Meg and the Machine

Unstoppable eBay is No. 8 among Fortune's Fastest-Growing Companies. But driving this train is harder than you think.

By Adam Lashinsky

August 11, 2003

It's a drizzly, steamy mid-July morning in Berlin, and the executives of eBay Germany are presenting their hearts out. In an un-air-conditioned conference room, the half-dozen young German managers are bemoaning the fact that online auctions have been relatively slow this summer. They're not used to setbacks like this. Worse, they have to explain this not just to their boss, but to their ueber-boss: eBay CEO Meg Whitman, who has popped in for a visit from California.

To tell their story, they're speaking English, but really they are using the international language of eBay managers: statistics. Out comes a dizzying array of PowerPoint slides detailing user numbers; S-curve regression analyses of site performance; and even the relationship between sunlight and auction bidding.

Whitman chews on a pen and scribbles notes on a white legal pad. She's dressed in dark-green slacks, a yellow checked shirt, and a beige sweater thrown over her shoulders, sorority-girl style. If the Germans are worried that the boss will explode, there's no need. When the slides are done, she asks everyone else's opinion around the room. The managers blame the slowdown on the maturing of the German auction market and on Germany's unusually hot summer (nice weather equals less time in front of computer screens the world over). She nods, then tells them that eBay isn't alone, that other high-powered CEOs with whom she schmoozed at a conference the previous week had told of weakness in their German businesses. She suggests that perhaps additional marketing spending will help boost activity. And she reassures the roomful of Gen Xers that whatever their problems, no one should panic. There are all sorts of solutions at their disposal.

"Our destiny is completely in our hands," she says, jabbing the air with her pen for emphasis. "There are lots of dials we can turn. I mean, look at the U.S., where we've just had five quarters of accelerating growth over a billion-dollar base. They said that it couldn't be done."

The group is relieved, but they'd better not have missed the challenge. Whitman has built a powerhouse in the U.S. and isn't going to let anything slow eBay down. In her five years as CEO the company has blossomed into one of the country's emerging engines of commerce. Not just e-commerce, mind you. Commerce. Its 28 million active users conducted nearly $15 billion of transactions via the site in 2002 and are on track to top $20 billion this year. That works out to more than $700 in deals whizzing over eBay every second. eBay's revenues—derived from listing fees and cuts on every item sold—will surpass $2 billion in 2003, with earnings topping $400 million. In spite of the dot-com crash, eBay's share price has grown 33-fold since its 1998 IPO, to $100. The company is now worth $32 billion, more than McDonald's or Boeing.

As eBay has rocketed (it ranks No. 8 in FORTUNE's 100 Fastest-Growing Companies list), so have the reputation, stature, and influence of its soft-spoken CEO. Yet get Whitman talking and she delivers a message that often comes off as counterintuitive. Her explanation for her success is almost always some version of the mantra she tosses out in meetings with managers from Berlin to San Jose, eBay's headquarters: "This company truly is built by the community of users." It's a little like Frank Perdue crediting his chickens.

Deflecting the spotlight is born of humility, though not just the personal kind. It comes from an awareness of something that slightly spooks—and humbles—eBay's management from Whitman down: the suspicion that eBay runs itself. The company's formula is so incredibly simple (provide a worldwide market and collect a tax on transactions as they occur), and its growth is so organic (buyers go where the sellers are, who in turn go where the buyers are ...), that a saying has become part of eBay lingo: "A monkey could drive this train." Maynard Webb, eBay's chief operating officer and the technology guru who saved the website when a traffic overload threatened to collapse it in 1999, summarizes the resulting ethos: "Most of us say, 'Man, we've got something special. Don't screw it up.' " Founder Pierre Omidyar, 36, who as chairman has no day-to-day role, thinks of eBay not as a traditional company but as what physicists call a "complex adaptive system," like the financial markets or the weather. Translation: It's pretty much unstoppable.

Making that kind of claim is easy for a founder-philosopher like Omidyar, but Meg Whitman has a business to run. In September 2000, she set a revenue target of $3 billion a year by 2005, which eBay should achieve easily. Since then she has stopped making bold public predictions.

Instead Whitman talks about building a global enterprise in which vast amounts of merchandise change hands and cross borders continually. How vast? Whitman has started to benchmark the company's gross merchandise sales against the giants of retailing. Right now eBay would rank in the 20s—still puny compared with Wal-Mart or, say, Sears—and she won't reveal where she wants it to be.

"There is no industry in which we compete, really," she says. "There is no online marketplace industry. We are pioneers." And like all pioneers, Whitman is figuring out how to run this business as she goes.

Another saying around eBay's headquarters is, If it moves, measure it. Whitman personally monitors a host of barometers. There are the standard ones for Internet companies: how many people are visiting the site, how many of those then register to become users, how long each user remains per visit, how long pages take to load, and on and on. Whitman also closely eyes eBay's "take rate," the ratio of revenues to the value of goods traded on the site (the higher the better). She measures which days are busiest, the better to determine when to offer free listings in order to stimulate the supply of auction items. (Mondays in June are slow; Fridays in November rock.) She even monitors the "noise" on eBay's discussion boards, online forums where users discuss, among other things, their opinion of eBay's management. (Level 1 means "silent," and 10 means "hot" or, in Webb's words, "the community is ready to kill you." Normal for eBay is about 3.)

In other words, eBay is a fire hose of business data. And no group of professionals loves being soaked in data more than management consultants. Whitman is a consultant to the core. She hopscotched from Harvard Business School through six corporate and consulting jobs—including a nine-year sprint to partner at strategy-consulting firm Bain & Co.—before alighting at eBay.

When she joined the company in 1998, it was a collection of geeks handpicked by the ponytailed Omidyar. He recruited her to give the startup some blue-chip cred. It didn't take Whitman long to transform the place in her image. She has peopled many of eBay's senior management posts with ex-consultants. Jeff Jordan, who runs eBay's U.S. business and is widely considered Whitman's heir apparent, worked at Boston Consulting Group. Matt Bannick, who ran eBay's international operations before Whitman tapped him last year to take over PayPal, worked for McKinsey. So did Gary Briggs, the vice president of consumer marketing.

Understanding management-consultant culture is key to understanding Whitman's style. Get your arms around the data, the thinking goes, and you can decide where to spend money, where more people are needed, and which projects aren't working. "If you can't measure it, you can't control it," she says. "Being metrics-driven is an important part of scaling to be a very large company. In the early days you could feel it, you could touch it. Now that's more difficult, so it has to be measured."

The people who do the measuring tackle their mission with intensity. Of eBay's nearly 5,000 employees, 2,400 are in customer support and 1,000 in technology. The most important group are what eBay calls category managers, a concept Whitman took from her P&G days. Instead of Tide and Crest, managers carve up eBay's 23 major categories (and 35,000 subcategories), such as collectibles; sports; jewelry and watches; and motors. They spend their days obsessively measuring, tweaking, and promoting their fiefdoms.

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