In 2004, multihousing ushered in an unlikely newcomer to its playing field: eBay.
The Internet auction site first purchased 25% of the online classifieds/chat site, Craigslist.com. The $10 million site has long been used by apartment communities to list vacancies and recently gained notoriety by virtue of a Chicago-based Fair Housing lawsuit.
Later that same year, eBay purchased Rent.com, an Internet Listing Service (ILS) for apartments and home rentals for $433 million. While the for-sale-esque model has gone through a few notable evolutions, Rent.com was the first to offer transaction-based listings where owners were provided free listings and charged a commission-like fee only when units were leased. Rent.com was reportedly preparing to go public when an unsolicited offer prompted investors to consider selling instead.
Going into the purchase, Rent.com’s annual revenue was over $45 million with an EBIDA (earnings before interest, depreciation and amortization) north of $10 million, setting the purchase at nearly ten times the company’s annual sales.
The deal seemed to defy all logic and made “landlords” scratch their heads. Some chalked it up as a remnant of a hubristic technology climate. Technology has always operated nearly polar opposite to the principals of bricks and mortar multihousing.
And many still remember Rent.com in its tender years as Viva.com (1999).
VIVA introduces a
new way of thinking, sort of
Seeking to level the playing field for renters and landlords, Rent.com (originally viva.com) borrowed its opening pitch from the Internet lending site, LendingTree. The original scenario had landlords, like the lenders of LendingTree, bid on prospects. Theoretically, prospective renters would receive three rental offers whereby they would accept the best bid.
Yet, even more memorable than Rent.com’s attempt to reverse the tables on the rental system was its indelible advertising. The edgy campaign exploited stereotypes the industry has battled as long as rentals have been part of the social landscape.
There were the posters:
Next time you get your butt sniffed,
say in a firm voice, “Bad Landlord!’
And the logo’d drink coasters:
Pity your apartment doesn’t
also start to look better after
a few drinks.
You have a better chance of
getting your call returned
from the girl next to you
than you do from a landlord.
Too bad you can’t chew your arm
off the morning after signing an
And the radio spots. The titles will have to do: Dominatrix, Proctologist and Disgusto. Yes, the starring role is, again, played by the landlord. (See the link to the right for an audio refresher on the notorious spots.)
battling market behaviors
Companies evolve and by 2001 Rent.com changed its name and its game while re-mastering the core of its business to a more industry-palatable pay for lease model.
Even throughout the two years before the overhaul, Rent.com struggled to find a market niche and inched forward, waiting for the Internet to find its way into multifamily. By 2001, the start-up had rallied 6,000 buildings onto the website, mostly from the portfolios of its investors, and a second round of funding led by Allegis Capital of Palo Alto, Calif. Investors had now sunk nearly $34 million into the company since its launch in 1999.
Even with a sluggish start, Rent.com had secured field advantage in the business of ILS and pay for lease. Timing proved critical in setting market share as the Internet finally began to catch traction with both owners and renters.
Yet, it was not without its challenges. While its transaction-based model may have sounded relatively fool-proof in theory, it is somewhat problematic in application.
Rent.com charges owners $375 for every lease they track back to the their website. The lease is substantiated by a renter registering, then coming back to claim a $100 rebate after renting at a Rent.com-listed property.
As an incentive to lease, many leasing agents have used the rebate as a closing tool with prospects. Under this scenario, a leasing agent advises a prospect that they can receive the $100 discount by going to the site to register after they’ve already visited the community. The problem has become so rampant and costly that at least one of the top 50 REITs have pulled all advertising from the site.
Definitively tracking a prospect to the culmination of a lease remains, in part, a faith-based effort. The sheer odds that it was a clean, direct line through Rent.com is possible, but perhaps not probable as prospects seeking to rent often do some level of research or due diligence before making their move, entailing any number of websites and sources.
Following the growing trend of users first accessing aggregate sites to make a purchase, (estimated at 59 percent; example: researching flights on Travelocity and then purchasing the ticket directly from the carrier site like Delta) so, too, has Rent.com become a clearinghouse for other forms of marketing. And over the extent of a significant portfolio, this can prove to be a rather expensive proposition.
In recent years, Rent.com’s pay-for-lease concept and accretive growth has been pelted by companies coming on to the ILS scene from inside the multihousing industry: Rent.net (now Move.com), Apartments. com, Apartment Guide.com, ForRent.com, and the newest, MyNewPlace.com right out of eBay’s own backyard, San Francisco. The wide open space created by the emerging apartment ILS market was underserved and, thus, unimpeded for anyone seeking to throw their hat in the ring. Most hit the ground running armed with an innate familiarity of the industry, publishing and fair housing law, as well as a core customer base from long established print media portfolios of rental guides.
Along with the competition, arose an anomaly. Rent.com and Craigslist share a significant difference from other ILS providers: silence on their accountability with regard to fair housing law while placing the owness squarely on the shoulders of owners. And as most obvious with Craigslist, there’s an outright dismissal of its accountability to fair housing law under a self-ascribed, “free exchange of the Internet.”
The recent Craigslist lawsuit shines a direct light on the company’s fair housing practices, as well as that of its most economically powerful owner, eBay and its other multifamily asset, Rent.com. History may be doomed to repeat itself as Rent.com/eBay and Craigslist procure business from the multihousing industry while rhetorically distancing themselves from the boundaries of fair housing law; Rent.com with its fair housing translation as the sole burden of owners and managers (rent.com/company/ legal/equal), and Craigslist’s adamant denial of playing any part as a “publisher” (see craigslist.com/about/fair.housing.html).
The stage is set for what may simply be the next evolution of eBay’s Rent.com and Craigslist as they attempt to redefine fair housing according to the free democracy of the Internet. Then again, a court ruling may reset a few clocks.
Such controversy is all in a day’s work for eBay.
A lesson in free market trade
Within a very short time, eBay has changed the way we look at junk, cultivated the concept of trusting strangers on the Internet and formed a cult-like community of online followers. As the site has widened to unimaginable scope and power, so too have the headlines and user experience to include words like fencing, fraud, privacy infringement and bid sniping.
With Wal-Mart-like precision, the financially-flush corporation has begun to ingest other Internet companies, paying amplified prices and leaving analysts and observers to speculate as to how such a puzzle might finally piece together. Contro-versy must drive a premium, as eBay seems most attracted to companies that aren’t as neat and polished as one would think top dollar would bring. But a first quarter profit margin of over $1 billion leaves a wide berth for creative thinking amongst the eBay commonwealth.
There is a powerful argument resting on eBay’s history of redefining conventional wisdom.
AuctionWeb, the first run at the concept of an online auction, was initially part of Frenchman Pierre Omidyar’s (pronounced oh-MID-ee-ar) working website for his Silicon Valley consulting firm in 1995. Like many tech start-ups of the time, his employee stock options from the sale of eShop to Microsoft had already made him a millionaire. As well, stock would play a leading part in the chain of events culminating in his launch of present-day eBay.
Two years earlier, the UC Berkeley grad had closely followed a video game IPO (3DO) and placed an order to buy through his Charles Schwab brokerage account.
As hype would have it, the IPO’s CEO, Trip Hawkins, was named one of People magazine’s “50 Most Beautiful People,” causing a last minute run on the stock. While the offering went public at $15 a share, Omidyar found that it had shot up to $22.50 before his order had been filled.
He eventually made a profit on the buy, but what would prove to be far more valuable was the lesson in the real world execution of free market trade and its effect on pricing. He sought a model that would level the field for all buyers.
Auctioning seemed the path to a democratic environment of buying and selling. Omidyar explained, “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. If there’s more than one person interested, let them fight it out.” He concluded, “the seller would by definition get the market price for the item, whatever that might be on a particular day.”
Creating a website to hawk his girlfriend’s Pez dispenser collection adds romance to the founder’s story, but, alas, is nothing more than corporate-spun urban legend.
Over the course of a Labor Day weekend, Omidyar patched together freeware he found on the Internet and WebAuction was born with a meager five product categories; today the site has thousands. Hosting the site from his home, the first rendition gave users three options: list an item, view an item and place a bid. By year’s end, the site had sold thousands of items and attracted more than ten thousand bids, all at no charge. The utilitarian, bright-blue/black, hyperlinked site looked more like a news group and was rapidly finding its market by way of online referral or viral marketing.
The accidental million
By 1996, WebAuction’s traffic was exploding. The site’s swell in bandwidth usage flagged Omidyar’s Internet host, who in turn reclassified his account as “commercial” at a new rate of $250 a month. Suddenly the hobby was costing real money. Reluctantly, Omidyar set an arbitrary, while de minimis, fee scale of 5 percent on items with a sale price below $25 and 2.5% above $25. This was long before the use of credit cards on the Internet, so money began to pour in. Literally. Omidyar received envelopes with checks, cash and coins taped to index cards. The auction site was one of the very few to be profitable from its first month of operation. It didn’t take long to realize that WebAuction would quickly drive its own destiny as the sole focus of its founder and Internet phenomenon.
Omidyar hired Jeff Skoll, a Stanford MBA graduate, the following year as the company’s first full-time employee and president. Omidyar’s consulting firm, Echo Bay Technology Group, was catalyst to the abbreviated “eBay,” and the name was registered. Echo Bay had no greater meaning than Omidyar thought it sounded nice.
The successful start-up closed out its first full year of operation at $5.7 million. The grand experiment in a virtual community worked. Trust was strong. Loyalty high. Omidyar bolstered his community power base with a “Feedback Forum.” Complaints he had personally been receiving via email were now publicly posted, identifying delinquents and leaving their fate in the hands of the website’s loyal and diligent users.
Omidyar beseeched: “Give praise where due; make complaints where appropriate. Deal with others as you would have them deal with you.” He also added a Bulletin Board so the community could share tips, clear snags and in essence, self-manage.
A core group of regulars soon emerged as the site’s quasi-customer service department and resident elders of community protocol. A few of the most ardent regulars were contacted and hired to become “remote” customer service reps for the fledgling company. In the spirit of the tightly-knit township, such regulars took on screen personalities as “Uncle Griff” and “Aunt Patti” further perpetuating a cyber spirit of belonging.
With the site anchored and self-perpetuating, Omidyar set his focus on taking his “community” public.
eBay meets “Meg”
By the end of 1997, eBay approached Margaret “Meg” Whitman who was running the Playskool and Mr. Potato Head brand for Hasbro on the east coast. Whitman offered a classic education in marketing, and 15 years of brief, but memorable, stints in the branding trenches with a number of Fortune 500 companies including FTD, StrideRite and Disney.
Raised in the tony north shore community of Cold Water Spring on Long Island, Whitman was the youngest of three children. Her father owned a loan factoring company and her mother, also named Margaret, was a homemaker known to be particularly adventurous.
In the early 1970s, after decades of being closed to foreign travelers, China proffered an invitation to a women’s delegation to visit. Whitman’s mother made the trip with the delegation and returned with a heightened sense of empowerment that would permanently impact her daughter. “She told me what this experience taught her,” Whitman said. “She realized she could do anything she wanted and she wanted me to recognize that I could do the same.”
Both an academic and athletic success in high school, Whitman was captain of her swim team, played lacrosse, field hockey and basketball. She entered Princeton only a few years after it began accepting women undergraduates with aspirations of becoming a doctor. A few pre-med classes quickly changed her focus. After spending a summer selling advertising for a student magazine, Whitman redirected her career with a BAA in economics. She went on to earn a master’s degree in business from Harvard and subsequently landed a prized position with Proctor & Gamble in their brand management division. One of Whitman’s department colleagues at P&G was Steve Case. Case would eventually go on to found America Online (AOL).
Whitman’s time with P&G was brief. She married Harvard medical student, Griffith Harsh IV, and relocated to San Francisco for his residency in neurosurgery. During the 1980s she started a family and became senior vice president of marketing of consumer products for Disney. There she helped launch the company’s new theme stores outside the U.S. When her husband was offered the post of chief of neurosurgery at Massachusetts General Hospital in Boston, she landed the position of president of Stride Rite shoes in Lexington where she oversaw the revival of its vintage Keds sneaker line.
From there she spent a year as president and CEO of Florist Transworld Delivery (FTD), finally landing at Hasbro to head up their preschool toys division. That’s where eBay caught up with her.
Whitman had the corporate pedigree; but an Internet start up was uncharted territory. In researching the company, Whitman pulled up the visually-unremarkable website. Unfamiliar with its burgeoning following, Whitman flew across the country to meet Omidyar and Skoll rather dispassionate.
Knowing she had turned downed a position with an Internet travel site during the same time, Whitman revealed what changed her attitude toward eBay: “When I met with Pierre he said two things that I understood. The first was that this marketplace on the net enabled people to do something they could not do before — trading goods in an open, transparent marketplace with other people 24/7 around the globe.”
“The other was that the people on eBay had made real connections — that there was a sense of community, that people met their best friends on eBay. I realized there was this huge emotional connection. For the past 20 years I that thought that the great brands were features and functionality — you know, ‘whiter whites’ or ‘cleaner cleans’ — if you can get the emotional connection, you have a huge winner on your hands.”
She adds, “But I knew I was coming into a startup. There were 19 people here. The books were on QuickBooks.”
In retrospect, Whitman says, “Sometimes my husband and I look back and say, ‘what were we thinking?’ But we loved California and we thought that tech would continue to play an increasing role in society and that being in the heartland of tech for us and our two boys would be positive. And we figured, what’s the worst that could happen? I get another job.”
Whitman steps into the fray
As Whitman came on board, the eBay site was crashing regularly as servers strained to keep up with growth. Fees were raised from 10 to 25 cents and the number of items users could list was capped at 10,000 a day. The move to slow sales backfired.
The law of scarcity kicked in and users listed more items than they might have otherwise. Any plans Whitman might have had for market expansion or globalization were rapidly shelved for more pressing matters such as customer retention and site scalability. Even with the constant pelt of operational issues to manage, Whitman finished her first year at eBay with revenues at $86 million. She oversaw the company’s IPO in September of that same year. The company seemed infallible.
Then there was June 10, 1999. It’s gone down in eBay history as “the big one.” The site was down for 22 hours, costing eBay $4 million in lost fees and wiping out $5 billion in market value as investors deemed the ascent over and began to dump shares through the summer.
The outage proved pivotal for Whitman and tested the fabric of the company’s hiring strategy. While most Silicon Valley start-ups were lined with fresh-faced engineers and MBAs, eBay’s chips were on experienced management grounded in traditional business methods and values.
The Harvard MBA proved a quick study as she threw herself into technical harm’s way and ordered the site overhauled. She assigned former Gateway CIO Maynard Webb to the cubicle next to hers and set out to learn all there was to know about servers, large-scale networks, scalability and most of all, making decisions on a dime. Whitman says she “moved in with the engineers for three months and effectively ran the technology division. I didn’t know very much about technology; it was like being in France “everyone is speaking French and I don’t!”
While critics from Wall Street to members of her own eBay community rallied for her discharge, Whitman used the moment to show her true leadership grit.
“It humbled the company,” says Whitman. “We were on a rocket ship… it really stopped any idea of ‘Gee, aren’t we special,’ which was really good culturally.”
In an unprecedented move, Whitman enlisted eBay’s then 400 employees to call users to personally apologize for the outage. The strategy paid off in spades: Anger transformed to entrenched loyalty and eBay finished out 1999 with $224.7 million in revenue, a 161% increase over the year prior.
Whitman’s leadership style is one of influence versus control. She traded in her office for a cubicle long ago when she joined eBay. She states, “I love being in a smaller environment, feeling like I’m in a PT boat, as opposed to a battleship.”
Her strength from the start was her ability to embrace the eBay community, to maintain a constant ear to their collective urging. In like fashion she’s maintained a leadership that builds consensus and earns trust through transparency. “It’s different from traditional leadership,” remarks Whitman. “It’s usually: What does the center want to do? It’s command and control. At eBay, it’s a collaborative network. You’re truly in partnership with the community of users. The key is connecting employees and customers in two-way communication. We call it the “power of all of us.”
Last year’s meeting with Disney in a bid to replace Michael Eisner (she later withdrew) made many wonder if she’s getting restless. By far, the longest run she’s had with any single company, Whitman once said she would put in five years as CEO of eBay. She’s since retracted her statement chalking it up to “an incredibly stressful time.”
eBay has become the definitive trading platform for bargain hunters and sellers, and now boasts the sale of over a billion items to date. Earlier this year, Whitman announced from Brussels that more than one third of sales on eBay sites are bought instantly at fixed prices rather than through its traditional auctioning process edging it toward an ecommerce site.
In the last weeks eBay announced a new partnership with Yahoo, an agreement predicted to net the two companies an additional $3 billion in revenue in the next year. Then there are the annual rumors of Microsoft setting its sights on gobbling up the Internet wonder.
eBay holds no stock in expensive warehouses, has no delivery costs and little need for capital expenditure. It’s revenue is gleaned by taking a fee for every item listed and a commission on every sale.
2005 sales for eBay site topped $4.5 billion. Ebay sits on $2.5 billion in cash and now builds growth by buying companies in new categories, and new world markets. Analysts believe that eBay’s slowing growth is indicative of the slowing rate of ecommerce as a whole.
Yet, at every turn, Whitman seems to pull a new strategy out of her hat. And the press machine churns.