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Q&A with Meg Whitman May 21, 1999 What's Behind the Boom at eBay CEO Meg Whitman says cyber-reach and community are key. As for Amazon, she sees room for both of their very different models Margaret Whitman, CEO of eBay Inc., is Silicon Valley's newest star and one of the only women to head a leading E-commerce destination. Since arriving at eBay, after tenures at Hasbro and Walt Disney, Whitman has presided 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 Silicon Valley Bureau Chief Linda Himelstein on how the pitter-patter of competitive feet is affecting eBay's strategy and how the mass-market adoption of E-commerce will affect consumer behavior in the future. Note: This is a longer, online-only extended version of the interview that appears in the May 31, 1999, issue of Business Week. BW: What is eBay's strategy, and will it change going forward? Whitman: Well, our historic strategy, of course, has been focusing on developing a personal trading community, and what that means is enabling individuals and small dealers to do business with one another. And the really important part of that has been the community that has developed out of that. We started with commerce, and what grew out of that commerce 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 marketplace, a venue, where people can be successful dealing with one another and communicating with one another. And that strategy continues to go forward, but you know, what's very interesting about running these Internet companies is that you really do a strategy check almost every three months. You know, are we doing the right thing? At Hasbro, every year we'd have a strategy meeting. About every three months we have a strategy meeting here. I think what we see even more clearly than we did at the IPO, which was September of 1998, is that there are a number of expansion opportunities for eBay still, with a lot of running room in our core business of individuals doing business with one another in largely collectible categories in the U.S. But also expanding the kinds of merchandise that is sold on eBay -- and that was the genesis of the Butterfield acquisition, to help accelerate our entry into the premium segment. And then also getting into that 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. Cars, boats, RVs, things like that. That was really the genesis of our regional entry, eBay-LA, and so we think those two really sort of expand the kind of merchandise that's sold on eBay. Then there's the kind of merchants who sell on eBay. At the beginning, this was strictly individuals doing business with one another, and what happened is that some of those individuals actually became small dealers. They quit their day jobs to sell full-time on eBay. They, in turn, attracted land-based small dealers who said, "Wow! If this guy can make a living selling trading cards, or antiques, or Beanie Babies on eBay, I can too." And now we have a lot of merchants who keep their storefront, but in fact their most profitable distribution channel is eBay. BW: What is the breakdown, the person-to-person vs. the business-to-person? Whitman: It's hard for me to tell, because so many of our top sellers were individuals who become small dealers. What I can tell you is, our top sellers pretty much do this full-time. You know, to be a top seller on eBay, you've got to really be doing this pretty much on a full-time basis. BW: And a top seller means what? What qualifies you as that? Whitman: Roughly, the top 20% of our sellers account for 80% of the business. So those top sellers are very large. BW: And how much revenue are they generating? Whitman: We actually don't release that information for competitive reasons, but I can tell you it is surprisingly large. These guys are really running real businesses on eBay... Those folks are selling full-time on eBay. They may or may not have a storefront. BW: And generally, they're selling what? Whitman: The top 12 categories on eBay are the categories on the home page. You know, antiques, coins, stamps, collectibles, toys and games, those kinds of things. And collectibles, of course, is a very large category that's made up of many different things, whether that's collectible advertising or things like that. So, we think there is an opportunity, actually to increase the base of our sellers to actually include larger and larger merchants. And then, of course, there's the opportunity to do this all on a global basis. Our first foray internationally was eBay Canada and eBay U.K. And we anticipate, obviously, expanding on a global basis pretty rapidly. What is interesting is that of our installed base of users, actually at the end of December, 200,000 of our registered users were outside the U.S., in 90 different countries. That was really surprising to us because we hadn't done much marketing, but that's the character of the Web, that anyone, anywhere, can find the Web. So those 200,000 folks were largely buyers. Now many of them are becoming sellers, so we are beginning to see sellers pop up in these countries all around the world. And so there's the opportunity to do intra-country tradings, U.K. to U.K., but U.K. to the U.S., U.K. to Japan, Latin America to the U.S., Latin America to Europe. And so, certainly in the near term, that's the strategy: expand the kind of merchandise, expand the kind of dealers, and do it all on a global basis. BW: Is this a move into Amazon's turf? Whitman: We are looking at storefronts as potentially something to think about. Right now, as you know, all the selling on eBay goes on in an auction format. And the question is, are there other formats that both our buyers and sellers would want? And here there are people who don't necessarily like to buy in an auction format, and there are sellers who want to sell some of their goods in an auction format and some in a storefront, sort of fixed-price environment. And so we are looking at that. We have not made any decisions, and we have not made any decisions in terms of where it falls in the priority queue. BW: You said that you have actually called your users to find out how interested they'd really be. What were the results of that? Whitman: They were pretty interested. Not all of them were interested. A lot of them really like the auction format, because it's fun, they think they get better prices. When there's only one format, there's not a channel conflict. You know, the issue that you have is that if you are a merchant and you sell some stuff in an auction format and some stuff in fixed price, unless all the items are unique, there's sort of an issue of how much would I have paid for it at retail, vs. the auction format. So, we have to be thoughtful about how we roll it out. If it's all unique items, it doesn't matter. Because, you know, if you have one grandfather chair, and one milking pail, and one something else, it's O.K. But if you're selling commodity-like items, there's potentially a channel conflict there. So that was the concern that some of our top sellers had, which is, "How do I actually manage that?" BW: Tell me about the survey you did. How many people did you survey, what kind of a response did you get? Whitman: The great thing about eBay, and the great thing about the Internet, is you can do surveys very quickly and incredibly cost-effectively -- unlike my old world where you had to do mail surveys or telephone surveys and they cost a lot of money and took a lot of time. BW: And you get about two responses back. Whitman: You get two responses, and it's really hard. We do surveys probably at least twice a week. I mean, not twice a week, every two weeks. And we ask a whole host of different questions. And we can target them to anyone we want to. So we did a broad-based survey of our sellers, and basically asked them about a variety of different formats. There was a substantial number of our top sellers who were interested in the storefront format, but as I said, there are some concerns, which is: If I'm a seller, how do I manage both kinds of formats? And what are the issues surrounding that? BW: Will you do this at some point? Whitman: There is a better-than-even chance that we will do this. The question is, exactly when and exactly what format will we do it in, and on what kind of timing. And everything at eBay has to be prioritized. Again, this sort of notion of what are you 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%. Because the devil in so much of this is in the detail. 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. BW: Now people are going to inevitably say if you move into storefronts, you're looking more like Amazon. Whitman: In terms of Amazon auctions or Amazon core business? BW: Well, probably a little of both. You know, one of the things also that I think you said in the past is that you guys are considering doing fixed-price, selling fixed-price items. Whitman: Yes, and I use storefront and fixed price interchangeably, and perhaps I shouldn't. When I say "storefront" I think of a seller being able to sell some of those items in an auction-based environment and some in a fixed-price environment, just to be clear about that. BW: But it would be both ways, on eBay. Whitman: Correct. And when you say, "Do we begin to look a little bit more like Amazon?" -- probably not Amazon's core business. Because how I view Amazon's core business -- and let me tell you, I'm not an expert on Amazon -- is that they are largely a retailer in a given category. O.K.? So, it's Amazon books, CDs and music. You know, it's the drugstore business, or the pet food business, or whatever it is, and there is one retailer -- them -- selling products to consumers. On eBay, of course, we are a marketplace, where we enable individuals and stores and dealers to do business in the context of eBay. Now, when you look at Amazon auctions, that is, in fact, in many ways how they started. They assembled a group of merchants, quite large merchants, and put them in an environment and enabled them to sell in an auction format. So if you say that going into a storefront and going to larger merchants looks like Amazon auctions today, I would say that's probably right. I mean, it's moving towards where they are, but building off a very different core. And the very different core is that we have this huge and vibrant, thriving marketplace, and I think what you can do is you can layer on incremental businesses on top of a very solid, rapidly growing core marketplace. BW: But you know, Forrester Research has said, if you guys don't do this business-to-consumer stuff, you're missing out on the biggest opportunity there is out there. Whitman: Yes, yes. Business-to-consumer in the vernacular, or in the Valley, has lots of different interpretations. Like people often say that Onsale's business is business-to-consumer, and it is. But we are actually not interested in Onsale's business model, and that is where Onsale actually takes title to the inventory. OK? So they will buy distressed inventory from a merchant and then put it up on their site to sell to consumers. That's one B-to-C model that we are actually not interested in. The next B-to-C model is: Do you create an environment for other retailers, or other merchants, to sell on your service to consumers, and we obviously do that today. I mean, Lands' End sells merchandise on eBay. I will tell you that the hallmark of eBay has historically been the personal and community aspect of what we do. And that is, I think, the thing that is most difficult to duplicate. That we have the largest marketplace, and we have the best, by far the most well-developed community that has grown out of that commerce. BW: Does the Amazon comparison surprise you? Whitman: A little bit, it does, interestingly, because I think of our business as really quite different than Amazon's. And really I view us only overlapping in this one small area. You know, it's our business, but one small area of their business, and that's the auction business. I mean, the thing that's really different about eBay is that I believe that we enabled a business to thrive that could not be done in the land-based world. I mean, prior to the Internet, you could not access this quantity of unique merchandise. It's actually the largest sort of flea market in the world. And it's over 2 million items, all in one place, all at the same time, and those 2 million items turn over next week. Because we have three-, five-, and seven-day auctions, all those 2 million items will be gone next week. So when you think about it, it's sort of incredible to come back to this sort of huge marketplace that will have all different merchandise the next week. BW: I thought that Amazon actually sold more. They say they sell something like 16 million items, some enormous number. Whitman: Well, again, it's an entirely different business, right, because we are creating a forum where these items are listed by individuals. I'm sure they sell more than 16 million books. I have no idea how many books they sell, and they probably do sell more than 2 million books a week. I don't actually even know what their numbers are. But these are unique items that are largely owned by someone else prior to you buying them. O.K.? So these are not new goods, for the most part. They are unique items that have been owned by other people, whether they be antiques, or coins, or stamps. I mean, they are collectors, they are collectibles in their nature. So, before eBay, you couldn't access this except for, I suppose, going to local and regional flea markets. And that's, I think, quite different than what Amazon has done, which is take land-based experiences and transport them online -- which I happen to think is a really great idea. It's just a different idea. Before Amazon, you could go to Barnes & Noble and you could actually get the book. Or Borders. Before eBay, if you were looking for a certain toy soldier, or a certain coin, or a certain thing, often you couldn't find it. And we hear stories all the time of people who are looking for things for 20 years and find them on eBay. And that's something that eBay has completely enabled. So there are some really fun stories, of people who can't even stand it -- they get on eBay. And I do this all the time with people, I say, "So what are you looking for and what haven't you found that you've been looking for?" And 9 times out of 10, they'll get on eBay and they'll find it. The most extraordinary amount of stuff is on eBay today. BW: Amazon's not the only competitor out there for you. There's Yahoo!, there's others. How does the changing competitive landscape affect you and the direction that you want this company to go? Whitman: Well, I think competitors make us a better company. You know, when there is someone to focus on and get your juices going. And I think the entrance of competitors has made us move faster even than we would have on our own. BW: Examples? Whitman: We introduced eBayLA ahead of schedule. We introduced eBayUK ahead of schedule. And we've introduced some features and functionality ahead of schedule, most notably Personal Shopper, which is our most recent feature. All of which we moved up because we really felt from a competitive point of view that was the right thing to do. BW: How much did you move them up? Whitman: Two months, two or three months, which in the Internet is a lot. So there were some pretty long hours booked here to move those projects up. I will say that I don't think it has changed our strategy fundamentally. I mean, we've had a pretty clear strategy. Over the course of the last year and a half, we've begun to see some of the opportunities more clearly, but that's just because we've been around longer. And our community of users has grown. And we really listen to our community. I mean some of the best ideas at eBay have come from the community, most notably the feedback profile was actually the idea of a user. Personal Shopper was the idea of a user. The eBay Life Newsletter was the idea of a user. Separating transaction-related feedback from nontransaction-related feedback was an idea of a user. So, often the best ideas come from the community, and they think of things that we should be doing, far better and faster than we can in many ways, because they are living it on a day-to-day basis. So, I would say that our strategy has evolved as our community has grown and as we have seen the possibilities. I mean, when we introduced integrated escrow, and we started marketing big-ticket items on the site, that was the first eye-opener as to how big we could be in the premium-merchandise category. When people started selling items on the site for $11,000, $15,000, $25,000, we said "Oh! There's a market here. Boy, this could really work." Because we just had the rudiments of services that people need to sell those kinds of items. So, the long-winded answer is, competitively, obviously we're very focused on what the competitors who are coming at us directly have in their product offerings, but as far as the overall company strategy, it's been developed pretty much as we've begun to understand what opportunities are out there and listening to the users. BW: You talk to a company like Amazon, and they will tell you, "We have a relationship directly with the customer. If they buy from us they give us their credit card, we recommend items to them." All these things that really cement the relationship. Look at a company like eBay, and the people are dealing with each other. The merchants are dealing with the individuals, the individuals deal with individuals, and eBay is just the enabler. In the long run, the argument would be, it's better to have the direct relationship with the customer. What do you think? Whitman: I think they're two different models. And I'm not sure one is better than the other. And I think they enable two different kinds of commerce, if you will. The kind of commerce on eBay, it's the difference between going to Barnes & Noble, vs. going to a flea market, or an auction at a Butterfield, or a trade show where people who are passionate about Star Wars, or Barbies, or whatever. They have very different feels to them, right? I mean, there's a sort of retail kind of clinical feel, where Amazon absolutely controls one side of the transaction, to a much more free-form open-market kind of environment. And what we have tried to do is make our marketplace work really well for individuals doing business with one another. And you're absolutely right, we control neither end of that transaction, and I would argue that your experience on eBay is more driven by your seller, or your buyer, than it is in fact by eBay. And that's why our customer-support group is so critical to us and why we have put in place a lot of safeguards for people to have safe transactions. Because it is different dealing with another individual than it is buying from Barnes & Noble, or Wal-Mart, or Kmart. It's an entirely different experience. And as we grew from a small city, you know, the size of Gilroy [Calif.] to the size of San Francisco and San Jose together, we actually had to build in some safeguards that went beyond the feedback profile, which was the original trust and safety governor. And that's why we have the Lloyds of London insurance, that's why we have escrow, that's why we have Equifax and that's why we have split our customer-support group, really, into three pieces: regular customer support; Safe Harbor, which investigates misuse of the system and reported cases of fraud, and things like that; and then finally the Community Watch group that screens the site for illegal and infringing items. So we have, I would argue, in some ways a more complicated business model. But in some ways we have a less complicated business model. I mean, the good news is we don't hold inventory, we don't have warehouses, we don't have distribution centers. So that part about it is easier. The harder part is customer support, trust, and safety, and those kinds of initiatives. So I think they are really different business models, and I actually think both will be successful in the long haul. BW: How large is eBay's market opportunity vs. Amazon's? Whitman: Gosh, really hard to say. What is really interesting is the gross merchandise sales that's being transacted on eBay today. You know, 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, you know, times four, you're at $2.2 billion. And Amazon is about half of that. BW: Doesn't Amazon get a bigger piece of what it sells? Whitman: That's right. But the economics, of course, are entirely different. Right? We get a commission, a listing fee and commission on that, but the gross margin on that is far higher, and obviously we make money as opposed to not make money. So, when you ask how big it can be, I think the first question is how big can the gross merchandise sales be transacted on these two different models, and then what is the economics to each of the companies that are providing those two venues. And I would argue that our business model is inherently more profitable. And the question is, how big in terms of gross merchandise sales. And we think as we expand the kind of categories that people do business on eBay, as we expand the kind of merchants who can sell successfully on eBay, and we do it on a global marketplace, it's an enormously large market. On the other hand, if I'm Amazon, and I aggregate -- I don't know how many categories of retail there are, there's 356 SIC codes -- if you're going to aggregate every category of retail as it exists today, that's enormous. Books, music, CDs, drugs, pets, you know, clothes, I mean just go all the way down that list and it's enormous. So I think the question is how big a mission can you manage and what is the profitability, the inherent profitability, of the business that you end up with. BW: How important is it to be profitable today? Whitman: 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, just like companies in the automotive business and the tire business and the paper business and the retail business. I think that, so I think the ability to generate profits and the ability to continue demonstrating improved levels of profitability is going to be really important. What I can't tell you is how soon. Maybe it's six months, maybe it's three months, maybe it's a year. BW: That's not too far out. Whitman: Right. I do think that investors are going to require this. But I can't tell you when. BW: If that's the case, you'd think eBay is sitting pretty. Whitman: Yes. We have a very profitable business model, and we have been profitable since we started, and it's very much part of the corporate culture here. This company was bootstrapped from the beginning, and we spend money like it's our own. And we manage the profitability of this business very carefully. And yet we still feel like we are able to pursue virtually all the opportunities that we want to. BW: Do you think if you had more of the personal data, it might enhance your Personal Shopper service, obviously a number of different things that you could do? Whitman: Yes. Let me give you a point of view on that. We obviously have a tremendous amount of data about the buying and selling habits of 4 million people on eBay. And we actually do not use that data to direct-market to our customers. And the reason is that we have had a long-standing view that our customers are not wallets. We are providing a forum where they discover, where they decide to do what they want to do in their environment -- like Personal Shopper, if they opt into that, O.K. So you say, "Hey, please let me know when Fiestaware comes on the site, from Spain in 1920." Then that's great. But we actually have a policy where we would never look at your pattern of buying and then serve up to you -- notice that you've bought 20 Fiestaware pieces and then without your permission, serve up to you, "By the way, did you know that Fiestaware is coming on the site?" And it's very much a part of the eBay culture. And we have talked to our users about that, and it's one of the things that they value most about eBay is that they are not sort of spammed, and they are not direct-marketed to in an overt way. So we think the opt-in model works well, but when you asked me whether or not it would be helpful to have the credit card so that I could see what these guys are buying and selling, I actually already know what they're buying and selling. It's a question of how you use that data. BW: Of course Amazon does sort of an "Oh, gee, three other people who bought this book also liked this book." Or this CD, or whatever. Whitman: Yes. And it's just a very different business model. BW: And people like that generally. On Amazon, that's been a very popular feature. Whitman: Yes. And again I think it's a little bit of the culture of the companies. And I think people can successfully shop on Amazon and also successfully shop on eBay. I don't think it's an either-or thing. I think it's a brand character thing. Different brands and different shopping experiences have different characters to them. BW: Can you compare and contrast the cultures as you see them? Whitman: I think the experience on Amazon is easy, simple, very controlled, and the experience on eBay is quite different. It is nonstandardized. If you think about our listings, it's all user-generated content. So you might have a Beanie Baby, and Kristen might have a Beanie Baby, and the picture that you take, the way you describe it, how you price it, and how you sort of market it within your listing on eBay could be entirely different. And I think that adds to the joy and the discovery of the shopping process. BW: Amazon launched Amazon Auctions earlier than expected and right before eBay's stock offering. Was that a coincidence? Whitman: No, it was not. At the IPO, Yahoo! announced their auction site on the second day of our IPO and on the second day of our secondary road show Amazon announced their auction site. So I said, "I'm not doing any more financings. I don't want to draw anymore competitors out of the woodwork." Amazon's a very competitive company, and I think they are a very good competitor, and we take them very, very seriously. And 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. So we think they're very aggressive. We think they're very smart. We think they're a really good company. And as I said, it's probably made us better in some ways. BW: How has it affected your brand-building strategy? You have hired a big-name ad agency, you're launching a new campaign. Whitman: Actually, none of that was related to the competitive strategy. That was the natural evolution of our brand-building strategy. And you know, the first brand-building strategy that we have is to have a great customer experience. Still the vast majority of our new users come from word-of-mouth. And you only get word-of-mouth if you have a great customer experience. So brand-building job No. 1 is have a great customer experience. On top of the customer experience we have layered, over time, a series of marketing efforts. We began with Internet marketing partnerships, the largest of which, of course, is with AOL. But we have over 150 other partnerships with Web sites of hugely varying scales. We began print advertising in the summer of last year in special interest and collecting magazines, and we began radio in October of last year. Then we've also had going on for some time what I call our more grassroots marketing efforts, where we appear at trade shows where our core audience is. And we will use those same marketing levers as we expand across different categories of merchandise as well as expand internationally. The reason that we hired Goodby was we had worked with an agency that we liked very much. In fact, the principals were people I had worked with at FTD as well as Hasbro. And they kind of helped us figure out the brand positioning and the brand promise and sort of core values and did our original print and radio advertising, which we loved. But they're really more of an agency-consulting or a brand-consulting firm, and we now need a full-service agency. This was a consultancy that had three people in it. So we now need a lot of the services that a firm the size of Goodby can deliver. BW: Like television? Whitman: Like television, like direct mail, like all kinds of promotional help, huge media buying capability. All of our media buying was being done through a partnership with a large agency in New York, so we think we'll get some media buying advantages. And so you just have the advantages now of a full-service agency that a company our size really needs now. BW: How much are you going to be spending? Whitman: Let's see, last year... I think we spent $12.3 million in advertising. And if you look at last year, I believe on average the marketing-to-sales ratio was about, for the whole year, 40%. And I sort of imagine that the marketing budget will stay in that same area. And remember, that's not all media. That's partly people and media. BW: Are you going to be going into television? Whitman: I don't know, actually. My philosophy about television is that you need a very big budget to make a difference in television. And right now we have been incredibly happy with the results of word-of-mouth, of our grassroots marketing effort, radio and print. So, we obviously look at it, all the time. But no plans at the moment. BW: Do you find suddenly that you're running into Amazon more than you used to? Whitman: Yes. Yes. I mean, ever since they entered the auction business per se, you know, we see them more than we did before. BW: Can you give specific examples? Whitman: The LiveBid [acquisition by Amazon] is a good example. We actually met with the guys from LiveBid and decided that that was actually not something that we felt we wanted to acquire. And we're not particularly surprised to see them plan to land at Amazon. BW: What about the marketing deals, the Yahoo!s or the AOLs of the world? Whitman: We haven't seen them since they entered the auction space in those arenas. Many of our Internet traffic deals were done prior to the Amazon entry. So we may see them going head-to-head with us for some of the same real estate on some of the large search engines that we see going forward, but actually to date, we haven't. Because so many of our deals are longer-term deals, and since they've entered the space, not many of these have come up for renewal. BW: Do you hear from your customers, your community? Whitman: We certainly heard from them on Yahoo!. And we know that a lot of our sellers in fact did try Yahoo!, probably because it was free. There was a certain allure, I think, to trying a free alternative. We have heard from hardly any of our customers about Amazon, and I think it's because they started with a really different group of merchants. They started with much larger, well-established merchants. And I can tell you the reason we know that is that virtually all of them take Visa and MasterCard, all the Amazon merchants, and as I told you, virtually none of ours do. So I'm not sure that our users were initially as attracted to Amazon, our sellers per se, as they were originally to Yahoo!. Because I think they felt almost right away, from visiting the Amazon site, that it was pretty different. So we've not really seen the same level of trial that we certainly know our users did when Yahoo! launched. BW: How do you feel the eBay marketplace is going to affect the retail experience going forward? Whitman: Gosh. I think the Internet is going to change retail forever. And I think that there are enormous shifts going on out there. 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. This is so much easier. You know, my son's reading list -- it's far easier to get that off Barnes & Noble than it is to go and muck around through the stores. So, I think that you're going to see a tremendous shift. I do not think it will obviate land-based retail, at least probably not in the next 20 years. I think what eBay does is actually create almost a new kind of retail. Again, to draw that analogy, Amazon does what you could do in the land-based world; eBay has created an environment that didn't exist in the land-based world. So the Internet has enabled a kind of commerce that really didn't exist. And I think, in many ways, the most interesting thing about the Internet is what kinds of new commerce can be created that didn't exist in the land-based world. And I happen to be also very interested in watching what happens to business-to-business. I think there's a huge move that can be made to the Internet that creates a business-to-business kind of commerce that didn't exist exactly in the way that it does in the land-based world. We are constantly hearing about these little auction companies that are disintermediating businesses. You know, people that need whatever, they're selling, they are connecting businesses who couldn't get together before. These are people with excess pipe, and these are people who need pipe. There was no forum for these guys to get together. That's exactly what eBay did. We created, in the consumer space, a place where there were a lot of people who wanted something, coins, who couldn't reach them because of geography and time, and they were now collected with a whole bunch of people who could. And the fulcrum, and that connection that was made, was made as a result of eBay. BW: Are you going to go after business-to-business auctions? Whitman: 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 very large market cap, but we only have so many people to go after so many opportunities, and I can tell you that the name of the game here is focus. Because you've got to start with your core and build out from your core in logical, linear ways. When you go buy a company like we did with Butterfield & Butterfield, or you enter a new line of business, like we did with eBayLA, or we enter a new line of business like eBayUK, you have to actually make those businesses work. It's not a matter of just doing the deal and getting the site launched. It's "assembly required." You don't just stick it out there and hope it works. It takes tremendous management and tremendous effort to maximize those opportunities. And you've got to have new people for new initiatives. Because we have this tremendous roar in the background of our core business, which as you know, the first quarter over fourth quarter grew at 74%. So assuming we did nothing else, we have this unbelievable train that takes huge management. This business does not run by itself, and so, as you go into the U.K., as you go into regional, as you go into premium, you've got to have new management talent to execute flawlessly against those new initiatives. And while I am really interested in business-to-business, right now there's not the bandwidth. BW: What do you think about your high market cap? Whitman: 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. And if you think of the Industrial Revolution, when you went from unique item production to mass-market production, it changed everything. It engendered hundreds and hundreds of new companies who ultimately became huge companies and it engendered huge societal changes. I mean, that was the genesis of the middle class, if you think about it. It was the genesis of suburbia and shopping malls, and think of all the changes that it wrought. And I think that what investors are saying is, "O.K., how do I find the Ford Motor Co.'s, the Carnegie Steels, and in later times, the IBMs of this revolution that is taking place?" And that's why I think you see the valuations that you see. People are saying there is something here here. 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. BW: Are you the next Ford Motor Co.? Whitman: 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. BW: For storefronts and eBayLA, you're going to be putting cars and boats and other major-ticket items on the site. And they will be fixed price? Whitman: Initially, they are going to be sold in the same format that eBay items are sold today. It will all be auction-style. The way we think about our strategy here is that recently, up until very recently, we were largely individuals buying and selling from one another in largely collectible categories. Right? And as we expand along this horizontal axis, which is sort of the merchandise axis, we think there's an opportunity to expand into premium areas as well as expand into nonshippable items, things that are more effectively sold on a regional basis. That's cars, boats, RVs, furniture. Think about the classified ads and think about what could be sold on eBay in an auction format. But right now all of this is still going to be the auction format. Right now, it's just in L.A. And the way we do this is we start with a city or a country -- and we started with Canada and the U.K. -- learn a lot, listen to the users, rev the site, and then hopefully replicate rapidly. So launch in L.A., learn, listen to users, figure out what works. BW: Where is it being rolled out next? Whitman: Don't know. Once we get a model, I think it can be replicated pretty rapidly. But we won't roll it until we get it right. Because what you want to do is tinker in one market and then get it right and then roll it. On this axis is individuals to small dealers. And we've absolutely made that transition. There are lots of small dealers, to somewhat larger dealers, to potentially larger merchants. Again, all of this is done still in an auction format. Then, of course, you want to do this all on a global basis. So you take this expanded category, these expanded merchants, and do this all on a global basis. And then the question is: Do these individuals, will these sellers, and will our buyers, benefit from some other alternative other than the auction format? And that's what I call fixed-price or storefronts. And so the question is: Is fixed-price the next format that we would use here in addition to auction? And that's where we think it's really interesting, but we don't have a timetable for introducing it, we aren't even sure that we are going to do it, and there are issues around it. BW: In terms of acquisitions, do you think you need to do them while things are hot and rip-roaring? Whitman: I think we want to make the acquisitions that are strategic to the business, and that if we have enough bandwidth to absorb those acquisitions appropriately, then we should go ahead and make them now. If we don't have the bandwidth to absorb those acquisitions, then there is no point in making them, because even if they are done for stock on a pooling of interest, the fact is, you have paid real money for these companies. I have seen in my consulting career so many companies be brought down by bad acquisitions. And I think it's really critical that we make the right strategic acquisitions that accelerate our strategy. BW: People say that eBay and Amazon are the titans of E-commerce right now. At the end of the day, are people going to look at one company as being synonymous with E-commerce? Whitman: I wouldn't have that take on it. I think they are two really different models. Amazon's come right head on at us in auctions, but their core business and our core business are entirely different. I think that the companies that win in the Internet have staked out a leadership territory, a leadership position, in a definable, defensible market segment. And I think we have clearly staked out the leadership position in the personal trading community business, the person-to-person auction business, and I think it's an enormous business, and I think we are going to be the leader in that business forever, if we execute. They have staked out a position in taking traditional retail and putting it online. And I think they've done an incredible job of that. I think of their auction thing as a little bit of an offshoot that is not necessarily consistent with their core strategy. And I think it will be interesting to see whether they can take some sort of core strengths and move them into what is an entirely different business. There are different markets, and we're going to be the leader in our market, and they're probably going to remain the leader in their traditional retail, transferring to online. BW: Virtually every other company out there, whether it's Yahoo! or Amazon or Priceline.com or whatever, is trying to leverage the basic customer that they have -- to add on different things that they can sell them. You don't see eBay necessarily doing that? Whitman: It's not what we're about. Who is the fastest-growing company on the Internet right now? It's us. By far. We grew 74% first quarter over fourth quarter. There isn't another company on the planet who grew that fast. Maybe Priceline did. They had a great first quarter, I think. But Amazon grew 16%; Yahoo! grew 30%. I think the question is: Can you take a consumer base and just sell them tons and tons of stuff? Or are you far better defining a marketplace and attracting new customers to do that thing at your site? Customer behavior doesn't actually work that way. You can't take a group of customers and sell them everything under the sun that is unrelated. There aren't that many real-world models that say that consumers want to one-stop-shop for every single thing in their life at one company. If that was true, the Gap wouldn't exist in comparison to Wal-Mart. Right? _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ BACK TO TOP					PREVIOUS Q&As Authors Jerre Stead and James Belasco Diamond Technology's Mel Bergstein Motorola's Les Shroyer Amazon.com's Jeff Bezos Author Clayton Christensen Venture capitalist John Doerr