Business Fights Back: eBay Learns to Trust Again

The world's most successful Internet company is based on two pillars of growth: the global spread of Internet-style capitalism and confidence in the basic goodness of the people who do business on the site. Both ideas came under attack on September 11.

Just outside Berlin are the remnants of an East German checkpoint: Drewitz-Dreilinden. For nearly 40 years, it was a stark barrier between East and West, separating two cultures on the constant brink of war. One culture was built on state control and fear. The other was based on freedom, private markets, and trust.

Today, the checkpoint has been transformed into an office park, housing the German subsidiary of eBay. Soldiers have disappeared in favor of landscaped grounds and a new address: Marketplace 1. Not everyone would choose an office with such an ominous past. Yet for eBay, arguably the most successful Internet company in the world, this location is compellingly apt.

Look at eBay's constant profusion of online auctions, and you will see more than just an ultramodern form of commerce that is fueled by the Internet — a virtual World Trade Center. You will also see an intense tug-of-war between two utterly different views of human conduct. It all comes down to a few basic questions: Can we still trust people we don't know? Will our lives be better if we open our mailboxes — even our hearts — to people far away? Or is trust a dangerously naive way to live and do business, yet another casualty of September 11?

Whether by accident or by design, eBay has become a remarkable testing ground for this debate. Some 34 million people now participate in eBay, which consists of buyers and sellers from all over the world. Hardly any of them know one another. Nonetheless, they ring up commerce at a staggering rate of nearly $10 billion a year, taking it on faith that someone really will send the money or ship the goods on time.

In the overwhelming majority of cases, that trust is richly repaid. Trading partners who find each other online go on to enjoy a smooth exchange, some kind words, and maybe even a new friendship. The exceptions to eBay's culture of trust are rare but horribly disquieting. Over the years, people have accessed eBay not just to deal in Monet prints and teddy bears, but also to offer Nazi pamphlets, gruesome pornography, and mementos of convicted killers. The same technology that empowers millions of people's healthy passions also provides opportunities for much darker impulses. And the Internet makes it possible for any operator — good or bad — to affect more people's lives faster than ever before.

Even in calm times, the trade-offs are perplexing. Trust too much, and you are easy prey. Trust nobody, and you live a morose, empty life. Until September 11, most people thought that they could strike the right balance. But when a handful of airplane passengers turned out to be murderous hijackers, everyone's inner gyroscope was sent reeling. Suddenly, it was clear: We had entered a world in which some very powerful people abhor the rise of American-style capitalism — and oppose modernity itself. Whom can we trust now?

The Kindness of Strangers

In this altered world, some of the gutsiest and most unexpected reassessments are taking place at eBay. Now that terrorism looms larger than ever, it would be easy to let suspicion take command of our lives. But at eBay's offices and in its vast user community, people have made exactly the opposite decision. After an agonizing first few days in September, they redoubled their bet on trust

"At first, everyone at eBay was just plain stunned," says Meg Whitman, the company's president and CEO. "These attacks strike at the core of a lot of things that people believe in."

On September 11, eBay's new listings plunged 25%. As news of the terrorist strikes spread, nobody wanted to put up merchandise for sale, let alone bid on it. The eBay message boards became grieving boards. "There was such a sense of powerlessness," eBay's chief financial officer, Rajiv Dutta, recalls. Yes, eBay employees began putting flag decals by their desks and Statue of Liberty screen savers on their computers. But such gestures couldn't change anything.

Overnight, eBay's sweet-natured philosophy — articulated by the company's founder, French-Iranian immigrant Pierre Omidyar — started to seem like a painfully innocent relic of a different era. "We believe that people are basically good," eBay had declared in 1998, when it first posted its code of values on an obscure corner of its Web site. "We believe that everyone has something to contribute."

But were those thoughts really so naive? "We do $2.25 billion worth of gross sales a quarter entirely on trust," Dutta says. "The number of positive experiences that users have is staggering. This company could not work if people were so distrustful of each other."

And so, by the weekend after the September 11 attack, eBay executives decided to turn part of their Web site into one of the world's biggest fund-raising drives on behalf of the victims. EBay users would be invited to auction off anything imaginable for the benefit of charities such as the September 11th Fund. All intermediaries, including eBay and Visa, would waive their fees. The program would be known as "Auction for America." Its goal, eBay COO Brian Swette declared, would be to raise $100 million in 100 days. The millions of members of the eBay community would get a chance to demonstrate the power of good over evil.

Safe for Economic Democracy?

Within a few weeks of the attack, glimmers of eBay's traditional optimism had returned. Now it was tempered with a new resolve to show that an ever-growing global community could be built on trust. Already, eBay gets 14% of its business from non-U.S. subsidiaries in countries from Germany to Korea. Instead of retrenching abroad, eBay officials vowed to press on with expansion plans that will eventually include China, Hong Kong, and Taiwan.

"We've got a vision that we call 'global economic democracy,' " explained Matt Bannick, head of international operations. "Think of someone making baskets in Belize that are ultimately sold in Germany. That person may get just $1.50 a basket, if there are the usual layers of middlemen between him or her and the ultimate buyer in a shop in Hamburg. But what if the seller and buyer could find each other on eBay? Then maybe the basket maker could earn something much closer to the full $40 that the basket is worth."

Such dreams have been on Bannick's mind for more than a decade. In 1989, he was a diplomat for the State Department, and his first posting was to Germany, as the Berlin Wall was coming down. On that assignment, he rejoiced to see the openness and freedom of Western democracy triumph over communism. But even then, he brooded about what could go wrong.

Today, Bannick is one of eBay's great optimists about world harmony. He has run eBay's international business for a year, and on his business trips to Europe, he meets Italian Vespa dealers who track their eBay feedback ratings in just the same way that Barbie-doll collectors in California do. He hears stories about Belgian postcard collectors who make friends with similar hobbyists in Florida, thanks to an introduction on eBay.

"As I spend more time on the job, I realize that different parts of the world are more similar than I thought," Bannick says. "People everywhere like to trade things. They like to get good deals. They like to develop good reputations. This is a global trading community, not just an American phenomenon."

Yet elsewhere at eBay, people know that it will be a hard fight to keep the online-auction site pleasant and safe — and that the battle isn't completely won yet. In the past three years, eBay has hired its own full-time fraud investigators to root out cases where bogus sellers are cashing buyers' checks without delivering the goods. Fraud rates have dropped, but it still isn't possible to thwart every rogue operator ahead of time.

EBay has also drafted and redrafted an increasingly strict "Offensive Materials" policy. The goal: to stop people from selling Nazi memorabilia, photos of lynchings, or anything that promotes hate, violence, or racial intolerance. But for every outrage that eBay keeps off of the site, a new problem area surfaces every month or two.

Old-timers may find such interventions jarring. When eBay was founded in 1995, it had a thoroughly libertarian bent. "If something was legal for sale," Whitman recalls, "it was legal on eBay." The company's founders and early employees took pride in not limiting what buyers and sellers could do. There was a presumption that the eBay user community would steer the company in the right direction.

That might have been appropriate four years ago, when eBay's user community was tiny. But as eBay's community surpassed the size of New York City, Whitman realized that the company's responsibilities had changed. By the end of 1998, for example, eBay had become a meaningful outpost in the firearms trade, with hundreds of weapons for sale. Buyer scrutiny was minimal. But at a meeting in January 1999, Whitman and eBay board member Howard Schultz (who is also the chairman of Starbucks) led the push to get guns off of the site. "Having them up there just wasn't appropriate," Whitman says. "It didn't fit in with the kind of company we wanted to be."

In the spring of 1999, Columbine High School in Littleton, Colorado was racked by more than a dozen deaths as two students opened fire on classmates. None of the firearms involved had come from eBay. But as the implications of that event sunk in, eBay became ever stricter about what it would sell.

Firecrackers and police badges were banned. Tobacco products were declared off-limits, and wine sales were severely restricted. And new software, which would automatically search for sale listings that included keywords associated with "hate commerce," was released. Those listings would then be purged from the site, and a customer-service specialist would review them to see if there was any reason to allow such a listing.

Even after September 11, painfully unwelcome listings popped up on eBay. Within hours after the collapse of the twin towers at the World Trade Center, a few people began offering building shards for sale. It didn't take eBay long to decide that such listings would be banned from the site "out of consideration for the many victims of this tragedy."

Bigger. Stronger. Better.

There wasn't nearly as neat a remedy for the flare- up of cynicism and suspicion that surfaced among some users following the terrorist attacks. In the everyday debate on eBay's message boards, some active sellers grumbled that the Auction for America initiative might siphon away customers and hurt their business. Others carped that people participating in the charity auction might just be looking for ways to boost their feedback rating.

Such low-level grumbling may just be part of a democracy, suggests Jim Griffith, eBay's longtime customer-service ambassador. "It isn't realistic to expect everyone in a community to agree on everything," he says. "We have our disagreements, and then we move forward."

Yet for the most part, eBay officials believe that their global community will emerge from the September 11 tragedy bigger and stronger than before. One of the most striking surprises in this area came in late September, when CFO Rajiv Dutta began advising major shareholders about the Auction for America initiative. One of his first calls was to the Janus mutual-fund company in Denver, which owns millions of eBay shares. For about 10 minutes, Dutta briefed a cluster of Janus analysts and portfolio managers about the program as they listened on a speakerphone. He explained that eBay would be foregoing significant fee revenue to make the charity auction happen, but that he and other top executives believed that it was the right thing to do.

When Dutta was done, he "didn't hear anything for five or six seconds," he recalls. "I wondered, Did I say something wrong? Do they think that this is just a big mistake?" Then Blaine Rollins, head of the flagship Janus Fund, weighed in. "Rajiv," he said, "we are so proud of what you're doing. Let us know how we can help."

Senior editor George Anders (ganders@fastcompany.com) runs Fast Company's Silicon Valley bureau.

Sidebar: The Value of Good Works

On September 17, eBay's Auction for America made its debut at a New York news conference, where Mayor Rudolph Giuliani and Governor George Pataki joined eBay CEO Meg Whitman. Within days, members of the eBay community were selling thousands of items in the charity drive, ranging from Vietnam War medals to dinosaur teeth. "Many of us were trying to find ways to help," a Canadian seller explained. "I congratulate eBay for creating one."

Auction for America became a rallying point for other leaders who wanted to help repair America's wounds. The NFL said that it would sell memorabilia through the eBay program. So did Utah governor Mike Leavitt and Texas congresswoman Kay Granger. Jay Leno volunteered to sell one of his Harleys over the site.

Buyers in Auction for America found their spirits lifted too. More than 100 people bought drawings by Amber Moydell, an 8-year-old girl in Texas. She depicted people of all races holding hands around a simply drawn version of the globe. Among the buyers was a New York woman who wrote to the Moydell family immediately after seeing Amber's drawings.

"She said that she had lost several friends in the September 11 attack," Amber's mother, Michael Moydell, recalls. "Every time she felt that life was getting really hard, she said that she would look at Amber's drawing and take it as a reminder that there are warmhearted people out there."

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