Letter #16: eBay (1999)

1999 Shareholder Letter from Pierre Omidyar and Meg Whitman

Hi there! I go by KG, and I love studying the history of business and investing. I’ll be sharing some notes from one Investor/Shareholder letter per weekday (mostly from my compilations) here.

Today’s notes are on Pierre Omidyar’s and Meg Whitman’s 1999 Shareholder Letter, eBay’s first full year as a public company.

Prior to founding eBay, Omidyar was at General Magic. Since then, he has focused his attention on his philanthropic investment firm: The Omidyar Network.

Before joining eBay, Whitman was a VP at Disney. After eBay, she went on to become the CEO of HP, then Quibi.

You can find this letter in my Pierre Omidyar ft. Meg Whitman and John Donahoe Compilation, which is under “Technical CEOs.” This particular letter starts on page 1.

If you have any thoughts on what you’d like to see, let me know!


A Year in Review

We began the year with 2.2 million users, a vibrant community about the size of Portland, Oregon and ended the year with over 10 million confirmed registered users—more than Michigan, the eighth largest state in the country. And that phenomenal growth reflected itself in every measure of our business: the number of items listed in 1999 totaled 129.6 million compared to 33.7 million in 1998. In the fourth quarter of 1999, every two tenths of a second, someone, somewhere was listing as item for sale on eBay — that translates to $113 dollars of gross merchandise sales per second. And, most impressive, gross merchandise sales grew an astounding 276 percent from $745 million in 1998 to $2.8 billion in 1999. During 1999, our users generated more economic activity on eBay than on any other consumer e-commerce site.

  • Users: 5x

  • Items listed: 4x

  • Gross merchandise sales: 3.75x

Underlying this strength is the incredible popularity of the site. In 1999, eBay became one of the most recognizable Internet brands around the world, with numerous mentions in the media, business press and television. eBay was featured in such high profile publications as Forbes, the Washington Post and Time Magazine. In Time magazine, eBay was voted number one in their “Best of 1999” in the Cybertech area. eBay also continues to be mentioned on television shows including “Who Wants to be a Millionaire?”, “The Simpsons”, “The Tonight Show”, “Suddenly Susan”, “Sports Night” and of course, “David Letterman’s Top Ten List”.

  • I find it interesting that a company would be mentioning media appearances in an annual letter — these days they are relegated to the “Media Appearances” section of the Blog.

  • When you enter mainstream media — you know you’ve made an impact (think Dennis Hong of Shawsprings “Cognitive Referent”), although these days due to the increasing digitalization of our world, everyone covers everything — be wary of virality that can’t be sustained or lack strong fundamentals

  • Media Matters — If you’re in the investing/enterprise space, you can hide away (Mark Leonard, Lu Li, Peter Kaufman), but if you’re in the consumer space, be ready to manage your image

During the year, we endeavored to make eBay a more vibrant marketplace by entering new trading regions. We expanded to reach new areas of the world including the United Kingdom, Australia, Canada and Germany. We entered regional markets to help bring trading closer to our users’ homes with the launch of 53 regional sites across the country.

  • Once you find product-market fit: Blitzscale

  • eBay attacked developed international market and US regional markets at the same time — You don’t have to stay in one place.

  • However, note the countries: UK, Australia, Canada, Germany — all developed, mostly Caucasian, high standards of living. Go after places similar to yours.

  • If regions differ, you might be in trouble. Think Pinduoduo vs Alibaba/JD. PDD focuses on Tier 3-5 cities in China, whereas BABA/JD focus on Tier 1/2. This means, when they start battling it out in Southeast Asia, where countries aren’t as developed and mirror Tier 3-5 cities moreso than Tier 1/2 cities, PDD may have the advantage.

In addition, thanks to our strong relationship with AOL and new relationships with 50 other leading online partners, eBay’s reach continues to expand. Our total online relationships now number over 200 partnerships. We also have over 600 links in a variety of areas on AOL that bring customers to eBay in addition to our new co-branded sites for AOL.com, Compuserve, Digital Cities and ICQ.

  • Physical + Digital expansion

Of course, 1999 had its share of challenges as well. We experienced some tough times with issues like service disruptions. Site stability has been and still is our number one priority. In November, the high-availability system became operational. Although this system will not prevent all future technical problems, it is a big step in our journey in maintaining site stability. We are also continuing our quest to ensure that there is no single point of failure, that our systems continue to scale to handle future growth, and to continue to build operational excellence into all of our engineering practices.

  • Build in redundancies — DJI drones are so successful in part because of this. For example, even though they have 4 wings, they can function with just 3.

  • Systems need to be scalable — if you build out a great system/software, but it can’t scale, you’ll be in big trouble when you try to grow (see yesterday’s letter on Intel)

We saw the dynamics changing on eBay this past year. We are no longer just a collectibles site as evidenced by the kind of items listed on our site. In fact, on almost any given day, approximately 60% of gross merchandise sales listed consist of such non-collective items as cars, photo and electronics, computers and sports equipment. Along with this metamorphosis is the broadening of categories and eBay’s user base from collectors to the mass market. We have expanded the number of categories for buying and selling on eBay from about 1,500 to nearly 3,000 over the year to reflect the increasing range of items on sale.

  • 1999 was an inflection point for eBay — Just as Amazon started out with books, eBay started out with collectibles. When you expand beyond your niche, hypergrowth is about to come

  • Honestly surprises me a bit — would have expected more than 4x the times listed the previous year

We also entered new trading areas to add to the variety of items in the marketplace. Last spring, we announced the acquisitions of Butterfield & Butterfield and Kruse International. We leveraged these well-known land-based brands into new online initiatives with the launch of Great Collections, a new area of eBay devoted to fine antiques, art and rare collectibles, and the Automotive category devoted to the sale of used and collector cars.

  • The more the merrier — more choice is (almost) always good. Brandless was supposed to compete with Amazon… (although that was also the result of execution issues rather than just value proposition)

  • Super interesting… as far as I can remember (which isn’t far), people have always argued that big ticket items (art, furniture, cars) would never be bought/sold online. Yet it was one of the first things eBay tried to do once expanding outside of collectibles.

  • Back then, it was all about bringing the physical into the digital. Now, there’s a seeming obsession with bring the digital into the physical — a transition I don’t think will be nearly as easy (scarcity exists in the real world, but not the digital world). *Note: I’m speaking for actual digital native products — not digital avatars of physical products (ie image of a car vs an actual car)

Yet through this past year of growth and change, our focus remains the same: to help people trade and conduct commerce through the Internet on a global basis.

  • Keep focus. Always Day 1 (lol).

We are focused on our community

eBay is about people. It’s about finding success on your own terms. It’s about giving people the freedom to work for themselves to supplement their income and even to make their own living through trading on eBay. It changes the way people do business. It changes lives. And at eBay, we want to do everything we can to help our community succeed.

  • What a paragraph.

  • See Aggregation Theory

  • See the Passion Economy

  • Swap out trading for any number of verbs (driving, renting, etc) and you get companies like Uber, AirBnB, etc (yes, yes, I know there are nuances, but fundamentally they’re digital marketplaces for real assets)

Throughout the year, we focused on improving the core product our users access on a daily basis.

In June, we launched an improved User Interface to help our users find information on the site more easily. We also introduced teh eBay Everywhere concept by enabling our users to get eBay updates wherever they go via SkyTel pages and Palm Pilots

  • Make things easier for users

  • Interestingly, Chinese mobile apps are focused on taking away choice these days — TikTok and Douyin queue whatever videos they think you will like for you, PDD actively hides their search bar, etc. It’s not exactly taking away choice or variety per se, but it’s making those decisions for you.

In addition to new features for our buyers, we also introduced several seller tools. We acquired a company called Billpoint and launched a new program to help facilitate payments between buyers and sellers at eBay. IN December we announced the acquisition of Blackthorne, the marker of Auction Assistant that provides back office automation for eBay sellers. We also introduced E-stamp to our community to enable them to purchase postage online.

  • While “The customer is always right',” don’t forget to take care of your sellers (see Letter #2: Apple (1981) for an example of a company that did a great job of this)

  • Lol, eBay buying Billpoint before PayPal is like Amazon buying Blink before Ring (yes yes, I know, it’s actually more nuanced than this)

We strengthened our efforts to create a safe and secure online trading environment for our users through a number of initiatives. We reinforced and clarified policies, supplied additional information to help our users avoid illegal and infringing items, and provided our users with a variety of tools such as insurance, escrow and authentication services. We also created a new level of user verification with the credit card requirement for new sellers. We took these initiatives proactively to ensure the strength of our community even though we continue to experience very low fraud rates to the site. We are now more convinced than ever that our efforts in this area are setting the standards for all companies in this space.

  • Wow. Fascinating to read.

  • Establishing trust is hard.

  • Authentication is hard… why companies are still working on it to this day

  • Exciting to read that they were focused on authentication from the start… unlike some other US-based companies who gave up security for faster growth (I’m not going to name names, there’s too many)

  • In China, most e-commerce companies appear to have started off with lots of fraud, but become legitimate. Seems eBay started off totally legitimate, then descended into fraud (despite its efforts) — completely anecdotal (I haven’t used eBay in a long time, but have heard many stories)

We also continued our work with the eBay Foundation to help build communities in the real world. This year, the Foundation made about 20 grants totaling $1,380,428 to local and global organizations which focus on empowerment, such as The Odyssey: World Trek for service and Education, a group that uses the Internet to promote global awareness among youth. Our grants are determined by a committee of volunteer employees who carefully evaluate each application brought before them. The eBay Foundation won two major awards for charitable giving, one from the National Society of Fundraising Executives and another from the Community Foundation Silicon Valley. We are very proud of the continuing charitable work of the eBay Foundation.

  • Clear the Pierre has always been interested in Philanthropy — not just donating to get out of a public scandal

  • This says a lot about the values of eBay, it’s management, and it’s employees — most people donate for tax write-offs and to be written about in newspapers, but don’t mention it in the shareholder letter

  • eBay is laser-focused on community — whether in the physical world or the digital world — build and take care of your community (you can’t take care of one and neglect the other, especially in today’s increasingly digital world)

The future

As we look forward, we are very excited about what lies ahead. We have barely begun to tap into eBay’s first market, the collectibles area, and we believe that the new initiatives we launched in 1999 will prove to be even bigger opportunities. Now, more than ever, eBay is rapidly establishing the infrastructure for a global trading platform for almost anything, anywhere. At the same time, we have stayed true to our roots. We have acted to nurture and protect our existing community of buyers and sellers even as we add new members at unprecedented rates. This trading platform is constantly renewed and enriched by our innovative and entrepreneurial community that continues to expand the definition of eBay. As we grow, we will work to ensure that the eBay platform continues to improve with new features and services, expand to all corners of the world and change to accommodate all types of users.

  • eBay’s core is serving the community of buyers and sellers — perhaps this belief is what prevented them from taking on businesses in favor of individuals

  • In comparison, Taobao (Alibaba) started off as DTC wholesaler where you could only place bulk orders before transitioning to selling individual goods as well)

With that, we would like to thank our stockholders, partners and employees for their support. We especially want to thank our community. We recognize that is the community who makes eBay what it is today and what it will become tomorrow.

  • Community, Community, Community. Humans are all about community. It’s quite entertaining seeing every tool (not even product or business) talk about building a community these days.

  • With that, I leave you with this question:


If you’ve got any thoughts, questions, or feedback, please drop me a line - I would love to chat! You can find me on twitter at @kgao1412 or my email at kevin@12mv2.com.

Please DM or email me any time — to share non-obvious intel, views and correct or solicit mine. I appreciate your continued support and partnership :D.

All compilations here.