Random Factoids learned from The Perfect Store: Inside Ebay
Paypal grew fast expensively. Using thousands of VC dollars they gave 10$ to anyone who signed up using a referral. Peter Thiel would tell all the employees to send invites to anyone in their email contact book and those users would receive a hyperlink to sign up to get their free money.
In the early 2000s Paypal began receiving a lot of emails from eBay sellers asking if they could include a paypal link in their auction listings. Paypal’s founders hadn’t thought of this when they started their service but eBay turned out to be PayPal’s killer application. At that time eBays method of transactions was the slowest link in the chain.
eBay had been trying to make its own online payment system but ran into a series of road blocks and management had decided that it was not a business they wanted to enter on their own. Online payements were outside of ebays core competency of running Internet aucions and the risk fo fraud involved in wiring money over the interment made it a dangerous fiedld for ametuers.
Ebay got rid of the middle men. Antique dealers classically relied on ‘pickers’, buyers who would go out to estate sales, flea markets and auctions -> hunting down antiques -> resell to dealers. Dealers would have spent a lifetime cultivating personal network of pickers. With the arrival of ebay, pickers did not dealers to sell to the pbulic and did not need a retail store.
Feedback or your ‘rating’ can determine your selling power. Positive ratings had a slight statistically insignificant impact on the price but negative feedback was substantial. A 1 % decrease in a sellers negative feedback rating lowered the price by 0.11%.
eBay did a great job of communicating with its biggest users (though this was a lesson it learned over time). They invited the guy who ran auction-watch over to their offices to explain some of the thought process behind their decisions and had the CEO of eBay meet with him personally.
- To get feedback one of the empolyees got a list of ebays top sellers and began calling them personally
- It fostered its community with the usage of message boards
When administration made some changes to the site, people were outraged that they hadn’t talked to the community first. “When McDonalds unveils a new sandwich people just decide to buy it or not. They do not say ‘why didn’t you talk to me first?’”
eBays first VC investment was approx. 4 million dollars that it literally just kept in the bank and didn’t use. Instead of the money what it really wanted was advisory services which it got through a world of advice, behind the scenes management, recruitment etc
When they designed the new site one of the programmers changed the background from grey to white, one hexadecimal value at a time, so it would become fully white on Christmas day
Ebays feedback system was a good example of imposing ‘switching costs’ on users giving ebay first-move advantage. In general consumers will stay with a given provider when the cost of switching is more than the gains they are likely to achieve from the switch. People rarely switch primary care providers b/c of the time, effort to find a new one (moving medical records, updating the doc on past medical history, building rapport again, etc). But pople switch clothes, phone providers, food brands, etc all the time. Because the inconvenience involved with those things is minimal. With eBay, registered users had a significant investment in remaining on the site due to the reputations they had taken months to build
Beanie babies success was due to scarcity
A great story beats everything. When eBay was promoting itself, it was facing a lot of ambivalence from the media about a tech company wanting to create the perfect online market in the middle of the internet boom. The companies PR person was hanging out with the CEOs fiancé and she said how it was difficult to collect and trade Pez dispensers. Their PR person came up with the idea to tell reporters that Omidyar created eBay so his fiancé could find and trade Pez Dispensers.
During disputes and fraud, eBay would argue that it was not responsible. “If a deal goes bad with someone you found from the washington post classifieds you don’t go complain to the washington post”. Later on, eBay would establish the principle that it is only a “venue” and therefore not legally responsible for items sold on the site. They had some ground for that argument. The Telecommunications Act of 1996 gave ISPs a safe haven, recognizing as a matter of law that they were like telephone lines, conduits for information.
In 1996 eBay licensed something called smart-market technology to a company called electronic travel auction. This allowed ETA to sell plane tickets and other travel products in an auction format. Omidyar and Skoll believed in the future that eBay would make most of its money licensing smart-market technology. They had persistent pessimism about the prospect of future revenues being linked to auctions and felt that at any moment AOL or another internet giant will launch their own consumer to consumer marketplace
eBay hired a lawyer called Handler. He was disamyed to find that eBay had not patented any of their tech or innovations like the feedback forum, bidding algorihtims, etc. If they had, they probably would have been granted them, but by the time he had arrived it was too late b/c patent law requires application to be filed within one year of disclosure. The libertariion omidyar just was not the sort of person who was interested in patenting things down like that
The concept of first mover advantage was something that was insanely overhyped during the internet bubble. Wall street analysts would draw up models that show first movers to a product would gain a significant advantage over market share. Adherents of this doctrine would point to Amazon, eBay, etc. But for all the examples of first mover advantage you’d find plenty of examples of losers as well. AOL ahead of Compuserve and Prodigy. Internet Explorer had surpassed netscape which had unseated mosaic.
Most sellers thought that having hidden reserve bids were better versus a minimum bid b/c if you have a minimum bid you spook off interest and creating excitement about why something was bid so low. Statistical research showed that the minimum bid with no reserve was better b/c a lot of buyers were put off not knowing what the reserve is and they wouldn’t even bid