eBay Inc.
eBay corporate logo
Type Public (NASDAQ: EBAY)
Founded San Jose, California USA (1995)
Location San Jose, California USA
Key people Meg Whitman, CEO & President
Pierre Omidyar, founder
Industry Auctions
Products Online auction hosting, Electronic commerce, Shopping mall
PayPal, Skype
Revenue image:green up.png$3.27 billion USD (2004)
Employees 8,100 (2004)
Website www.ebay.com

eBay Inc. (NASDAQ: EBAY) manages an online auction and shopping website, where people buy and sell goods and services worldwide.

Origins and early history

Founded in San Jose on September 4, 1995 by Pierre Omidyar and Jeff Skoll as Auctionweb, part of a larger personal site that included, among other things, Omidyar's own tongue-in-cheek tribute to the Ebola virus.

The first item sold was Omidyar's broken laser pointer for $14.83. Astonished, he contacted the winning bidder and asked, "did he not understand the laser pointer was broken?" Omidyar received the following email in reply: "I'm a collector of broken laser pointers." (The frequently repeated story that eBay was founded to help Omidyar's fiancee trade PEZ Candy dispensers was fabricated by a public relations manager in 1997 to interest the media. This was revealed in Adam Cohen's 2002 book and confirmed by eBay.)

It officially changed its name to eBay in September 1997. Originally, the site belonged to Echo Bay Technology Group, Omidyar's consulting firm. Omidyar had tried to register the domain name EchoBay.com but found it already taken by the Echo Bay Mines, a gold mining company, so he shortened it to his second choice, eBay.com.

Items and services

Millions of collectibles, appliances, computers, furniture, equipment, vehicles, and other miscellaneous items are listed, bought, and sold daily. Some items are rare and valuable, while many others are dusty gizmos that would have been discarded if not for the thousands of eager bidders worldwide, proving that if one has a big enough market, one will find someone willing to buy anything. Anything can be sold as long as it is not illegal or on the eBay banned list. Services and intangibles can be sold too. It is fair to say that eBay has revolutionized the collectibles market by bringing together buyers and sellers internationally in a huge, never-ending yard sale and auction. Large international companies, such as IBM, sell their newest products and offer services on eBay using competitive auctions and fixed-priced storefronts. Regional searches of the database make shipping slightly more rapid or cheaper. Software developers can create applications that integrate with eBay through the eBay API by joining the eBay Developers Program. As of June 2005, there were over 15,000 members in the eBay Developers Program, comprising a broad range of companies creating software applications to support eBay buyers and sellers as well as eBay Affiliates.

In June 2004, eBay prohibited the sale and auction of both alcohol and tobacco products on the British site ebay.co.uk. Some exceptions to this rule are made for rare aged liquors, where a bottle may sell for many times higher than its actual value in alcohol.

There has also been controversy regarding items put up for bid that violate ethical standards. In late 1999 a man offered one of his kidneys for auction on eBay, attempting to profit from the potentially lucrative (and, in the United States, illegal) market for transplantable human organs. On other occasions, people and even entire towns have been listed, often as a joke. In general, the company removes auctions that violate its terms of service agreement within a short time after hearing of the auction from an outsider; the company's policy is to not pre-approve transactions. eBay is also an easy place for unscrupulous sellers to market counterfeit merchandise, which can be difficult for novice buyers to distinguish without careful study of the auction description.

eBay's Latin American partner is MercadoLibre.

eBay's main rivals are Amazon.com Marketplace and Yahoo.com Auction.

Profit and transactions

A screenshot of eBay's front page. A screenshot of eBay's front page.

eBay generates revenue from a number of fees. There are fees to list a product and fees when the product sells. The eBay fee system is quite complex and takes $0.20 to $80 per listing and 3-5% of the final price. In addition, eBay now owns the PayPal payment system which has fees of its own.

The company's current business strategy includes increasing revenue by increasing international trade within the eBay system. eBay has already expanded to almost two dozen countries including China and India. The only place where expansion failed was Japan where Yahoo had a head start.

Acquisitions

  • In May, 1999, eBay acquired the online payment service Billpoint, which it shut down after acquiring Paypal.
  • In 1999, eBay acquired the auction house Butterfield & Butterfield, which it sold in 2002 to Bonhams.
  • In 1999, eBay acquired the auction house Alando for $43 million, which changed then to eBay Germany.
  • In June, 2000, eBay acquired Half.com, which was later integrated with the eBay Marketplace.
  • In August, 2001, eBay acquired Mercado Libre, Lokau and iBazar, Latin Americas auction sites.
  • In July, 2002, eBay acquired PayPal, for $1.5 billion in stock.
  • On July 11, 2003 eBay Inc. acquired EachNet, a leading ecommerce company in China, paying approximately $150 million in cash.
  • On June 22, 2004, eBay acquired all outstanding shares of Baazee.com, an Indian auction site for approximately US $50 million in cash, plus acquisition costs.
  • On August 13, 2004, eBay took a 25% stake in craigslist.org by buying out an existing shareholder who was once a craigslist employee.
  • In September 2004, eBay moved forward on its acquisition of Korean rival Internet Auction Co. (IAC), buying nearly 3 million shares of the Korean online trading company for 125,000 Korean won (about US$109) per share.
  • In November 2004, eBay acquired Marktplaats.nl for €225 million. This was a Dutch competitor which had a 80% market share in the Netherlands, by concentrating more on small ads than actual auctions.
  • On December 16, 2004, eBay acquired rent.com for $30 million in cash and $385 million in ebay stock.
  • In May 2005, eBay acquired Gumtree, a network of UK local city classifieds sites.
  • In June 2005, eBay acquired Shopping.com, a online comparison site for $635 Million USD.
  • In August 2005, eBay bought Skype, a VoIP company, for $2.6 billion in stock and cash.

Controversy

eBay has its share of controversy, ranging from its privacy policy (eBay typically turns over user information to law enforcement without a subpoena) to well-publicized seller fraud. eBay data shows that less than .01% of all transactions result in a confirmed case of fraud.

Fraud

There is one major fraud prevention mechanism: the eBay feedback system. After every transaction both the buyer and seller rate each other. They can give "positive", "negative", or a "neutral" score and leave a very short comment. So if a buyer has problems, he can leave a negative and a comment like "never received product".

Just as in normal retail, mistakes are made on both sides, so even legitimate sellers or buyers may have some negative feedback. Depending on the industry, a legitimate seller or buyer will have roughly 99% positive feedback rate unless they have a small total number of feedback, when only one negative feeback could cause their percentage to go drastically down.

The system can protect buyers. However, buyers must spend a little time learning the system and evaluating each seller.

Many new buyers seem to think they are buying directly from eBay--they are not. Other new buyers seem convinced they will be taken advantage of in any transaction. The latter will often become happy and content eBay users, while the former are often taken advantage of.

When fraud happens a buyer can file a dispute. Of course, all laws still apply and legal action may be possible. However, these methods are somewhat redundant with the feedback system.

One distinct advantage of the feedback system over traditional fraud prevention--i.e. enforcement of the law--is that trivial transactions can be conducted safely. A person in the US can buy a $5 collectable from someone in Russia. If there were a problem, the buyer would not have any practical recourse--she is probably not going to file a complaint in a Russian court for $5. But leaving a negative rating may help warn others that a seller is disreputable.

Another strength of the feedback system is that small, reputable sellers can quickly establish credibility. While in traditional retail credibility is linked to name recognition or with store locations, on eBay people will buy from a no-name business with no-assets or inventory as long as they have decent feedback.

One weakness of the feedback system is that small and large transactions carry the same weight in the summary. This can sometimes lead new buyers to be fooled. Experienced buyers know how to guard against this.

Other such weakness in the feedback system include: people are reluctant to leave feedback first for fear that the other party may leave negative without caring, new accounts that leave negative feedback and then create more new feedback, and people not leaving honest feedback for fear of negative retalitory feedback (including negative in retaliation for neutral).

The following are frauds committed by sellers:

  • Receiving payment and not shipping merchandise
  • Shipping items other than those described
  • Shipping faulty merchandise
  • Counterfeit merchandise
  • Selling stolen goods
  • Inflating total bid amounts by bidding against their own auction with a "shill" account

The following are frauds committed by buyers:

  • PayPal fraud (e.g. Filing a shipping claim for damaged merchandise and collecting the money from the shipping company, then filing a chargeback on paypal for damaged merchandise, then refusing to return goods. Buyer than has free goods and has income equal to the amount he spent on the item.)
  • Credit card fraud
  • Receiving merchandise and claiming otherwise
  • Returning items other than received
  • Preventing competitive bids with "bid shielding"

Other controversies

Other notable controversies involving eBay include:

  • On 28 May 2003 a US District Court federal jury found eBay guilty of patent infringement and ordered the company to pay US$35 million in damages. The jury found for plaintiff MercExchange, which had accused eBay in 2001 of infringing on three patents (two of which are used in eBay's "Buy It Now" feature for fixed-price sales) held by MercExchange founder Tom Woolston. The decision was appealed to the US Federal Court of Appeals and was upheld in part and rejected on others. As of Nov 2005, eBay has appealed to the US Supreme Court to effectively block injunctive relief to patent holder MercExchange. The Supreme Court has agreed to hear the case in 2006.
  • On 28 July 2003 eBay and its subsidiary PayPal agreed to pay a $10 million fine to settle allegations that they aided illegal offshore and online gambling. According to the settlement, PayPal between mid-2000 and November 2002 transmitted money in violation of various US federal and state online gambling laws. PayPal was also forced out of this market, which accounted for some 6% of its volume. These offenses occurred prior to eBay's purchase of PayPal.
  • On 17 December 2004 Avnish Bajaj, CEO of eBay's Indian subsidiary Baazee.com, was arrested after a video clip showing oral sex between two Indian students was sold online. The company denied knowing the content of what they were selling (because it is a venue, not a retailer) and removed the offensive material as soon as they became aware of it. The Indian government attempted to make the case that Bajaj broke a law under India's IT Act, that forbids "publishing, transmitting or causing to publish" obscene material, even though the actual material was never published on Baazee's servers. eBay strongly supported Baazee.
  • On 14 June 2005 eBay removed auction listings for originally free tickets to the Live 8 charity auction amid hundreds of complaints about such auctions. Following a statement from Bob Geldof that declared eBay a "cyber pimp", many of these auctions were bombarded with fake bids. Normally, selling of charity tickets is legal under UK law.
  • In 2005, the Australian NRL tried unsuccessfully to persuade eBay to prevent scalpers from selling grand final tickets online.

Trivia

Some expensive items sold on eBay

  1. A 340-year-old copy of Shakespeare's Pericles, Prince of Tyre, which survived the Great Fire of London in 1666 (£5million)
  2. Grumman Gulfstream II jet ($4.9 million)
  3. 1909 Honus Wagner baseball card ($1.65 million)
  4. Diamond Lake Resort, western Kentucky ($1.2 million)
  5. Enzo Ferrari ($975,000, October 2004)[1]
  6. Shoeless Joe Jackson's "Black Betsy" baseball bat ($577,610)
  7. Round of golf with Tiger Woods ($425,000)
  8. Actual portions of the 1996-2001 Jeopardy! set, including the 9-foot-high Jeopardy! logo that was etched in glass as the backdrop. That sold for approximately $100,000 and one of the contestant podiums sold for nearly $10,000 (proceeds of the set's sale went to charity)

Largest item

One of the largest items ever sold was a World War II submarine, sold by a small town in New England that decided it did not need the historical relic anymore.

Largest failed auction

One of the largest items ever to be put up to auction and not sold was a decommissioned aircraft carrier. The auction was placed by an anonymous seller from Brazil on eBay Motors.

Unusual sale items

  • In June 2005, Karolyne Smith sold the right to permanently tattoo an ad on her forehead to GoldenPalace.com for $10,000.
  • In May 2005, a Volkswagen Golf that had previously been registered to Cardinal Josef Ratzinger (who had been elected Pope Benedict XVI the previous month) was sold on eBay's German site for €188,938.88. The winning bid was made by the GoldenPalace.com online casino, known for their outrageous eBay purchases. [2]
  • In 2004, a Seattle man posted pictures of himself wearing his ex-wife's wedding dress. In more than one way, the seller received much more than he expected. While he initially admitted he was selling the dress to earn some money for Mariners tickets, the bidding got into the thousands of dollars, and the seller actually had received a number of marriage proposals from viewers.
  • In September 2004, the owner of MagicGoat.com sold the contents of his trash can to a middle school language arts teacher, who had her students write essays about the trash. [3]
  • There was at one point an auction for the first ride on Kingda Ka, the tallest roller coaster on Earth. The winning bid was $1691.66, and the winner rode in the front seat. [4]
  • On November 23, 2004, a grilled cheese sandwich with a likeness of the Virgin Mary on it sold for $28,000 to the online casino GoldenPalace.com. The seller claimed to see the Virgin Mary toasted into the bread when she made the sandwitch in 1994. She promptly sealed it in a plastic bag where it remained, free of mold, for over 10 years until it's sale on eBay.
  • A Sydney man pocketed AUS$1,035 after auctioning a piece of Nutri-Grain resembling ET, in Dec 2004.
  • A 50,000-year-old mammoth. With a minimum bid set at US $250,000. Max was put up for sale in 2004 by his Dutch owner due to lack of space and sold for £61,000. A bargain considering he was one of the five best and most complete mammoth skeletons in the world, consisting of 90% of his original bone material.
  • The owner of Cockeyed.com sold advertising space comprising a single pixel on its homepage for 21 days for $100 [5].
  • An incomplete package of diapers, bought and opened in the 1980s, raised more than $700US for the Children and Families Ministry at a United Church in Victoria, British Columbia (Canada).
  • Water that was said to have been left in a cup Elvis Presley once drank from was sold for $455. The few tablespoons came from a plastic cup Presley sipped at a concert in North Carolina in 1977. [6]
  • A Coventry University student got £1.20p for a single cornflake. [7]
  • For $100, a man said that he would take a pair of jean his girlfriend made, and shoot them, and drag them behing his tractor, with a fee per shot/starting up the tractor. The item failed to sell. [8]
  • an European buyer sold an Vauxhall VX220 that was said to be baptized. [9]

Prohibited items

eBay in its earliest days was essentially unregulated. But as eBay grew, it found it necessary to restrict or forbid auctions for various items. Among the hundred or so banned categories (note that these relate to ebay.com (the US site), other regions may vary in their rules) :

  • Tobacco (tobacco-related items and collectibles are allowed) [10]
  • Alcohol (alcohol-related collectibles, including sealed containers, as well as wine sales by licensed sellers are allowed) [11]
  • Nazi paraphernalia [12]
  • Bootleg recordings [13]
  • Firearms and ammunition [14]
  • Dirty used clothing [15] This policy arose because a thriving market in used jock-straps and underwear had emerged on ebay. Sellers would post descriptions specifically emphasising that they had worn these undergarments for days, a week or more, especially during exercise. There was a demand for this kind of garment amongst sexual fetishists, and these garments would often fetch hundreds of dollars.
  • Human parts and remains [16]

As well as a long list of other items that are either wholly prohibited or restricted in some manner. [17]

Controversial practices of users

  • Bid sniping is placing a high bid during the last few seconds of an auction such that no time remains for other users to counterbid. This practice is allowed on eBay. Many other auction sites, such as Yahoo! Auctions, offer an option which extends the auction by some minutes when a last-minute bid is placed, in order to prevent sniping. eBay's "proxy bidding" feature allows the buyer to specify the maximum they are willing to pay for an item regardless of "snipes". [18]
  • Shill bidding is the deliberate use of secondary registrations, aliases, family members, friends, or associates to artificially drive up the bid price of an item. (This is also known as "bid padding".) Shill bidding is not allowed on eBay. [19] Furthermore, shill bidding is a crime in many jurisdictions, and can be prosecuted under United States wire fraud laws. [20]
  • Some users try to sell something which, on first glance, appears to be an expensive item for cheap (game console boxes are quite popular), and state clearly in the description that they are paying for an item which is not the one implied. This is not allowed by eBay.
  • Conversely, sometimes very cheap items, like envelopes, are sold for high prices because they come with free airline vouchers or concert tickets, in order not to violate the terms on these items.
  • Some users sell items for extremely low prices (usually using the Buy It Now feature) and then make up for it by overcharging on shipping. Since eBay charges their fees based on final sales price and not shipping, this allows sellers to reduce the amount they pay eBay in fees and for buyers to avoid importing fees and taxes into their country. This is called "fee avoidance" and is not allowed by eBay; such auctions are cancelled when they are reported. Another concern with "fee avoidance" is that most sellers will not refund shipping so if a $1 item with a $50 shipping fee turns up faulty, the buyer is only eligible to a refund for the $1.

See also

Further reading

  • [[|Cohen, Adam, ]],  () ( 2002). ""  [ The Perfect Store: Inside eBay], , , , : Little, Brown & Company. ISBN 0-316-15048-7.. (Hardcover, 336 pages)
  • Collier, Marsha (2004) eBay For Dummies, 4th Edition, John Wiley ISBN 0764556541. (Softcover 408 pages)
  • [[|Belbin, David, ]],  () ( 2004). ""  [ The eBay Book: Essential tips for buying and selling on eBay.co.uk], , , , : Harriman House Publishing. ISBN 1-897-59743-6..
  • [[|Cihlar, Christopher, ]],  () ( 2006). ""  [ The Grilled Cheese Madonna and 99 Other of the Weirdest, Wackiest, Most Famous eBay Auctions Ever], , , , : Random House. ISBN 0-7679-2374-X..

External links