How eBay Got Started

Computer programmer Pierre Omidyar wrote the code that would become eBay in 1996 when he was just 28 years old.

Omidyar had already had an impressive career in tech development. After earning a computer science degree from the University of California, Berkeley, he took a position at Claris, a software development company owned by Apple.

He also co-founded a startup called Ink Development that focused on pen-based computing. Eventually, Ink Development pivoted to eShop Inc, an e-commerce company that Microsoft purchased in 1996.

In 1995, Omidyar had a website called eBay with sections covering various topics, including the Ebola virus. The website included a section where he experimented with person-to-person auctions. He called the section Auction Web and made it available to the public on Labor Day of 1995.

How Did eBay Start Off?

The first item sold on Auction Web was a broken laser pointer. Uncertain whether the buyer understood that the laser pointer did not function, Omidyar reached out to him. The buyer explained that he collected broken laser pointers.

This shocked Omidyar, and encouraged him to continue working on his Auction Web project. He discovered that plenty of people were willing to spend money on items that he considered worthless. It was an intriguing experiment.

It didn’t take long before his website’s traffic exceeding the data allowed for a personal internet service plan. His monthly ISP plan would soon increase from about $20 to a few hundred to accommodate the additional traffic. Until this moment, Omidyar hadn’t charged anyone to use his auction service. Suddenly, it made sense to charge fees to cover his expenses.

Users didn’t seem to mind paying a little extra to use the auction site. At the time, Omidyar had a job at General Magic. It took about nine months for the auction fees to outgrow his salary at General Magic. He made the obvious decision to leave his job and focus on popularizing his auction site.

What Was eBay Originally Created For?

Rumor has it that Omidyar originally created eBay to help his fiancee sell Pez candy dispensers. Does that story sound a little too interesting and odd to be true? It should. A PR professional fabricated the backstory in the 1990s to give eBay a quirky background.

The truth is that Omidyar wanted to see whether he could use the internet to create a peer-to-peer auction site. He had already had some success as a tech developer and entrepreneur. The original version of eBay, however, was more like a social experiment than an application survey.

By the mid-1990s, things had changed for Omidyar and his website. Now that he was running the auction site as a small business, he decided to hire an employee to help him process payment sent via mail. At the time, a reliable online payment processor didn’t exist for many internet users. They could pay with their credit cards, but that didn’t always seem like a secure option. Instead of paying online, they would mail checks to Omidyar’s business address.

Even during the late 1990s, Omidyar hadn’t decided on a name for his rapidly growing auction site. He was using the website echobay.com. Eventually, he shortened it to eBay.

Growth Into Travel Services

The mid-1990s saw rapid change for eBay – or whatever name it was using at the time.

The company hired Jeffrey Skoll as its first company. Skoll helped grow the site and coordinate with other companies to offer eBay members additional services. For example, he received permission to act as a third-party seller for plane tickets and other travel products from Electronic Travel Auction.

This move gained a lot of attention for both companies. In 1996, eBay processed about 250,000 travel auctions.

The Beanie Babies Craze

The eBay website had a simple user interface that helped members to view images of items up for auction. The UI also made it obvious – even to new internet users – how to bid on the products they wanted to win.

Many credit eBay and its user interface with driving the Beanie Baby craze of 1997. During that year, about 10 percent of eBay’s auction listings were for Beanie Babies. It may seem like a trite use of the technology – although, perhaps not as trite as buying broken laser pointers! – but it brought more attention and money to the website.

Before the end of 1998’s first quarter, eBay had 30 employees and hired Meg Whitman to serve as president.

How Did eBay Get Funded Early On?

At the beginning, Omidyar didn’t try to fund eBay. In fact, he offered it as a free service on a subsection of his website. He didn’t start charging users until his internet service provider forced him to move from a personal account to a business account, which cost about 10 times as much money.

Luckily, eBay had very little competition in the online auction market.

Anyone who wanted to get a good price for an item knew that eBay would connect them to people willing to pay fair prices for a broad range of items. Unfortunately, much of the site’s revenue still came from Beanie Babies. Luckily, members also used the auction site to sell everything from musical instruments to used books.

Omidyar may not have worried much about funding early versions of the project because he had earned about $1 million selling a previous product.

While $1 million hardly made Omidyar a wealthy person by Silicon Valley standards, it did award him enough freedom to pursue his interests without worrying too much about money. Once eBay started to look like a business that could generate income, he quickly changed his perspective so he could start making money from his pet project.

When Did eBay Go Public?

eBay went public on September 21, 1998.

At the time, the website had a million users and generated $4.7 million in revenue. According to eBay, it wanted an IPO that targeted $18 per share. The market blew by that price almost immediately, reaching $53.50 on the first day of trading.

Omidyar and Skoll became billionaires within hours. Interestingly, eBay’s share prices have never risen much higher than the original value (not accounting for splits of course). Its highest value as of June 2021 is about $68.

3 Reasons eBay Got So Big

Hypothetically, any company could have entered the online auction space. Omidyar simply had an interest in exploring the potential of online auction places. When he started experimenting with the concept, he didn’t even plan to charge users. He had no idea that the company would become one of the internet’s largest sellers.

1 You Can’t Beat Good Timing

Omidyar’s interest meant that he entered a needed online space before anyone knew that they wanted it. His timing might have relied primarily on luck, but it still helped establish his website as the premier place for people to sell and buy items online.

2 eBay Made People Feel Comfortable With Online Buying and Selling

At first, a lot of people paid for items by sending checks to Omidyar via USPS. That took a lot of trust on behalf of sellers and buyers. Everyone involved had to trust Omidyar to distribute the funds as agreed.

Omidyar probably knew that he couldn’t continue accepting checks if he wanted to grow eBay into a major company.

He cleared that barrier by finding safer payment options that buyers and sellers trusted. Eventually, eBay would purchase PayPal (PYPL), an extremely popular payment processor that millions of people trusted and knew how to use.

It wasn’t the only way for eBay members to buy and sell auctioned items, but it did provide an option that made a lot of people feel more comfortable with online buying and selling.

3 eBay Didn’t Have Much Competition for Years

Even today, most people head to eBay when they want to participate in an online auction. Some of eBay’s closest competitors include Craigslist and Facebook Marketplace.

Those platforms, however, don’t really serve the same function since they largely connect people living in the same area.

Also, they do not include a bid-based system that helps sellers get the most money for their products without setting prices so high that interested buyers reject their offers.

Why Did eBay Spin Off PayPal?

eBay acquired several businesses as it continued to grow throughout the 1990s and 2000s. The company acquired all of PayPal on October 3, 2002. The acquisition made a lot of sense. PayPal offered a secure payment processing method with enough flexibility for people to use credit cards, checking accounts, and other funding options. eBay spent $1.5 billion buying PayPal.

In 2020, eBay announced that it would transition away from PayPal to Adyen, a payment processor based in Amsterdam used by many tech giants like Netflix and Uber. Members can still use PayPal until 2023, but eBay is slowly moving away from the company.

eBay has several reasons to move away from PayPal. Partnering with Adyen will keep all payment processing on eBay’s site instead of outsourcing information to PayPal. Adyen can also provide more flexibility for eBay users.

Currently, it has the ability to process payments in more than 150 currencies, which should make buying and selling easier for eBay members around the world.

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The author has no position in any of the stocks mentioned. Financhill has a disclosure policy. This post may contain affiliate links or links from our sponsors.