Famous investors – Pierre Omidyar and his selling adventure

Timeline
1967 Born.
1988 Graduates from Tufts University.
1991 Co-founds Ink Development Corporation in 1991.
1995 Starts eBay as homepage hosted by the local ISP.
1996 Ink Development, renamed eShop, sold to Microsoft.
1996 eBay profitable by February.
1997 Three million items sold. Recruits Meg Whitman as CEO.
1998 Completes 10 millionth auction in May. Over one million registered users. IPO
in September.
2001 Over 29.7 million registered users. Net income totals $64.5 million to
September.
2001 eBay stores launched.
2001 Named as second richest young American.
2002 Joint venture with Sotheby’s.
2003 Business-to-business site launched.
Summary
From an idea sparked by a casual conversation, Pierre Omidyar built one of the
world’s most successful Internet companies, eBay. Started in 1995, eBay is the online
equivalent of Aladdin’s cave, a treasure trove stuffed to the rafters with everything
from Beanie Babies to grand masters. With millions of items up for auction and
600,000 new ones added every day, it is a collector’s paradise. Profitable almost from
the beginning, Omidyar’s handling of his idea has been masterful. He started the
business as a hobby but was astute enough to recognise the tremendous commercial
possibilities. He got the right people in—including Jeff Skoll and Meg Whitman—to
manage the company through rapid expansion, to IPO and beyond. But Omidyar was
always on hand to make sure the business stayed true to his original vision. By 2001,
eBay had nearly 30 million registered users and was still turning a handsome profit.
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Background and Rise
Born in 1967, Pierre Omidyar moved to the United States from his native France at
the age of six. The family settled in Maryland, where Omidyar’s father took up a
residency at the Johns Hopkins University Medical Centre. At school Omidyar played
truant so he could spend more time on his hobby—computing. For six dollars an hour,
he hired himself out to the school library writing computer programs to print out
catalogue cards.
Omidyar studied computer science at Tufts University in Massachusetts. It was there
he met his wife Pamela, who was studying for a biology degree. Pamela was to have a
major influence on Omidyar’s career in a way he could never have suspected. When
he left university, Omidyar went into the computer industry, first as a software
developer at Claris and then at General Magic Inc. His first attempt at starting his own
company was Ink Development Corporation, set up with three friends. The company
created software that allowed computers to interpret instructions entered using a pen,
rather than a keyboard. Later renamed eShop, the firm was sold to Microsoft in 1996
making Omidyar a wealthy man.
Defining Moments
The question was what to do next? The idea for eBay emerged from a conversation
with Pamela, his then fiancée, while Omidyar was still at General Magic. Pamela was
a keen collector of Pez dispensers—sweet dispensers with a cartoon character head
that tilts back. She hankered to meet other enthusiasts and swap dispensers. This gave
Omidyar the idea for a website where collectors could meet to buy, sell and discuss
their collections with fellow enthusiasts. The selling element would take the form of
an online consumer-to-consumer auction. ‘What I wanted to do was create a
marketplace where everyone had access to the same information,’ Omidyar later
observed.
eBay started life as a humble homepage hosted by a local ISP (internet service
provider) in 1995. A clue to its ‘local’ origins lies in the name eBay, which stands for
‘electronic Bay Area’ after the Bay Area of San Francisco. But what began as a smallscale
hobby soon blossomed into a business. ‘I didn’t set out to create a huge business
with eBay,’ Omidyar noted in an interview with the New York Times. ‘When it
happened, I took advantage of it.’ By 1996 he had given up his day job to look after
eBay.
Online auctions were perfectly suited to the medium of the Internet. It soon became
apparent to Omidyar that the commercial potential for his new business was huge. But
his motivation in creating eBay was not primarily to become a billionaire. Rather, he
says, it came from a genuine philosophical desire to use the Internet to create a more
efficient market. ‘I’d really given a lot of thought to the way efficient markets are
supposed to work and how the financial markets work. What I realised is that
individuals—ordinary people like you or me—usually can’t participate in the most
efficient markets because we don’t get access to all the information the professionals
do. The stock market is a great example of that. I wanted to create a place on the Web
where—since everyone has access to the same medium—I could, in theory, create an
efficient market.’
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Others were persuaded by Omidyar’s vision. Venture capital firm Benchmark Capital
put in $6.7 million for 22% of the new company. By April 1999 the value of the stake
had increased to $5.1 billion. And, unlike other dot-com businesses, eBay turned a
profit as early as February 1996. From then on, it was just a question of marking the
mileposts: three million items sold by the end of 1997; ranked number one ecommerce
site on time spent by users in May 1998; completed its 10 millionth auction
in May 1998; over one million registered users by August 1998. The IPO was in
September 1998. From $18, the share price shot up to $53.50. eBay staff celebrated
by dancing a conga. Omidyar was worth $274.1 million on paper.
Through luck or judgement, Omidyar had hit on one of the best business models on
the Net. Revenue comes from the seller’s fee, plus a commission on the realised price.
Commissions may only amount to a few dollars, but with more than half a million
new items added daily, it mounts up.
Omidyar was also astute enough to realise when his company had outgrown his
ability to manage it single-handedly. He brought the right people in at the right time.
Early on Jeff Skoll, a Stanford MBA and friend, was brought in as a partner. And in
1997 he recruited former Disney marketing executive Meg Whitman from Hasbro to
oversee the company’s IPO.
By 2001 eBay was firmly established as one of the Internet’s top brands, along with
other virtual heavyweights such as Amazon.com and Yahoo! For the nine months
ending 30 September 2001, revenues rose 78% to $529.4 million. Net income totalled
$64.5 million, up from $24.4 million. There are over 29.7 million registered eBay
users who buy and sell items in more than 4,500 categories. Millions of items are up
for sale every day.
The company has remained one step ahead of the competition. It bought into
traditional bricks-and-mortar auctioneers to add cachet, build brand and increase its
user base. It has expanded aggressively into Europe, all but wiping out its competitors
such as QXL. In 2001, the company established eBay Stores, a specialist site where
groups of people selling similar goods could create the equivalent of an online store.
In 2002, a joint venture with distinguished auction house Sotheby’s took the company
upmarket, capturing some of the premium auction business and richer clientele, by
offering goods such as old master paintings. A year later, the company moved into the
business sector by launching a business-to-business auction site.
Omidyar meanwhile is content to take a back seat. In 2001, he was named second
richest young American. Like many wealthy businessmen before him, he has turned
philanthropist. But he is approaching philanthropy with a new twist. In his selfdeclared
drive to rid himself of 99% of his fortune during his lifetime, Omidyar has
given birth to a new form of philanthropy—venture philanthropy. The theory is that
he and his wife will seed a number of causes favouring those that present a solid
business plan and meet key criteria on points such as earnings streams. Then, in a
scenario that mirrors the savage world of dot-com business, the nonprofits that
perform poorly are dropped and the ones that prosper go on to become national
organisations.
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Context and Conclusions
To date, eBay has been one of the most successful dot-com companies. Regardless of
its eventual place in business history, Omidyar’s achievements are significant. He was
one of the first to show the business world that the promise of the Internet wasn’t an
illusion, that it does have the power to change markets. He has created the equivalent
of the village market online. And it’s a transparent market; the power of the specialist
is eradicated in a click of the mouse. When it comes to collectables such as rare books
and manuscripts, the specialist bookshop can no longer claim that its third edition of
Adam Smith’s An Inquiry into the Nature and Causes of the Wealth of Nations with
Additions (3 vols) is worth $6,000. The would-be acquirer can now log onto eBay and
discover it for sale for $1,500. Before eBay, the seller—who lives in the United States
and the purchaser—who lives in Australia, would never have found each other.
Omidyar has ripped the heart out of the vendor’s local advantage, based on unequal
knowledge and lack of choice. eBay offers the nearest thing to a perfect market that
we are likely to see for some time.

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