Where Buyers and Sellers Go: The Cyber Success of eBay

The Perfect Store, by Adam Cohen. Little, Brown, 322 pages, $25.95.

For me, it was the home-brewing kit, a wedding present from the early 1990’s. Though I had visions of male bonding over tubs of homemadeale,Inever openedthebox.I couldn’t find anyone who wanted my home-brewing kit, nor could I bring myself to throw it out. So I sold it on eBay for $35 to a guy from Madison, Wis. That transaction-a deal struck cheaply between strangers hundreds of miles apart-was the moment I fully realized the astonishing power of the Internet in general, and eBay in particular.

Adam Cohen tells essentially the same story to nice effect in The Perfect Store . An online community marketplace: That was Pierre Omidyar’s vision when he started an auction Web site in his apartment in 1995. He knew he had a good idea after he offered a broken laser pointer for sale on his Internet message board, noting explicitly that it didn’t work even with new batteries. He was shocked to find that the high bidder was willing to pay $14.

People will buy all kinds of strange things, it turns out. “There is no easy answer to why someone decides to collect clothing irons,” Mr. Cohen notes at one point with insufficient irony. In its early incarnation, eBay (known then as AuctionWeb) was a natural marketplace for collectibles-everything from rare buttons to Elvis memorabilia. Such items were a perfect fit for the online auction format, because their value was often difficult to determine and the markets that existed (flea markets, estate sales and the like) were highly fragmented. At one point in 1997, nearly 7 percent of the auction items were Beanie Babies.

We now have yet another reason to heap scorn on the herd of venture capitalists who threw money at bad ideas during the run-up to the Internet bubble: At the same time, the V.C. community was skeptical of an idea that was in fact staggering in its power and simplicity. As Mr. Cohen cogently explains, eBay had all the fundamentals right. There really was a “first mover’s advantage”; buyers and sellers go where they think they’ll find hordes of other buyers and sellers, which reinforces the strength of the market leader. Unlike Pets.com, Amazon.com and most other Internet start-ups, eBay was running an enterprise unique to the Internet rather than trying to improve upon a business you could successfully plant in a strip mall.

From the very first month, the money poured in. Mr. Cohen describes overworked AuctionWeb employees who couldn’t find time to cash the bags of checks accumulating in the office.

But a good idea does not make a successful business. The strength of The Perfect Store lies in the way it walks us through the evolution of eBay, from a clunky network held together with the computer equivalent of duct tape to a multibillion-dollar Internet prodigy. The founders of eBay were committed to creating a sense of community among users, much like an old town market. And this idealism actually mattered. Other companies, such as Yahoo! and Amazon.com, would later replicate the mechanics of online auctions and point millions of users to their sites, but they couldn’t replicate the eBay esprit.

Of course, it also helped that the early entrepreneurs had no illusions about their ability to build and run a large public company. Meg Whitman, a Harvard M.B.A. and former management consultant, was hired on as chief executive in preparation for the eBay I.P.O. She, in turn, hired a cadre of PowerPoint types. The transition was not without tension; some old-timers came to a Halloween party dressed as several of the shiny new Stanford M.B.A. hires. Some pioneer members of the eBay community complained bitterly about the corporatization of the site and the sellout to Wall Street. Still, the culture survived largely intact. When it came time for eBay to select an investment bank to lead the I.P.O., the suitors were told to buy something online before making their pitch. Goldman Sachs Group Inc. was the winner, in part, we are told, because one banker impressed the eBay team with a description of the Parcheesi game he bought for his mother.

Mr. Cohen gives us a tour of some of the more peculiar items that have turned up for sale on eBay: kidneys (“buyer pays all transplant and medical costs”), witness seats at an execution, triplets, a young man’s virginity. All were hoaxes, though drawing the line on what constitutes a legitimate item for sale is no mean task. Consider the case of dirty underwear. At bottom, eBay is a giant garage sale. As such, it sells used clothing, including underwear, which is presumably most attractive after it has been laundered. But, we learn in The Perfect Store , there is a thriving market among fetishists for soiled underwear. Users searching the eBay site for cheap secondhand drawers were startled to find listings with pictures of attractive individuals offering dirty or sweaty (or worse) undergarments. Subsequently, eBay declared that all underwear must be sold clean, only to find salacious listings for undergarments that could be “customized.” Eventually the site banned underwear sales altogether.

The underwear example illustrates a real challenge. The reason for eBay’s success is that it has taken on the same role that the government plays in the broader economy: setting the rules for commerce and enforcing them so that transactions are cheap, fair and predictable. The process is not perfect-there are still complaints about fraud, forgery, bid shilling and other irregularities-but the vast majority of users can buy and sell with reasonable confidence that they’ll get what they were promised.

If there’s a flaw in this book, it’s simply that The Perfect Store is to eBay what a flight manual is to an F-16: It’s less interesting than what it describes. Mr. Cohen had excellent access to the eBay team and did not find oversize egos, corporate excess, titanic boardroom battles-no dirty laundry. He describes a company that’s best appreciated by logging on and buying or selling something. I spent hours on the couch reading The Perfect Store and 20 minutes online at eBay bidding for a portable DVD player. I don’t regret either.

Charles Wheelan’s Naked Economics: Undressing the Dismal Science (Norton) will be published in August.