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Kusha searched about it on the Central Library’s online archive after coming from the auction. Of course, it was a lie.

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Success comes with an inevitable problem: market saturation. New products initially grow just by adding more customers—to grow a network, add more nodes. Eventually this stops working because nearly everyone in the target market has joined the network, and there are not enough potential customers left. From here, the focus has to shift from adding new customers to layering on more services and revenue opportunities with existing ones. eBay had this problem in its early years, and had to figure its way out. My colleague at a16z, Jeff Jordan, experienced this himself, and would often write and speak about his first month as the general manager of eBay’s US business. It was in 2000, and for the first time ever, eBay’s US business failed to grow on a month-over-month basis. This was critical for eBay because nearly all the revenue and profit for the company came from the US unit—without growth in the United States, the entire business would stagnate. Something had to be done quickly. It’s tempting to just optimize the core business. After all, increasing a big revenue base even a little bit often looks more appealing than starting at zero. Bolder bets are risky. Yet because of the dynamics of market saturation, a product’s growth tends to slow down and not speed up. There’s no way around maintaining a high growth rate besides continuing to innovate. Jeff shared what the team did to find the next phase of growth for the company: eBay.com at the time enabled the community to buy and sell solely through online auctions. But auctions intimidated many prospective users who expressed preference for the ease and simplicity of fixed price formats. Interestingly, our research suggested that our online auction users were biased towards men, who relished the competitive aspect of the auction. So the first major innovation we pursued was to implement the (revolutionary!) concept of offering items for a fixed price on ebay.com, which we termed “buy-it-now.” Buy-it-now was surprisingly controversial to many in both the eBay community and in eBay headquarters. But we swallowed hard, took the risk and launched the feature . . . and it paid off big. These days, the buy-it-now format represents over $40 billion of annual Gross Merchandise Volume for eBay, 62% of their total.65

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And so they discussed for hours how to work an on-line auction into a company that had nothing to auction and no particular auction skills or capabilities. “What was missing from that meeting, ” Sheila observed, “was someone who was willing to say, ‘Auction might be nice, but it just isn’t us.’” It’s nontrivial for a company and everyone in it to know “who we are.” A little bit easier, however, is to know “who we aren’t.” When even that knowledge is missing—when there is no basis in the company to say about a given cockamamy scheme “it just isn’t us”—the company clearly lacks vision.

Fair Warning by Stewart Stafford Sheer Heart Attack! The auctioneer's hammer fell, On Freddie's exquisite clutter, The room officially rocked. The last item of King Mercury, Sold to the highest bidder, In the room and online, No Kensington Pyramid, though. Seven Seas of Rhye claimed, The Killer Queen laid to rest, A throne in flux, vacated, Champion bids will out, darling! © Stewart Stafford, 2023. All rights reserved.

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This year companies around the world will spend an estimated $9.33 billion on online display ads at auction, according to Magna Global, a research and media buying unit of Interpublic Group. While auctions have brought pricing efficiency to the business, computerization is happening so quickly that ad agencies are struggling to keep up, says Matt Seiler, chief executive officer of IPG Mediabrands.

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When eBay entered the Chinese market in 2002, they did so by buying the leading Chinese online auction site—not Alibaba but an eBay impersonator called EachNet. The marriage created the ultimate power couple: the top global e-commerce site and China’s number one knockoff. eBay proceeded to strip away the Chinese company’s user interface, rebuilding the site in eBay’s global product image. Company leadership brought in international managers for the new China operations, who directed all traffic through eBay’s servers back in the United States. But the new user interface didn’t match Chinese web-surfing habits, the new leadership didn’t understand Chinese domestic markets, and the trans-Pacific routing of traffic slowed page-loading times. At one point an earthquake under the Pacific Ocean severed key cables and knocked the site offline for a few days. Meanwhile, Alibaba founder Jack Ma was busy copying eBay’s core functions and adapting the business model to Chinese realities. He began by creating an auction-style platform, Taobao, to directly compete with eBay’s core business. From there, Ma’s team continually tweaked Taobao’s functions and tacked on features to meet unique Chinese needs. His strongest localization plays were in payment and revenue models. To overcome a deficit of user trust in online purchases, Ma created Alipay, a payment tool that would hold money from purchases in escrow until the buyer confirmed the receipt of goods. Taobao also added instant messaging functions to allow buyers and sellers to communicate on the platform in real time. These business innovations helped Taobao claw away market share from eBay, whose global product mentality and deep centralization of decision-making power in Silicon Valley made it slow to react and add features. But Ma’s greatest weapon was his deployment of a “freemium” revenue model, the practice of keeping basic functions free while charging for premium services. At the time, eBay charged sellers a fee just to list their products, another fee when the products were sold, and a final fee if eBay-owned PayPal was used for payment. Conventional wisdom held that auction sites or e-commerce marketplace sites needed to do this in order to guarantee steady revenue streams.

Max Levchin’s Plan A was not to be. Demand for security on handheld devices never materialized. He remained a vagabond. But he was cooking another idea. Max pursued a Plan B that centered on cryptography software. “It’s really cool, it’s mathematically complex, it’s very secure,” said Levchin.7 But once again, no one really needed it. Plans C, D, and E didn’t work out any better. Levchin’s Plan F, still based on his cryptography expertise, was a system for securely transferring cash from one PalmPilot to another. As part of that effort, Levchin’s team built a Web-based demo version that did everything on a Web site that the PalmPilot version could do. By early 2000, people were using the Web version for actual transactions, and the growth of the Web demo was more impressive than for the handheld version. “Inexplicable,” recalled Levchin. “The handheld one was cool and the Web site was … unsexy … a demo. Then all these people from a site called eBay were contacting us and saying, ‘can I put your logo in my auction?’ We told them ‘No. Don’t do it.’ Eventually, we realized that these guys were begging to be our users. We had the moment of epiphany. For the next twelve months, we just iterated like crazy on the Web site version.”8 Levchin finally had a tool that filled a void, allowing ravenous eBay traders to safely transfer cash from buyer to seller. Plan G—a little outfit called PayPal—was born. And did it strike gold. PayPal is the now dominant system of paying securely for online purchases. Eventually, eBay, whose internally run payment system was floundering, bought PayPal for $1.5 billion.

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