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1995–1998IPO · 1998

eBay

AuctionWeb → eBay

In 1995 Pierre Omidyar launched an auctions section on his personal site as an experiment: could the internet support an honest market between strangers. The first item sold was his own broken laser pointer, for $14.83, bought by a collector of broken pointers. In three years the service grew from a hobby in San Jose into eBay, a public company with a 1998 IPO, whose backbone was neither advertising nor guarantees but a commission on each sale and the reputation sellers held with one another.

Founders Pierre Omidyar
Domains ebay.com
marketplaceauctionc2creputation-systemcollectiblescommissionnetwork-effectsviral-pr

In brief

Over the Labor Day weekend of 1995 Pierre Omidyar spent a couple of days writing an auctions section for his personal site, not as a business but as a test of an idea: would an honest market between strangers work without an intermediary standing surety. The first item sold was his own broken laser pointer, for $14.83, and the buyer turned out to be a collector of broken pointers. Three years later a hobby in a spare room in San Jose had become eBay, a public company with an IPO on Nasdaq, and the commission on each sale, introduced almost by accident, became one of the most durable business models on the internet.

How it started (the founders)

Pierre Omidyar was born in Paris in 1967 to a French-Iranian family; at six he moved with his parents to the United States, where his father took a residency in urology at Johns Hopkins. As early as the seventh grade he was skipping gym class to program on his teacher's computer. In 1988 he took a degree in computer science at Tufts University, then worked at Claris (an Apple division), in 1991 co-founded Ink Development Corp, a company for pen-based computers later repurposed into eShop (bought by Microsoft in 1996) estimate, and by 1995 had moved to General Magic as an engineer estimate.

It was while working at General Magic that Omidyar wrote the code for an auctions section on his own personal site over the Labor Day weekend of 1995 (around 1995-09-04), the same site that, by independent accounts, also carried a section on the Ebola virus estimate. He explained the motive not as romance but as the curiosity of someone who studies markets: could an open, self-governing market work honestly without a central arbiter. The site ran on a personal internet account he was already paying for, about $30 a month, from the provider Best. The first item was his own broken laser pointer, put up as a test rather than for money; after a week with no bids the bidding started, and the pointer went for $14.83 to a buyer who, asked directly by Omidyar, said he collected broken pointers specifically. By the end of 1995 the site had run thousands of auctions and more than ten thousand bids, without a dollar of advertising, purely because technically minded users were passing the link to one another.

For the first months Omidyar ran the service as a hobby outside his day job, free for users and on his own. The turning point came about five months in: the provider moved the site, whose traffic had grown sharply, from a personal plan to a business plan, and the bill went up several times over (by various estimates, from $30 to $250 a month, or roughly tenfold) estimate. That is what made the service paid, not as a considered business model but as a way to cover an expense that had appeared out of nowhere.

Year-by-year timeline

Lesser-known but significant facts

  1. The Pez dispenser myth was invented not by the press but by the company itself. In 1997 eBay employee Mary Lou Song, tired of journalists finding the real story uninteresting (nobody, as she put it, wanted to hear about a 30-year-old genius who wanted to build the perfect market), made up a version in which Omidyar built the site so that his fiancée (by one source she was already his wife at the time of the events), Pam Wesley, could trade collectible Pez candy dispensers, and she got Omidyar's own blessing for it. The story was reprinted by Business Week, the Wall Street Journal, The New Yorker, and the San Jose Mercury News, and for years it was taken as the official one, until in 2002 Adam Cohen's book "The Perfect Store" and an independent investigation by the Associated Press forced eBay itself to admit: "It has been slightly blown out of proportion" (eBay spokesman Kevin Pursglove).
  2. Commissions appeared not from a business plan but because the provider raised the rate. About five months after launch the site, whose traffic had grown sharply, was moved from a personal to a business internet plan, and Omidyar had to start charging for listings simply to cover the cost; the service went into the black almost immediately after the fee was introduced estimate.
  3. The name eBay was a forced abbreviation because the domain was taken. Omidyar ran the site under the name of his consulting firm, Echo Bay Technology Group (in his own words, simply because the name sounded cool), and wanted to register echobay.com, but the domain already belonged to the gold mining company Echo Bay Mines, so it had to be shortened to eBay.com. Independently confirmed by a second source, an Associated Press report from 2002.
  4. The buyer of the first item kept quiet for twenty years. Mark Fraser, a Canadian who bought Omidyar's broken laser pointer for $14.83 in 1995, kept it for two decades and revealed himself only in 2015, after seeing a television item marking eBay's twentieth anniversary; he then gave a video greeting at the eBay Seller Summit, holding that same pointer.
  5. The eBay brand appeared on the site earlier than the official renaming date. In its corporate history the company gives September 1997 as the date AuctionWeb was renamed eBay, but an actual archived snapshot of the site in the Wayback Machine from June 14, 1997 (rechecked twice, independently, in two verification passes) already shows the heading "WELCOME TO EBAY!" at the top level, with "AuctionWeb" appearing only as the name of the auction section inside. A targeted search for a press release or a news article from 1997 with the exact date of the renaming produced nothing, and the company's own S-1 (the IPO document) does not mention either the renaming or the original AuctionWeb name at all.

The first growth lever

eBay's first sustained growth came not from a single mechanic but from a bundle of three parts, none of which was planned in advance as a marketing strategy. At the core was the forced introduction of a listing fee at the beginning of 1996, which made the tiny service profitable almost immediately: in the very first paid month revenue ran into thousands of dollars and kept growing month over month against rising traffic, and for all of 1996 the company earned $372,000 in net revenue, with a staff of exactly one person estimate.

The second part was the Feedback Forum, launched on February 26, 1996. Instead of insuring transactions with corporate guarantees, as competitors later tried to do, Omidyar bet on mutual reputational dependence: seller and buyer rate each other publicly after every deal, and a dishonest participant has nowhere to hide. In his letter announcing the system Omidyar noted that over the first half year of operation, across almost 10,000 auctions, only a few dozen complaints had accumulated, a figure that for him was proof that an open market between strangers can in principle work honestly.

The third part was distribution without a dollar of marketing budget. eBay did not create demand from scratch: collectors of toys, coins, badges, and small rarities were already trading actively through Usenet groups, flea markets, and ads in specialist magazines long before 1996, and they simply flowed gradually to the new venue once they heard about it through the same channels they were already using. By 1997 this showed up concretely in the Beanie Babies boom, the collectible plush toys that produced 6% of the platform's entire volume, and a year earlier it had turned a knowingly useless item, a broken laser pointer, into the test case that proved a buyer could be found on eBay for almost anything.

Parallels today (projects from the catalog)

What a builder can take from this in 2026

  1. A constraint can become a business model if the solution plugs into demand that already exists. eBay did not plan to charge users; the commission was introduced to cover a bill from the provider that had suddenly gone up. It worked not because it was a clever idea but because the audience was already ready to pay for the value it was getting.
  2. Reputation can replace a corporate guarantee in two-sided markets. The Feedback Forum did not insure transactions or settle disputes centrally; it simply made reputation public and mutually dependent. For a market of complete strangers that turned out to be enough: over half a year only a few dozen complaints accumulated across almost 10,000 deals.
  3. Look not for users but for communities that already exist with an unsolved pain. eBay did not create collectors; it simply turned up where they were already gathering (Usenet, flea markets, specialist magazines) and became a more convenient place to do a deal than what came before.
  4. A story is a distribution product too, but a fragile and risky one. The invented Pez story brought eBay a wave of free coverage in the biggest press, the kind no advertising budget can buy, but the truth came out, and that became a separate lesson about the price of a pretty lie in PR, and not only an example of a viral hack.
  5. Early on, count not volume but the share of breaches of trust. For Omidyar the decisive signal was not the growth in the number of auctions but the fact that complaints about them were vanishingly few; that, and not the volume of GMV, convinced him that the model of a self-governing market can work at all.

Discrepancies and what we could not verify

Sources (primary first)

Primary (period documents and the founder's own words):

Secondary (analysis, retellings, and the source book by Adam Cohen, "The Perfect Store: Inside eBay," 2002):

The same thing, about today

The same breakdowns, but of projects launching right now: what the product is, where the first users came from, how they charge. The card is free, the full dossier is $5 (the dossier itself is written in Russian).

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