Brief-eBay

Who founded eBay: A French computer programmer called Pierre Omidyar, who conceived the idea after noting his wife’s passion for collecting the quirky Pez candy dispensers. Omidyar realized that the best way to bring her together with other collectors was via the Internet. He launched eBay, in September 1995, as a central location for trading collector’s items: coins, stamps, back issues of magazines and newspapers. But soon everyone was visiting the new site: Floated on the Nasdaq stock exchange in 1998, its shares were valued at $234 at the peak of the dot-com bubble.

What is the big attraction: Price—and instant access to a vast potential marketplace. Sellers often find they are able to locate buyers for things they couldn’t sell otherwise, including hurricane air, celebrities’ chewing gum, and antiques growing dusty in their attics. eBay, in fact, claims that the success of its antiques trading has helped push up antiques prices by 10 percent. And for buyers, the thrill of the auction itself is highly addictive. Many compulsively trawl the 2 million items on sale at any given time looking for bargains. Bidders obsessively track the progress of their auctions to see how their bids are faring. eBay will even send bidders mobile phone alerts to update them on the progress of auctions.

How does the auction system work: Almost entirely on trust. Buyers and sellers agree to exchange money and goods, usually on the basis of little more information than appears on-screen. Sellers post photos and descriptions of their items and may respond to e-mail inquiries from potential bidders. Auctions last anywhere from one to 10 days, and there will often be a flurry of bids in the closing minutes. To improve trust, eBay uses a feedback system, with both sides posting comments about each other once a transaction is complete. In this way, regular traders can build a reputation for honest dealing. But the problem remains that, once a deal is agreed, the onus is on the buyer to send payment and on the seller to send the goods. There is not much that either side can do about it if the other reneges on the deal.

How has the site evolved? In its early days, the vast majority of sellers were individuals. Today, a growing proportion are established businesses, which means eBay is increasingly acting like a standard Internet retailer. Thus some 27 percent of goods are sold at fixed prices, often using the site’s “Buy It Now” feature, which allows buyers the option of buying immediately at a given price, rather than waiting to see what the price works out to at auction. Professional traders with several of the same item to sell are particularly keen to set a fixed price, rather than auction each item individually. This formula has proved so successful that many traditional retailers have set up their own branded stores on eBay. There are now 181,000, up from 110,000 last year. Slowly but surely, the world’s online flea market is turning itself into the world’s online Wal-Mart.