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

[Continued, page 2]

Category managers have only indirect control of their products, of course. They can't order more toothpaste onto store shelves. What they can do is endlessly try to eke out small wins in their categories—say, a slight jump in scrap-metal listings or new bidders for comic books. To get there, they use marketing and merchandising schemes such as enhancing the presentation of their users' products and giving them tools to buy and sell better. It's classic needle-moving. And because of
that, say ex-eBayers, the place can be ultracompetitive. To gain attention for what can seem like simple steps, managers send around PowerPoint slides, most of which have been honed, re-honed, and then honed some more before being presented up the corporate ladder.

The result can be glacial change in a company built for speed. Lily Shen, a senior category manager for fashion—which accounted for about $900 million of transactions in 2002—noticed this spring that women's shoes were accounting for an increasing share of her traffic. Getting them their own category took two months: Every division—from technology to merchandising to marketing—had to sign off before the change could be made. When women's apparel wanted to add a way to narrow down shoe searches—say size 5 blue pumps for less than $50—the change took ten months.

To Whitman, the measurements and the delays are signs not of creeping bureaucracy but of a system that's developed rules and processes. The more stats, the more early warnings and the more levers to pull to make things work. Yet she's aware of the danger of analysis paralysis. "You have to be careful because you could measure too much," she says.

It's a fine line between observing and obsessing. Recently, to ensure eBay hasn't gone overboard on rules, Whitman brought in—surprise—even more consultants. The benchmarking firm measured eBay against peers to see how fast it adds features to the website. The result: eBay's performance was middle of the pack, at best. Says Whitman: "We have some work to do on time to market."

Speed defined Whitman's life early on. The youngest child of a Wall Street dad and stay-at-home mom, she raced through high school in suburban Long Island in three years. At Princeton, she majored in economics, then landed at Harvard Business School at the tender age of 21. Awed by the accomplishments of her older classmates and overwhelmed by the workload, she rarely left campus. "I was scared to death," she says. "On my left was someone who'd been at Chemical Bank for four
years, and on my right was someone who'd been in the Army for nine years. They also tell you 10% of the class fails out. For the first year I did almost nothing but work."

That's probably the last time Whitman was intimidated. With her MBA in hand she went to Procter & Gamble and became a brand manager, working alongside future Microsoft CEO Steve Ballmer and Scott Cook, future founder of Intuit. After two years she and her new husband, neurosurgeon Griff Harsh, moved to San Francisco, where he had been offered a residency, and she went to work for Bain. Highly recruited while at the firm, Whitman left for a series of increasingly senior positions at
Disney, Stride Rite, FTD, and Hasbro. When she finally joined eBay, she might have seemed an unlikely CEO of a 30-person technology startup. But Omidyar and eBay's early board were looking to build in big-company discipline and ideas.

It wouldn't be easy. eBay was pushing the limits of what was then called Internet speed, growing from 34 million auctions in 1998 to 265 million two years later. She moved fast to beef up Omidyar's gangly marketplace, opening a customer-service center for the thousands of newbies who were signing up daily, increasing fraud detection, and installing a new technology team, which was given carte blanche to remake eBay's infrastructure. Whitman knew that the eBay idea was powerful; she wanted
to make sure it could thrive.

A hugely successful business model, though, has a way of masking errors. And there have been a handful of tactical and strategic missteps during Whitman's tenure. In 2002 she pulled eBay out of Japan, the world's second largest economy and Internet user, when it became clear that Yahoo Japan—then controlled by Japan's Softbank—had gotten there first and grabbed an insurmountable lead. She figured that eBay naturally would be a hit in the offline world and so spent $235 million of eBay's stock in 1999 buying traditional auction house Butterfield & Butterfield in San Francisco. The synergies were elusive; eBay quietly sold Butterfield in 2002 for what it calls an "immaterial gain."

Her costliest mistake also offered the biggest lessons about how much the eBay community determines the company's success. In 2001, eBay unveiled a checkout procedure for completing transactions. The initiative, spearheaded by U.S. chief Jordan worked well, allowing buyers and sellers to settle bills quickly. But instead of hailing it, the eBay community went crazy. The problem: The checkout procedure seemed to favor payment via Billpoint, eBay's payment-processing service. Frequent sellers had grown attached to PayPal, then an independent company, and were steamed that eBay was subverting their choice. "About one-third of the sellers hated it," says Jordan. "They
puked on it. For me it was a lesson in humility and an object lesson that this is a joint venture."

The train kept on rolling, it seemed, whether eBay was working the levers or not. The company quickly made the checkout function optional, and in 2002 eBay bought PayPal for $1.5 billion, hundreds of millions more than it might have paid a year earlier.

"Our best decisions have been the ones where we've seen where the community was going," says PayPal chief Matt Bannick. "Some of our biggest mistakes occurred when we put on our consultant's hats and got in a room and made decisions."

Whitman describes such missteps as learning experiences, and doesn't dwell excessively on them; she preaches the art of moving on. "Most of the time we've made the right decisions, and when we haven't, we've fixed them," she says.

Besides, how can you obsess about mistakes when 10,000 of your customers are screaming your name: "Meg! Meg! Meg!"? It's late June, and Whitman is in Orlando addressing the crowd at eBay Live, the second annual real-world meeting of people used to communicating with one another
strictly through bids and BuyItNows. The scene is a mix of kitschy Americana with serious business, somewhere between a carpet-hawker convention and Warren Buffett's annual meeting at Berkshire Hathaway.

Whitman strolls to center stage amid cheers, dressed in khakis and a bright blue eBay button-down shirt, just like every other employee at the conference. She smiles, giggles nervously, then quiets the crowd. Her message is humility: "We don't always get it right the first time, but we try our best to get it right. We succeed when you succeed." Later, as she walks the convention-hall floor, she chats with everyone from UPS CEO Mike Eskew—whose company is a partner of eBay's—to autograph-seeking sellers of antiques. She hands out and signs trading cards of herself and other eBay personalities like Omidyar. The cards are a classic eBay prop because they're collectible. They're also a way for Whitman to connect with ordinary people. "It creates a dialogue," she explains later. "Then I can say, 'What do you sell? Where are you from?' "

Whitman, 47, has as blue-blooded and blue-chipped a pedigree as any CEO, but she has perfected a common touch that comes in handy running eBay. Her unassuming way, including that nervous giggle, puts people at ease. As a small child, she took two summer-long camping trips with her mother, her mom's best friend, and seven other kids. The group set off from New York one summer to Alaska and the next to Yosemite, Grand Teton, Bryce, and other national parks, traveling in a Ford Econoline
van and sleeping and showering each night in campgrounds. "You learn flexibility," says Whitman of the childhood experience. "I'm happy to camp. I'm happy to stay at the Four Seasons." Even today, eBay's CEO, who's a mom to two teenagers, drives an unglamorous Jeep Grand Cherokee.
Her brain-surgeon husband, whose full name is Griffith Rutherford Harsh IV, does her one better: He drives a Buick.

Understatedness may be bred, but marketing is learned. At Procter & Gamble, Whitman kept a journal of the lessons she was learning as a brand manager. She still has the journal and consults it periodically. An early lesson she scribbled down way back when at P&G: "It's all about the customer."

At eBay, that's truer than at almost any other company. For all the monkeys driving trains and other gremlins pulling levers and turning dials, the customers are the ones who decide what works and what
doesn't. New eBay board member Tom Tierney, an ex-CEO of Bain and Whitman's boss when she was a partner there, says he studied eBay intently before joining the board and was transfixed by the attitudes of eBay's customers. "It felt to me almost more like a movement than a business," he says. Adds Howard Schultz, founder of Starbucks and until recently an eBay director, "To Meg's credit, the focus has always been on the community. That's all Meg." Whitman knows everything that's going
on in the community, in part because the community talks to her. Her e-mail address, meg@ebay.com, is constantly being posted to the discussion boards by eBay staff.

How much of this community bonding is done to keep eBayers from jumping ship to another site? Ask Whitman, and she freely points out that's impossible. "Here's the contrast," she says. "When I was at Hasbro, we asked, 'What is Mattel doing?' When I was at Disney, it was 'What's Warner Brothers doing?' Here there is no X to ask about."

Not that others haven't tried to steal eBay's market. When Whitman joined the company, Onsale was the upstart competitor. Yahoo and Amazon had both started auctions. At one point Microsoft and extinct Web portal Excite even built a consortium to challenge eBay. Now only Yahoo still has auctions; the rest have disappeared or abandoned the fight.

Today, niche competitors remain: Amazon does a brisk business in used books, Yahoo has captured auctions in Japan, AutoTrader has stood its ground against eBay Motors in used cars, and Ticketmaster dominates the buying and selling of seats for sporting events and concerts. Google's
paid search service is also winning fans among small-business vendors who would rather sell now than wait for an auction to end.

Analysts raise other potential factors that could stunt eBay. Newer markets, like scrap metal, don't necessarily lend themselves to the same fervor that eBay users once brought to Beanie Babies. And with most—if not all—collectors fully aware of eBay, the company will have to spend more and more to attract new users, its primary engine of growth.

Whitman says she's confident about growth. She and her team are constantly on the lookout for competitive threats, especially in international markets, a 31%-and-growing share of eBay's revenues. Says Bob Kagle, the venture capitalist who made the sole outside investment in eBay and helped recruit Whitman to the company: "She has seen others break their pick on her, and she doesn't want to break her pick on anyone else."

As the many MBAs and ex-consultants beneath her focus on what to cram onto eBay, how to keep users happy, and what competitive threats to worry about, Whitman finds herself increasingly thinking about what the company will look like in the years hence. That includes considering for the first time what kind of CEO she wants to be remembered as and the legacy she'll leave when she pushes off. She changes her answer from time to time on when that'll be, sometimes saying she intends to stay at eBay for a total of eight to ten years—stretching her tenure to 2007 at the latest—other times saying she's committed to no timetable.

After a grueling week in Europe, she shows up for the long flight back to San Jose aboard eBay's corporate jet in a white turtleneck and torn blue jeans. She says she sees herself as a "Level 5 manager," a reference to management guru Jim Collins's depiction of a humble, uncharismatic type who's fiercely determined and gives lots of credit to subordinates. And she's considering importing a longstanding practice at her alma mater, P&G, which basically hires only recent college graduates
and new MBAs. "Senior managers almost need to come in in an understudy role," she says. "We will bring them in in a way that they can get some level of acclimatization."

Her goal: to develop leaders capable of maximizing growth in eBay's weird, nearly competition-free world—leaders who can stand the fact that there's only so much any eBay boss can, or should, do. "Why have we gotten such great public relations?" she asks rhetorically. "Why does 'Weird Al' Yancovic write a song about eBay?" Her answer: "It's not because of the management." True. But it's not entirely because of some monkey driving some train either.

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