Encyclopedia of Computer Science and Technology

Omidyar, Pierre 343Pierre Omidyar founded eBay, the world leader in onlineauctions. (Acey Harper / Time Life Pictures / Getty Images)as a programmer. Omidyar helped develop a drawing programfor the new Apple Macintosh, but after a year returnedto finish his degree, which he received in 1988. He thenwent to work for Claris, a subsidiary of Apple. There hedeveloped MacDraw, a very popular application for theMacintosh.By 1991 Omidyar had become interested in an emergingapplication, “pen computing,” which uses a special penand tablet to allow computer users to enter text in ordinaryhandwriting, which would be recognized and convertedto text by special software. Omidyar and three partnersformed a company called Ink Development to work on pencomputing technology. However, the market for such softwarewas slow to develop. The partners changed their companyname to eShop and their focus to e-commerce, theselling of goods and services online. But e-commerce wouldnot become big until the mid-1990s when the graphicalbrowser made the Web attractive and easy to use. MeanwhileOmidyar also did some graphics programming for themovie effects company General Magic.Omidyar retained his interest in e-commerce, with aparticular focus on finding new markets in which buyersand sellers could meet. Online auctions offered one suchmechanism, and Omidyar created a site called AuctionWeb.AuctionWeb was based on a simple idea: Let a user put upsomething for bid, and have the software keep track of thebids from other users until the ending time is reached, withthe highest bid being the winner.At first Omidyar made AuctionWeb free for both buyersand sellers, but as the site exploded in popularity hebegan to charge sellers a small fee to cover his Internetservice costs. As the months passed, thousands of dollars insmall checks began to pour in. Using $1 million he receivedfrom Microsoft for the sale of his former company eShop,Omidyar decided to expand his auction site into a full-timebusiness.Thanks to the Web, it was now possible to run an auctionwithout cataloger, auctioneer, or hotel room. The jobof describing the item could be given to the seller, and ofcourse digital photos or scanned images could be used toshow the item to potential bidders. The buyer would paythe seller directly, and the seller would be responsible forshipping the item.Because overhead costs are essentially limited to maintainingthe Web site and developing the software, the companycould charge sellers about 2 percent instead of the10–15 percent demanded by traditional auction houses.Buyers would pay no fees at all. And because the cost forselling is so low, sellers could sell items costing as little asa few dollars, while regular auction houses generally avoidlots worth less than $50–$100.With the aid of business partner and experienced Webprogrammer Jeff Skoll, Omidyar revamped and expandedthe site, renaming it eBay (combining the “e” in electronicwith the San Francisco Bay near which they lived). Unlikethe typical Web business that promised investors profitsometime in the indefinite future, eBay made money fromthe first quarter and just kept making more.Through their relationship with a venture capital firm,Benchmark, Omidyar and Skoll gained not only $5 millionfor expansion but the services of Meg Whitman, an experiencedexecutive who had compiled an impressive trackrecord with firms such as FTD (the flower delivery service),the toy company Hasbro, Procter & Gamble, and Disney.eBay’s growth continued: by the end of 1997 about 150,000auctions were being held each day.In 1998 they decided to take the company public. By thetime the first trading day ended, Omidyar’s stock was worth$750 million, and Whitman and the other key players hadalso done very well.One possible weakness in the eBay model was that itrelied heavily on trust by the seller and especially the buyer.What if a buyer won an item only to receive something thatwas not as described or, worse, never received anything atall? But while this happened in a small number of cases,Omidyar through his attention to building communitiesfor commerce had devised an interesting mechanism called“feedback.” Both sellers and buyers were encouraged to postbrief evaluations of each transaction, categorized as positive,neutral, or negative. A significant number of negativefeedbacks served as a warning signal, so both sellers andbuyers had an incentive to fulfill their part of the bargain.The system was not perfect, but the continued patronage ofseveral million users suggested that it worked. (An escrowsystem was also made available for use with more expensiveitems.)As the new century dawned, Omidyar became less personallyinvolved with eBay. In 1998 he had stepped down asCEO, the post going to Whitman. In 2004 Omidyar and hiswife, Pam, turned their attention to the Omidyar Network, a