The Last Days of eBay

Around the turn of the millennium, one of the friends of friends’ bands whose gigs I used occasionally to go to in the basements and back rooms of North London pubs was an indie guitar group called Keane. One Friday night in the early summer of 2001 at the Monarch on Chalk Farm Road, my girlfriend gave their manager (an ex-boyfriend of hers) a couple of quid for a homemade CD. ‘That’ll be worth a lot of money one day,’ he said. I assumed he was joking; I privately thought it was slightly affected of the band even to have a manager – couldn’t they book their own gigs at the Bull and Gate? Shows how much I know. Three years later, having traded in their guitarist for an electric piano, they released their first album. It went on to be the UK’s second biggest-selling record of 2004.

Shortly after their second album came out in the summer of 2006, Emma, in need of a new computer, looked into how much her old promo might be worth. A secondhand record dealer offered her £380. According to an internet fansite, however, the two or three that had been sold on eBay had gone for around twice that. Since I already had an eBay account, I put the CD up for auction on her behalf, with a starting price of £50, a reserve (concealed from prospective buyers) of £750, a brief but enthusiastic blurb (‘EXTREMELY RARE early KEANE CD single’ etc) and an excessive number of high resolution digital photographs of the CD and its packaging. I started the ten-day listing at 6.45 on a Thursday evening, so it would end shortly before supper time on a Sunday. I reckoned a majority of my target market could be at their computers then, mouse pointers hovering over the ‘place bid’ button as they tried to snatch a bargain from under the virtual hammer. Once I’d posted a disingenuous message in a forum on a fansite (‘I saw this for sale on eBay and wondered …’), there was nothing for me to do but sit back and wait. Sit back, wait, and obsessively check the listing every five minutes.

By midnight, there were three people watching the CD. At lunchtime the next day, there were five. By mid-afternoon, the number had gone up to ten, and one of them had made a bid. The following Wednesday, 38 people were watching and the bidding had reached £82; eBay sent me an automated email suggesting I lower the reserve. At lunchtime on Thursday, the bidding leapt from £200 to £311 in less than an hour. On Friday, someone in Greater Manchester sent me a message asking what the reserve was. I told him that disclosing the reserve was against eBay’s rules. He replied in aggressive capital letters, accusing me of wasting his time and insisting that I tell him the reserve so he could bid it because nobody else would. I ignored him and hoped he’d go away.

The eventual winner was someone who lived in Valencia. He, too, had a propensity for capital letters, though they sprang from enthusiasm rather than anger. Not unreasonably, since he was forking out £750 for the thing, he wanted to know how I’d come by the CD, and asked me to tell him everything I could remember about the band’s early days. As the editors of a recent essay collection, Everyday eBay: Culture, Collecting and Desire, observe, ‘value … depends on an object’s association with authenticity, memory and experience.’1 He wasn’t just buying a CD: he was also, five years after the event, buying a ticket to a gig at the Monarch on 1 June 2001. So he sent me the money, eBay took its cut, I sent him the CD, we provided each other with positive feedback, eBay item number 250,026,512,619 dropped from public view, and I started looking around for other things to sell.

The first item to be traded on eBay, according to popular legend, was a broken laser pointer. The site’s 28-year-old founder, Pierre Omidyar, got $14 for it in the autumn of 1995 from a collector of broken laser pointers. It’s too good, too iconic a story to pass up: nothing that you own, it implies, is too useless or too broken to be sold on eBay; here is a marketplace so massive, and so diverse, that nothing is beyond commodification. Even objects of no material or personal worth have exchange value. Whether or not Omidyar’s broken laser pointer was in fact the first item to be sold isn’t important.2 Another apocryphal story concerning eBay’s origins, though the site is happy to deny this one, is that Omidyar set it up to help his fiancée expand her collection of PEZ candy dispensers. The official line now is that Omidyar wanted to create a perfect marketplace, where big corporations wouldn’t be able to force unwanted goods on hapless consumers at unreasonable prices, but individual buyers and sellers would compete as equals on a level playing field. Thanks to the auction system, ‘the seller would by definition get the market price for the item, whatever that might be on a particular day,’ Omidyar told the journalist Adam Cohen.3

Whatever the motivation, Omidyar wrote the code for AuctionWeb, as it was originally called, over the Labor Day weekend in 1995. His Silicon Valley day job was at a company called General Magic, a spin-off from Apple, which was developing handheld communications devices (it went bust in 2002, five years after the Canadian firm RIM launched the BlackBerry). AuctionWeb was hosted on Omidyar’s personal website, www.ebay.com. He’d wanted the domain name echobay.com, simply because he liked the sound of it, but had been beaten to it by a Canadian mining company. Other areas of the site were variously devoted to a university alumni group run by Pam Wesley, Omidyar’s PEZ-collecting fiancée, and information about the ebola virus, which Omidyar happened to find interesting.

AuctionWeb went live on Monday, 4 September 1995. In its first 24 hours, it had no visitors. Omidyar set about publicising it. On 12 September, he posted an announcement on a usenet newsgroup, listing everything non-computer-related that was for sale on AuctionWeb. The 18 bits and bobs included a 1967 Superman metal lunchbox, an autographed photo of Elizabeth Taylor, a 1952 Silver Dawn Rolls Royce, on which the bidding stood at $38,500, and issue six of The Maxx, a comic book, on which the bidding had reached 75 cents: it was the cheapest item, and the earliest to be listed, at 17:44:27 PDT on 6 September 1995. There is no mention of any laser pointers, broken or otherwise.

The visitors started to arrive, and by the end of the year more than ten thousand bids had been placed on AuctionWeb. In February 1996, the site was receiving so much traffic that Omidyar’s internet service provider started charging him a commercial rate of $250 a month (up from $30 for a home user). With the ISP treating him like a businessman, he began to behave like one, and passed the cost on to his customers: sellers were charged 5 per cent of the sale price for items under $25, and 2.5 per cent for anything over that. Potential hawkers weren’t deterred by the new fees – after all, they didn’t have to pay anything if their stuff didn’t sell – and Omidyar took in comfortably more than $250 before the end of February. As Cohen points out, this made AuctionWeb ‘one of the very few internet companies to be profitable from its first month of operation’. It had none of the problems that beset many internet start-ups: since it wasn’t selling anything material, it didn’t have to worry about inventory, warehousing or delivery, all of which were taken care of by the ‘community’; and since it charged only people who made money through it, it didn’t have to worry about persuading surfers who were used to stuff on the internet being free to pay for its services. The company is currently ranked at number 326 in the Fortune 500 – lower than Campbell Soup, but higher than both Estée Lauder and Black & Decker – with revenues last year of $7.7 billion and profits of $348 million. Among internet companies, only Google ($16.6 billion) and Amazon ($14.8 billion) have higher turnovers.

At the last count, more than fifteen thousand people around the world were working for eBay (a figure that doesn’t of course include the many millions who contribute their ‘immaterial labour’, as Jon Lillie puts it in his essay in Everyday eBay, and is too approximate to be affected by the 125 who were laid off in March this year). Omidyar took on his first employee, a friend of a friend who came in a couple of days a week to open the post and deposit the money, in May 1996. A month later, Omidyar quit his job at General Magic to work on AuctionWeb full-time. In August, Jeff Skoll, another friend of a friend, who had an MBA from Stanford, came on board: Omidyar needed someone to work with him who knew how to put together a business plan. At Skoll’s urging, Omidyar reluctantly ditched the ebola info and university alumni, and devoted the whole of ebay.com to AuctionWeb. The name AuctionWeb was eventually dropped altogether, and eBay became eBay, on 1 September 1997, when the site was relaunched after a thorough overhaul, not least of the underlying code: the old architecture, groaning under the weight of traffic, had been crashing, often for several hours at a time, on a daily basis.

Meg Whitman joined as CEO in March 1998. Educated at Princeton and Harvard, she had previously worked for companies including Procter & Gamble (where she famously dedicated herself to working out the optimum diameter for the nozzle of a shampoo bottle), Walt Disney, Florists Transworld Delivery and Hasbro. In 2005, she was picked, along with Richard Branson, as one of Forbes’s worst-dressed billionaires. A fair chunk of the money that qualified her for that honour came from her 6.6 per cent stake in eBay. The company went public on 24 September 1998, when 9 per cent of it was floated on the stock market. According to Cohen, Omidyar and friends had ‘hoped to include the community when dividing the spoils’, since ‘eBay had been built, in large part, on the unpaid efforts of eBay’s early users.’ But the lawyers and bankers wouldn’t hear of it.

In July 1999, Omidyar, who owned 42 per cent of eBay, was worth $10.1 billion, Skoll $4.8 billion and Whitman just over $1 billion. They used 107,250 shares (a little under 0.3 per cent) to endow the eBay Foundation, which has, according to the website, ‘made over $16 million in grants since its creation’. Cohen describes in some detail one of the worthy causes to have benefited from the foundation’s work: helping Guatemalan women to bring their handwoven textiles to market on eBay, cutting out the ‘hard-driving middlemen – known locally as coyotes – who resold them at markups of up to 400 per cent’. It’s not clear whether or not the foundation is also helping the middlemen find new lines of work. Meanwhile, in Princeton, Whitman College opened its doors in the autumn, thanks to a $30 million eponymous donation. Whitman stepped down as CEO of eBay in March this year, to be replaced by John Donahoe, formerly the president of eBay Marketplaces. In January, when her departure was announced, the Los Angeles Times reported that Whitman might be considering a run for the governorship of California, on a Republican ticket, in 2010.

Skoll withdrew from the day-to-day running of eBay in 1999, ‘to devote himself full-time to philanthropy and fiction writing’, Cohen says. The novel never worked out, but in 2004 Skoll set up Participant Productions, a film company dedicated to producing movies that ‘raise awareness about important social issues’, among them Good Night and Good Luck, Syriana, An Inconvenient Truth, Fast Food Nation and The Kite Runner. Though he remains eBay’s chairman, Omidyar also left the office in 1999, turning his attentions first to European travel – he was born in Paris – and soon afterwards to philanthropy. The Omidyar Network was established in 2004: ‘Inspired by the social impact of eBay, we believe that business can create extraordinary opportunity and value, and that market-based solutions can generate significant social returns. Sustainability, innovation and scale are hallmarks of the private sector, and they are critical to addressing the global challenges we face today.’

But how good a model is eBay, how sustainable is it, and how significant have its social returns been? The site has made the headlines most often for the wacky merchandise that has been sold or listed over the years. The most famous instance is probably the ten-year-old toasted cheese sandwich bearing the image of the Virgin Mary that went for $28,000 in November 2004. In March this year, two sisters from Virginia sold a cornflake shaped like the state of Illinois for $1350. It was removed at first, since foodstuffs have to be sold in sealed containers with best-before dates, but the sisters got round that restriction by selling a voucher for the thing instead. In May, a jealous husband from Bletchley put his wife up for sale. He began the auction at a penny, but bids surpassed half a million pounds before eBay removed the listing. A CD of the ‘income-tax returns for 2005 of the entire Italian people’, which had been briefly posted online by the tax authorities, was removed after a few hours. Cohen mentions the ‘fully functional kidney’ that was listed on 26 August 1999, and shut down as a hoax eight days later, with bidding at $5.7 million. In July 1999, bidding for a ‘young man’s virginity’ reached $10 million before it was pulled. Shipments of cocaine, votes and souls have also often been listed. In 2001, the artist Keith Obadike put his blackness up for sale (the description is reproduced in Everyday eBay): ‘This heirloom has been in the possession of the seller for 28 years.’

Unpackaged cornflakes aren’t the only things eBay won’t let you sell. Other banned items, though the list varies from country to country, include tobacco, alcohol, drugs and ‘drug paraphernalia’, lottery tickets, guns (when the ban on firearms came into force on 19 February 1999, eBay was deluged with emails and posts on its message boards from gun fans defending their rights under the Second Amendment and accusing Omidyar and Whitman of being ‘jackbooted thugs’), Nazi memorabilia, counterfeit money, human remains, live animals, teacher’s edition textbooks, items that exist only inside computer games (though Second Life is illogically exempt), slot machines and dirty underwear. Secondhand pornography is available in a restricted ‘mature content’ area.

Supposedly the most expensive item ever sold on eBay was a 50 per cent deposit on a $168-million ‘gigayacht’ – if a megayacht is a really big yacht, a gigayacht is a really, really big yacht – in 2006. A rumour spread – possibly started by the seller – that the buyer was Roman Abramovich. But there doesn’t seem to be any hard evidence that the sale actually took place. As well as publicity stunts, a number of frauds, large and small, have been perpetrated through the site. Last summer, Philip Shortman, a 20-year-old from Cwmbran in South Wales, was sent to prison for selling £14,000 of non-existent goods, two years after being jailed for conning other eBay users out of a total of £45,000.

Between the end of 1998 and May 2000, a gang of three con artists from the West Coast of America sold more than a thousand worthless paintings at grossly inflated prices. One of them would put a picture up for sale, using one of his many different eBay IDs, and listing it in such a way as to give the impression that it was by a collectable artist, but that the person selling it, who had picked it up at a garage sale or been given it by his great-aunt, had no idea what it was. They never directly claimed to be selling a valuable painting, in other words, but gave enough clues for eager buyers to think they were onto a bargain. The other two men would then join in the bidding process, bumping up the price and adding to the illusion that the picture in question was worth something to collectors. In May 2000, they sold a painting not by Richard Diebenkorn for $135,858. The New York Times and the FBI were soon on their trail, and all three were eventually convicted of shill bidding. In 2006, one of them, Kenneth Walton, published an entertaining and half-apologetic account of his part in the scam, Fake: Forgery, Lies and eBay.4

As well as placing artificial bids for each other’s goods, Walton and his confederates hiked their credibility by giving each other’s avatars positive feedback. Omidyar introduced the feedback system in February 1996, as a way for AuctionWeb users to regulate each other’s activity, so he wouldn’t be called on to arbitrate in every dispute. As Cohen puts it, ‘the Feedback Forum played the same role on AuctionWeb that reputation plays in a small town.’ The more positive feedback someone has, the more confident you can be that you’re dealing with someone who’s honest and reliable. What’s more, anyone who accumulated too much negative feedback would be banned. The system inevitably had to be refined: at first, anyone could say anything they liked about anyone else, but in 1999, it became possible to leave negative feedback only for people you’d traded with, and in 2000 positive feedback too became ‘transactional’, to stop people simply boosting their friends. In May this year, it became impossible for sellers to leave negative or even neutral feedback about buyers. This has created a fair amount of anger since it was first proposed in January, prompting threats of boycotts and giving rise to alternative websites, such as ebuyer-feedback.com (‘rebalancing the playing field’), where sellers can continue to share information about customers’ bad behaviour.

The playing field has tilted in other directions, too. At the end of 2000, eBay introduced a feature called ‘Buy It Now’, which enables you to skip the auction process altogether and buy an item for a fixed amount – so much for the fantasy that ‘items would sell at the exact point where supply met demand.’ Since February this year, so-called PowerSellers – to qualify as one you have to flog at least 100 items or £750 of stuff a month and be registered as a business on eBay – get to pay a smaller percentage of their revenues to the company than ordinary folk. So much for the idea that ‘sellers would all have the same opportunity to market their wares.’

The notion that ‘the auction format would … yield the perfect price’ was always fanciful, of course. Once you get hooked into an auction, you can easily end up paying far more for something than you would under normal circumstances, because you get carried away in the heat of the moment, or because you have your heart set on winning, or simply to beat the other guy. Sometimes that’s near to impossible, however much you bid, because the other guy is a piece of automated software known as an auction sniper, which trawls the site looking for whatever it’s been programmed to look for and making a winning bid in the last few seconds before an auction closes. eBay has tried to ban them, but with limited success. The bidding process has a certain amount in common with playing a hand of poker, where it’s all too easy for an undisciplined player to go all in with a flush even though he knows there’s a decent chance that his opponent has a full house. The equivalent mistake on eBay is to keep going way beyond the amount you would have been willing or able to pay had it simply been printed on a price tag, and to end up winning the auction with a horribly bloated bid. The problem in both cases is not knowing when to quit – or knowing, but hanging on in there anyway. eBay is as prone as any other marketplace to boom, bubble and bust.

When the dot-com bubble burst in April 2000, eBay’s stock fell by 50 per cent. But its users, revenues and profits all continued to rise. And, as large corporations are required by the logic of capital to do if they are to continue to be successful, eBay proceeded to guzzle up other companies to fuel its growth. In 2000, it acquired half.com, another peer-to-peer online marketplace, but one that sold books, CDs, videos and computer games at fixed prices (the original idea was that nothing could go for more than half its list price, hence the name). In 2002, after a year-long auction, eBay bought up PayPal – a frustrating and unwieldy online payment system, but still the closest thing to cybercash so far devised – because so many transactions on eBay took place using it that it seemed foolish not to incorporate it fully into the site. Since then, eBay has bought, among other things, a 28 per cent stake in Craigslist, the internet’s largest free classified listings site, as well as acquiring rent.com, shopping.com, the social networking site meetup.com and, most notoriously, the free internet telephone service Skype, for which it paid $2.6 billion up front in August 2005.

In October 2007, eBay more or less admitted the error of this hasty purchase, paying half a billion dollars to absolve itself from any further obligations to Skype’s original owners, and taking a hefty $900 million ‘impairment write-down’, acknowledging that it had paid way over the odds for the company. It was never clear where Skype, unlike PayPal, would fit in with the rest of eBay’s business. Skype provides a service – telephone calls over the internet – either very very cheaply (when calling a regular telephone number) or for free (when calling another Skype user). By buying it, eBay embroiled itself in one of the difficulties that it had so neatly sidestepped in the early years: how to make money out of something which depends for its appeal, and indeed its usefulness, on costing next to nothing. When the write-down was announced, the know-it-alls at the Economist suggested Whitman wouldn’t remain as CEO for very much longer. They weren’t wrong.

Its other acquisitions are causing problems for eBay, too. No sooner had the company resolved a patent dispute with a company called MercExchange over the ‘Buy It Now’ concept – after a five-year wrangle, eBay simply paid MercExchange for the rights to use the patent – than it decided to sue Craigslist for doing things (it didn’t say precisely what) that ‘unfairly diluted eBay’s economic interest by more than 10 per cent’. In April, Craigslist struck back with a countersuit, accusing eBay of violating trademarks and running advertisements on Google for its own classifieds site, Kijiji.com, that appeared to be ads for Craigslist. In the marketplace, meanwhile, eBay faces rising competition from companies like Jack Ma’s Alibaba and taobao.com, which are based in Hangzhou but have a global – and growing – reach.

Even if eBay and its partners don’t consume themselves entirely in the courts, and it manages not to get sidelined by Asian rivals, its eventual decline is anyway perhaps inevitable, because of the logic of its internal contradictions. In We-Think,5 Charles Leadbeater blithely lumps eBay together with the flagship sites of the phenomenon known as Web 2.0: MySpace, YouTube, Wikipedia and Facebook. According to Wikipedia, Web 2.0 refers to ‘the trend in the use of World Wide Web technology and web design that aims to enhance creativity, information sharing and, most notably, collaboration among users’. The wikipage is illustrated with a screenshot of eBay, ‘a typical Web 2.0 website’. It isn’t typical, however: MySpace, YouTube and Facebook are all funded by advertising, and Wikipedia by donations; eBay charges its users. With the spread of free social networking sites, not to mention the ubiquitousness of Google, the need for eBay becomes increasingly unclear. Why give eBay its 2.5 per cent cut when you can auction a CD to all the Keane fans on MySpace and Facebook, who can check your integrity on a site like ebuyer-feedback.com? This isn’t yet possible, though surely it soon will be. Last year, for the first time, the number of listings on eBay began to decline. The company was built on the principle of cutting out the middleman; in the process, it has become the middleman. At some point in the not too distant future, its cherished community of online traders may well decide that the time has come to cut it out.