Early Life

Amazon.com ^[1]

The story of the formation of Amazon.com is often repeated and is now an urban legend. The company was founded by Jeff Bezos, a computer science and electrical engineering graduate from Princeton University. Bezos had moved to Seattle after resigning as the senior vice-president at D.E.Shaw, a Wall Street investment bank. He did not know much about the Internet. But, he came across a statistic that the Internet was growing at 2,300%, which convinced him that this was a large growth opportunity. Not knowing much more, he plunged into the world of e-commerce with no prior retailing experience ^[2].

He chose to locate the company in Seattle because it had a large pool of technical talent and since it was close to one of the largest book wholesalers located in Roseburg, Oregon. Clearly, he was thinking of the company as a bookseller at the beginning. Moreover, the sales tax laws for online retailers state that one has to charge sales tax in the state in which one is incorporated. This means that for all transactions from that state the price would be increased by the sales tax rate leading to a competitive disadvantage. Therefore, it was logical to locate in a small state and be uncompetitive on a smaller number of transactions rather than in a big state such as California or New York.

The company went online in July 1995. The company went public in May 1997. As a symbol of the company's frugality, Jeff and the first team built desks out of doors and four-by-fours. The company was started in a garage. Ironically, initial business meetings were conducted at a local Barnes & Noble store.

Bezos' first choice for the company name was Cadabra. He quickly dropped this name when a lawyer he contacted mistook it for cadaver. He picked Amazon because it started with the letter A, signified something big and it was easy to spell.

For his contribution, Jeff Bezos was picked as the 1999 Time person of the year at the age of 35 making him the fourth-youngest person of the year. Describing why it chose Bezos, Time magazine said, "Bezos' vision of the online retailing universe was so complete, his Amazon.com site so elegant and appealing that it became from Day One the point of reference for anyone who had anything to sell online." ^[3]

eBay.com

Pierre Omidyar, the founder of eBay, graduated from Tufts University with a computer science degree. He worked for a variety of companies producing computer programs for Apple's products including Claris and Innovative Data Design. His first foray into the Internet was at General Magi c, a communications start-up.

The story that led to the formation of eBay is very interesting and is described well by Kevin Pursglove, Senior Director of Communications: ^[4]

A key component that prompted him to do this was at the time his fianc e— now wife—was interested in her Pez (dispenser) collection. She was experiencing a frustration that many collectors have experienced, and that is often times when you're collecting a particular item or you have a passion for a particular hobby, your ability to buy and trade or sell with other people of similar interests is limited by geographical considerations. Or if you trade through a trade publication, often volunteers produce those publications, and the interval between publications can often run several weeks if not months.

All of that was shortened down when Pierre, at the prompting of his wife and interest in Pez dispenser collections, used his interest in fragmented markets and efficient marketplaces as a laboratory for what eventually became eBay.

Pierre wanted to name the company Echo Bay. However, another company had registered echobay.com. As a result, he chose eBay. Pierre had strong opinions about the unfairness of many market arrangements. This led to his interest in auctions. As a recent book puts it:

He had never attended an auction himself, and did not know much about how auctions worked. He just thought of them as "interesting market mechanisms" that would naturally produce a fair and correct price for stocks, or for anything anyone wanted to sell. "Instead of posting a classified ad saying I have this object for sale, give me a hundred dollars, you post it and say here's a minimum price," he says. "If there's more than one person interested, let them fight it out." When the fighting was done, Omidyar says, "the seller would by definition get the market price for the item, whatever that might be on a particular day."

Pierre launched eBay.com on Labor Day of 1995. He developed the program and the Web design for the initial pages himself. The site was publicized in USENET discussion groups. Initially, the site was free. When his Internet Service Provider started charging him the business rate for the service ($250), he began to charge consumers. The initial fee was 5 percent of the sale price for items below $25, and 2.5 percent for items more than $25. Soon, he started to receive small amounts of money and he was able to make more than the $250 he was being charged to run the site. eBay was in business.

^[1]This chapter has benefited from cases in my e-commerce textbook, E-Commerce Management: Text and Cases.

^[2]http://www.commonwealthclub.org/98-07bezos-speech.html

^[3]http://www.time.com/time/poy/intro.html

^[4]Beale, M. E-Commerce Success Story: eBay http://www.ecommercetimes.com/success_stories/success-ebay.shtml.