eBay's Bid For Success

Internet Auction Site Racking Up Big Gains

When the dot.com boom went bust, most Internet companies disappeared.

But not eBay, the online auction company that in just a few years has become one of the biggest business stories in America.

When 60 Minutes II first told you about eBay last October, there were an estimated 50 million people worldwide using the Web site.

Today, eight months later, there are nearly 69 million eBay users who spend $59 million every day. Much of it goes to small "mom and pop" businesses that auction everything imaginable.

What started as a hobby just a few years ago is now a cultural phenomenon.
And, as eBay's CEO Meg Whitman tells Correspondent Charlie Rose, it's only the beginning.

"I think I am most surprised by the fact that we have become the largest site on the Web for the buying and selling of used cars, motorcycles and auto parts," she says. "You have to remember that in September of 1998, eight percent of the items on eBay were Beanie Babies."

The company sells a motorcycle every 18 minutes and an SUV every 30 minutes. As many as 150,000 people have literally given up their jobs to create their own businesses selling on eBay.

Laurie Liss and her mother, Darlene, armed with little more than a computer, a camera, and something to sell, built their own eBay business that is now selling $30,000 to $40,000 in goods a month.

"It's almost like the world's largest garage sale even though for some people, they're selling used," says Laurie Liss. "We're selling new."

The lure of a bargain, combined with the excitement of a Las Vegas gamble, is what brings in millions of Internet customers. The loyalty and enthusiasm of devoted eBay users all over the country is what has helped build eBay into the powerhouse it is today.

"It's a gamble. There's a little bit of gambling. Am I going to get the auction," says Kathleen, a buyer who claims she now looks on eBay "for anything I need in the house, before I go out." This includes Tupperware, small appliances, clothing, Christmas and wedding gifts.

An eBay auction works exactly the same way as an old-fashioned one: the highest bidder wins.

For example, Mike Benson, a St. Louis lawyer, is looking for a rare baseball card of Stan Musial. In seconds, he finds 84 different Stan Musial cards up for auction on eBay, including one for the very card he wants. To bid, he simply enters the highest amount he's willing to spend. In this case, it's $50. He eventually lost the card to a higher bid of $63.

Every time there's a sale, eBay takes a cut of the action. As a result, eBay's market value is now worth more than Bloomingdale's, Macy's, Sears, and Toys 'R Us combined.

"It was an entirely new idea that took advantage of the Net," says Whitman. "There's no land-based analog for eBay. We hold no inventory, we ship no product."

This is a marketplace where a Madonna fan can buy an outfit from the singer's world tour, and a prospective homeowner can spend $2,100,100 for a country house in New York State with its own missile silo.

Sixteen million items are up for sale every day. And eBay users aren't just buying and selling -- they're also talking online in chat rooms.

"We spend more time together on the boards than I do with my family," says Judy, an eBay user.

Four years ago, Laurie Liss began selling discounted designer clothes and shoes that she picked up on sale at department stores. Now, the entire family is part of the action. Laurie models an outfit, her sister snaps the picture, her brother-in-law puts it on eBay. As the bids start coming in, her mother monitors the auction.

The shipping department is in the kitchen, where mom and dad are packing boxes to send around the globe. They keep their inventory - their Prada shoes, their Guccis, and their Chanels - in the garage. They ran out of room in their original home, so they just bought three new houses all in a row with their eBay profits.

"We don't do it to make a fortune," Laurie says. "We do it just so we can stay home. I stay home with my son. It's like we all just work together. And it's like we have a good time."

And it's a good family business. They've become so established on eBay that they no longer have to go looking for bargains. Now, the deals come to them.

"The day the manager tells the salesman, 'Hey, this stuff is going to get marked down 50 percent tomorrow,' our phone rings," she says. "They call us, so we tell them to pull everything. They pull it all and just ship it to us."

It doesn't take long before it's sold on eBay and shipped to the buyer. "I had a Prada shoe," Liss says. "I got home with it, took a picture, listed it and, I think, 17 minutes later it was purchased. I had it going to Germany in less than an hour. It was already on it's way."

Why does she enjoy the work? "It's almost like gambling in Vegas," she says, "because you'll buy something and you'll think, 'Oh, these are gonna be really hot.'"

And that's how eBay got really hot. About a year ago, eBay started something they call "Buy It Now." Sellers no longer had to set up an auction -- they could sell retail directly to the customer, just as Liss did with her Prada shoes. That's when the heavy hitters arrived.

Now, IBM sells home computers on eBay and Disney offers vacations and all things Mickey and Minnie.

With all this action, eBay has hit the jackpot. Profits are up 71 percent in from this time last year, almost a quarter of that from these direct sales.

"Big companies do sell on eBay," says Whitman. "And they find it to be a very cost-effective distribution channel. But they sell on the same terms as you, an individual, would sell."

There is no advertising and no promotion: "We think it's important to have this level playing field," adds Whitman. "So your neighbor next door has an equal chance of success as a large corporation."

That democratic idea, the core principle of the company, comes from Pierre Omidyar who started eBay as a hobby and now, at 35, is worth about $4.5 billion.

"I sat down, frankly, over Labor Day weekend 1995, after having kind of thought about these issues for a couple of months, and I just whipped up some code, " says Omidyar. "By Monday afternoon, Labor Day, I had the site up."

He sees its potential as limitless and has even developed a feedback system, rating customer satisfaction. The reputation of a seller is critical -- too many negative comments and you're banned as an eBay seller forever.

eBay investigates fraud claims, but relies mainly on buyers and sellers to police themselves. Omidyar estimates that only 30 sellers out of a million fail to deliver on their promises.

If it sounds a little too perfect, it may be. Omidyar and Whitman were named in a recent Congressional investigation for accepting special prices on new stock offerings from eBay's investment banker, Goldman Sachs, and selling their shares for quick profits. Both say there was nothing improper or illegal in what they did, or in their relationship with Goldman Sachs.

Meanwhile, eBay's reputation on Wall Street is better than ever, and Whitman believes her company can challenge Walmart.

"Our business model is to connect buyers and sellers," she says. "And so ultimately our buyers and sellers may do more economic activity than a Walmart. But it is not one group of people deciding what to buy. It is the power of many sellers."

Thousands of successful sellers from all over the world showed up at eBay's first national convention in Anaheim last summer. The company had a reward for its big sellers -- access to low-cost premium health insurance, a fitting reward for the mom-and-pop sellers who form the backbone of eBay.

Whitman says that the buyers and sellers make up eBay: "We actually do work for them," she says. "That is not a myth. That is not a PR spin. That actually happens to be the case. And it's the soul of eBay. By the people. For the people."