VideoFew things are as plain as this: Gary Bengier was meant to work at eBay. The San Jose, California-based eBay Inc. is the world's largest personal online trading community. Bengier, the company's CFO since fall 1997, happens to be an avid collector himself, with an impressive assortment of rare coins and fossils. eBay — generally credited with inventing the online auction format — has been hailed as a leader in ecommerce.
Bengier is a pioneer in his own right, having served as the top finance officer at several high-profile software and high-tech startups, including streaming video specialist Vxtreme Inc. Finally, eBay continues to face some fairly steep challenges — nagging little problems like system outages, theft of intellectual property, and user fraud. Bengier, too, knows a little something about uphill slogs. A world-class mountain climber, the finance chief has made it to the top of the Matterhorn. The mountain, not the ride.
Indeed, spend any time at all with Gary Bengier and you soon realize that he fits eBay like Pez in a Popeye dispenser. Since signing on with the company, the Harvard Business School-trained Bengier has helped transform the online auctioneer from a Silicon Valley startup into a Wall Street favorite. eBay went public in late 1998, with the initial public offering priced at $18 per share. Six months later, a share of eBay common had jumped to $80. Even with the recent cool-off in the dotcom sector, eBay stock is still trading around $50 per share — a threefold increase from the offering price.
Investors have good reason to stick with eBay. In an Internet world populated by empty- pocketed visionaries and pie-in-the-sky etailers, eBay actually makes money. Through the first three quarters of 2000, the online auctioneer racked up $24.4 million in earnings off $300 million in revenues. Management now projects the company will hit $3 billion in net revenues by 2005 — an annual growth rate of almost 50 percent. Gross merchandise sales at the online auction house top $5 billion, an astonishing figure given eBay's been around for only 5 years. "It took Cisco 12 years, Microsoft 19 years, and Intel 23 years to reach this kind of economic activity," crows Bengier.
All of which proves that technology is swell, but a good idea is hard to beat. Remarkably, eBay generates nearly $500 million in revenues without manufacturing a thing. The online operator is nary more than a promise and a brand, as ethereal as money wired to a bank. eBay doesn't hold inventory, doesn't move goods, doesn't transfer payments. The 15 million or so registered users do most of the legwork, posting and haggling over roughly 4 million items for sale in 4,320 product categories — everything from Beanie Babies to Salvador Dali etchings to failing dotcoms. Users spend, on average, $166 — per second. "eBay has created a model that drives revenue with very little capital," says Anthony Noto, ecommerce analyst at Goldman Sachs in New York. "That's not easy to do."
In an era of disintermediation, eBay is the ultimate middleman. By serving as facilitator, it has successfully skirted the usual ecommerce pitfalls — things like procurement, merchandising, inventory risk, order fulfillment, and shipping. Not surprisingly, eBay's profitability has inspired scores of imitators, wannabes, and rivals.
In May, online giant Amazon.com reported it had increased the number of items listed for auction or fixed-price bid to 2 million, or about half of what eBay lists. And last year, Dell Computer, Microsoft, and more than 100 other companies announced they had linked their Web sites — along with their 46 million users — to a new auction platform run by FairMarket, a builder of online auction sites. "To eBay has become a verb now," says Vernon Keenan, Internet analyst at Keenan Vision Inc., a market research firm.
Even old-economy stalwarts like JCPenney have aped the online auction house. "I've counted literally thousands of mini eBays, companies replicating eBay in part or in full," says Keenan. "They all want to be the eBay of their industries."
The secret to eBay's remarkable success, however, goes beyond a brilliant business model. Bengier and eBay CEO Meg Whitman, a former Disney and Hasbro marketing executive, have consistently plowed revenues back into the company, investing in core acquisitions around the world. Management has also restructured the company along product category lines to obtain more marketing focus. Further, the company's legal staff has not exactly been shy about going after intellectual property trespassers.
More important, eBay has been able to assemble a true Internet community — a feat that's eluded even the best-backed dotcoms. "That critical mass of users drives a virtuous cycle of accelerating growth," explains Noto. "The more sellers on the site, the greater the selection of goods for sale, which attracts more buyers. More buyers result in higher prices for goods transacted, which then attract more sellers."
This virtuous cycle, propelled by unswerving brand loyalty, is the Holy Grail of ecommerce. Noto says simply: "eBay's network effect creates a barrier to entry that is very hard for competitors to break."
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