Internet Intuition

"This is in trouble. You'd better get down here. The guys aren't moving fast enough."

The call was from eBay Inc. CEO Meg Whitman to her new president of eBay Technologies, Maynard Webb. Not only had Whitman spotted impending trouble while monitoring the operations center, she had diagnosed it. "She said, ‘That's a hardware issue. This is what you'll see, and this is how long it will take.'" Webb recalls. "And she was right."

Whitman brings new meaning to the concept of a hands-on CEO. She literally lived in the information technology operations center through much of last summer after a catastrophic 22-hour outage in June convinced her she was battling for San Jose-based eBay's life. "We put in cots, and I was just there," she says. "I lived it."

The massive outage, hard on the heels of a flurry of shorter crashes that year, was a trial by fire for Whitman. Her IT department had been unable to keep up with the company's phenomenal growth and was already stretched to the breaking point, the volatile and vocal eBay community was screaming bloody murder, and the stock price was plummeting.

Whitman's credentials were among the best American education and business could offer, but her technical savvy was that of a casual user. All she had was instinct, but it had to be enough. "Without technology, we don't have a company," she explains. "It was very clear that I had to step in and provide the leadership to get us through this."

Whitman came out of the experience a technically astute CEO with a visceral understanding of what technology means to the company. "I am a far better executive than I was," she says, "and I have a deep understanding of the technology challenges and what the options are."

EBay came out of the summer with a beefed-up IT department, a strong new IT executive in Webb (formerly CIO at San Diego-based Gateway Inc.) and a commitment to build the kind of e-commerce system that the world has literally never seen.

Whitman grew up on New York's Long Island and topped off an economics degree from Princeton University with an MBA from Harvard. Following that were stints as brand manager at Procter & Gamble Co.; consultant at Boston-based Bain & Co.; marketing executive at The Walt Disney Co.; division president at The Stride Rite Corp. in Lexington, Mass.; CEO of FTD Corp., the flower delivery service in Downers Grove, Ill.; and general manager at Pawtucket, R.I.-based Hasbro Inc.'s preschool division, from which she was lured to eBay in May 1998.

What makes an up-and-coming executive with a blue-chip business background take a leap of faith to a funky online auction specializing in rummage-sale treasures like Pez dispensers and Beanie Babies? "It was funny," she says.

"Sometimes in life you just have an instinct about things."

Whitman says her instinct told her the Internet was going to change everything and that something was going on with the trading community coalescing around eBay that gave it a leg up on other businesses. "Meg really ‘got' eBay intuitively," says Bob Kagle, a partner at Benchmark Capital in Menlo Park, Calif., whose early investment in eBay yielded the best return in the history of venture capital.

Whitman saw eBay as a perfect Internet company because it did something unique that couldn't be done without the Internet. "There's no substitute in the land-based world for eBay," she says. "I just had an overwhelming instinct that this thing was going to be huge."

But nobody realized how huge. Forrester Research Inc. in Cambridge, Mass., and Prudential Securities Inc. in New York estimate that the consumer-to-consumer and small-business-to-consumer online auction market will reach $4.8 billion in gross merchandise sales this year and $41.6 billion by 2003. EBay's cut averages 6% of gross sales, and The Motley Fool Inc., a financial information company in Alexandria, Va., estimates that eBay owns 88% of the market.

As one of the few dot-com companies to have made a profit almost from the beginning, eBay is a Wall Street favorite, and analysts are comfortable with Whitman's instincts. "She's done a remarkable job," says Rakesh Sood at Goldman, Sachs & Co. in New York. "She's taken to it like a fish to water."

Internet Speed

Whitman's willingness to trust her instincts may be the key to her success in the frantic world of the Internet. "In this space, the price of inaction is higher than the price of making a mistake," she says. She reckons that she makes 20 decisions a day that would occur over a two- or three-month period at another company. For example, in the second quarter of last year alone, eBay acquired Butterfield & Butterfield Auctioneers Corp. in San Francisco; Kruse International, an Auburn, Ind., firm dealing in collectible autos; Alando.de AG, Europe's largest online auction; and Billpoint Inc., a Redwood City, Calif., company enabling person-to-person credit-card transactions.

Because things move so fast at eBay, her experience counts, Whitman says, particularly since most of the staff are twentysomething Web kids. "There's no shortage of energy, brilliance, drive, but they just don't know because they haven't done it before," she says. Yet, she has. "There have been many times when I've said, ‘I know what's going to happen here,' because I've seen it unfold before."

But no one foresaw the June 22 crash, even though it was eventually attributed to an operating system bug that Sun Microsystems Inc. had previously alerted eBay about but that eBay hadn't yet fixed. Clearly, seat-of-the-pants technology management was no longer adequate for eBay's mission.

No wonder. The site had been growing a minimum of 30% to 40% each quarter. It serves up to 90 million interactive bidding pages a day. It has the transactional volume of Charles Schwab & Co. in San Francisco, but unlike Schwab, it lacks a back-end legacy system painstakingly developed over years.

And unlike Schwab, eBay virtually never closes.

Whitman acknowledges that she made a costly error by waiting too long to hire key senior managers, especially Webb. But in June, she had to play catch-up, imposing stringent discipline and conducting top-level technical diplomacy to dig eBay out of the technology hole it was in. "This was about putting very specific procedures and processes in place and marshalling Sun, Oracle Corp. and Veritas Software Corp. and really figuring out how we were going to get quickly to far more redundancy and recoverability than we had," she explains.

Whitman's learning curve was steep. "I remember for the first few meetings I really didn't understand what people were saying," she says. But that didn't last long. "It's sort of like learning French," she laughs. "If you immerse yourself, after a week you can actually speak French."

Again, instinct played heavily. "I can just tell the way people are talking about something that it's not right," she says. "They don't even know it's not right, but I know."

Once Whitman had the lingo down, she was able to coax options out of her technical staff and vendors, then build consensus about what to do. Not that there's a simple way out of eBay's technical difficulties. "We are absolutely pioneering a technical infrastructure that does not exist," Whitman states.

The need to build in nearly infinite scalability is keeping Webb busy. "We've got this Ferrari screaming down the highway and I'm kind of standing on the hood, throwing asphalt down in front of it as we go," he says. EBay's Ferrari raced to great complexity in record time, he says. "Last year at this time, we had no E10Ks [Sun's largest servers]. Today I have seven. It gives you an idea of the dynamics of growth."

Webb's strategy is to split up eBay's huge, maxed-out database into more manageable, distributed chunks. Functions such as customer feedback, accounting and some product categories will be moved to separate machines. This will provide vastly more room for growth and less catastrophic consequences when one server goes down. But the cost is a lot more management complexity - and a lot more discipline. And imposing traditional management discipline is difficult in a freewheeling dot-com environment where "folks, in many cases, have never done any of that before and don't want to," Webb says.

His other concern is reliability. Shortly after another spate of outages in November, Webb moved eBay from a "warm backup" system - in which a copy of the database resides on another machine and operations can be switched over - to a high-availability cluster, where live data and the backup copy share a disk.

Theoretically, this will cut recovery time from hours to minutes in most cases.

Webb is also working toward better early warnings of impending crashes.

Into the Future

Whitman's focus on eBay's technology problems has won her praise. "She has done a remarkable job of addressing it head-on," Sood says.

She also gets high marks for keeping eBay on task. "People tend to get very, very enamored of other areas the company could participate in," Sood says.

"She's made sure the company continues to maintain its focus on core competencies."

For example, Whitman recently shut the door on speculation that eBay would move into the lucrative business-to-business auction space, but that didn't preclude a strategic, $22 million investment in Tradeout.com, an Ardsley, N.Y.-based business-to-business auction start-up on whose board Whitman will serve. "I want to be in a position to understand what's happening in b-to-b because it's a very adjacent space," she says.

Looking ahead, Whitman is setting up regional auctions, which allow people to trade goods that can't be shipped easily, such as cars. "If we're successful, it's a dead-on attack on the classifieds," she says. She's also expanding eBay internationally, going after the midtier auction business and enabling buyers to use credit cards for person-to-person sales.

Eyeing the Competition

Meanwhile, Whitman is keeping her eyes on the competition, which includes such powerhouses as Amazon.com Inc. in Seattle, Yahoo Inc. in Santa Clara, Calif., and Microsoft Corp. But she says eBay's blend of community and commerce will keep it ahead. Keeping the eBay trading community intact and loyal is perhaps the biggest long-term challenge, and that's anything but assured, says Philip Anderson, an associate professor who teaches Internet strategy at the Tuck School of Business at Dartmouth College in Hanover, N.H. The rise of "auction-bots" - online agents that can search across sites - may render loyalty and eBay's brand advantage moot, he says. He suggests that instead of depending on customer loyalty, Whitman should be adding value that will differentiate eBay from other sites. "They're sitting on terabytes of data about what sells, what doesn't, how prices move up and down," he explains. By mining that data and providing consulting services to sellers and buyers, eBay could offer a service no one else could match.

"But pioneers have the hardest time figuring out that the wind is changing," he notes. "It's easy to fix mistakes but terribly difficult to change what made you a success."

Anderson maintains that Whitman's willingness to reinvent eBay will determine whether she's a good CEO or a great one. "Jack Welch did it, and Bill Gates did it," he says. "Is Meg Whitman a leader of that caliber? She hasn't proved it yet."

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