Ebay - Enjoyed Growth And Expansion, 1999-2000

ENJOYED GROWTH AND EXPANSION (1999-2000)

Throughout 1999 and 2000 eBay grew by adding new categories, forming strategic partnerships, and making acquisitions. Following the acquisition of Kruse International in May 1999, eBay launched a new automotive category later in the year. Kruse was an Indiana-based automotive auction house that sold some 130,000 collectible cars each year through more than 40 events. In March 2000 eBay launched a co-branded automotive site with AutoTrader.com, called eBayMotors.com, that sold only used and collectible cars.

In May 1999 eBay also acquired Billpoint, a company that facilitated person-to-person credit card payments over the Internet. In March 2000 eBay formed a strategic partnership with Wells Fargo & Co. to develop an online person-to-person payment platform. The partnership involved Wells Fargo taking a 35-percent equity interest in Billpoint. Later in 2000 eBay and Wells Fargo launched Electronic Check, a new payment option for eBay buyers and sellers.

In 1999 eBay formed strategic partnerships with Warner Bros. and Juno Online Services, among others, and expanded its partnership with AOL. The agreement with Warner Brothers gave that company's online users a way to bid on entertainment merchandise featured on different areas of eBay. Links to Warner Brothers' online properties were added to eBay's site. eBay's agreement with Juno Online Services made eBay the exclusive provider of online trading services on JunoLand, Juno's online community site, and on Shop@Juno, the company's online shopping channel. eBay expanded its arrangement with AOL by launching four new co-branded sites on several AOL brands.

eBay's high-flying stock price enabled it to acquire the prestigious art and antiques auction house Butterfield & Butterfield in May 1999 for $260 million. The acquisition was designed to accelerate eBay's entry into higher-priced items and to enhance its position in middle-tier items priced from $500 to $5,000. During 1999, eBay also rolled out more than 30 regional Web sites in U.S. cities nationwide. While items on the regional Web sites were available internationally, the sites made it easier to buy and sell items that required a physical pick-up, or which were expensive to ship.

eBay introduced a new service in 1999 called Personal Shopper. Designed to retain shoppers in niche markets where items were not always for sale, Personal Shopper provided potential buyers with e-mail alerts when an item in a category they were interested in came up for auction. In November 1999 eBay, together with collectible and hobby publisher Krause Publications, launched eBay Magazine. Two books, The Official eBay Guide and eBay for Dummies, also were published in 1999.

Internationally, eBay purchased alando.de AG, Germany's largest online trading company in 1999. In early 2000 eBay Japan was launched, with NEC Corp. taking an equity stake and promoting the site. Unfortunately, eBay launched its Web site five months after Yahoo! opened Yahoo! Japan in September 1999. While eBay charged a commission for each transaction, Yahoo! did not. As a result, by mid-2001 Yahoo! held 95 percent of the online auction market in Japan, while eBay only had a three-percent share.

If eBay had any problems in 1999, the most persistent involved its servers going down. In mid-1999 the company experienced its worst outage to date when software problems and a lack of server redundancy put the company offline for more than a day. As a result, eBay lost more than $5 million and 20 percent of its market value. After expending capital to rebuild its information technology (IT) infrastructure, eBay reported strong financial results for the first quarter of 2000, beating analyst's expectations.

In the second quarter of 2000 eBay announced several wireless agreements as part of its eBay Anywhere strategy. The strategy was designed to make eBay accessible from any Internet-enabled mobile device. eBay partnered with 2Roam to format its content and deliver it to virtually any mobile device on any carrier network. Specific agreements also were announced with OracleMobile, a subsidiary of Oracle Corp., and with Sprint PCS.

A mid-2000 report from Nielsen/NetRatings found that eBay users spent an average of one hour and 42 minutes on the site and viewed 256 pages, making eBay the "stickiest" Web site on the Internet. At the time eBay had more than 12 million registered users. It also was in mid-2000 that eBay acquired Half.com for more than $300 million in stock. Half.com was a fixed-price, person-to-person trading marketplace. The addition of a fixed-price alternative expanded eBay's trading platform and increased its potential to attract a wider customer base. After the acquisition, Half.com and eBay continued to operate independently and to promote each other.

In November 2000 eBay announced that it would begin to license its auction technology to enable other firms to create their own applications. The eBay application program interface (API) initially was made available to selected licensed partners and developers. By February 2001 some 20 to 30 other sites and developers were enrolled in the program or had expressed an interest in joining. FairMarket, which hosted private label auctions for 70 companies including J.C. Penney, Dell Computer, and CompUSA. Using API, FairMarket linked its merchants, manufacturers, and distributors directly to eBay auctions. It took its customers' merchandise out of their inventory systems, prepared it for auction, massaged the bids, and got the information back to the fulfillment systems. FairMarket also would supply the back-office capabilities that eBay did not supply. Another licensee, GoTo Auctions, became the first application to be certified for eBay's API program. GoTo Auctions' ChannelFusion Network allowed users to sell items on six different auction sites, including eBay, Amazon.com, and Yahoo! Auctions. For 2000, eBay reported revenue of $431.4 million and net income of $48.3 million. The company was debt free and had no interest expense.