eBay CEO on a roll

Yesterday eBay paid $260 million in stock for Butterfield & Butterfield, an upscale, real-world auction house that up to now has partnered with online auctioneers, including Yahoo Auctions. (Butterfield & Butterfield has ended that partnership, according to eBay). The acquisition appears to be the largest, and perhaps the first, purchase of a company based in the physical world by an Internet-only operation like eBay.

eBay yesterday also reported record revenues for the first quarter of 1999 along with a 12-fold increase in profits, beating Wall Street's expectations. eBay's stock price surged twice--once on the acquisition news and then in after-hours trading on the earnings surprise, climbing 5 to 214 after closing yesterday at an all-time high of 209.

"All of our metrics--registered users, number of items listed, revenue, profits-- are showing accelerated growth versus the prior quarter," Whitman said in an interview. That burst came as no surprise to Whitman, who has said that in contrast to traditional retailing, person-to-person auctions like eBay tend to grow after the holiday season as people unload unwanted holiday gifts.

Whitman, who became high-tech's first female billionaire after exercising eBay options in December, spoke with CNET News.com's Tim Clark.

CNET News.com: Tell us about the Butterfield & Butterfield acquisition.
Meg Whitman: We felt we could accelerate our entry into higher-end price points, which means from $500 to $5,000 or $10,000, with a well-established, real-world expert. We will combine our proven online expertise with their expertise in higher-priced merchandise as well as their value-added services. Things like authentication and appraisals are important for this market.

Butterfield & Butterfield also brings a long history of relationships both domestically and internationally with dealers, other auction houses, and higher-end buyers and sellers that we think can jump-start our entry into this market.

How will Butterfield & Butterfield operate within eBay?
Their core auction business will operate as a wholly owned subsidiary. Jointly we will create a new online marketplace that we anticipate will live in the context of eBay. We'll unveil an online product plan when we close the purchase in the second quarter.

Will Butterfield & Butterfield skew eBay away from online?
B&B had about $20 million in revenues last year. We just reported $34 million in the first quarter, so relative to eBay, the land-based percentage is small.

Over the weekend you launched eBay L.A., your first regional auction. What's the strategy here?
Today on eBay, most items are small and shippable. Local sites allow our users to trade in items that can't be shipped easily or that people want to see before they buy. That means things like boats, cars, RVs, or real estate.

So is Los Angeles the first of many?
The notion is to get it right, then replicate rapidly. We will learn from the L.A. test market what works, learn from users what adjustments we need to make it better, and when we get as good as we can, we will replicate to the top 50 metropolitan areas. We have no timetable, but I would anticipate it before the end of the year.

What else can we look forward to?
You will see a lot of expansion internationally. The United Kingdom and Canada home pages are up now, and we will expand internationally quite rapidly as we look toward the end of the year.

We also will continue to bring new users to eBay. Our deal with America Online will kick in in a big way in the third quarter. We will bring new users to eBay through Internet partners. Most important, we are making sure the core offering is far and away the best online. Look for new features and functions in the core eBay service.

Talk about how the competitive landscape has changed, particularly with the entry of Amazon.com into online auctions.

Over the last 12 months, we have faced Onsale Exchange, which became Yahoo Auction, now Amazon.com, and a myriad of smaller competitors.

You're seeing a very large market with a very attractive financial model that has and will continue to draw new competitors. As you think about what enables eBay to continue its leadership position, we are far and away the largest marketplace. Sellers want to be where the buyers are, and buyers want to be where the sellers are. That's where being the largest helps.

Every new user to eBay makes the existing service more valuable for existing users, and it has proven difficult for other companies to get lift-off. I think our singularity of focus has helped as we have faced competitors from online retailers or media sites. Developing person-to-person trading is a full-time job--we have almost 200 people who wake up every day and try to do this right.

But we think Amazon and others are very formidable competitors, and we will continue to look for any signs of momentum from their sites.

What does the AOL relationship mean to eBay?
It's very strategic. They represent the largest community on the Internet, and we will have access to all of their properties on a global basis. And we will utilize some of their properties to enhance the eBay services, for example AOL Instant Messaging and ICQ. We will be able to alert you if you are outbid. Today we send you email, but if you're not checking email, you might miss out and an auction closes. If you're on ICQ or Instant Messenger, we can alert you that you've been outbid in real time on your desktop.

Do you see eBay remaining an independent company for the long term, or do you need to be acquired?
We have a clear mission in terms of developing personal trading on the Internet, and we think we can accomplish that as a standalone company. We have a unique business model that makes it unnecessary for us to combine now with either a media company or a commerce portal.