eBay 1998 Annual Report Download - page 5

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eBay also enables sellers to reach a larger number of buyers more cost-effectively than traditional person-to-person
trading forums.
The eBay service originally was introduced in September 1995 to create an efficient marketplace for
individuals to trade with one another. Begun as a grassroots online trading community, eBay primarily attracted
buyers and sellers through word of mouth and by providing buyers and sellers with a place to socialize, to discuss
topics of common interest and ultimately to trade goods with one another. The number of categories under which
eBay users list goods for auction has grown from 10, when eBay was first introduced, to more than 1,000 as of
December 31, 1998. Categories on eBay currently include antiques, coins, collectibles, computers, memorabilia,
stamps and toys.
The principal reasons for eBay’ s success are the following:
Largest Online Trading Market. Unlike traditional person-to-person trading forums, eBay has aggregated a
critical mass of buyers, sellers and items listed for sale. As a result, eBay has become the largest online person-to-
person trading market. As of December 31, 1998, eBay had over 2.1 million registered users and offered more than
1,000 product categories with over 1.0 million items for auction, many of which were unique or otherwise hard to
find. The Company believes that this critical mass of buyers, sellers and items listed for sale creates a cycle that
helps eBay continue to grow its user base. Sellers are attracted to eBay as a result of the large number of potential
buyers and buyers in turn are attracted to eBay by the broad selection of goods listed on eBay.
Compelling Trading Environment. eBay has created a distinctive trading environment by utilizing an
entertaining auction format, establishing procedural rules and promoting community values that are designed to
facilitate trade and communications between buyers and sellers, without the need for eBay to intervene and play a
significant role in the trading process. The auction format creates a sense of urgency among buyers to bid for goods
because of the uncertain future availability of a unique item on the website. Similarly, by accepting multiple bids at
increasing prices, its auction format provides sellers a more efficient means of obtaining a maximum price for their
products. To date, well over 50% of auctions listed on eBay have been successfully completed.
Trust and Safety Programs. The Company has developed a number of programs designed to make users more
comfortable with dealing with an unknown trading partner over the Web. The Company’ s Feedback Forum
encourages every eBay user to provide comments and feedback on other eBay users with whom they interact and
offers user profiles that provide feedback ratings and incorporate these comments. In addition, eBay’ s recently
expanded SafeHarbor program provides guidelines for trading, helps provide information to resolve user disputes,
responds to reports of misuse of the eBay service and, if necessary, warns or suspends users who violate the terms of
the Company’ s user agreement. The Company’ s recent trust and safety initiatives, including user verifications,
insurance, integrated escrow and authentications and appraisals, are intended to bolster eBay’ s reputation as a safe
place to trade.
Cost-Effective, Convenient Trading. eBay allows its buyers and sellers to bypass traditionally expensive,
regionally fragmented intermediaries and transact business on a 24-hour-a-day, seven-day-a-week basis. Because
eBay carries no inventory, sellers bypass costly traditional intermediaries, thus allowing for lower selling costs and
increasing the sellers’ likelihood of finding buyers willing to pay his or her target price. To list an item on eBay,
sellers pay only a nominal placement fee ranging from $0.25 to $2.00 and then pay an additional success fee that
steps down from 5% to 1.25% of the transaction value only if an auction is concluded with a successful bid. As a
result, sellers for the first time can sell relatively inexpensive items which had previously been prohibitively
expensive to list through most traditional trading forums. By allowing sellers to conveniently reach a broad range of
buyers, eBay also addresses the time-consuming, logistical inconvenience of individual selling. Buyers have access
to a broad selection of items and avoid the need to pay expensive markups or commissions to intermediaries. Buyers
are not charged for trading through eBay. The critical mass of items listed on eBay provides a mutual benefit for
buyers and sellers to more effectively determine an appropriate price for an item.
Strong Community Affinity. The Company believes that fostering direct interaction between buyers and
sellers with similar interests has enabled it to create a loyal, active community of users. eBay has introduced a
variety of features and services designed to strengthen this sense of community among eBay users. The Company
facilitates communications between buyers and sellers by offering chat rooms, bulletin boards and customer support