eBay plays tough defense

March 2, 2001: 1:30 p.m. ET

Internet auction company stands solidly against the dot.com shakeout
By Jeanne Yurman

NEW YORK (CNNfn) - Five years ago, eBay founder Pierre Omidyar sought to create a way to help his fiancée expand her Pez dispenser collection.

Originally called Auctionweb, the site consisted of three equally divided sections: an online auction, a picture of the fiancée, and a portion dedicated to the Ebola virus.

Little wonder, then, that Meg Whitman, now eBay's CEO, considered her Harvard MBA and corporate training, and initially replied, "Absolutely not" to the no-name Internet company and the headhunter trying to recruit her.

Meg Whitman shared this and more Thursday night at a "Captains of Industry" lecture series sponsored by BusinessWeek in New York City.

A Long Island native and the youngest of three children, Whitman spent much of her youth devoted to competitive swimming, ice skating and camping.

The focus required for competitive sports is the same skill she brings to the company, and the same concept she preaches as a key to eBay's success.

eBay's unparalleled strength, she claims, is due to the fact that "there is no land-based analog."

eBay boasts an extraordinarily dedicated community of online buyers and sellers trading everything from Beanie Babies to cars to lockets of death-row inmates' hair. Some eBay members are so dedicated that roughly 75,000 people make a living through the online auctions, Whitman said.

Indeed, eBay has stood solidly against the tsunami sweeping away so many other pure-play dot.coms. Generating most of its profit by taking commissions from each completed online auction ($431 million in fiscal 2000), analysts note its business model is unmatched in the dot.com world.

Unlike other Internet companies, it does not depend on online advertising or managing warehouses of products. No fuss. No muss. No inventory.

Countering the competition
In eBay's case, the paramount competition, she said, " ... is getting the offline user online." Only four percent of all coin collector trades, for instance, were done online last year. And when the company tackled the antiques market, it struggled at first because they had to undo customer behavior -- a very hard thing to do, she noted.

As for actual Web rivals, eBay recently addressed that directly, acquiring what Whitman considered to be eBay's only true competitor, Half.com, a fixed-price buy and sell site.

Indeed, fixed pricing is one of the next important phases for eBay. Not everyone is into haggling, Whitman notes.

Tackling international expansion
eBay (EBAY: Research, Estimates) already manages local auction sites ranging from France to Japan, but Whitman & Co. want to create a seamless global online trading market. Obvious obstacles include cultural differences and language issues. But, ideally, if someone in the United States wants to buy a lamp from a person Germany, the buyer could e-mail in English and it would be translated to German on the other side.

The translation software isn't there yet. But Whitman suggests that the global market within eBay's eventual reach totals $1.7 trillion. That potential, she adds, is recognized by investors, and reflected in the company's price-earnings ratio of 98. "The pace of growth is more than I ever imagined," she said.

Perhaps unlike other tech executives, Whitman is not overly concerned about the current economic slowdown. Though eBay's stock is down over 70 percent in the last year, Whitman said, "Our hypothesis is that we actually benefit from a recession." Someone who needs cash might dig up a DVD player in the closet and sell it to someone else wanting to save money by buying a used item."

It's too early to tell if that hypothesis is on track during the current economic slowdown, she cautioned. Much depends on how long the slowdown lasts. At least for the Nasdaq, she disputes forecasts of a rebound in the second half of 2001.

"When you have this kind of rushing to one side of the boat, it takes a while for it to come back. I think it will take the Nasdaq 18-to-30 months before the pendulum comes back," she said. "In the meantime it will drift, not a lot more to the downside, but sideways for quite some time."