Challenges and potential problems

Competition for eBay has come from both ends of the internet spectrum, from start-ups to the biggest names on the web. Omidyar believes eBay's first-to-market advantage, critical mass and focus on creating vibrant marketplaces, gives it a significant edge over its rivals:

'It's important to remember that the business we are in is creating marketplaces. We bring buyers and sellers together to exchange goods – and if you are a buyer you are looking for the largest selection.

'Likewise, if you are a seller you're looking at where to sell your item and how much you will get for it. In both cases, it's basically about the largest marketplace. And in the US, it's eBay.

'Sure, it's been very difficult – we have seen a lot of competitors come in, some of whom have been better capitalized than us. But it's difficult for them to create a new service that draws people away from eBay because that existing market is already there.

'Our two key competitors in the US are Yahoo and Amazon. Yet they represent a very, very small portion of the total business that goes on in the United States person to person.'

Omidyar underlines the eBay advantage:

'It's primarily the fact that there is a vibrant and effective marketplace at work. It's like a network effect, so the idea is that if you are going to buy a fax machine you want to make sure your fax machine can communicate with everybody else's fax machine. So if there are different formats then that would be silly.

'It's the same as the VHS versus Beta battle – although Beta was a better format, VHS proliferated more quickly. So although the consumer could have bought a better format, they decided to buy a format that was more compatible with everyone else's so they could be part of that network. It's a virtuous cycle that occurs – you bring buyers on that attract sellers and you bring sellers on that attract buyers and it goes into a virtuous cycle that keeps feeding on itself.'

Does he fear any of the competition?

'Well we do keep a good eye on our competitors.We try to learn from what they are doing and the fact that the two in the US are probably the two best internet companies out there is in some ways a compliment.'

'What sets us a part is that we are singularly focussed on helping individuals do business with one another and that's all we do.

'We don't care about selling books, music, or dog food or whatever it is. That I think is one of our key successes in the US and I hope will be in Europe as well.'

The consistent problems to have faced the company have been moral and technical ones. In the former category, eBay has been criticized for having people auctioning human organs, Nazi memorabilia and live rare animals. Omidyar takes a phlegmatic stance:

'Well, eBay is an open marketplace. Not only is it a large vibrant marketplace but every day we get anywhere from 300 000 to 400 000 new listings. Every single day there are 3 million listings, so you are bound to get some people putting up some strange things. However, eBay doesn't actually sell anything, so we were never doing anything wrong or offering any kind of illegal goods.

'What happens sometimes is either sellers don't know any better or they are pranksters who come on the service and our community has always been good at spotting these people, letting us know about them so that we can take appropriate action.

'It's always going to be a part of any kind of marketplace. Like a city will always have a certain part of it that's not ideal but well over 99.99 percent of our transactions happen without a hitch and that's really the magic of eBay.'

Indeed, the eBay magic worked for its founder and chairman early on:

'I bought a laser pointer and these are the little red dots for presentation but they are also cat toys. I don't know if you have every played with them with a cat – that's really what they are for, not presentations – you chase the dot around the floor, on the wall and the cats just run after it, it's wonderful.

'So after about two weeks of that the cat was still going but the laser point was not. It had stopped working. I replaced the battery but it didn't start working again so I decided I would throw the thing away. Then I thought, why not put it up on eBay and see what happens? So I listed it on the site as a broken laser pointer, I described it and said I'd replaced the battery and it still didn't work, I'd paid $30 for it, so start bidding at $1.

'By the end of the two-week auction, the laser sold for $14 – almost half of what I paid for it – to somebody who is quite happy and plans to take it apart. I think that's when I realized one man's trash is another man's treasure and really turning something I was going to throw away into $14 hard cash was kind of cool.'

However, the founder and chairman is not a collector:

'People do ask me if I am a collector, but I'm not, though I enjoy learning about other people's collections. I get quite excited about them and I will go on eBay to see if I can find some interesting things. I also spend some time thinking about complexity theory and how networks systems interact. eBay is a perfect example of an organic system that has evolved into a complex adaptable system and that's kind of neat.'

The company's most glamorous acquisition to date has been that of Butterfield & Butterfield, the auspicious San Franciscan auction house. Omidyar explains:

'The acquisition has gone very well. They are the only traditional auctioneers – and we have talked to all the big ones – who really seem to understand what the internet is about.

Omidyar is determined to keep eBay's focus on its service, rather than what the latest technology can do

'We intend to use them to gain some more knowledge about fine arts, decorative collectibles and to launch our eBay great collections product. It's enabling us to bring this high-quality authenticated and guaranteed merchandise from dealers across the world.'

It is the kind of detail the company prides itself on and underlines the management's belief in itself as an auction company first and an internet group second. In fact, Omidyar is determined to keep eBay's focus on its service, rather than what the latest technology can do:

'One of the interesting things about eBay is that we have always lagged behind internet technology. We make very little use of Java these days even though it's been around for a long time and that's primarily because our customers have also. They use all sorts of browsers and have old computers and slower modems and all that kind of thing. Unlike some internet companies, we're very agnostic about technology.'

This may strike some observers as odd, given the technical problems that have beset the company. Its latest results revealed the company had been forced to spend almost $9 million on a new back-up computer system, as well as increasing its technical staff by 50 percent. The company has been plagued by 'outages', the term used when a site collapses. An outage in June 1999 kept the site closed for 22 hours and sent the eBay share price tumbling. With competitors circling, the additional systems expenditure was warmly applauded by Wall Street.