eBay's formula: An easy-to-use online marketplace and a dedicated community

(The following is part of the Standard's First To Market special feature) eBay is synonymous with online auction sites, and for good reason: Since Pierre Omidyar launched the site in September 1995, the service has gained nearly 84 million active users worldwide, buying and selling all types of merchandise at prices that are often determined by buyers. It's a classic marketplace play that lets geographically dispersed parties buy and trade goods without going through several layers of middlemen. eBay has proved to be very popular, not only because of the service it provides, but also because users have helped spread the word and recruit new buyers and sellers.

However, eBay was not the only online auction sites in the early days. What enabled it to rise above the competition? Jim Griffith, eBay's dean of education, told The Industry Standard what he thinks were the driving factors. "[Omidyar's] concept for the site was simple: a place online where people could trade directly with each other. Although there were a few other places online where buyers and sellers could meet and trade (UseNet was the first and was popular at the time), Pierre's website was unique in that it offered sellers an online auction format for selling their merchandise. The auction format proved to be ideal in allowing buyers (and to some extent, sellers) to set the value of the seller's items."

Griffith says that in the mid-1990s, there were only a handful of websites that offered a buying and selling platform similar to eBay's. "Probably the earliest was Haggle.com which had a look and feel like eBay," he says. However, Haggle.com never gained serious traction and disappeared a few years after eBay's launch (the domain now features a shopping comparison service). Other early auction sites included Onsale.com, AuctionUniverse, FirstAuction.com, and CMGI-backed UBid. Of those companies, only Onsale.com remains in operation, and is now a discount computer and electronics retailer.

The lack of serious competition allowed eBay to solidify its lead. "For the first four years of the company's existence, there was no serious challenge to eBay's business model by a competitor," Griffith explains. "These years provided eBay the time to build and strengthen its 'first to market' advantage. By the time a serious competitive challenge to eBay's person-to-person marketplace was launched (first by Amazon in 1999 and later by others), the dominance of eBay's marketplace position was already well established and proved to be nearly impenetrable." He adds that many of today's competitors are niche marketplaces that cater to collectors and buyers and sellers in specific, individual categories.

The importance of the community aspect of the site cannot be understated. Griffith says that while luck and timing played a role in eBay's success, the dedication and enthusiasm of eBay's initial members were also crucial: They proved to be serious boosters of the site, and created a great deal of viral marketing for eBay -- and established a strong community.

"Probably the smartest thing Pierre did was create an open chat board on the first version of eBay, ostensibly as a place where members could visit to ask questions that other members could answer," Griffith says. "This chat board formed the nexus of what would become known as The Community. This Community was made up of buyers and sellers (members were and are today often both) who used the chat board as a place to meet and exchange ideas."

Griffith says that having access to each other gave members the spark needed to go out and talk about eBay to friends and family, and that this grassroots-level promotion started "the unstoppable momentum that resulted when more buyers came to eBay, bringing more sellers, who brought more buyers, who brought more sellers, and so on."

A series of timely changes have also proven crucial to eBay's success. Griffith says one key example is the introduction of the fixed-price format