: "One is to protect the interests of eBay the corporation, and the second, to protect the community and expand it." This apart, all executives try to stay in touch with the community irrespective of the role they perform within the corporate.
Take Rajiv Dutta, eBay's CFO. He spends at least half an hour on eBay every week. In the last four weeks, he has bought a camcorder, videos and shoes and sold books and music. Veterans like Jim Griffith spend over 15 hours a day on the site. He visits eBay's chat rooms to stay connected with the community. "I buy something on eBay everyday. I still do," he says. |
Dutta recalls one particularly trying meeting with a few investors at the Ritz Carlton, Boston, US. After hours of persuasion, the investors failed to understand the eBay business model. Frustrated, Dutta wound up the meeting with a curt statement. "You have too little time and make too much money. You will never understand eBay." On his way out, Dutta was accosted by the hotel's doorman. He shook hands with Dutta, thanked him profusely and shared this tale: "My wife sells a lot of stuff on eBay. We have been able to pay off our mortgage and buy a second house with what she earns through eBay." That incident left a deep impact on Dutta. It made him realise that no one understood the spirit of eBay better than the doorman and other such community members.
This anecdote highlights another aspect of eBay's business model - the conflicting interests of the doorman and the investor. The doorman would like to make more money on eBay while the investor would like to see the doorman pay more fees to eBay.
That is why, despite the charm she exudes, even Whitman has her problems with the community. eBay's business model is bound to brew a conflict of interest between the community and the corporation. One such confrontation happened this February, soon after analysts had expressed concerns that eBay's phenomenal growth rate was slowing down. Fourth quarter results failed to meet Wall Street's expectations. The stock price dropped sharply, but recovered later. Perhaps, that is what prompted eBay to raise user charges.
On 2 February, eBay increased fees from 17 per cent for lower-priced items to 45 per cent for auctions above $500. As eBay's stock price shot up on the news of the hike, Deutsche Bank raised its investment rating to 'buy'. Wall Street was happy that eBay was now getting its community to pay more. But the eBay community was enraged. This was the third hike in four years. eBay's message boards were on fire. Whitman personally received 10,000 to 15,000 angry emails. Eventually, some of the increases were rolled back in various forms. "We did not take the community for granted. But our channels with the community were not fully open. And we did not communicate the full value of the hike," explains Griffith. Four months later, most of the acrimony of this incident had been washed away.
The February uproar, however, highlights the fragile nature of the relationship between the company and the community. Till a point, the two would feed each other's growth - the community more so than the corporate. But there exists a threshold beyond which one can grow only at the expense of the other. That threshold was tested briefly in February. But it is Whitman's job to ensure that it is never breached.
eBay's revenues and profits come from its community's pockets. Whitman has to maintain a delicate balance. That is perhaps why she describes eBay as an intersection between commerce and community. The company exists to serve the community. But Whitman also has to ensure the organisation makes profits, gives out dividends, and meets shareholder expectations. The only way to do that is by serving the community. In fact, the passion and loyalty of the eBay community is what has kept rivals like Amazon and Google at bay.
But, over the years, the eBay community has grown humungous and diverse. eBay is present in 25 countries and $6 billion, or 15 per cent of trade on eBay, is cross-border trade. (Incidentally, in India too, eBay entrepreneurs are flourishing - see 'The Indian Entrepreneur', BW, 27 June, 2005). Understanding the entire community is becoming more and more complex.
And what if the community deserts the company? What if it grows disenchanted? "Without the community, eBay is dead. That is a scary scenario for us. We worry about it all the time. We are always wondering how we can prevent that from happening," says Dutta. He doesn't have any answers. But that night at eBay Live, Whitman and Cobb do.
Whitman is greeted with electrifying applause. She has just taken the stage at the HP Pavilion. The carnival atmosphere inside is a riot of colours - red, blue, yellow and green - eBay's corporate hues. Minutes ago, acrobats suspended from the ceiling on thin wires were performing with rock music blaring. Soon Whitman is set to begin her keynote address. This is touted as one of the highlights of ebay Live.
As Whitman begins to read out her lines from inconspicuously placed tele-prompters, you can tell she is playing to the gallery. For the next 45 minutes she and Cobb announce a lot of goodies for the community. Wild applause follows every announcement. Everyone in the packed house appears to be rooting for Whitman. They are cheering her. She is in charge. Or is she?
Everything in the atmosphere suggests the balance of power rests with Whitman - everything, except one announcement that Whitman and Cobb make - the launch of ProStores. This is a web storefront solution that allows members to set up their own online stores independent of eBay. The company will build these stores, maintain and run it and even provide traffic luring tools in return for a monthly licence fee and a transaction fee.
This is a drastic step for eBay. If eBay were a physical mall, ProStores would be the equivalent of helping the tenant shops build their own stores outside the mall. Many large eBay sellers admit that they have been constrained by the eBay platform. In fact, over 30 per cent of eBay-store owners already have independent stores outside the online marketplace. With ProStores, eBay is trying to ensure it does not lose more members. "ebay.com will remain the foundation of the company. But we want to continue to help sellers grow even if that means, in some cases, off the eBay marketplace," she told the audience.
On an evening that showcased the strength of the corporation, this was a grand admission of its vulnerability. The company desperately needs the community. It has to seek new ways to serve the community, even if it means moving out of the boundaries of the eBay brand. Such is the power of the community.
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