Margaret C. Whitman stands almost alone among dot-com CEOs today: Her online auction site, eBay Inc., is the last e-commerce company to be almost untouched by the dot-com swoon. In a recent interview with BusinessWeek Senior Correspondent Robert D. Hof, she says the secret is that eBay does something unique that can't be done in the physical world -- and she thinks it won't be the last company to do so.
Q: Why did eBay work?
A: First, we created a business that took unique advantage of the properties of the Net -- the Net's ability to connect many to many -- allowing a business to be created where there was no land-based analog. If you can't buy your book at Amazon, you can still go down to Barnes & Noble. eBay has no land-based analog -- not in one place. It was a business model that was created out of the technology called the Internet. Some of the most successful companies are those that had an entirely new model that could not have existed without the Net. eBay might be one of the only businesses that was created on the Internet.
Second is whether the business has a successful business model. It has to be a new concept, but it has to be a concept that can make money. EBay was profitable from its inception. Third is old-fashioned execution -- building a company to last, building cost behind revenues, not ahead of revenues, having a returns-based investment philosophy.
When we spend a dollar on marketing, we want a return for that. When we spend a dollar on technology, we want a return on that. Some of that financial discipline was suspended among many of these dot-com companies over the last two years in the race to get big fast. Growth at any cost is a recipe for getting a company into trouble. The supply of capital into these new companies was unprecedented. Companies got funded at an early stage, and then at IPO, that never would have gotten funded before. Many of these companies got taken public far too soon.
That's not really their fault. The capital markets were eating this stuff up. So many companies were given too much money too early, and then taken public too early, that had no sound financial models and no demonstrated track record. It was all Get Big Fast. At investor conferences in 1999, they would challenge me on why eBay was profitable. They said: 'You're way too profitable.' It does shake your confidence a little bit. I thought injecting a bit of financial discipline DNA into the organizational culture was going to be very important. Cultures are very hard to change.
Q: Is the Net not all it's cracked up to be?
A: The fundamental underlying secular trends of the Internet remain strong. The number of new users. The amount of usage [for] each of them... People are spending more and more time on the Net doing more and more things. There's also more commerce on the Net. The Internet is going to change everything. It is going to change business models. People are going to do more and more activities online. The fundamentals here are really very strong. We're in the first inning of what impact the Internet is going to have on businesses and the way we live our lives.
Q: Will it be as big as expected?
A: Yes, in e-commerce: People are going to do more business online. It's more convenient. It's a better experience than buying in a land-based environment for many, many products. More and more, people are going to go to the Web for news, stock quotes, their personal portal. There may be a one-year downturn on these for a while. In communications, this has been a real revolution. I get four or five calls a day. I get 175 e-mail messages. There has been a communications revolution that has taken place under our noses. People will figure out how to monetize that.
Q: Will the current rethinking on the Net slow progress and slow traditional companies' efforts?
A: The big bricks-and-mortar companies have actually been kicked into action pretty dramatically. In December, 1999, the top 10 e-commerce Web sites all pure plays. In December, 2000, only three were pure plays. They have all recognized that this is a very important distribution channel.
Q: What's next?
A: There's nothing else I see out on the horizon. But the entrepreneurial spirit of the Valley is not dead. There will be consumer plays, new technologies. There's a lot of people who were badly burned, but they're back at it right now. Innovation is just at the beginning right now. There will emerge over the next couple of years probably 5 or 10 companies that actually take advantage of this medium and do something quite unique with it -- companies we haven't seen yet. It's harder to create a business uniquely suited to the Net than it is to take something we already know and move it onto the Net. The easiest concepts came first. Perhaps some of the most valuable, yet harder-to-develop, concepts will come next. They may be more sustainable.
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