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After its traffic-free Labor Day launch, AuctionWeb started to attract a slow trickle of visitors. Omidyar had none of the slick marketing devices other websites were starting to employ-no advertising budget, no public-relations advisers, no deals with other sites to drive traffic. But he was continuing to post announcements in Usenet newsgroups for what he was calling his "free web auction." In these early posts, Omidyar described the items on the site, lists that remain one of the earliest records of what was for sale on AuctionWeb.

The items that showed up for auction in the first few weeks were a strange mix of computer-related and noncomputer-related goods. In a September 12 post on misc.forsale.noncomputer, Omidyar listed the noncomputer items on the site, along with the current bids for each. It was a small, eclectic assortment:

Antiques, Collectibles
Superman metal lunchbox, 1967, used good condition Current bid: $22.00

Autographed Marky Mark Underwear
Current bid: $400

Autographed Elizabeth Taylor Photo
Current bid: $200

Autographed Michael Jackson Poster
Current bid: $400

Toy Power Boat, late 50's-early 60's
Current bid: $60.00

Hubley #520 Cast Iron Hook and Ladder Truck
Current bid: $300.00

Collectors Multicolor Reflection Hologram
Current bid: $5000

Czech Vase
Current bid: $25.00

Cobalt Clear Cut Glass Rose Bowl
Current bid: $25.00

The list was not a representative sample — it was every noncomputer-related item on the site. A week later, Omidyar updated the list, which had grown from eighteen to thirty items, a 66 percent increase, in just seven days. Among the new listings: a 35,000-squarefoot warehouse in Caldwell, Idaho, for which the bidding started at $325,000. In early October, Omidyar posted a notice on misc.forsale. pc-specific.misc that listed the computer-related items. It was a larger, but less colorful, lineup, which included hard drives, antivirus software, and a used Sun-1 workstation.

Throughout the fall, both listings and traffic on AuctionWeb increased steadily. While Omidyar was putting up his newsgroup posts, AuctionWeb was also starting to benefit from the marketing force that would drive its growth for years to come: word-of-mouth publicity. Computer geeks and tech-savvy bargain hunters were e-mailing one another the AuctionWeb URL, and inserting hyperlinks on their websites that took web surfers directly to the AuctionWeb home page. By the end of 1995, AuctionWeb had hosted thousands of auctions, and attracted more than ten thousand individual bids.

Omidyar was still offering AuctionWeb for free. He could do it because his expenses were next to nothing-he was still running the site off of Best, his home Internet service. Toward the end of 1995, however, Best administrators were complaining that AuctionWeb was attracting so much traffic that it was slowing down their system. In February 1996, Best began charging him $250 a month, the rate for a commercial account, ignoring his protests that AuctionWeb was not a business.

Best's fee hike changed everything. "That's when I said, 'You know, this is kind of a fun hobby, but two hundred fifty dollars a month is a lot of money,'" Omidyar says. To pay the bills, he started to charge AuctionWeb users — "basically out of necessity," he says. Based on no market research, Omidyar decided he would not charge buyers at all, and that he would not charge sellers to list items. The only fees would be what he called final-value fees, which would be a percentage of the final sales price. The fees, he decided arbitrarily, would be 5 percent of the sale price for items below $25, and 2.5 percent for items above $25.

Omidyar had no way of knowing if users would be willing to pay to use the site. In fact, it occurred to him that fees could bring his little Internet experiment to an end. But Omidyar got his answer soon enough, when piles of envelopes filled with cash and checks started arriving at his front door. The amounts were not large, and the trappings were not fancy. Some of the envelopes contained dimes and nickels Scotch-taped to index cards. Still, when he added up the checks, the coins, and the crumpled bills at the end of February, he found that AuctionWeb had taken in more than $250-more, in other words, than Best was charging him. That put his fledgling little website in a category almost by itself: it was one of the very few Internet companies to be profitable from its first month of operation.

In 1995, it was not clear that commerce would ever take hold on the Internet. A study by the Pew Research Center that year found that just 8 percent of Americans felt comfortable using a credit card online. The Pew study had no statistics on the percentage of Americans who would be willing to participate in auctions with strangers on a website that crashed almost daily, but it figured to be a lot smaller. If AuctionWeb was to have any chance of taking hold, establishing trust and confidence was essential.

Early on, Omidyar set out ethical guidelines for the AuctionWeb community to follow. In his experience, he said, people are generally good. He advised users to treat other people on the site the way they themselves wanted to be treated, and when disputes arose, to give the other person the benefit of the doubt. Omidyar's injunction was essentially the golden rule transported into cyberspace. It was the value system his mother had instilled in him, and one he tried to follow in his own life. "Some people say, 'Isn't that trite, it's like a Hallmark card,'" he says. "But I think those are just good basic values to have in a crowded world."

To a remarkable extent, AuctionWeb operated according to Omidyar's idealistic prescription. Trust on the site was so high in the early days, and the feeling of community so strong, that it was common for sellers to ship items even before they had received bidders' payments. Still, the harmony Omidyar hoped for did not always preavail. When buyers and sellers disagreed, they usually contacted Omidyar directly — easily enough done, since his e-mail address, Pierre@eBay.com, was prominently featured on the site. Omidyar got about a dozen e-mails a day from users complaining about each other. It almost always turned out, Omidyar says, that the dispute arose from a simple misunderstanding. "On the Internet, people forget that when they're dealing with an e-mail address there's an actual human being on the other side," he says. "Often their fears are manifested, or they jump to conclusions and think the most negative interpretations of that e-mail."

One thing Omidyar knew was that he did not want to arbitrate all these disputes. He was busy enough just keeping AuctionWeb up and running in addition to working at his day job. Moreover, true to his libertarian leanings, he believed people should be able to resolve their differences on their own. Omidyar's routine when he received an e-mail with a complaint about another user was to respond to the author, send a copy of the e-mail to the other person in the dispute, and tell them both, "You guys work it out." The parties usually resolved the matter on their own, but Omidyar realized he had to come up with a mechanism for enforcing good behavior. Unlike most companies, AuctionWeb was not able to control the quality of its service. "The brand experience" on AuctionWeb, Omidyar observed, was "defined by how one customer treats the other customer." If Omidyar wanted his customers to have a positive experience on AuctionWeb, he had to convince them to treat each other well.

Copyright © 2002 by Adam Cohen

Tags: Career & Money

About the Author

Adam Cohen is a senior writer for the Nation section of Time, where he covers law and politics. He has also written for Chicago Magazine, Chicago Tribune and The Harvard Law Review. He lives in New York.