Inside eBay's Innovation Machine - 'ZIFFPAGE TITLEBuilding a Growth Machine '

Building a Growth Machine

eBay's developer community includes venture-funded, stand-alone companies such as Terapeak (a division of Advanced Economic Research Systems Inc., based in Victoria, B.C.), which offers research tools to sellers; some in-house talent at big sellers; and individuals with bright ideas. Some of these software developers charge users—buyers and sellers on eBay—for hosted access to their applications, while others make them available for free. Most work on the sell side, where the greatest efficiencies have been gained to date.

Outside developers have brought bidding and buying tools for eBay to television, mobile and interactive-voice platforms. The PayPal online payment system, created by third-party developers around an eBay API, was so useful and popular with the user community that eBay bought it in 2002 and made it an operating unit of the company.

"All of those things are riding on top of our infrastructure, and we basically power them," says Matt Carey, eBay's chief technology officer. "They are extending our platform to places we never thought it could go. If we did things in a serialized way, with customers waiting for the next edition of our own applications to come out, it would not be anywhere near as efficient as letting 40,000 people do development." When he travels to eBay-sponsored developer events, says Carey, "it's exhilarating to see the stuff they've been working on."

Some independent developers, including Infopia, help make big sellers more efficient in eBay's established businesses. Others help push eBay into new markets, be they niches or new places. "Things don't always translate well from one country to another, for regulatory or cultural reasons," says Trachtenberg. "We work with developers to localize applications for each country site." The eBay community has developers active in almost 100 countries.

eBay started its developer program in 2000, but stepped on the gas in the last couple of years. In late 2005, it dropped fees for access to its APIs, a move that saved large developers thousands of dollars a month; the developer network doubled in size between mid-2005 and mid-2006, while the number of sellers using third-party listing applications grew by 50 percent in the same period. "The logic of making the APIs free was pretty much a leap of faith," says Carey. "A lot of momentum was building in the community, and we were listening."

Quite a change for eBay, which threatened to sue third-party developers as late as 1999. "Working with eBay has changed dramatically over the years," says Infopia's Espenes. "They have gone from allowing outside companies in, to encouraging us, and in some cases driving us to develop technologies on the platform. They've turned more to an open, Web-services architecture, and they have put a lot of resources into the people part of the equation in order to allow companies to add value on top of their infrastructure. The results are astonishing."

eBay's outreach to developers includes a certified provider program, which validates developer products and helps market them. It provides a software development kit that includes integration capabilities for the eXtensible Markup Language, Simple Object Access Protocol messaging scheme, and the JAVA and .NET software programming platforms; an online "developer zone" with access to a variety of tools and support documents; a testing environment; and a community forum for developer collaboration, as well as other member forums.

"They are way ahead of other companies," in terms of supporting developers, says one application builder who requested anonymity because he works with other e-commerce sites. "eBay's infrastructure is far superior to anyone else we work with. They've done it longer and have a much bigger community, and there is better documentation and better support."

Still, the relationship between eBay and its developers can be complicated. "They have been very helpful to us, but they also launched their own tool in our space," says Dave Frey, Terapeak's director of marketing. "They see it as choice in the marketplace, and so do we. Not every eBay seller loves eBay, so we provide something important even when they are in the same market." Sometimes, eBay likes a product so much it buys it, as in the case of a company called CARad, which makes a specialized application for listing products for sale at eBay's automotive site. "This a new wave of business," says Frey. "eBay is a supplier, a marketing channel and a competitor. It's a weird arrangement."