Dear David and Andrew,
You're completely right to wonder about the home-field advantage eBay seems to have with Cohen (they lent him a work space at their headquarters), but I think we shouldn't forget that founding an Internet company that turns into a profitable, publicly traded monolith is pretty remarkable—and unusual. Despite my considerable Internet hyperbole fatigue, I found the eBay of The Perfect Store to be more like an un-dot-com, rather than simply the dot-com that understood community. (As David notes, forums and newsgroups have a long history on the Internet.)
Lest we forget what the typical Internet company was like not so long ago, Cohen cites a joke auction that actually ran on eBay in the wake of the dot-com collapse. An embittered ex-employee of Quokka Sports offered to auction the remains of the company, "including 'e-mail archives, ninety-eight percent of it being taken up by pointless, long-winded, chest thumping ramblings' from management. Not included, according to the write-up: 'A revenue model.' "
Compare those meager assets to the "virtual" business model of eBay, in which the company takes a small cut of every transaction that occurs in its online marketplace. Because eBay leaves all its inventory, shipping, and handling duties to customers, the company actually turns a profit every quarter and has for years.
I fully share David's impatience with some of the romanticized descriptions of Omidyar (a philosophe de café?), but I was nevertheless won over by his geeky pragmatism ("Spend the money like it's your own"). He liked to brag that his company has been profitable since its first month of charging fees, rather than give the usual rap about breaking all the rules and reinventing the way we work and live.
In contrast with the excess of a company like boo.com, the online fashion retailer that blew through an astonishing $185 million* in venture capital in its 18 months of existence, Omidyar ran a tight ship in terms of expenses. Employees were required to assemble their own desks from a $119 set. Omidyar personally drove over to a warehouse to purchase heavily discounted surplus cubicles for eBay headquarters after Apple overordered. The eccentricity of the office and the asceticism diminish somewhat once Meg Whitman takes over as CEO and the company goes public, but the guiding principle remains: The mark of a solid company, whether online or off-, is one in which revenue outpaces expenses. This may sound like Econ 101, but the point got bizarrely lost in the late '90s.
So I'd agree with Andrew that "it's the community, stupid," but because eBay figured out a way to use forums to drive its bottom line. As for David's question about a "perfect market," perhaps we could discuss what Cohen calls the "eBay effect"—the ability of anyone with an Internet connection to sell things online makes life hard for middlemen like antiques dealers, whose livelihood depends on finding pieces at a low price and then reselling them.
A hard-nosed economist would suggest that the existence of the Internet means that such businesses no longer serve an economically useful function and thus deserve to wither on the vine. But Cohen cites a thrift-store shopper who insists that personal interaction and the thrill of discovering a bargain are an essential part of the experience. "There's something a little sad and soulless about sitting in our underwear at three in the morning shopping over your computer." How perfect is that?
And then there's the issue of seemingly anything being potentially salable: Used underwear is quite humorous, but a piece of the door from the apartment where Amadou Diallo was shot? That's just ill.
*The $185 million is from the New York Times'Dec. 13, 2000,article "From Big Idea to Big Bust: The Wild Ride of Boo.com." Wired News has the more modest figure of "$100 million of its backer's money."