EBay

eBay Inc. (NASDAQ: EBAY) manages an online auction and shopping website, where people buy and sell goods and services worldwide.

Origins and early history

Founded in San Jose, California on September 4, 1995 by Pierre Omidyar and Jeff Skoll as Auctionweb, part of a larger personal site that included, among other things, Omidyar's own tongue-in-cheek tribute to the Ebola virus.

The first item sold was Omidyar's broken laser pointer for $14.83. Astonished, he contacted the winning bidder and asked, "did he not understand the laser pointer was broken?" Omidyar received the following email in reply: "I'm a collector of broken laser pointers." (The frequently repeated story that eBay was founded to help Omidyar's fiancee trade PEZ Candy dispensers was fabricated by a public relations manager in 1997 to interest the media. This was revealed in Adam Cohen's 2002 book and confirmed by eBay.)

It officially changed its name to eBay in September 1997. Originally, the site belonged to Echo Bay Technology Group, Omidyar's consulting firm. Omidyar had tried to register the domain name EchoBay.com but found it already taken by the Echo Bay Mines, a gold mining company, so he shortened it to his second choice, eBay.com.

Margaret (Meg) Whitman joined the company in March 1998. She joined eBay when the company had 30 employees and operated solely in the United States; eBay is now a global organization with over 9,000 employees. Meg is credited with building the company to what it is today.

Items and services

Millions of collectibles, appliances, computers, furniture, equipment, vehicles, and other miscellaneous items are listed, bought, and sold daily. Some items are rare and valuable, while many others are dusty gizmos that would have been discarded if not for the thousands of eager bidders worldwide, proving that if one has a big enough market, one will find someone willing to buy anything. Anything can be sold as long as it is not illegal or on the eBay banned list. Services and intangibles can be sold too. It is fair to say that eBay has revolutionized the collectibles market by bringing together buyers and sellers internationally in a huge, never-ending yard sale and auction. Large international companies, such as IBM, sell their newest products and offer services on eBay using competitive auctions and fixed-priced storefronts. Regional searches of the database make shipping slightly more rapid or cheaper. Software developers can create applications that integrate with eBay through the eBay API by joining the eBay Developers Program.

As of January 2006, there were over 25,000 members in the eBay Developers Program, comprising a broad range of companies creating software applications and services to support eBay buyers and sellers as well as eBay Affiliates.

In June 2004, eBay prohibited the sale and auction of both alcohol and tobacco products on the British site ebay.co.uk. Some exceptions to this rule are made for rare aged liquors, where a bottle may sell for many times higher than its actual value in alcohol.

There has also been controversy regarding items put up for bid that violate ethical standards. In late 1999 a man offered one of his kidneys for auction on eBay, attempting to profit from the potentially lucrative (and, in the United States, illegal) market for transplantable human organs. On other occasions, people and even entire towns have been listed, often as a joke. In general, the company removes auctions that violate its terms of service agreement within a short time after hearing of the auction from an outsider; the company's policy is to not pre-approve transactions. eBay is also an easy place for unscrupulous sellers to market counterfeit merchandise, which can be difficult for novice buyers to distinguish without careful study of the auction description.

eBay's Latin American partner is MercadoLibre.

eBay's main rivals are Amazon.com Marketplace and Yahoo.com Auction.

Profit and transactions

eBay generates revenue from a number of fees. There are fees to list a product and fees when the product sells. The eBay fee system is quite complex and takes $0.20 to $80 per listing and 3-5% of the final price. In addition, eBay now owns the PayPal payment system which many buyers use to pay for their purchases, so it often receives an extra fee via that.

The company's current business strategy includes increasing revenue by increasing international trade within the eBay system. eBay has already expanded to almost two dozen countries including China and India. The only place where expansion failed was Japan where Yahoo had a head start.

Acquisitions

• In May, 1999, eBay acquired the online payment service Billpoint, which it shut down after acquiring Paypal.

• In 1999, eBay acquired the auction house Butterfield & Butterfield, which it sold in 2002 to Bonhams.

• In 1999, eBay acquired the auction house Alando for $43 million, which changed then to eBay Germany.

• In June, 2000, eBay acquired Half.com, which was later integrated with the eBay Marketplace.

• In August, 2001, eBay acquired Mercado Libre, Lokau and iBazar, Latin Americas auction sites.

• In July, 2002, eBay acquired PayPal, for $1.5 billion in stock.

• On July 11, 2003 eBay Inc. acquired EachNet, a leading ecommerce company in China, paying approximately $150 million in cash.

• On June 22, 2004, eBay acquired all outstanding shares of Baazee.com, an Indian auction site for approximately US $50 million in cash, plus acquisition costs.

• On August 13, 2004, eBay took a 25% stake in craigslist.org by buying out an existing shareholder who was once a craigslist employee.

• In September 2004, eBay moved forward on its acquisition of Korean rival Internet Auction Co. (IAC), buying nearly 3 million shares of the Korean online trading company for 125,000 Korean won (about US$109) per share.

• In November 2004, eBay acquired Marktplaats.nl for €225 million. This was a Dutch competitor which had a 80% market share in the Netherlands, by concentrating more on small ads than actual auctions.

• On December 16, 2004, eBay acquired rent.com for $30 million in cash and $385 million in ebay stock.

• In May 2005, eBay acquired Gumtree, a network of UK local city classifieds sites.

• In June 2005, eBay acquired Shopping.com, a online comparison site for $635 Million USD.

• In August 2005, eBay bought Skype, a VoIP company, for $2.6 billion in stock and cash.

Controversy

eBay has its share of controversy, ranging from its privacy policy (eBay typically turns over user information to law enforcement without a subpoena) to well-publicized seller fraud. eBay data shows that less than .01% of all transactions result in a confirmed case of fraud.

Fraud

The major fraud prevention mechanism for eBay users is its feedback system. After every transaction both the buyer and seller have the option of rating each other. They can give a "positive", "negative", or "neutral" rating and leave a short comment. So if a buyer has problems, he can rate the seller "negative" and leave a comment such as "never received product". Learning the system and examining a seller's feedback history is a buyer's best protection.

The feedback system can protect sellers as well as buyers; a seller can reject a bid from a potential buyer if the buyer's feedback rating isn't to the seller's liking.

Weaknesses of the feedback system include:

• Small and large transactions carry the same weight in the feedback summary.
• A user may be reluctant to leaving honest feedback out of fear of negative retaliatory feedback (including negative in retaliation for neutral).

When a user feels that a seller or buyer has been dishonest, a dispute can be filed with eBay. An eBay account (whether seller, buyer or both) may canceled if there are too many complaints against the account holder. Of course, all laws still apply and legal action may also be possible.

Frauds that can be committed by sellers include:

• Receiving payment and not shipping merchandise
• Shipping items other than those described
• Shipping faulty merchandise
• Counterfeit merchandise
• Selling stolen goods
• Inflating total bid amounts by bidding against their own auction with a "shill" account

Frauds committed by buyers include:

• PayPal fraud (e.g. Filing a shipping claim for damaged merchandise and collecting the money from the shipping company, then filing a chargeback on paypal for damaged merchandise, then refusing to return goods. Buyer than has free goods and has income equal to the amount he spent on the item.)
• Credit card fraud
• Receiving merchandise and claiming otherwise
• Returning items other than received

Other controversies

Other notable controversies involving eBay include:

• On 28 May 2003 a US District Court federal jury found eBay guilty of patent infringement and ordered the company to pay US$35 million in damages. The jury found for plaintiff MercExchange, which had accused eBay in 2001 of infringing on three patents (two of which are used in eBay's "Buy It Now" feature for fixed-price sales) held by MercExchange founder Tom Woolston. The decision was appealed to the US Federal Court of Appeals and was upheld in part and rejected on others. As of Nov 2005, eBay has appealed to the US Supreme Court to effectively block injunctive relief to patent holder MercExchange. The Supreme Court has agreed to hear the case in 2006.

• On 28 July 2003 eBay and its subsidiary PayPal agreed to pay a $10 million fine to settle allegations that they aided illegal offshore and online gambling. According to the settlement, PayPal between mid-2000 and November 2002 transmitted money in violation of various US federal and state online gambling laws. PayPal was also forced out of this market, which accounted for some 6% of its volume. These offenses occurred prior to eBay's purchase of PayPal.

• On 17 December 2004 Avnish Bajaj, CEO of eBay's Indian subsidiary Baazee.com, was arrested after a video clip showing oral sex between two Indian students was sold online. The company denied knowing the content of what they were selling (because it is a venue, not a retailer) and removed the offensive material as soon as they became aware of it. The Indian government attempted to make the case that Bajaj broke a law under India's IT Act, that forbids "publishing, transmitting or causing to publish" obscene material, even though the actual material was never published on Baazee's servers. eBay strongly supported Baazee.

• On 14 June 2005 eBay removed auction listings for originally free tickets to the Live 8 charity auction amid hundreds of complaints about such auctions. Following a statement from Bob Geldof that declared eBay a "cyber pimp", many of these auctions were bombarded with fake bids. Normally, selling of charity tickets is legal under UK law.

• In 2005, the Australian NRL tried unsuccessfully to persuade eBay to prevent scalpers from selling grand final tickets online.

Trivia

Some expensive items sold on eBay

1. A 340-year-old copy of Shakespeare's Pericles, Prince of Tyre, which survived the Great Fire of London in 1666 (£5million)
2. Grumman Gulfstream II jet ($4.9 million)
3. 1909 Honus Wagner baseball card ($1.65 million)
4. Diamond Lake Resort, western Kentucky ($1.2 million)
5. Ferrari Enzo ($975,000, October 2004)[1]
6. Shoeless Joe Jackson's "Black Betsy" baseball bat ($577,610)
7. Round of golf with Tiger Woods ($425,000)
8. Actual portions of the 1996-2001 Jeopardy! set, including the 9-foot-high Jeopardy! logo that was etched in glass as the backdrop. That sold for approximately $100,000 and one of the contestant podiums sold for nearly $10,000 (proceeds of the set's sale went to charity)

Largest item

One of the largest items ever sold was a World War II submarine, sold by a small town in New England that decided it did not need the historical relic anymore.

Unusual sale items

• In January 2006, the last 100 pixels of the milliondollarhomepage were sold for $38,100. [2]
• In June 2005, Karolyne Smith sold the right to permanently tattoo an ad on her forehead to GoldenPalace.com for $10,000.
• In May 2005, a Volkswagen Golf that had previously been registered to Cardinal Josef Ratzinger (who had been elected Pope Benedict XVI the previous month) was sold on eBay's German site for €188,938.88. The winning bid was made by the GoldenPalace.com online casino, known for their outrageous eBay purchases. [3]
• In 2004, a Seattle man posted pictures of himself wearing his ex-wife's wedding dress. In more than one way, the seller received much more than he expected. While he initially admitted he was selling the dress to earn some money for Mariners tickets, the bidding got into the thousands of dollars, and the seller actually had received a number of marriage proposals from viewers.
• In September 2004, the owner of MagicGoat.com sold the contents of his trash can to a middle school language arts teacher, who had her students write essays about the trash. [4]
• There was at one point an auction for the first ride on Kingda Ka, the tallest roller coaster on Earth. The winning bid was $1691.66, and the winner rode in the front seat. [5]
• On November 23, 2004, a grilled cheese sandwich with a likeness of the Virgin Mary on it sold for $28,000 to the online casino GoldenPalace.com. The seller claimed to see the Virgin Mary toasted into the bread when she made the sandwich in 1994. She promptly sealed it in a plastic bag where it remained, free of mold, for over 10 years until its sale on eBay.
• A Sydney man pocketed AUS$1,035 after auctioning a piece of Nutri-Grain resembling ET, in Dec 2004.
• A 50,000-year-old mammoth. With a minimum bid set at US $250,000. Max was put up for sale in 2004 by his Dutch owner due to lack of space and sold for £61,000. A bargain considering he was one of the five best and most complete mammoth skeletons in the world, consisting of 90% of his original bone material.
• The owner of Cockeyed.com sold advertising space comprising a single pixel on its homepage for 21 days for $100 [6].
• An incomplete package of diapers, bought and opened in the 1980s, raised more than $700US for the Children and Families Ministry at a United Church in Victoria, British Columbia (Canada).
• Water that was said to have been left in a cup Elvis Presley once drank from was sold for $455. The few tablespoons came from a plastic cup Presley sipped at a concert in North Carolina in 1977. [7]
• A Coventry University student got £1.20p for a single cornflake. [8]
• For $100, a man said that he would take a pair of jean his girlfriend made, and shoot them, and drag them behind his tractor, with a fee per shot/starting up the tractor. The item failed to sell. [9]
• a European buyer sold a Vauxhall VX220 that was said to have been baptized. [10]

Prohibited items

eBay in its earliest days was essentially unregulated. But as eBay grew, it found it necessary to restrict or forbid auctions for various items. Among the hundred or so banned categories (note that these relate to ebay.com (the US site), other regions may vary in their rules) :

• Tobacco (tobacco-related items and collectibles are allowed) [11]
• Alcohol (alcohol-related collectibles, including sealed containers, as well as wine sales by licensed sellers are allowed) [12]
• Nazi paraphernalia [13]
• Bootleg recordings [14]
• Firearms and ammunition [15]
• Dirty used clothing [16] This policy arose because a thriving market in used jock-straps and underwear had emerged on ebay. Sellers would post descriptions specifically emphasising that they had worn these undergarments for days, a week or more, especially during exercise. There was a demand for this kind of garment amongst sexual fetishists, and these garments would often fetch hundreds of dollars.
• Human parts and remains [17]

As well as a long list of other items that are either wholly prohibited or restricted in some manner. [18]

Controversial practices of users

• Bid sniping is placing a high bid during the last few seconds of an auction such that no time remains for other users to counterbid. This practice is allowed on eBay. Many other auction sites, such as Yahoo! Auctions, offer an option which extends the auction by some minutes when a last-minute bid is placed, in order to prevent sniping. eBay's "proxy bidding" feature allows the buyer to specify the maximum they are willing to pay for an item regardless of "snipes". [19]

• Shill bidding is the deliberate use of secondary registrations, aliases, family members, friends, or associates to artificially drive up the bid price of an item. (This is also known as "bid padding".) Shill bidding is not allowed on eBay. [20] Furthermore, shill bidding is a crime in many jurisdictions, and can be prosecuted under United States wire fraud laws. [21] Sabbouha is a verb to describe shill bidding which originated from an old Lebanese Legend.

• Some users try to sell something which, on first glance, appears to be an expensive item for cheap (game console boxes are quite popular), and state clearly in the description that they are paying for an item which is not the one implied. This is not allowed by eBay.

• Conversely, sometimes very cheap items, like envelopes, are sold for high prices because they come with free airline vouchers or concert tickets, in order not to violate the terms on these items.

• Some users sell items for extremely low prices (usually using the Buy It Now feature) and then make up for it by overcharging on shipping. Since eBay charges their fees based on final sales price and not shipping, this allows sellers to reduce the amount they pay eBay in fees and for buyers to avoid importing fees and taxes into their country. This is called "fee avoidance" and is not allowed by eBay; such auctions are cancelled when they are reported. Another concern with "fee avoidance" is that most sellers will not refund shipping so if a $1 item with a $50 shipping fee turns up faulty, the buyer is only eligible to a refund for the $1.