No mere mega mall for Meg@eBay

The millionth item sold on eBay is on display behind a glass cabinet in the lobby of the company's headquarters, like a precious objet d'art. Inside is a slightly forlorn looking yellow plastic music box topped with Big Bird from Sesame Street. But it meant enough to someone.

Since then the billionth item has been sold on eBay, the online flea market that allows users to bid for anything from baseball cards to snow globes, Star Wars toys to Ford Escorts or, proving the users are not all geeks, Prada shoes to Jill Sander jackets. The traffic on the website is so heavy that no one has any idea what the billionth item was.

In Silicon Valley, a place littered with internet start-ups that flew too close to the hot Californian sun, eBay is a rare success story. The company, which has made profits almost since its launch, recently lifted its revenue forecasts for 2003 to $1.9bn (£1.2bn). It is sitting on almost $1.5bn in cash. Shares in the company are about $89, almost a 500% markup on their $18 offer price in late 1998 - something virtually unheard of amid the carnage of the internet sector.

The eBay model has been widely trumpeted. It holds no stock in expensive warehouses, has no delivery costs and little need for capital expenditure. It acts instead as a trading platform for bargain hunters, collectors and sellers around the world to meet, taking a fee for every item listed and commission on every sale.

EBay characterises the platform as an antidote to the sanitised malls and shopping districts in the US and Britain all selling the same products. "This has become a part of pop culture because the people who use it are interesting and they are selling interesting stuff," says chief executive Meg Whitman.

A target of $3bn in annual revenues by 2005 was set at the very peak of the dotcom hubris, but the company is sticking by the forecast. "It seems more realistic now doesn't it," Ms Whitman laughs. "I mean, I think people thought we were nuts because we set that in the middle of 2000 when we did $425m in revenues. Now it seems very reasonable and we are absolutely standing by it."

The company, on a campus of inconspicuous 1980s offices next to a freeway on the margins of San Jose, has many of the hallmarks of an internet operation. At least one member of staff arrives on a mechanised scooter and the only people in suits are the ones waiting for a job interview. Employees, including the senior executives, work in cubicles where computers compete for space with the frankly odd obsessions of the occupants, including one slightly maniacally, perfectly arranged set of Hot Wheels (still in their boxes) inflatable Scooby Doos or life sized cutouts of Princess Leia.

Devotees of the company note there is an important difference. While management of other companies during the internet gold rush were wilfully young, the backers of eBay had the wit to hire experienced management grounded in the real business world.

EBay was launched from founder and chairman, Frenchman Pierre Omidyar's bedroom in 1997. A year later Ms Whitman, now 47, was living in Boston and working at Hasbro where she was running the Mr Potato Head brand and introducing the Teletubbies to America. It took several calls from a head hunter to persuade her to take the trip but she was quickly convinced of eBay's potential. She moved her family to the west coast and by September 1998 was at the helm of the fifth most successful IPO ever.

"It was a huge risk," she says. "Sometimes my husband and I look back and say what were we thinking? But we loved living in 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." Like many of her team she has classic marketing training. A Harvard MBA graduate, Ms Whitman worked as a brand manager at Procter & Gamble, at Disney and as a Bain consultant before joining Hasbro. She still has a nice line in marketing speak, framing words in invisible inverted commas.

With a 2.3% stake in the business worth about $640m on paper, she dresses in a grey sleeveless fleece that could have come from The Gap and is said to live modestly.

"When I met with Pierre he said two things I understood. The first was that this marketplace on the net enabled people to do something they could not do before - meaning trade goods in an open, transparent marketplace with other people 24/7 around the globe.

"And the other was that he told me people on eBay have made real connections - that there was this sense of community, that people had met their best friends on eBay. I realised there was this huge emotional connection. For the past 20 years I had thought that great brands were features and functionality - you know 'whiter whites' or 'cleaner cleans' - and if you can get the emotional connection then you have a huge winner on your hands."

The emotional attachment is there even as the company has grown. The often prickly users have a famously love-hate relationship with the site - common complaints are rising fees, the growing preponderance of big business using the site, and the fear that it will become just another "mega mall". When management does something that users don't like, Ms Whitman will find 500 emails waiting for her the next morning. "Everyone knows how to get hold of me - my email address Meg@ebay.com is all over the message boards."

EBay has 62m registered users and the website has developed in ways that the founder, who now divides his time between Paris and Las Vegas, could hardly have imagined. When the company floated, it was largely a business selling "collectibles" - Beanie Babies accounted for about 10% of revenues. Today, collectibles are rivalled by computers, electronic goods, books and CDs, and one of the fastest growing sectors is used cars - eBay estimates that about 1% of all used car sales in the US are via the website.

For a management team grounded in the discipline of companies like P&G and PepsiCo, the word "serendipity" is used an awful lot at eBay. It only discovered that cars were being sold on the site when a product manager looking for dye-cast replicas entered "Ferrari" into the search engine. It returned two real ones.

"It's really different from most businesses," Ms Whitman says. "The R&D lab here is our community of users and it's an undirected R&D lab; they figure out how to best use this platform. The organic nature of this business is really quite stunning. We didn't sit in a room five years ago and say let's have our users get into the used car business - they did it on their own. When you think of where we've come from which was really almost 100% collectibles to 25 major categories, the diversification of the platform is remarkable and it happened organically - once we saw it happening we did some things to help it but it's largely driven by the community of users."

Once the car market had been spotted, the company set up a dedicated corner of the site, improved the search function and did a deal with a car delivery firm, to help people buying between states.

The trading platform has grown so significantly that the company estimates that 100,000 small businesses make their livings solely on eBay. A favourite story is the "bubble wrap lady" - an eBay user who accidentally bought too much of the packaging material and sold it online. When it sold quickly, the lightbulb flashed and she now runs a business selling bubble wrap on eBay from her home in Crawfordsville, Indiana.

The latest markets developing on the site are small businesses trading things such as restaurant or medical testing equipment. EBay owns businesses or has investments in 27 countries, and revenues from overseas websites grew by 173% in the fourth quarter to $107m.

Another item in the lobby pays homage to eBay's origin - a collection of Pez dispensers, the cultish plastic sweetholders topped with a cartoon character's head. It's an extensive collection including Spider Man, Snoopy and Santa. The story goes that Mr Omidyar's girlfriend was a collector and wanted a way to find others. So eBay was born in 1995. Only it isn't true, a story invented by a public relations person to make the site sound more interesting when it launched. The company is happy to let the truth be known. There seems little need for fantasy to grab the attention of investors or users any more.

The CV

Age 47

Education Education: Economics degree from Princeton and an MBA from Harvard

Career Chief executive eBay since March 1998. Hasbro, general manager preschool from 1997-98. Chief executive of Florists Transworld Delivery from 1995-97. President of Stride Rite from 1993-95. Senior vice-president of marketing for consumer products at Walt Disney from 1989-92. At Bain & Company between 1982 and 1989 and at Procter & Gamble between 1979 and 1981

Family Married to Griffith Harsh, a professor of neurosurgery at Stanford. Two teenage sons