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After the Web · Era 3 · The early Web

1995–1998IPO · 1998

eBay

AuctionWeb

In 1995 Pierre Omidyar launched an auctions section on his personal site as an experiment: could the internet support an honest market between strangers. The first item sold was his own broken laser pointer, for $14.83, bought by a collector of broken pointers. In three years the service grew from a hobby in San Jose into eBay, a public company with a 1998 IPO, whose backbone was neither advertising nor guarantees but a commission on each sale and the reputation sellers held with one another.

Founders Pierre Omidyar
Domains ebay.com
marketplaceauctionc2creputation-systemcollectiblescommissionnetwork-effectsviral-pr

In brief

Over the Labor Day weekend of 1995 Pierre Omidyar spent a few days writing an auctions section for his personal site, to test whether an honest market between strangers would work without an intermediary standing surety. The first sale was his broken laser pointer, which went for $14.83 to a collector of broken pointers. Three years later the hobby had grown into a public company, eBay. It held no warehouse, bought no goods, and took a small share of each successful sale, so it was profitable from its first full year, and it built trust between buyers and sellers with feedback rather than guarantees.

How it started (the founders)

Omidyar was born in Paris in 1967, graduated from Tufts University, and in 1991 co-founded Ink Development Corp. (later eShop). According to the S-1, from December 1994 to July 1996 he worked as an engineer at General Magic. In his spare time he put together AuctionWeb over the Labor Day weekend of 1995 (1995-09-04). He described his motive as an interest in the perfect market, and called the story about the dispenser collection the romantic version; both phrasings are known from a retelling of Adam Cohen's book "The Perfect Store" estimate.

The service was free until February 1996, for the sake of critical mass. In July 1996 Omidyar left his job; until then the company had no other employees. The S-1 names Jeff Skoll, president from August 1996, as the first full-time employee; according to the corporate page, employee No. 1 was Chris Agarpao, hired in June 1996 estimate.

Year-by-year timeline

Legend vs. the record

  1. Legend: eBay was born so that Omidyar's fiancée could trade Pez dispensers. The record: the story was invented in 1997 by the first PR manager, Mary Lou Song, because journalists were not interested in hearing about a 30-year-old genius who wanted to build the perfect market; in 2002 it was exposed by Cohen's book and an Associated Press report, and an eBay spokesman admitted that the story had been slightly blown out of proportion. According to AP, retelling the book, Omidyar approved the version estimate. Verdict: the legend is false, it was a company PR device.
  2. Legend: eBay built its business on commission from the very start. The record: according to the S-1, the service ran free for about five months for the sake of critical mass, and the fee was introduced in February 1996. That the provider's bill prompted it is told only by secondary sources estimate. Verdict: half true: the fee came early, but after a free start; whether the provider's bill was the trigger, the document does not say.
  3. Legend: the Feedback Forum appeared in 1997 (as the company's page says). The record: Omidyar's letter of 1996-02-26 on the launch of the system. Verdict: the document against the page; we take 1996-02-26 as the date.

Lesser-known but significant facts

  1. The buyer of the first item kept quiet for 20 years. Mark Fraser kept the pointer and revealed himself only in 2015, after a television item marking eBay's 20th anniversary.
  2. The name was a forced abbreviation. Omidyar's consulting firm was called Echo Bay Technology Group, and the domain echobay.com belonged to the gold mining company Echo Bay Mines, so what remained was eBay.com estimate.
  3. The eBay brand is visible on the site before the September date. The only 1997 snapshot in the Wayback Machine, from June 14, already shows the heading "WELCOME TO EBAY!" and AuctionWeb as the auction section. The company and the S-1 date the renaming to September 1997. The site may have changed its heading before the legal date; this is unverified.
  4. For the first two years there was no advertising. According to the S-1, customers came almost exclusively through word of mouth; banners and advertising in publications began in September 1997.
  5. Beanie Babies drove up the load on the platform. According to the S-1, in Q2 1998 this category at times had more than 30,000 simultaneous auctions, and the company calls the craze a fad capable of overloading the system. The corporate page writes of $500 million in sales of these toys in 1997, but that is five times the platform's entire volume for that year according to the S-1 ($95.3 million), so we do not trust the page's figure estimate.

The first growth lever

Growth came from communities, not from advertising. Collectors of toys, dolls, and badges were already trading through Usenet, flea markets, and magazine ads; they learned about eBay in the same places where they had sold before, and flowed over to the new venue. For its first two years the company lived on word of mouth.

The second lever was the Feedback Forum. Seller and buyer rate each other publicly after a deal, and a dishonest participant has nowhere to hide. Omidyar wrote that over half a year, across almost 10,000 auctions, only a few dozen complaints had accumulated, and he saw this as proof that a market of strangers can work honestly.

The third lever was a model with no warehouse. The S-1 states plainly that the company holds no inventory: the marketplace did not buy or store goods, and charged a listing fee and a percentage of a successful sale. So its cost of revenues consisted of support and running the site, not of goods: in 1997, $746,000 against revenue of $5.744 million, about 13%.

The paired story: eBay and Amazon, two models of commerce on the 1995 web

Both launched in 1995: Amazon in July, eBay on September 4. Both went public within three years: Amazon on 1997-05-15, eBay on 1998-09-24 at $18 a share. But their economics were opposite (the figures come from each company's S-1; the comparison is a calculation).

| | Amazon (store: buys and resells) | eBay (marketplace) | |---|---|---| | What it sells | Books: buys from wholesalers and resells, minimal inventory | Nothing; connects sellers and buyers | | Revenue 1996 | $15.7 million | $0.37 million | | Revenue 1997 | $147.8 million | $5.7 million (platform volume $95.3 million) | | Result | net loss of $5.8 million (1996) | net income of $148,000 (1996), $874,000 (1997) | | Staff | 151 people at the end of 1996 | 6 people at the end of 1996 | | Where the money is | margin on goods, working capital | 5–6% of volume (calculated: 5.1% in 1996, 6.0% in 1997) | | Trust | its own logistics and catalog | users' feedback on one another |

The takeaway: $95 million of goods passed through eBay in 1997, about two thirds of Amazon's revenue for the same year ($147.8 million), but eBay kept only $5.7 million and made a profit. In 1996 Amazon spent more on marketing than it earned in gross profit and ended the year with a loss. A marketplace shifts the costs of warehousing, purchasing, and product risk onto sellers, and trust onto their reputation; a store keeps control of the order itself and of repeat purchases estimate. Later Amazon also opened a marketplace for third-party sellers: auctions in March 1999, zShops in September 1999, and Marketplace in November 2000.

Parallels today (projects from the catalog)

What a builder can take from this in 2026

  1. A marketplace without a warehouse does the math differently. eBay took 5–6% of volume but carried no inventory costs, and became profitable in its first full year.
  2. Reputation can be made public and cheap. Feedback instead of company guarantees let strangers trade.
  3. Go where the community already trades. Collectors gathered on Usenet and at flea markets; eBay became more convenient for them.
  4. A free start for the sake of scale, a fee afterward. The S-1 directly calls the roughly five months without a fee a way to build critical mass.
  5. A pretty fabrication in PR works, but it backfires later. The Pez version brought coverage in the major press, and its debunking became a separate story.

Discrepancies and what remained unclear

Sources (primary first)

Primary:

Secondary:

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