From negotiating on the phone for some art to generating 10 Billion dollars a year, Pierre Omidyar built an empire out of other peoples stuff.

Dave Young:

Welcome to the Empire Builders Podcast, teaching business owners the not-so-secret techniques that took famous businesses from mom-and-pop to major brand. Stephen Semple is a marketing consultant, story collector and storyteller. I’m Stephen’s sidekick and business partner, Dave Young. Before we get into today’s episode, a word from our sponsor which is, well, it’s us, but we’re highlighting ads we’ve written and produced for our clients. So here’s one of those.

[Travis Crawford Ad]

Dave Young:

[inaudible 00:01:32] and sold. eBay is the topic today. Oh, by the way, welcome to the Empire Builders Podcast. I’m Dave Young, that’s Steve Semple in your other ear. Is that how this works, are we each in one ear?

Stephen Semple:

I’m not sure.

Dave Young:

I don’t think that’s how this works.

Stephen Semple:

I don’t pay enough attention to things like that.

Dave Young:

As the countdown timer went down, Stephen told me we’re going to talk about eBay and I went immediately to the sound of the auctioneers of my youth back in my hometown.

Stephen Semple:

Oh, God.

Dave Young:

There’s cattle sales and estate sales. On any Saturday morning walking around in a small town, off in the distance you hear somebody with one of those cheap portable PA systems, “Give me five, give me five, give me five, give me five, five, five.” Aren’t you glad that eBay doesn’t have sound effects?

Stephen Semple:

Maybe it should. It might make it more entertaining.

Dave Young:

There’s some AI auctioneer going 24/7 for two weeks.

Stephen Semple:

Oh, my God, Dave, the fact you’ve now said it, you know what meme is going to happen. Oh, no, you put it out there. So when you come across this as a meme-

Dave Young:

There’s that little mute thing on the screen where if you turn it on, there’s some AI, “We’ve got $12.50. Since Tuesday, we have $12.50. Anyone, anyone?”

Stephen Semple:

So when this meme is driving us nuts on social media, you can blame Dave Young.

Dave Young:

I don’t see it happening. Oh, yeah, back. Oh, we’re going to talk about eBay.

Stephen Semple:

But talking about auctions for a second, here’s what I always find fascinating. Somebody will have something and they’ll go, “Okay, do I have an opening bid of $500?” Nothing. “Okay, do I have an opening bid at $200? Now do I have an opening bid of $100?” Somebody bids for 100 and then the damn thing ends up selling for 750.

Dave Young:

Yeah.

Stephen Semple:

And I’m like, “Wait a minute. It sold for 750 and no one was willing to open at 500. What the heck?” I don’t get it.

Dave Young:

I know. There’s a … Man, I’m not a big auction person. It stresses me to be in the bidding war.

Stephen Semple:

Right.

Dave Young:

I don’t know why. Even on eBay.

Stephen Semple:

Right.

Dave Young:

But there’s a psychology of auctions-

Stephen Semple:

Clearly.

Dave Young:

… that certain people … I don’t know for sure, I’m not a psychologist, Stephen, but I play one on a podcast. I think there’s a compulsion that’s similar to gambling and I think it’s just there’s a dopamine hit involved when you’re active in an auction.

Stephen Semple:

There probably is.

Dave Young:

And I think there’s a bit of a compulsion to it maybe.

Stephen Semple:

Maybe.

Dave Young:

Because it also, as long as you have the money to do it, it’s probably a little safer than gambling because if you lose, you don’t lose then.

Stephen Semple:

Right, right.

Dave Young:

If you win, hopefully you’ve won and purchased something that’s worth more than you paid.

Stephen Semple:

Right.

Dave Young:

That’s the upside. The downside is that you didn’t get the thing that you wanted.

Stephen Semple:

Right.

Dave Young:

But you didn’t lose any money.

Stephen Semple:

Cool. Well, let’s talk about eBay.

Dave Young:

Let’s do. Wasn’t Musk involved in it, and Thiel and those guys?

Stephen Semple:

No.

Dave Young:

Or am I thinking wrong?

Stephen Semple:

You’re thinking wrong.

Dave Young:

I get all my American oligarchs confused.

Stephen Semple:

They were over in the PayPal world.

Dave Young:

Okay.

Stephen Semple:

But the thing that’s interesting about eBay is it’s still a really important player in online retail. We can kind of forget about it because the growth has been stalled a little bit in the last bunch of years, but they still do $10 billion-

Dave Young:

That’s amazing.

Stephen Semple:

… in sales, which-

Dave Young:

I remember back when, probably in the first five or six years of eBay, you could use eBay, like if you had something you wanted to sell.

Stephen Semple:

Yeah.

Dave Young:

Not a garage sale, but just list somewhere to sell.

Stephen Semple:

Yeah.

Dave Young:

You could actually scour eBay and see what it was probably going to get you, what would be a good way to price it. That was always a way to see what are these going for?

Stephen Semple:

Right, because you could see what things were bidding at. So they are a really important part of the history of online retailing. And they were founded by Pierre Omidyar who was born in France to Iranian parents, and immigrated to the United States as a kid. And the company was founded in March ’96. And he had worked at a startup that he had got bought out from, he did pretty well. And he set up a consulting business called Echo Bay Technology Group, so that was the first thing he had going on.

Dave Young:

Echo Bay, okay.

Stephen Semple:

Echo Bay, Echo Bay Technology Group. And one day, a friend noticed that he had bought these bunch of drawings and was like, “Oh, tell me about these drawings.” And he was like, “Well, I saw them listed in the newspaper and I gave the guy a call, and we backed-and-forthed a few times, and I got a really good price on it.” And this was a seed of an idea. He was like, “You know what? There’s lots of stuff listed in newspapers and classified ads.” And if we remember, back in the day, going way back in the mid-’90s.

Dave Young:

Sure.

Stephen Semple:

The most profitable part of many, many newspapers was the classified ads. I remember being a portfolio manager and looking at one company called Torstar, it was a big newspaper group here in Canada. And yeah, literally, 25% of their revenue was classified ads. Massive part, massive, massive part of the business.

But if you think about a classified ad, you’ve got to call up the newspaper, you’ve got to create the ad, you’ve got to send the ad over, and then somebody’s got to phone you, and then you’ve got to back-and-forth on price. There’s lots of friction there. There’s lots of touchpoints.

Dave Young:

Well, and you have to go pay the newspaper even before you could pay them online, right?

Stephen Semple:

Oh, right, you had to go … Yeah.

Dave Young:

You had to pay for that ad. I think most of those were probably in.

Stephen Semple:

Yeah.

Dave Young:

Unless the newspapers take a payment over the phone.

Stephen Semple:

So he looked at it and he went, “Not only is there all these touchpoints to creating the ad and paying for the ad, there’s all these touchpoints in terms of the selling process.” And he looked at it and he went, “I think there’s a way for technology to eliminate all of that, and it’s clearly a big business because people spend lots of money-“

Dave Young:

Sure.

Stephen Semple:

“… on classified ads.” So this was the seed, this was the seed of the idea. How do I make this easier, frictionless, and all this other stuff for customers?

So he decided, “Well, I’ve got this consulting webpage, I’ll just do a page on my consulting site. On Echo Bay Consulting Services, I’m just going to put a page in there and I’m going to play around with it.” Because what he wanted to do was eliminate the need to contact the newspaper, make it easy to write the ad, and then basically make it easier to make the sale, and he really felt the internet could do this.

Dave Young:

Sure.

Stephen Semple:

And he also wanted to facilitate the price negotiation because he felt like people don’t really want to do that whole back-and-forth.

Dave Young:

Yeah.

Stephen Semple:

And the model he looked at was auctions. He went, “Wow, what if I could do an online auction site?” Because now, now the buyer and seller don’t have to have this conversation.

Dave Young:

Yeah.

Stephen Semple:

And the marketplace will just set the price.

Dave Young:

And you know that they’re going to be paying attention as the time wears down.

Stephen Semple:

Yeah, all sorts of things with that. So he launches it with a really simple design, there’s no pictures or anything like that, which we look at that today. But then I thought about and I went, “Well, wait a minute, that’s not really a disadvantage,” because there was no pictures in the newspaper one either.

Dave Young:

Yeah.

Stephen Semple:

So the whole idea of requiring a picture, we were used to doing this stuff without pictures through the newspaper classifieds.

Dave Young:

Yeah.

Stephen Semple:

Yeah. So he sets up the site and he calls it Auction Web. And he launches it on September 3rd, 1995.

Dave Young:

Okay. Auction Web.

Stephen Semple:

Sorry, I said the wrong date. I said the wrong date earlier, the date was when it really started making sales. But Auction Web launches September 3rd, 1995, not March ’96. He decides to do a test, and this is people of … This has test has been written up a whole pile of times. He’s looking around, he’s got this broken laser pointer.

Dave Young:

A broken laser pointer.

Stephen Semple:

It’s broken.

Dave Young:

Okay.

Stephen Semple:

And on the ad he even says, “This is broken.” And he puts it up and it sells after a few weeks for $14.83.

Dave Young:

Sweet. Better than throwing it away.

Stephen Semple:

He even calls the bidder because he’s like, “I got to make sure this guy know it’s broken. I don’t want to send this to him and have him ticked off.” And he goes, “Yeah, I know it’s broken, but I know how to fix these things and it’s cheaper to fix it.” So he’s like, “All right, I’ll send you my broken laser pointer.”

So he starts advertising, he starts going to all these chat rooms because remember, this is back in the mid-’90s and there was these chat rooms all over the place. So he would be going to these chat rooms and he was promoting Auction Web on chat rooms. Now, the other thing he changed was newspapers would charge a fee to list. So the other friction point with people was, “It’s still going to cost me five bucks, whether this sells or not.”

Dave Young:

Yeah.

Stephen Semple:

So he said, “There’s going to be no fee to list. What you’re going to do is you’re going to pay me a commission when it sells.” So he removed the fee, he replaced it with a commission. Now, here’s the crazy thing. Here’s the crazy thing. The commission was collected on the honor system. People mailed in the payments.

Dave Young:

Really?

Stephen Semple:

Yes.

Dave Young:

Stay tuned, we’re going to wrap up this story and tell you how to apply this lesson to your business right after this.

[Using Stories To Sell Ad]

www.UsingStoriesToSell.com

Dave Young:

Let’s pick up our story where we left off, and trust me, you haven’t missed a thing.

Stephen Semple:

Here’s the crazy thing. Here’s the crazy thing. The commission was collected on the honor system. People mailed in the payments.

Dave Young:

Really?

Stephen Semple:

Yes.

Dave Young:

He was I guess then not coordinating the payment either?

Stephen Semple:

Not at that point.

Dave Young:

So you sell something to me on eBay, I just get back with you and pay you, and then you ship it to me?

Stephen Semple:

Yeah.

Dave Young:

But you found your buyer. You were using the auction site to find your buyer.

Stephen Semple:

You were using the auction to find the buyer, the buyer paid you directly, you shipped it directly to the buyer, and then you would send me a payment for the commission because you go, “I owe Auction Web four bucks.” And it worked. They found most people paid. Most people paid.

Now, I think what they also figured out-

Dave Young:

I would guess that the ones that didn’t, maybe the sale falls through or something.

Stephen Semple:

Right. Well, and I think the other thing they figured out is for a lot of people, especially sellers, they probably weren’t one-time sellers, so they also wanted to continue to potentially … Anyway.

Dave Young:

Yeah.

Stephen Semple:

I just found it hurt my brain a little bit when I was like, “Really, that’s how it ran?”

Dave Young:

Yeah, wow.

Stephen Semple:

And it worked, and it’s nice to feel like things like this can happen. So in March 1996, they hit $1000 in revenue for the month. By May, it’s 5000.

Dave Young:

Okay.

Stephen Semple:

By October, they’re doing 1000 auctions a day. This thing when it took off-

Dave Young:

It took off like wildfire.

Stephen Semple:

Just took off like fricking wildfire. And Pierre realizes, “Man, I got a real business here and I really didn’t want to run a business. I’m a tech guy.” So he hires Jeffrey Skoll to be the president. He just goes out almost right away and hires him because he’s like, “This thing is going to the Moon.”

Now, think about this. This site is hard to find. It’s still a page on Echo Bay Technology Group’s website.

Dave Young:

Oh, man. And it’s called Auction Web, or something.

Stephen Semple:

And it’s called Auction Web. So the first thing they realize is, “We got to change that.” And they go to get echobay.com and echobay.com is taken by a Canadian mining company.

Dave Young:

Oh, okay.

Stephen Semple:

So they shorten it to eBay.

Dave Young:

eBay.

Stephen Semple:

Which I actually think is in a lot of ways-

Dave Young:

Which is better anyway.

Stephen Semple:

It is better. It is better.

Dave Young:

Yeah, it’s four letters.

Stephen Semple:

Yeah.

Dave Young:

Try to buy yourself a four-letter domain name these days.

Stephen Semple:

So in September ’97, it changes from the wonderful name of Auction Web to eBay.

Dave Young:

And gets its own domain, yeah.

Stephen Semple:

Yeah, and it gets its own domain. Now at this time, it’s mostly tech nerds looking for parts, that’s really what got it going. If you think about it, that also makes sense because he’s going to those early chat sites on the web.

Dave Young:

Those are the people that were online early.

Stephen Semple:

Well, it is.

Dave Young:

Yeah.

Stephen Semple:

It was, and especially where you’re promoting it going to these chat groups. That would be mainly nerds in there. But what they figure out is they do want to make this a little bit more of a mass appeal. So they wanted to find things that were products that people already want, but were hard to get their hands on. And what they figured out was they wanted to do Beanie Babies.

Dave Young:

Oh, there you go.

Stephen Semple:

Because what they discovered was there was a community of Beanie Babies, collectors of Beanie Babies.

Dave Young:

Yeah.

Stephen Semple:

So they reached out to them and because, let’s face it, they were limited number, they were not sold everywhere, and collectors loved them. So they actually created an auction category for this toy alone. They created a category for Beanie Babies. And very quickly, they sold $500,000 worth of Beanies Babies almost right out of the gate.

Dave Young:

Man. You know where my brain’s going with this?

Stephen Semple:

No, I don’t. Dave, I never know where your brain is going.

Dave Young:

Well, hang on. I rarely do. I know a little bit of the story of Beanie Babies, I think I watched the weird documentary or movie about it. But I’ll bet you this contributed to the demise of the Beanie Baby craze because now you could actually see the value of your Beanie Baby.

Stephen Semple:

Oh, maybe. Maybe.

Dave Young:

Right? You put your Beanie Baby on and, “Oh, God, it didn’t sell for as much as I thought it was worth.” And it turns out that you also just found a million other, yeah, you found a million other people that have one.

Stephen Semple:

Right.

Dave Young:

And you’re like, “Maybe this isn’t as valuable as I thought it was.”

Stephen Semple:

Maybe. That’s an interesting … Interesting.

Dave Young:

Whereas if you’re only going to little craft fairs and get togethers, a whole different deal. I don’t know.

Stephen Semple:

Maybe. Don’t know.

Dave Young:

That’s worth studying. Go ahead.

Stephen Semple:

Yeah, that’s an interesting thought. So they created this category for Beanie Babies and it explodes. So within four months, the whole collectibles part of the site-

Dave Young:

Oh, sure.

Stephen Semple:

… is just blowing up. By mid-1998, they have 750,000 users, which is a huge number. They’re rivaling AOL’s numbers in that day. They’re doing 400,000 auctions.

Now, here’s the other thing that they discovered, the other innovation that they did, that they were the creators of. They were the first to do this. They would get people calling in complaining. So what they decided to do was create a feedback form that is public. Now, what made this one different, it was ranking the seller and ranking the buyer.

Dave Young:

Right, right.

Stephen Semple:

Which no one had done before.

Dave Young:

Yeah. You go into it and you’re a shitty buyer, so the seller says … Yeah.

Stephen Semple:

Yeah, “Be careful if you’re selling to this guy, or don’t buy from this person.”

Dave Young:

Yeah.

Stephen Semple:

And it was less about ranking the product, because everything before was about the product, but this was about the ranking of the buyer and the seller in a public format. Look, that’s one of the cornerstones of our whole review system today, much of it is person-to-person. Much of it is person-to-person.

Dave Young:

Yeah, yeah.

Stephen Semple:

And these guys innovated that and were the first to do that. So they’re really growing, they end up hiring Meg Whitman as CEO, and she really brought a strategy to the business which turned it into profitable business. And by fall of 1998, so you think about it, they’re just at it for a couple years, they end up going public at a $2 billion valuation.

Dave Young:

Amazing.

Stephen Semple:

The growth on them was really spectacular. And here’s the thing that I loved about this story is he bought something through the traditional manner. Saw it in the newspaper, bought it, and then looked at it and went, “The web is ideal for just making this,” I know we use the word friction, but I just prefer, “making this whole thing easier. I can make it easier to post. I can make it easier to sell because there’s less back-and-forth. I can just make this whole process easier.”

Dave Young:

Sure.

Stephen Semple:

“And I already know lots of people are doing it, it’s super profitable for newspapers. So clearly, lots of people are doing it.” I love that thought process. And I also love the fact that he ran an experiment. Let’s just do something and test this out.

The other thing I really liked was once it got going and it’s in that niche, they immediately went, “What’s something I can do to expand across it?” And what they recognized was where this fit was with something that lots of people are doing, but is hard to connect people together.

Dave Young:

Yeah, yeah.

Stephen Semple:

Right? So what they actually recognized was we are actually a facilitator.

Dave Young:

Absolutely.

Stephen Semple:

“And what is something that we can facilitate? Collectibles. Where are we going to start? We’ll start with Beanie Babies. What the heck, that’s where we’ll start.” I thought that that was a really great starting point because their whole thing was, “How do we make things easier?” And I find not enough businesses think about the whole how do I make things easier for my consumer? How do I bundle things so it’s a fixed price? How do I do this? How do I do it? And any time a business makes things easier for the consumer, it wins. And look, eBay went from nothing to a few years being a couple billion-dollar business.

Dave Young:

Yeah, amazing.

Stephen Semple:

Yeah, and they’re still doing, as I said, 10 billion in revenue today.

Dave Young:

I rarely go there.

Stephen Semple:

Yeah, I don’t use them either.

Dave Young:

We sold some things on eBay years ago.

Stephen Semple:

Yeah.

Dave Young:

Right? We just said, “Oh, we have this stuff and we know that there’s people out there that want it.” I’m thinking of homeschool books that our kids are now grown.

Stephen Semple:

Yeah.

Dave Young:

That was a good place to list things like that.

Stephen Semple:

Yeah.

Dave Young:

Because you may not know somebody in town that’s got a kid the right age for it.

Stephen Semple:

Well, and today there’s more competition. You’ve got Facebook Marketplace.

Dave Young:

Absolutely.

Stephen Semple:

And I think Amazon has an auction site as well. There are other options, but clearly there’s still things eBay’s doing really correctly for them-

Dave Young:

Yeah.

Stephen Semple:

… to still, as I said, to be a $10 billion business.

Dave Young:

How much of what they do now is true auction versus just true commerce?

Stephen Semple:

You know what? I did not research the breakdown. I didn’t research the breakdown of that.

Dave Young:

Because when they put the buy it now button on.

Stephen Semple:

Yeah.

Dave Young:

You could list something and then let people bid on it, but you could also just say, “If it goes below this, I’m not selling it.”

Stephen Semple:

Right.

Dave Young:

Put a buy it now button up there and if it doesn’t sell, maybe relist it down the road.

Stephen Semple:

Again, and I think it’s more around this collectible space.

Dave Young:

Yeah.

Stephen Semple:

I know there’s certain spaces that they are still pretty big on.

Dave Young:

It’s the place.

Stephen Semple:

And one of them oddly enough is auto parts.

Dave Young:

Okay.

Stephen Semple:

Let’s say you’ve got a ’65 Corvette and you’re looking for an old Corvette part, seemingly a pretty popular place to go is eBay.

Dave Young:

Okay. What if you have a ’65 Dodge Dart? Probably the same.

Stephen Semple:

Probably the same.

Dave Young:

Probably the same.

Stephen Semple:

Just one is really cool.

Dave Young:

Yeah, right? The parts are going to be a little rusty.

Stephen Semple:

And I’ll let the audience decide based on their preferences which one is really cool.

Dave Young:

That’s how the market-

Stephen Semple:

And let the argument begin.

Dave Young:

That’s how the market works. That’s how the marketplace works. Well, I’m glad to hear the story of eBay, Stephen.

Stephen Semple:

Yeah.

Dave Young:

Thank you for bringing it to the Empire Builders Podcast.

Stephen Semple:

Yeah, it was kind of fun. And you’re bidding at the beginning was awesome.

Dave Young:

Oh, thank you. Really, when I was young, I figured out that the way to emulate an auctioneer is just to make noise with your mouth and then rub your finger over your lips while you’re doing it. [inaudible 00:22:44]. That’s it, that’s it. Now you’re an auctioneer. Thanks, Stephen.

Stephen Semple:

Alright. Thanks, David.

Dave Young:

Thanks for listening to the podcast. Please share us, subscribe on your favorite podcast app, and leave us a big, fat, juicy five-star rating and review at Apple Podcasts. And if you’d like to schedule your own 90-minute Empire Building session, you can do it at empirebuildingprogram.com.