eBay.com

About eBay

eBay is The World’s Online Marketplace™. Founded in 1995, eBay created a powerful platform for the sale of goods and services by a passionate community of individuals and businesses. On any given day, there are millions of items across thousands of categories for sale on eBay, as well as on Half.com, eBay’s site dedicated to fixed price trading. eBay enables trade on a local, national and international basis with customized sites in markets around the world.

Its massive popularity--82 million active users in 2006--places it as one of the Internet's leading e-commerce sites, and the company sold $52 billion worth of collectibles, cars, electronics and various other items in 2006. eBay generated overall revenues around $6 billion from its three primary businesses: auctions, payments (PayPal) and communications (Skype).

History

The online auction web site was founded in San Jose, California on September 3, 1995 by computer programmer Pierre Omidyar as AuctionWeb, part of a larger personal site that included, among other things, Omidyar's own tongue-in-cheek tribute to the Ebola virus.

The very first item sold on eBay was a broken laser pointer for $14.83. Astonished, Omidyar contacted the winning bidder and asked if he understood that the laser pointer was broken. In his responding email, the buyer explained: "I'm a collector of broken laser pointers." The frequently repeated story that eBay was founded to help Omidyar's fiancée trade PEZ Candy dispensers was fabricated by a public relations manager in 1997 to interest the media. This was revealed in Adam Cohen's 2002 book and confirmed by eBay.

Chris Agarpao was hired as eBay's first employee and Jeff Skoll was hired as the first president of the company in 1996. In November 1996, eBay entered into its first third-party licensing deal, with a company called Electronic Travel Auction to use SmartMarket Technology to sell plane tickets and other travel products. The company officially changed the name of its service from AuctionWeb to eBay in September 1997. Originally, the site belonged to Echo Bay Technology Group, Omidyar's consulting firm. Omidyar had tried to register the domain name echobay.combut found it already taken by the Echo Bay Mines, a gold mining company, so he shortened it to his second choice, eBay.com.

eBay went public in 1998, and both Omidyar and Skoll became instant billionaires. The company purchased PayPal in October 2002.

Growth by acquisition

The company's key acquisitions include, by year:

• 2005: Skype (communications, Rent.com (real estate), Shopping.com (electronics and other merchandise), Verisign's payment gateway, and several classifieds sites
• 2006: Swedish auction marketplace Tradera.com
• 2007: Stubhub (event tickets marketplace) and Stumbleupon (search engine).

more acquisitions

Acquisitions and investments

• In July 1998, eBay acquired Cincinnati, Ohio based online auction site Up4Sale.com.8
• In May 1999, eBay acquired the online payment service Billpoint9, an unsuccessful competitor to PayPal, which they closed following the 2002 acquisition of the latter.10
• In 1999 eBay acquired the auction house Butterfield & Butterfield11, which it sold in 2002 to Bonhams.12
• In 1999 eBay acquired the auction house Alando for $43 million, which changed then to eBay Germany.13
• In June 2000 eBay acquired Half.com for $318 million, which was later integrated with the eBay Marketplace.14
• In December 2000 eBay acquired the Precision Buying Service portion of Deja.com.15
• In August, 2001, eBay acquired Mercado Libre16 and Lokau, Latin American auction sites. eBay also acquired iBazar,17 a French auction site.
• In July, 2002 eBay acquired PayPal, for $1.5 billion in stock.18
• On January 31, 2003, eBay acquired CARad.com, an auction management service for car dealers.19
• On July 11, 2003 eBay Inc. acquired EachNet, a leading ecommerce company in China, paying approximately $150 million in cash.20
• On June 22, 2004, eBay acquired all outstanding shares of Baazee.com, an Indian auction site for approximately US $50 million in cash, plus acquisition costs. Baazee.com subsequently became eBay India.21
• On August 13, 2004, eBay took a 25% stake in Craigslist by buying out an existing shareholder who was once a Craigslist employee.
• In September 2004, eBay moved forward on its acquisition of Korean rival Internet Auction Co. (IAC), buying nearly 3 million shares of the Korean online trading company for 125,000 Korean won (about US$125) per share.
• In November 2004, eBay acquired Marktplaats.nl for €225 million. This was a Dutch competitor which had an 80% market share in the Netherlands, by concentrating more on small ads than actual auctions. Marktplaats is the Dutch word for Marketplace.
• On December 16, 2004, eBay acquired Rent.com for $415 million in cash (original deal was for $385 million of the amount in eBay stock plus $30 million in cash).
• In May 2005, eBay acquired Gumtree, a network of UK local city classifieds sites.
• On May 18, 2005, eBay acquired the Spanish classifieds site Loquo.
• In June 2005, eBay acquired Shopping.com, an online comparison site for $635 million.
• At the end of June 2005, eBay acquired the German language classifieds site Opus Forum.
• In September 2005, eBay bought Skype, a VoIP company, for $2.6 billion in stock and cash.
• In April 2006, eBay invested $2 million in the Meetup.com social networking site.22
• In April 2006, eBay acquired Tradera.com, Sweden's leading online auction-style marketplace for $48 Million.
• In August 2006, eBay announced international cooperation with Google. Financial details have not been disclosed by either party.23
• In February 2007, eBay acquired online ticket marketplace StubHub for $307 million.
• In May 2007, eBay acquired a minority stake in GittiGidiyor.
• In May 2007, eBay acquired the website StumbleUpon for approximately $75 million. 24

Profits

eBay is a highly profitable company with a 33% operating margin in 2006, in comparison to Amazon, which realized an operating margin around 4%.

eBay profits

revenue by charging sellers a listing fee based on either the starting or reserve price of the auction, as well as a closing fee derived from the final sale price using a sliding scale. Additional features (such as Buy It Now, or tools to enhance the appearance of a listing) carry additional fees. The core eBay business is the most profitable, maintaining an estimated 30-35% operating margin

Skype profits

Skype generates revenue through fees associated with calls from Skype to outside lines (SkypeOut), and vice versa (SkypeIn). There are additional fees for international calls, voicemail service, and other features such as ringtones. Like PayPal, Skype generates an estimated 20-25% margin.

• Pay Pal profits**

PayPal charges a $0.30 flat fee per transaction received, as well as a variable percentage (4.9%, or 1.9 to 2.9% for Premier and Business Accounts). There are also fees for cross-border transactions. PayPal runs at an estimated 20-25% margin.

Purchase of Skype

01 Oct 2007

skype,(acquired by eBay in late 2005) announced today that co-founder and CEO Niklas Zennstrom will step down, retaining his role as chairman (which doesn’t mean much for a subsidiary of a public company). Andy Abramson says this is a sign that eBay isn’t happy with the way Skype has been run to date. He also speculates that it may be spun off at some point into a free standing public entity. I wouldn’t be surprised to see that happen.

More interesting is the news that the earnout in the transaction, which could have amounted to $1.7 billion, was settled for just 1/3 of that possible total, or $530 million. The earnout was to be based on specific active user, revenue and gross profit targets that were to be achieved in 2008 and the first half of 2009. It’s clear those objectives are not being met.

eBay is taking a financial statement write-off of around $1.5 billion in connection with the transaction. Analyst Henry Blodget calls the eBay - Skype merger a failure based on the performance of the deal to date. That may or may not be the case for eBay; but for Skype’s stockholders it was most definitely a big win.

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