BUSINESSWEEK ONLINE : MAY 31, 1999 ISSUE
COVER STORY

Q&A with eBay's Meg Whitman
She says the online auction site takes Amazon seriously, but so far she hasn't felt threatened

Margaret C. Whitman, CEO of eBay Inc., is Silicon Valley's newest star and one of the only women to head a leading E-commerce site. After tenures at Hasbro and Disney, Whitman presides over an upstart that has seen its cult-like following explode and its market value surpass even that of Amazon.com. Recently, she spoke with BUSINESS WEEK's Silicon Valley Bureau Chief Linda Himelstein.

What is eBay's strategy and will it change going forward?
We started with commerce, and what grew out of that was community. So we think of ourselves as sort of a community-commerce model. And what we've basically done is put in place a venue where people can be successful dealing and communicating with one another. But we also want to expand the kinds of merchandise sold on eBay. The Butterfield & Butterfield [Auctioneers Corp.] acquisition helps us accelerate our entry into the premium segment. And then we also want to get into the kind of merchandise that is not necessarily shippable because it's not economic to ship or you want to see it before you buy it. So cars, boats, RVs, things like that. We're also looking at the kind of merchants who sell on eBay. In the beginning, this was strictly about individuals doing business with one another. What happened is that some of those individuals actually became small dealers. They quit their day jobs to sell full time on eBay. Now, we have a lot of merchants who keep their storefronts but in fact their most profitable distribution channel is eBay.

Is this a move into Amazon's turf?
We are looking at storefronts as something to think about. Now, all the selling on eBay is in an auction format. And the question is: Are there other formats both our buyers and sellers would want? There are people who don't necessarily like to buy in an auction, and there are sellers who want to sell some of their goods in an auction and some in a storefront, sort of a fixed-price environment. So we are looking at this.

Will you do this at some point?
There is a better than even chance. The question is, exactly when and exactly what format will we do it in. Again, it's this notion of choosing what you're going to focus on. And I have this philosophy that you really need to do things 100%. Better to do five things at 100% than 10 things at 80%. And while we have to move very, very fast, I think you are not well served by moving incredibly rapidly and not doing things that well.

How large is eBay's EBAY market opportunity vs. Amazon's AMZN?
What is really interesting is the gross merchandise sales being transacted on eBay today--the value of the goods the buyers and sellers transact with one another. It is now at a run rate of $2.2 billion. If you take our first quarter's gross merchandise sales of $540 million, times four, you're at $2.2 billion. Amazon is about half that.

Doesn't Amazon get a bigger piece of what it sells?
That's right. But the economics are entirely different. We get a commission, a listing fee, and a commission on that. But the gross margin on that is far higher, and obviously we make money as opposed to not make money. So I think the first question is how big can the gross merchandise sales be transacted on these two different models, and then what are the economics to each of the companies? I would argue that our business model is inherently more profitable.

How important is it to be profitable today?
There is no question in my mind that at some point in the future, Internet companies are going to be measured on their ability to generate revenues and profits. What I can't tell you is how soon.

If that's the case, you'd think eBay is sitting pretty.
Yes. We have a very profitable business model, and we have been profitable since we started. This company was bootstrapped, and we spend money like it's our own.

Amazon launched Amazon Auctions earlier than expected and right before eBay's stock offering. Was that a coincidence?
No, it was not. Amazon's a very competitive company, and I think they are a very good competitor, and we take them very, very seriously. I think the proof will be in the pudding. You know, we are still looking for signs of momentum, and so far, they have not gotten traction. But it's only the first inning.

How do you feel the eBay marketplace is going to affect the retail experience going forward?
Gosh. I think the Internet is going to change retail forever. I think there are enormous shifts going on. I think the first shift is from land-based retail to online retail--from Toys 'R' Us to eToys, from Barnes & Noble to Amazon. And I think that's because it is incredibly convenient for users. I do not think it will obviate land-based retail, at least not in the next 20 years. I think eBay has created an environment that didn't exist in the land-based world. And I happen to also be interested in what happens to business-to-business. I think there's a huge move that can be made to the Net that creates business-to-business commerce that didn't exist exactly in the way it does in the land-based world. We are constantly hearing about these little auction companies that...are connecting businesses that couldn't get together before. These are people with excess pipe, and these are people who need pipe.

Are you going to go after business-to-business auctions?
It's low on the list. The problem is, so many of these Internet companies actually are pretty small. We did $47 million in revenue last year, and yes, we have a large market cap, but we have only so many people to go after so many opportunities. And I can tell you that the name of the game here is focus. I am really interested in business-to-business, but right now, there's not the bandwidth to run our core business, which is growing faster than practically any Internet company on the planet.

What do you think about your high market cap?
I think investors are looking at the Internet and saying that this is an incredible revolution that is taking place. I think this is a revolution on the scale of the Industrial Revolution. It engendered hundreds and hundreds of new companies that ultimately became huge companies, and it engendered huge societal changes.

And I think that what investors are saying is: ''O.K., how do I find the Ford Motors, the Carnegie Steels, and in later times, the IBMs of this revolution?'' That's why I think you see the valuations that you see. This is going to change everything, and if I can just find the Ford Motor Co. of yesteryear, even at today's valuations, they will seem relatively inexpensive 10 or 15 years from now.

Are you the next Ford Motor Co.?
I think we have the chance to be one of the leading Internet companies. I think we are one of the top four or five today, and I think we will be one of the top four or five 10 or 15 years from now if we execute.



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eBay vs. Amazon.com

COVER IMAGE: eBay vs. Amazon

TABLE: The Tale of the Tape

TABLE: Toting up the Titans

CHART: Who Has the Best Sales?

CHART: Who Has the Best Bottom Line?

CHART: Who Has the Best Stock Performance?

Q&A with eBay's Meg Whitman

RESUME: Margaret C. Whitman

PHOTO: Meg Whitman, CEO of eBay

Q&A with Amazon's Jeff Bezos

RESUME: Jeffrey P. Bezos

PHOTO: Jeff Bezos, Founder of Amazon.com

ONLINE ORIGINAL: The Duel Extends to Wall Street



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