Twenty years ago this month, a French-born Iranian-American computer programmer named Pierre Omidyar added an experimental online auction section to his personal website, which at that time focused mainly on the Ebola virus. He called it AuctionWeb because it enabled people to bid to purchase items that other people were advertising for sale. One of the earliest, and most puzzling, sales on the site was of a broken laser pointer, which went for $14.83. The story goes that Omidyar wrote to the buyer asking if he understood that the laser pointer was broken. The guy replied that he was a collector of broken laser pointers. At this point, Omidyar realised he might be on to something.
He was: he called it eBay. The idea that one could use the web as a way of putting buyers and sellers in touch with one another was not new. But up to then that affordance of the technology had been seen mainly in the context of firms. It was the basis, for example, for the early and rapid growth of so-called B2B (business-to-business) sites. The critical twist that Omidyar added was that the same technology could work for ordinary people. And so he created what turned out to be the greatest car boot sale in the history of the world.
But now, with the 20-20 vision of hindsight, we can see that he did much more than that. In the first place, eBay played a significant role in persuading millions of people who were ignorant of, or indifferent to, cyberspace that there might actually be something in this internet thing.
I saw that happen in my own family. My elderly mother-in-law was a technophobe from central casting. She thought that mobile phones were weird and could not understand why I kept going on about “this internet thing”. In desperation one day, I thought of showing her eBay. I logged in, and knowing that she was passionately interested in pottery and porcelain, clicked on some auctions in that area of the site. In an instant she was transfixed: she might not have been interested in technology, but boy, was she interested in porcelain. Suddenly, for her, the internet made sense. It was transformed in her mind from an obsession of her geeky son-in-law into something that would be useful to normal human beings. And in that respect, she was simply treading the same path as hundreds of millions of other people.
The second transformation brought about by eBay was that of enabling millions of small traders to sell online. Before eBay, getting into “e-commerce” was a pretty daunting and expensive business – way beyond the reach of sole traders and mom-and-pop businesses. But with eBay anyone could sell (almost) anything online, either via an auction or (later) via conventional “buy it now” arrangements. eBay provided the infrastructure and took much of the hassle out of online trading.
In order to succeed, eBay had to solve what many people thought would prove an insuperable obstacle to online auctions – namely how to introduce an element of trustworthiness into transactions between people who don’t know one another and lack any independent means of verifying whether a potential trading partner is reliable. The solution was to ask buyers and sellers to rate one another and to make those ratings public. As a solution it was not, of course, perfect – because people could, and did, try to game the system. But it has turned out to be good enough for most purposes and is now ubiquitous in online trading systems.
But perhaps the most significant thing about eBay was that it was the prototype for what may turn out to be the most disruptive business model enabled by digital technology – that of the online “platform”. Most economic activity in the real world involves matching buyers with sellers, and before the internet this was mostly achieved by conventional markets in which prices determined the point at which the match was made. But as we know to our cost, and as the Nobel prize-winning economist Alvin Roth points out in a fascinating book, Who Gets What and Why, markets can be imperfect or downright dysfunctional and are sometimes inappropriate ways of coordinating supply and demand (for example, in matching organ donors with transplant patients).
Ebay showed how digital technology could supplant a functioning but small-scale and inadequate market mechanism (the car boot sale) with a more efficient and larger-scale way of matching people who had stuff to sell with those who might be interested in buying it. In that sense, it turned out to be a forerunner of platform-based enterprises such as Uber and Airbnb which exist to make similar kinds of matches. The only difference is that whereas eBay was disrupting a diffused and low-rent system, its imitators are taking on tougher opposition. But if you want to see their debt to eBay, just take a ride on Uber. You get to rate the driver; but s/he also gets to rate you! And that’s pure eBay.