eBay Inc. is an American Internet company that manages eBay.com, an online auction and shopping website in which people and businesses buy and sell goods and services worldwide. In addition to its original U.S. Web site, eBay has established localized Web sites in thirty other countries. eBay Inc. also owns PayPal, Skype, StubHub, and other businesses.
Origins and Early History
The online auction Web site was founded in San Jose, California, on September 3, 1995, by French-born Iranian 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. In 1997, the company received approximately $5 million in funding from the venture capital firm Benchmark Capital.
The very first item sold on eBay was a broken laser pointer for $14.83. Astonished, Omidyar contacted the winning bidder to ask 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, The Perfect Store, and confirmed by eBay.
Chris Agarpao was hired as eBay's first employee and Jeffrey Skoll was hired as the first president of the company in early 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.com (the domain has recently been put up for sale) but 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 on September 21, 1998, and both Omidyar and Skoll became instant billionaires. The company purchased PayPal on October 14, 2002.
Items and Services
Millions of collectibles, decor, appliances, computers, furnishings, equipment, vehicles, and other miscellaneous items are listed, bought, and sold daily. In 2005, eBay launched its Business & Industrial category, breaking into the industrial surplus business. Some items are rare and valuable, while many others are dusty gizmos that would have been discarded if not for the thousands of eager bidders worldwide. Anything may be offered for sale as long as it is not illegal and does not violate the eBay Prohibited and Restricted Items policy. Services and intangibles can be sold, too. Large international companies, such as IBM, sell their newest products and offer services on eBay using competitive auctions and fixed-priced storefronts. Separate eBay sites such as eBay US and eBay UK allow the users to trade using the local currency. Software developers can create applications that integrate with eBay through the eBay API by joining the eBay Developers Program. As of June 2005, there were over 15,000 members in the eBay Developers Program, comprising a broad range of companies creating software applications to support eBay buyers and sellers as well as eBay Affiliates.
Controversy has arisen over certain items put up for bid. For instance, in late 1999, a man offered one of his kidneys for auction on eBay, attempting to profit from the potentially lucrative (and, in the United States, illegal) market for transplantable human organs. On other occasions, people and even entire towns have been listed, often as a joke or to garner free publicity. In general, the company removes auctions that violate its terms of service agreement after hearing of the auction from an outsider; the company's policy is to not pre-approve transactions. eBay is also an easy place for unscrupulous sellers to market counterfeit merchandise, which can be difficult for novice buyers to distinguish without careful study of the auction description.
PayPal Only Categories
Beginning in August 2007, eBay required listing in "Video Games" and "Health & Beauty" to accept its payment system PayPal and sellers could only accept PayPal for payments in the category "Video Games: Consoles". Starting January 10, 2007, eBay says sellers can only accept PayPal as payment for the categories "Computing > Software", "Consumer Electronics > MP3 Players", "Wholesale & Job Lots > Mobile & Home Phones", and "Business, Office & Industrial > Industrial Supply / MRO". eBay announced that starting in March 2008, eBay had added to this requirement that all sellers with fewer than 100 feedbacks must offer PayPal and no merchant account may be used as an alternative. This is in addition to the requirement that all sellers from the United Kingdom have to offer PayPal.
Further, and as noted below, it is a requirement to offer Paypal on all listings in Australia and the UK.
April 2006, eBay opened its new eBay Express site, which is designed to work like a standard Internet shopping site to consumers with United States addresses (eBay Express). Selected eBay items are mirrored on eBay Express where buyers shop using a shopping cart to purchase from multiple sellers. The UK version was launched to eBay members in mid October 2006 but on 29 January 2008 eBay announced its intention to close the site. The German version was also opened in 2006 and closed in 2008 (eBay Express Germany). eBay has announced the entire site will cease operations soon after the 2008 holiday season.
eBay Specialty Sites
In June 2006, eBay added an eBay Community Wiki and eBay Blogs to its Community Content which also includes the Discussion Boards, Groups, Answer Center, Chat Rooms, and Reviews & Guides. eBay has a robust mobile offering, including SMS alerts, a WAP site, and J2ME clients, available in certain markets.
Best of eBay is a new specialty site for finding the most-unusual items on the eBay site. Users can also vote on and nominate listings that they find.
eBay Pulse provides information about popular search terms, trends, and most-watched items.
eBay offers several types of auctions.
For auction-style listings, the first bid must be at least the amount of the minimum bid set by the seller. Regardless of the amount the first bidder actually bids, until a second bid is made, eBay will then display the auction's minimum bid as the current high bid. After the first bid is made, each subsequent bid must be equal to at least the current highest bid displayed plus one bidding increment. The bidding increment is established by eBay based on the size of the current highest displayed bid. For example, when the current highest bid is less than or equal to $0.99, the bidding increment is $0.05; when the current highest bid is at least $1.00 but less than or equal to $4.99, the bidding increment is $0.25. Regardless of the amount each subsequent bidder bids, eBay will display the lesser of the bidder's actual bid and the amount equal to the previous highest bidder's actual bid plus one bidding increment. For example, suppose the current second-highest bid is $2.05 and the highest bid is $2.40. eBay will display the highest bid as $2.30, which equals the second-highest bid ($2.05) plus the bidding increment ($0.25). In this case, eBay will require the next bid to be at least $2.55, which equals the highest displayed bid ($2.30) plus one bidding increment ($0.25). The next bid will display as the actual amount bid or $2.65, whichever is less. The figure of $2.65 in this case comes from the then-second-highest actual bid of $2.40 plus the bidding increment of $0.25. The winning bidder pays the bid that eBay displays, not the amount actually bid. Following this example, if the next bidder is the final bidder, and bids $2.55, the winner pays $2.55, even though it is less than the second-highest bid ($2.40) plus one bidding increment ($0.25). However, if the next bidder is the final bidder and bids an arbitrarily large amount, for example $10.00 or even more, the winner pays $2.65, which equals the second-highest bid plus one bidding increment.
For Dutch Auctions, which are auctions of two or more identical items sold in one auction, each bidder enters both a bid and the number of items desired. Until the total number of items desired by all bidders equals the total number of items offered, bidders can bid any amount greater than or equal to the minimum bid. Once the total numbers of items desired by all bidders is greater than or equal to the total number offered, each bidder is required to bid one full bidding increment above the currently-displayed winning bid. All winning bidders pay the same lowest winning bid.
eBay has established detailed rules about bidding, retraction of bids, shill bidding (collusion to drive up the price), and other aspects of bidding. These rules can be viewed on the help pages.
In 2007, eBay began using detailed seller ratings with four different categories. When leaving feedback, buyers are asked to rate the seller in each of these categories with a score of one to five stars, with five being the highest rating and one the lowest. Unlike the overall feedback rating, these ratings are anonymous; neither sellers nor other users learn how individual buyers rated the seller. The listings of sellers with a rating of 4.3 or below in any of the four rating categories appear lower in search results. Power Sellers are required to have scores in each category above 4.5.
Profit and Transactions
eBay generates revenue from a number of fees. The eBay fee system is quite complex; there are fees to list a product and fees when the product sells, plus several optional fees, all based on various factors and scales. The U.S.-based eBay.com takes $0.20 to $80 per listing and 5.25% or less of the final price (as of 2007). The Mexican eBay "mercado libre" takes 1% (price of the article x number of articles to be sold), and 4.99% of the final price if there is a successful trade. The UK based ebay.co.uk (ebay.co.uk offices) takes from GBP £0.15 to a maximum rate of GBP £3 per £100 for an ordinary listing and from 0.75% to 5.25% of the final price. In addition, eBay now owns the PayPal payment system which has fees of its own.
Under current U.S. law, a state cannot require sellers located outside the state to collect a sales tax, making deals more attractive to buyers. Although some state laws require purchasers to pay sales tax to their own states on out-of-state purchases, it is not a common practice. However, most sellers that operate as a full time business do follow state tax regulations on their eBay transactions. However for the tax called Value added tax (VAT), eBay requires sellers to include the VAT fees in their listing price and not as an add-on and thus eBay profits by collecting fees based on what governments tax for VAT.
The company's current business strategy includes increasing international trade. eBay has already expanded to over two dozen countries including China and India. The only places where expansion failed were Taiwan and Japan, where Yahoo! had a head start, and New Zealand where TradeMe, owned by the Fairfax media group is the dominant online auction website.
A more recent strategy involves the company increasingly leveraging the relationship between the Ebay auction site and Paypal: the impact of driving buyers and sellers to use Paypal means not only does Ebay turn buyers into clients (as a pure auction venue its clients used to be predominantly sellers) but for each new Paypal registration it achieves via the Ebay auction site it also earns offsite revenue when the resulting Paypal account is used in non-Ebay transactions. In its Q1 2008 results total payment volume via Paypal increased 17% but off the Ebay auction site it was up 61%.
Controversy and Criticisms
eBay has its share of controversy, including cases of fraud (eBay claims that their data shows that less than .01% of all transactions result in a confirmed case of fraud.), its policy of requiring sellers to use PayPal, and concerns over forgeries and intellectual property violations in auction items.
One mechanism eBay uses to combat fraud is its feedback system. Before eBay's January 29th, 2008, policy-change announcement, at the end of every transaction, both the buyer and seller had the option of rating each other. Both parties had the ability to rate each other and the experience as a "positive", "negative", or "neutral" rating and leave a comment no longer than 80 characters. As of incoming CEO's John Donahoe's announcement however, the option for sellers to leave anything other than positive feedback to buyers was removed.
Weaknesses of the feedback system include:
Small and large transactions carry the same weight in the feedback summary. It is therefore easy for a dishonest user to initially build up a deceptive positive rating by buying or selling a number of very low value items, such as e-books, recipes, etc., then subsequently switching to fraud. eBay has since restricted digitally-delivered items to classified listings, which do not involve feedback.
Users and generators of feedback may have different ideas about what it means. eBay offers virtually no guidelines.
Feedback and responses to feedback are allotted only 80 characters each. This can prevent users from being able to fully list valid complaints.
eBay acknowledges weaknesses in its feedback system on its own policy pages, noting several of the above points.
When a user feels that a seller or buyer has been dishonest, a dispute can be filed with eBay. An eBay account (whether seller, buyer or both) may be suspended if there are too many complaints against the account holder.
Originally, feedback could be left for a seller or buyer whether or not it involved a transaction and could be left multiple times by the same person. While one upside is that it allowed people to offset feedback in case of fortune reversals (as feedback can never be edited or retracted once it is left) and has even allowed people to leave feedback for a seller or buyer simply for answering a question, the downside of this more than offset it as it allowed people to flame others or try to ruin credibility (as every feedback also counted towards one's rating, no matter what). Eventually, one could only leave feedback if they won an auction, and only one feedback message could be left per transaction within a week. This means even a buyer purchase multiple items from a seller within a week, only one feekback is allowed to be left.
Until "June 2008"., eBay allowed Mystery Box and Mystery Envelope auctions; however, these are almost all fraudulent auctions because the seller can manipulate the box contents to make sure it is never a good deal for the buyer. Mystery Envelope auctions offer cash prizes of an undisclosed amount to auction winners. The auction winner usually receives from 10% to 30% of the money he/she paid for the auction back in 'winnings'. Mystery Envelope auctions are considered by many to be illegal lotteries. This was also the case with auctions for "repackaging" of collectible card game cards (such as Magic: The Gathering or Pokémon) with the promise that one of the repackages has an expensive rare card.
Professional scammers target new members to take advantage of their unfamiliarity with how eBay or PayPal works. New members can be easily tricked into thinking there is a special Web site they should make payments through (which is in fact a fake site setup by a scammer) or they may be tricked more easily into using a fake escrow company.
Many complaints have been made about eBay's system of dealing with fraud, leading to its being featured on the British consumer rights television program Watchdog. It is also regularly featured in The Daily Mirror's Consumer Awareness page. The complaints are generally that eBay sometimes fails to respond when a claim is made.
In some countries, eBay requires sellers to use their Paypal service to facilitate payment with the view that Paypal is the only choice that makes sense and so should be the only choice available. Paypal then adds its own transaction fees on top of eBay's listing fees.
In April 2008 eBay announced an introduction of a 'Paypal only' policy in Australia. The new policy would have meant that sellers will only be able to offer Paypal or cash payment on pick-up as payment methods. eBay claims that Paypal is the most secure method of payment.
eBay Australia's Trust & Safety Director Alastair MacGibbon said at the time;
"eBay is no longer willing to stand aside and allow payment methods on the site that are proven to be less safe for consumers. "We're not allowing people to offer unsafe choices, just like in this democracy you can't go out and buy heroin on the streets."
Under the Australian Trade Practices Act 1974, it is unlawful for a company to require the use of a third party's products or services in order for a person to deal with the company, known as Third Line Forcing. eBay submitted a notification under the Act, which provides automatic exemption from this provision unless the notification is subsequently revoked by the Australian Competition and Consumer Commission.
As part of its assessment of the notification, the Commission called for submissions from interested parties. This attracted a number of concerns from eBay members, members of the business community and the Reserve Bank of Australia.
The ACCC completed an initial draft proposal to revoke eBay's notification, stating that it believed consumers were in a better position to judge risk on individual transactions than eBay's management and has ruled the plan anti-competitive. However, before a final decision could be announced on July 3, 2008, eBay announced that it had withdrawn the notification to the ACCC and shelved its 'Paypal only' plans.
A similar policy requiring sellers to offer Paypal was also introduced in the United Kingdom, though in stages. The first stage, which was adopted on March 25, 2008, was aimed at sellers with feedback scores under 100 and in certain high risk categories. The requirement was extended to all sellers from June 3, 2008.
A similar policy announced August 20, 2008 will go into effect in late October 2008.
Other Controversial Practices of Users
Sellers of inexpensive items may benefit from inflating the shipping cost while lowering the starting price for their auctions, because some buyers overlook the shipping cost when calculating the amount they are willing to spend. Since eBay charges their fees based on final sales price without including shipping, this allows sellers to reduce the amount they pay eBay in fees (and also allows buyers to reduce or avoid import fees and sales taxes). This is called "fee avoidance", and is prohibited by eBay policy, as are excessive shipping and handling charges. A danger to the buyer in such cases is that in the event of defective merchandise, the seller may claim to have met his refund obligations by returning only the minimal purchase price and not the shipping costs.
Sellers sometimes charge fees for use of PayPal as well to cover the fees that PayPal charges them. Although this is officially banned by eBay and PayPal and is against some local laws as well as violating merchant agreements with Visa, MasterCard, and Discover (except in the UK and Australia), eBay does sometimes police for this and will suspend auctions where the seller requests an additional fee for taking PayPal.
Stealing eBay Accounts
According to Ofer Elzam from Aladdin Knowledge Systems Ltd., there is a botnet which steals eBay accounts. The attacks use such techniques as compromising genuine websites with SQL injection, inserting IFrame code which redirects visitors to other sites which host a Trojan. Trojan-infected computers are used to provide a brute search for login/password pairs, using XML-formatted code to communicate with eBay servers directly.
It is estimated that about a quarter of all ancient coins and about two-thirds of all antiquities sold on eBay are modern forgeries. In March 2008, Professional Coin Grading Service issued an alert noting counterfeit PCGS slabs and various United States and Chinese coins originating from Mainland China being sold on eBay.
In court papers introduced by attorney for Tiffany & Co., it was claimed that researchers for Tiffany had determined that over 70% of the Tiffany silver jewelry offered for sale on eBay was fake. Tiffany & Co. filed a lawsuit against eBay in 2004. The lawsuit claimed that eBay profitted from the sales of counterfeit Tiffany items that infringed on its trademark. On July 14, 2008, Judge Richard Sullivan of the Federal District Court in Manhattan ruled that eBay does not have a legal responsibility to monitor users selling counterfeit items.
Intellectual Property in Auctions
Holders of intellectual property rights, have claimed that eBay profits from the infringement of intellectual property rights. eBay responded by creating the Verified Rights Owner (VeRO) program, which provides to rightsholders auction takedowns and private information on eBay users on demand.
Some manufacturers have abused eBay's VeRo program, through which copyright and trademark owners can quickly protect their rights, by seeking to prevent all sales of their products on eBay.
In November 2006, a U.K. High Court ruled that a VeRO rightsholder's takedown request to eBay constituted a legal threat under design patent law. Since groundless legal threats under design patent law are unlawful, the ruling holds that groundless VeRO takedown requests based on design patents are also unlawful. Further, the text of the ruling appears critical of the VeRO program in general:
On June 4, 2008, a court in Troyes, France awarded Hermes damages of $30,000 as a result of the sale of two counterfeit Hermes bags on eBay in 2006. The court also ordered eBay to run a statement reporting the court case on the home page of eBay's French Web site for three months.
On June 29, 2008, a court in Paris, France awarded damages of 40 million euros ($ 63 million) to luxury goods group LVMH over eBay auctions of counterfeit bags, perfumes and other items. The plaintiffs further alleged that auctions of legitimate perfumes were also illegal, because, they claim, only authorized resellers are permitted to sell them, and authorized resellers are not permitted to sell on eBay. The court agreed, entering a permanent injunction against eBay auctions of LVMH perfumes, whether counterfeit or not. After the appeals court declined to stay that injunction, eBay announced that French users would be barred from buying or selling LVMH perfumes and cosmetics on any of eBay's sites.
In July 2008, a United States court decided a trademark infringement lawsuit by jeweler Tiffany & Co. in eBay's favor: "... It is the trademark owner's burden to police its mark, and companies like eBay cannot be held liable for trademark infringement based solely on their generalized knowledge that trademark infringement might be occurring on their websites." eBay advertises and profits from the sale of Tiffany products through its site, while Tiffany claims that no third-party resellers are authorized to sell Tiffany jewelry. Despite eBay's efforts to find and cancel illegal listings, many "Tiffany" listings are judged by buyers or by Tiffany to be counterfeit. The judgment specifies that eBay's advertising of the availability of Tiffany products on its site is a protected fair use of Tiffany's trademark, that eBay sufficiently protects buyers by canceling auctions reported to the VeRO program as believed to be infringing, and that eBay is not obligated to suspend sellers reported to VeRO without further evidence of infringement.
Romanian Hacker "Vladuz" & Website Security
Beginning sometime in early 2007, a hacker reportedly in Romania going by the screen name "Vladuz" repeatedly breached eBay's security. As of April 17th, 2008, eBay and Romanian authorities have claimed to have caught "Vladuz".
Other eBay Controversies
Other notable controversies involving eBay include:
In its earliest days, eBay was essentially unregulated. However, as the site grew, it became necessary to restrict or forbid auctions for various items. Note that some of the restrictions relate to eBay.com (the US site), while other restrictions apply to specific European sites (such as Nazi paraphernalia). Regional laws and regulations may apply to the seller or the buyer. Among the hundred or so banned or restricted categories:
Using MissionFish as an arbiter, eBay allows sellers to donate a portion of their auction proceeds to a charity of the seller's choice. The programme is called eBay Giving Works (in the US), and eBay for Charity (in the UK).
Some high-profile charity auctions have been advertised on the eBay home page, and have raised large amounts of money in a short time. For example, a furniture manufacturer raised over $35,000 for Ronald McDonald House by auctioning off beds that had been signed by celebrities.
To date the highest successful bid on a single item for charity was for a letter sent to Mark P. Mays, CEO of Clear Channel (parent company of Premiere Radio Networks the production company that produces The Rush Limbaugh Show and The Glenn Beck Program) by United States Senator Harry Reid and forty other Democratic senators, complaining about comments made by conservative talk show host Rush Limbaugh. The winning bid was $2,100,100, with 100% of the proceeds going to the Marine Corps-Law Enforcement Foundation, benefiting the education of children of men and women who have died serving in the armed forces. The winning bid was matched by Limbaugh in his largest charity donation to date.
eBay offers various online help features, including a library of self-help resources, e-mail contact forms and "Live Help," which lets users chat with customer service representatives via instant messaging. Although this is not available to users on international sites such as eBay.co.uk, members of international eBay Web sites are welcome to utilize eBay.com's Live Help service. eBay does offer some phone support to its customers although this is limited to sellers of the rank "Bronze PowerSeller" and above, the company's term for members who sell at least an average of $1,000 worth of goods per month on the site, as well as to eBay Store owners.
On May 8th, 2008, eBay announced the opening of its newest building on the company's North Campus in San Jose, which is the first structure in the city to be built from the ground up to LEED Gold Standards. The building, the first the company has built new in its 13-year existence, utilizes a solar panel array comprised of 3,248 solar panels, spanning 60,000 square feet (5,600 m2), and providing 650 kilowatts of power to eBay's campus. All told the array can supply the company with 15-18 percent of its total energy requirements, reducing the amount of greenhouse gases that would be produced to create that energy by other means. SolarCity, the company responsible for designing the array, estimates that the solar panels installed on eBay's campus will prevent 37 million pounds of carbon dioxide from being released into the environment as a result of replaced power production over the next three decades. Creating an equivalent impact to remove the same amount of carbon dioxide from the atmosphere would require planting 322 acres (1.30 km2) of trees. The design of the building also incorporates other elements to reduce its impact on the environment. The building is equipped with a lighting system that detects natural ambient light sources and automatically dims artificial lighting to save 39 percent of the power usually required to light an office building. eBay's newest building also reduces demand on local water supplies by incorporating an eco-friendly irrigation system, low-flow shower heads, and low-flow faucets. Even during construction, more than 75 percent of the waste from construction was recycled. eBay also runs buses between San Francisco and the San Jose campus to reduce the number of commuting employees.
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