This paper examines the factors behind eBay's remarkable rise as one of the Internet's most successful e-commerce platforms. Beginning with Pierre Omidyar's 1995 founding story, the paper traces how eBay leveraged first-mover advantage, network effects, and a community-centered business model to achieve $15 billion in sales by 2002. It analyzes the role of eBay's feedback system in building social capital and trust, explores how the company cultivates product categories, and considers the challenges smaller sellers face as institutional vendors enter the marketplace. The paper concludes that eBay's core strength lies in its innovative use of global communication to connect buyers and sellers worldwide.
The number of eBay members online today is remarkable. eBay has succeeded in redefining the way the general public buys and sells virtually anything, as well as how the world communicates. The reasons for eBay's success and popularity come down to a few core factors: membership, choice, value, and communication. This paper discusses the success of the eBay phenomenon, emphasizing how its innovative method of global communication filled a much-needed void in the consumer marketplace.
In 1995, Pierre Omidyar, a Silicon Valley software engineer, created a website so his girlfriend could find other collectors of Pez dispensers (Avis, 2002). To his surprise, droves of people came to the site wanting to trade various types of collectibles. He slowly expanded the website, eventually quitting his job to accommodate the overwhelming demands of his new venture, which was generating thousands of dollars in fees per day.
Today, eBay is one of the highest-traffic sites on the Internet, with 41 million members around the world (Avis, 2002). The site generates approximately 1.5 billion page views per month and provides a source of worldwide communication for buyers and sellers across all markets. According to Forrester Research, eBay reported $15 billion in sales in 2002, as well as a market capitalization of $24 billion (Hill, 2003). Globalization has played an enormous role in the eBay phenomenon, as international business already accounts for approximately 15% of eBay's total annual revenue.
The core purpose of eBay is to provide a communication link (Avis, 2002). It is essentially a place where buyers and sellers from around the world can meet to trade. Rather than functioning as a large classified-ad site, however, every sale is conducted through an auction. Over a set period of time, anyone with interest in a listed product can submit a bid. Bids are displayed in real time, and at the end of the auction the highest bidder purchases the product.
eBay is an exciting, innovative, and competitive marketplace for communication. Through first-mover momentum and superior service, eBay has capitalized on the network effect to a greater extent than any other e-commerce company in the market (Hill, 2003). eBay's enormous customer base creates a growing bubble of influence that functions as a powerful magnetic field — large and small merchants are drawn to the platform because they know a surplus of buyers is present, while consumers are drawn by the extensive product selection. The result is a massive communications link that provides something for everybody.
According to Hill (2003), "two priorities dominate eBay's operational strategy: keeping its buyer/seller community happy, and keeping its massive Web site up and running." eBay's leaders operate the company as a community-based business. To that end, eBay maintains a high degree of communication with its customers through posted bulletins, interactive message boards, and an unprecedented accessibility of its top-level executives. For example, Meg Whitman, eBay's CEO, was known throughout the community simply as "Meg."
Software tools also serve to regulate trust within the community (Hill, 2003). The company's feedback system is a secure, self-regulating mechanism that maintains integrity and accountability in eBay's marketplace. Through enhanced communication, eBay members feel secure and comfortable buying and selling through the site.
When examining eBay's phenomenal success, its role in building out specific product categories is particularly significant (Hill, 2003). The company follows the lead of its sellers to some extent in determining its product directory. For example, while eBay did not create the Beanie Babies craze, it enabled a brisk secondary market for trading them.
When eBay identifies an excess of activity in a relatively new category, it works to actively promote that category. Concentration on eBay Motors, for instance, resulted in $3 billion in sales in 2002. According to Hill (2003), "home electronics ($2.2 billion), home appliances and furniture ($1.4 billion), and baby merchandise (50% growth in 2002 over 2001) also have grown robustly, thanks to the company's stewardship."
According to CEO Meg Whitman, eBay's main goal is "to build the world's largest online trading platform where practically anyone can trade practically anything" (Schonfeld, 2002). This goal has been largely realized — eBay has come closer than any other product of the Internet boom to fulfilling the promise of the virtual corporation. The company carries no inventory, operates no warehouses, and employs no sales force, yet it remains successful and profitable.
eBay has also mastered the exceptional ability to attract social capital, which can best be described as trust, goodwill, or credibility (Schonfeld, 2002). With its vast community of buyers and sellers, eBay deploys more social capital than almost any other company in the market. That social capital allows eBay to enhance communication among millions of entrepreneurs on its site who seek to meet the demands of an even larger base of buyers.
"How feedback builds trust and drives seller behavior"
"Institutional sellers crowding out small individual vendors"
eBay also provides another very important dimension of communication — community involvement. Through identification, message design, monitoring, and a feedback forum, the eBay community generates vital input that encourages buyers to purchase more products. This community creates an element of trust that is necessary for successful communication. Moreover, such involvement fosters a genuine sense of partnership — an essential ingredient for communication to become truly effective.
Avis, Martin. (2002). The eBay phenomenon — from Pez to practically everything. BizEZine. Retrieved from the Internet at
Espino, David. (2001). The effects of the eBay phenomenon on American merchandising. Homebased Business Owner. Retrieved from the Internet at http://www.homebasedbusinessowner.com/ebayeffects.htm.
Hill, Brad. (March 4, 2003). What makes eBay invincible. E-Commerce Times. Retrieved from the Internet at
Schonfeld, Eric. (March 2002). eBay's secret ingredient. Business 2.0. Retrieved from the Internet at
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