Friday, July 12, 2013
the last book I ever read (dot.con: How America Lost Its Mind and Money in the Internet Era, excerpt ten)
from John Cassidy's dot.con: How America Lost Its Mind and Money in the Internet Era:
Pierre Omidyar, a young Silicon Valley entrepreneur who left France when he was six, founded eBay in September 1995. According to many media accounts of the firm’s genesis, Omidyar was motivated by his girlfriend, who complained that she didn’t have enough trading partners for her growing collection of Pez dispensers. Randall Stross, in his exhaustively researched book eBoys, tells a fuller and more convincing story. During a previous incarnation, as the cofounder of Ink Development, a company that made software for pen-based computers, Omidyar oversaw the development of a back-end system to handle sales and accounting. In 1995, he decided, on a whim, to write some software that would allow people selling things online to conduct an electronic auction. He posted the service on a home page, which he called www.AuctionWeb, and let people use it for nothing. Omidyar didn’t do any advertising, but word of his new site spread, and by the end of 1995 it was getting a couple of thousand hits a day.
In February 1996, Omidyar started charging sellers a small fee. Within a few months he was taking in $10,000 a month, which represented the commissions on the sales of fishing lures, coins, rare magazines, golf clubs, and all sorts of things. He left his day job, changed the site’s name to eBay, and recruited a partner, Jeff Skoll, a Canadian-born engineer, to help him run it. Despite the continued absence of any marketing, the number of listings was doubling every two months. In the fall of 1996, Omidyar approached Bruce Dunlevie, a VC he had worked with while he was at Ink Development. Dunlevie was now a partner at Benchmark Capital, a newish firm that had been founded in 1995. Dunlevie introduced Omidyar to one of his colleagues, Bob Kagle, who, after some initial reluctance, agreed to invest about $5 million for a 20 percent stake in eBay.
This $5 million was probably the best venture capital investment of all time. In early 1998, Meg Whitman, a senior executive at Hasbro, the toy manufacturer, agreed to join eBay as chief executive in preparation for an IPO later in the year. Whitman had hardly heard of eBay when she was approached about the job, but its growth rate impressed her, and so did its business model. Unlike Amazon.com and most other e-commerce companies, eBay had no inventory or shipping costs and really was a virtual company. It brought the buyer and seller together, charged the seller a commission of between 1.25 percent and 5 percent, then left the two parties to sort out how to get the auctioned good from point A to point B. As a result, its gross profit margins were about 90 percent.