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Sittin’ on the Dock of eBay

The new-economy giant generates nearly $500 million in revenues, yet eBay doesn't manufacture a thing, hold inventory, move goods, or transfer payment. The 15 million or so registered users do most of the legwork.

Few things are as plain as this: Gary Bengier was meant to work at eBay. The San Jose, California-based eBay Inc. is the world’s largest personal online trading community. Bengier, the company’s CFO since fall 1997, happens to be an avid collector himself, with an impressive assortment of rare coins and fossils. eBay — generally credited with inventing the online auction format — has been hailed as a leader in ecommerce.

Bengier is a pioneer in his own right, having served as the top finance officer at several high-profile software and high-tech startups, including streaming video specialist Vxtreme Inc. Finally, eBay continues to face some fairly steep challenges — nagging little problems like system outages, theft of intellectual property, and user fraud. Bengier, too, knows a little something about uphill slogs. A world-class mountain climber, the finance chief has made it to the top of the Matterhorn. The mountain, not the ride.

Indeed, spend any time at all with Gary Bengier and you soon realize that he fits eBay like Pez in a Popeye dispenser. Since signing on with the company, the Harvard Business School-trained Bengier has helped transform the online auctioneer from a Silicon Valley startup into a Wall Street favorite. eBay went public in late 1998, with the initial public offering priced at $18 per share. Six months later, a share of eBay common had jumped to $80. Even with the recent cool-off in the dotcom sector, eBay stock is still trading around $50 per share — a threefold increase from the offering price.

Investors have good reason to stick with eBay. In an Internet world populated by empty- pocketed visionaries and pie-in-the-sky etailers, eBay actually makes money. Through the first three quarters of 2000, the online auctioneer racked up $24.4 million in earnings off $300 million in revenues. Management now projects the company will hit $3 billion in net revenues by 2005 — an annual growth rate of almost 50 percent. Gross merchandise sales at the online auction house top $5 billion, an astonishing figure given eBay’s been around for only 5 years. “It took Cisco 12 years, Microsoft 19 years, and Intel 23 years to reach this kind of economic activity,” crows Bengier.

All of which proves that technology is swell, but a good idea is hard to beat. Remarkably, eBay generates nearly $500 million in revenues without manufacturing a thing. The online operator is nary more than a promise and a brand, as ethereal as money wired to a bank. eBay doesn’t hold inventory, doesn’t move goods, doesn’t transfer payments. The 15 million or so registered users do most of the legwork, posting and haggling over roughly 4 million items for sale in 4,320 product categories — everything from Beanie Babies to Salvador Dali etchings to failing dotcoms. Users spend, on average, $166 — per second. “eBay has created a model that drives revenue with very little capital,” says Anthony Noto, ecommerce analyst at Goldman Sachs in New York. “That’s not easy to do.”

In an era of disintermediation, eBay is the ultimate middleman. By serving as facilitator, it has successfully skirted the usual ecommerce pitfalls — things like procurement, merchandising, inventory risk, order fulfillment, and shipping. Not surprisingly, eBay’s profitability has inspired scores of imitators, wannabes, and rivals.

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