World in auction

A decade after an idealistic French-Iranian computer programmer named Pierre Omidyar built a website and auctioned off his broken laser pen for $14, that website is rewriting the rules of British business. AuctionWeb, launched at Omidyar's ebay.com web address from his spare bedroom in California' s Silicon Valley, was conceived as "a place where people can come together" Ð an online exchange for all, which would never actually handle merchandise, but would let its users determine a fair market price. In exchange, Omidyar asked for a small proportion of any sale price to pay his web-hosting bills. Today, eBay continues to earn up to 5.25% commission on each sale, plus the fees it charges for everything from listing items to setting a reserve price. That "perfect marketplace", as Omidyar conceived it, is now the internet era's outstanding commercial success story, handling trades worth $34 billion (£18 billion) a year. It is established in 32 international markets and its 135m registered members buy or sell goods worth $1,050 (£560) every second, from over 34m items listed at any time. Corporations such as IBM and Vodafone use eBay to dispose of excess stock, but 95% of this "community" still comprises individuals and small businesses.

Talk to an eBay employee and you'll soon be showered with eager superlatives: the 4m new listings daily, the diamond rings traded every two minutes. But in the past few months, the most extraordinary numbers reflect the company's phenomenal growth in this country, five years after a dedicated website was launched here. With 10m members, the UK is now eBay's third biggest market after the US and Germany, growing at more than 160% each year. So culturally ingrained has it become that a day barely passes without an eBay story making the news Ð from students auctioning their foreheads to advertisers, to the more worrying reports of illegal gun trades, hard-core pornography, fraud and fake tsunami fundraisers.

But the negative publicity hasn't stopped more than a third of British internet users visiting eBay each month to buy and sell, or just to check how much their Fendi bag or Ferrari Spider might fetch. Some use its chatrooms to swap stories about "eBay addiction", the thrill of bidding leading them into debt. For the more entrepreneurial, the site is a powerful new way to reach customers. The company estimates that at least 10,000 people in the UK now rely on eBay to make a living, having recast an established "offline" business as an internet-based "shop window", or turned a hobby into a commercial venture. For Trevor George, it was both. "You need a passion for what you're selling," he says, scratching rock away from a 2in trilobite using a pneumatic air chisel. "That one's 450m years old," he points out with paternal pride. "Every fossil is individual."

George, 46, first used eBay to sell some old computer printers in December 2003. "They went very quickly, so then I got rid of my old climbing gear," he recalls. "All my friends said fossils would never go, that you can only sell rubbish on eBay. So I tried it. And it works."

He sources his merchandise in China and Morocco, but some of the richest pickings come from a former iron-ore quarry nearby, whose owner happily lets him take away soil by the skipload. His father-in-law, Glyn, a retired engineer, helps out in the workshop, and Richard, his son, offers a hand when not at college. But mostly, once George has cleaned, photographed and listed his precious finds, it is the computerised shop window that does the work. He starts the bids at 99p, £4.99 or £59.99, or specifies a fixed price that lets a customer "Buy It Now". Then, bar the odd e-mail inquiry, he waits at his computer to learn how much he's earned. "I'm comfortable, and I've got a great lifestyle, jetting around the world to collectors' fairs," he says. "It can only grow. I'm offering 30 lines, but there are a hundred I could do. No wonder jobs around the house aren't getting done."

At 1pm, a Parcelforce van arrives to collect 13 boxes destined for Quebec, California, Florida and Coventry. A pile of Jiffy bags for smaller orders sits on the kitchen table, alongside a few of this morning's cheques: one for £159.92, another for £38.50, a third for £4.99. "My accountant warns me to bank the cheques before sending out the goods," George says with a shrug. "But I think it's fairly safe. I've only ever had one person rip me off, pretending his parcel hadn't arrived. Mostly, eBay teaches you to trust people."

That is exactly how its founder intended it. On February 26, 1996, six months after launching the website as a hobby, Omidyar wrote to the "community" explaining that its growth depended on trust. "Most people are honest, but some people are dishonest. Or deceptive. It's a fact of life... But here, those people can't hide. We'll drive them away... This grand hope depends on your active participation... Use our feedback forum. Give praise where it is due; make complaints where appropriate... By creating an open market that encourages honest dealings, I hope to make it easier to conduct business with strangers over the net."

The "feedback forum" would be the key to Omidyar's "grand experiment". Members would be encouraged to rate everyone they traded with - whether as buyers or sellers. They would be asked to define the experience as positive, negative or neutral, and adding a comment visible to all. For the ponytailed Omidyar, who still held a day job programming codes for a Silicon Valley start-up, General Magic, this self-policing mechanism would save his time and give users an incentive to earn each other's respect. George may have been trading for barely a year, but his 99.9% positive-feedback rating, following reviews from 2,185 eBay members, gives him the credibility that will drive sales.

After graduating in computer science from Tufts University in 1988, Omidyar worked for some of Silicon Valley's hottest tech companies before helping launch some of his own. One, eShop, was bought by Microsoft, making Omidyar a millionaire before he was 30. Then, in summer 1995, he decided to experiment with his "virtual exchange".

A few myths have grown up around eBay's birth. One is that Omidyar launched it to help his fiancée, Pam Wesley, now his wife, find some rare Pez sweet dispensers for her collection. That, Adam Cohen discovered, researching his authorised history of eBay, The Perfect Store, was a publicist's invention designed to give a human face to a tech company. Further confusion surrounds the name. It is not a homage to San Francisco's East Bay area, nor Echo Bay in Nevada.

It was simply a contraction of Echo Bay Technology Group, a name Omidyar used for his web consulting business because "it sounded cool". The echobay.com web address had been taken. A contracted form, ebay.com, was available.

Now 37 and living with Pam and their two young children in Nevada, Omidyar is estimated by Forbes magazine to be worth $10.4 billion. Although Omidyar remains chairman, Meg Whitman, an energetic former Disney executive, has been running the company since March 1998. This has left the publicity-shy Omidyar time to devote to his next goal: to give money to causes that, as he sees it, use the networking power of technology to "make the world a better place".

In the company mantra, eBay is "just a platform", letting the busy mother in Ascot compete on equal terms with the global corporation in Akron. But this, critics say, is what lets fraudsters prosper, their unvetted auctions ensnaring the unwary for as long as eBay leaves them to it. This is not, of course, how Omidyar sees it: eBay's hands-off approach lets its users "become empowered by participating in an open and honest marketplace", discovering "their own power to make good things happen". The ponytail may be long gone, but not, it seems, the multi-billionaire's hippie idealism.

In the spare bedroom of an unassuming semidetached house in Bristol, Helen Southcott, 27, sits answering some of the day's 500 e-mails. Three feet away, tapping heavily on a keyboard on the same cluttered desk, Southcott's fiancé, Matthew Ogborne, monitors the bids rolling in on some of the 2,000 items that he listed yesterday for auction.

Until June 2003, Ogborne, now 26, was making an uncomplicated living as a photocopier engineer, and driving a rusting H-registration Metro. He still drives the Metro — but today, as an eBay trader calling himself "MoggieX", Ogborne has a turnover approaching £1m "any day now". In eBay language, that makes him a "Titanium Powerseller", putting him among its top few earners in Britain.

The venture began two years ago with a £2,000 credit-card debt, after Ogborne chanced upon a supplier of digital cameras. He found he could easily make £50 on each by selling them on eBay. He then found an electronics manufacturer to supply him with DVD players, memory cards and home-theatre systems at prices that would let him undercut the high street. Demand was so great that by summer 2003, he'd quit his job and was working from home. "Quitting the job was the most liberating experience for me," says Ogborne. "The hours, and the pay, are much better here." By last summer, the business was bringing in up to £77,000 a month. "It scared the living daylights out of our accountant," he says, sipping tea from an eBay mug. "We've doubled turnover since May; I intend to do so again by the summer. The volume of feedback is mind-boggling."

Southcott has also given up her job in fashion retail to take care of "customer service". This, Ogborne explains, ensures that feedback remains high, which in turn attracts new business and higher prices. After 12,400 customers, MoggieX claims a 99.7% positive rating. "The feedback works for us too," he says. "If a customer has no feedback and is buying £800 worth of kit, you get suspicious and check them out. Warning bells ring if they've bought lots of 99p items simply to build up feedback. But if they've been buying golf clubs — well, that's a human being, isn't it?"

At eBay's UK headquarters, in a Georgian square by the Thames in Richmond, Surrey, you hear a great deal spoken about the "community". The membership might not be welcome here in person — the building is unmarked, the phone numbers unlisted — but as Whitman sees it, they are the company's "soul" and the reason for its success. They loyally offer suggestions on its voluminous bulletin boards; they report back when they find auction rules being breached. Doug McCallum, the UK managing director, calls them "the biggest Neighbourhood Watch in the universe".

That makes Dan Wilson one of eBay's more important UK employees. As "community manager", the 27-year-old is responsible for monitoring members' concerns. When auction fees are raised, as happened in January, he will bring their worries to his bosses' attention. If he hears horror stories about eBay customer support, he investigates. "We're not a democracy, true, but it makes good business sense for us to work with the community," Wilson says. "They have to make money for us to make money — so I really don't think it's the shareholders who are running the show."

As with all eBay employees, Wilson is obliged to trade there himself: internal competitions reward staff with the most improved feedback scores. His most recent sale was an electric coffee grinder that cost him £12.50 in the Whittard sale, which he sold for £18.50. He also made £400 on a box of old 78rpm records that he bought on the site for £1. "Call me the Terrible Trotter, but I don't think you can look the community in the eye unless you know what they do."

The real stars, mentioned with reverence by staff at HQ, are those who are turning over six- or seven-figure sums from home. "Some have given up senior management positions; others are mums who have built up their business by listing their goods when the children are asleep," says Elspeth Knight, responsible for Britain's "Powersellers", those conducting the most transactions. They include Julie King, 33, who was reluctant to return to her demanding job as an IT consultant after giving birth to Lewis two years ago. She decided to try selling shoes from her North Tyneside home. The result was killer-heels-com, where you can buy £15 party stilettos or £14 cowboy boots.
"We now list about 400 pairs at any one time. We expect turnover this year to reach about £150,000, up from last year's £98,000," she says, tired having just put Lewis to bed before another evening packing shoes. That "we", by the way, is deceptive: King, a single mother, runs the business entirely by herself, from visiting wholesalers to answering e-mails. "It's 16-hour days. I'm earning less than I was in IT, but this lets me see my littl'un grow up," she says.

Louise Allen, 25, has no such domestic distractions. She was studying accounting at Leeds Metropolitan University when she discovered eBay, selling a South Park script for £130, then a treadmill for £450. From there, a fitness-equipment business quickly grew, with Allen handling orders from university while her father, in Manchester, arranged deliveries. Last year's turnover was £1.3m. With eBay, you can "launch a business in a day", says Allen, now working full time with a staff of six. "But you can't rely on it 100%. If you can find a new product, it will do well for a few weeks, then the demand disappears. And anyone can copy your idea in an instant." So eBay has become just one outlet for her business, exerciseathome.co.uk.

Still, not all traders are just after money. Simon Stevens, in Coventry, makes just a few hundred pounds each month selling swimming aids and waterproof clothing. After four years on eBay, he is proud that he has earned 99.5% positive feedback. What his customers don't know is that Stevens, 30, has cerebral palsy, "as eBay and the internet don't discriminate on appearance", he says, typing his words into a text phone to be more easily understood. "This has given my business, Enable Enterprises, an opportunity to reach a market that would have been impossible before eBay. I'm not ashamed of being disabled," he adds. "But to be able to compete on a level playing field — that's wonderful."

But there is a darker side to the eBay experience. For all its members' unpaid vigilance, eBay's boundary-free community has allowed fraudsters, pornographers, drug dealers and weapons traders to abuse its loosely regulated hospitality. The company says it would be impractical, and doubtless costly, to vet each of the 4m new items listed for sale each day. Yet by pulling unauthorised auctions only when alerted to breaches, eBay's management is letting its "perfect" marketplace become wilfully soiled.

On a random afternoon in January, The Sunday Times Magazine quickly found auctions under way for illegal flick knives, pirated software, obviously fake designer labels, and junk e-mail addresses — all supposedly banned by eBay. A "poor student girl" in Redditch was offering "nude photos — totally naked!" to repay her overdraft. The current bid was £9 for 10 intimate images. For £4, another trader offered "some really hot pics and video of my sexy wife and her mates playing up". A number of sellers were advertising soiled knickers for up to £20, often employing clumsy typographical tricks to evade the site's proscription of dirty underwear. "Do you want to buy my un USED panties?" one seller asked. "I have had many a wild night packaging these special thongs for you naughty boys. I take requests..."

A seller in Rayleigh, Essex, was offering five "big bud cannabis seeds", with bidding at £6.61 — legal, the listing claimed, unless germinated, but in breach of the rules. You could also buy throwing knives (£3.70), a means to "unlock your Sky box" (£1.99), allegedly "genuine" Viagra (starting at £1), and CDs containing 200m e-mail addresses (£8.99).

Garreth Griffith, responsible for what eBay UK calls "trust and safety", accepts that these items should not have been there. "The challenge is the volume," he admits. "We try to catch them. We're trying to improve really quickly. I feel more confident that we're on top of it."

More awkward for eBay have been the guns. The Association of Chief Police Officers (ACPO) has warned of illegal weapons entering Britain through eBay. Last year, the site was forced to end the auction of a semi-automatic CZ75 pistol 24 hours after it went on sale for £650. "It does nothing for eBay's reputation," the Labour MP Steve McCabe told his party conference in September. "A company making the money eBay is making could afford to properly monitor the site." McCabe has since compiled a dossier of guns allegedly on sale. The site was allowing dealers to sell the weapons without checking whether they were active or not, thus contributing directly to street crime, he claimed. "Dealers know that illegal weapons will be removed from the site within 24 hours, so they are using that time to advertise private sales or advertise empty bags or boxes for sale and offering guns as a free gift."

Doug McCallum says the claims are grossly exaggerated. "It's an outrage that people in their own interests have managed to create an impression that guns and weapons are available on eBay," he says. "We've actually gone further than the law states and banned paintball guns and knives. Obviously, we can't keep a marketplace of this scale clean every moment of every day" (an argument repeated by other executives to The Sunday Times), "but we aggressively invest in removing things as soon as we hear about them."

The company says it does far more than simply wait for tip-offs. "We recognise that the whole foundation of eBay is based on trust," Griffith says. "So we look for references to, say, gun-related terms. We also look at the type of people coming onto the site to identify questionable behaviour. If I've just registered and within a few hours am bidding on eight cars, I'm probably not legitimate. We'd catch that." So why not use automated word filters more effectively? "Could we block the word 'gun'? Yes, but as a result we'd block Guns N' Roses and The Guns of Navarone," Griffith says. The site has indeed begun using key-word filters to block terms related to drugs, guns and pornography until these listings can be manually approved. "Thousands of items" await approval at any time. The other problem is fraud.

In December, sentencing a woman who had sold £3,000 of fake Glastonbury tickets on eBay, Judge Richard Bray warned that the system made committing fraud "easy". Just how easy is made clear by recent reports, from the 17-year-old Gwent boy who made £45,000 selling nonexistent goods, to John Leary, jailed for four years after selling $1m worth of laptops that never arrived. At least those fraudsters were caught: some of the more problematic transactions have involved fraudulent buyers.. Dheeraj Saxena, a 28-year-old IT consultant from Berkshire, has no idea who cheated him out of his laptop. After waiting for the selling price of £870 to reach him via PayPal, he sent the computer to the address in Russia the auction winner had specified. PayPal announced by e-mail 10 days later that the transaction had been unauthorised and it was reclaiming the funds. "It looks like someone's account was hacked, but PayPal has frozen my account, which is now in debt," Saxena says. "PayPal and eBay have washed their hands of it, and I'm getting threatening notes from PayPal demanding the £170 I'm supposedly in debt."

A trading-standards officer told Saxena that eBay was within its rights, as he had agreed to its user agreement. "So just because you sign up to a damned user agreement, you can get ripped off! And eBay doesn't even give out contact numbers. I'm not using eBay any more. And I'm not settling the outstanding fee. I'm up for a class action!"

Saxena is not alone. Bevans, a Bristol law firm, has been contacted by almost 400 fraud victims, or groups representing them, about suing eBay over allegedly unfair contract terms. "Not all cases could be said to be eBay's fault, and some of these people are a little naive," says Tony Hughes, a solicitor handling the complaints. "But there's a case for saying that eBay is not taking sufficient steps to prevent fraud, and not providing sufficient compensation."

The company says that just 0.01% of trades are confirmed as fraudulent, and that it compensates buyers by up to £105, more if they buy through PayPal. "That's fine for a pair of shoes, but it doesn't help with the case of a £900 saxophone," says Hughes. Most recently, that has included fake tsunami appeals. Still, the risks have not dented eBay's rise. Britain's ultimate bring-and-buy sale is now part of our mainstream culture, the dinner-party conversation piece that has supplanted house prices, and the only club that could unite second-hand car dealers and celebrities such as Cherie Booth and Sir Paul McCartney. There are now even chains of bricks-and-mortar stores, such as Auctioning4U in London, which exist simply to sell busy people's goods on eBay in exchange for a 30% commission.

Yet for all its success, eBay remains at its core the minimally regulated public noticeboard that Pierre Omidyar envisaged — a powerful commercial exchange, certainly, but also a barely policed storefront for the world's con artists and opportunists, where the live auctions we chanced upon included illegal anabolic steroids, pirated DVDs and even a deactivated Soviet rocket launcher. Naturally, eBay removed these listings once they were drawn to its attention. But as the ultimate multi-billion-dollar winner of the online auction business, it may no longer be enough for eBay to remain "just a platform" that relies on its customers to look after themselves.