Both Resumes Long on Business Experience
When Steve Westly joined EBay Inc. in the summer of 1997, the two dozen or so employees at the online auction house recognized immediately that their little company was growing up.
In the middle of the Internet boom, EBay’s small crew still came to work in sandals and shorts and gathered weekly in circles to make group decisions. New hires were given kits and told to build their own desks.
Westly, by contrast, brought with him a Stanford business degree, management experience and two deputies who shared their boss’ penchant for making decisions based on rigorous analysis and masses of data. For Halloween, workers dressed up as their new colleagues in black slacks and starched blue shirts.
Campaigning for the Democratic Party gubernatorial nomination, Westly points to his years as EBay’s chief marketer as evidence of his leadership ability.
Westly portrays himself as a no-nonsense executive whose business career ingrained the traits necessary to lead California: fiscal discipline balanced with faith in innovation and a tolerant but decisive management style.
“We’re looking for a CEO of the state who understands how to get the biggest bang for the buck,” Westly said in a recent interview. “The ability to move quickly and make things happen is also missing in Sacramento.”
At EBay, Westly straddled a gaping cultural divide and helped turn the fledgling company into an Internet behemoth. In part, he did that by spreading a relentlessly upbeat message about the website’s online fraud record that some EBay users and consumer advocates decry as misleading.
EBay went public in September 1998, giving Westly a fortune worth more than $100 million -- some of which is funding his campaign, just as it bankrolled his 2002 race for state controller.
Long-serving current and former EBay employees largely support Westly’s account of helping to get the company on the right track. Some, though, give more credit than he does to luck, to the company’s founders and to Meg Whitman, the industrial-strength chief executive hired six months after he was.
Westly, 49, says his work at EBay also shows dedication to the interests of the little guy because hundreds of thousands of people earn their livings buying and selling on the site.
That populist stance notwithstanding, Westly reaped more than $1 million in profit from “friends and family” shares during the initial public offerings of companies during the Internet stock boom of the late 1990s. Those shares, awarded at the pre-market offering price before the typical jump on the first day of trading, were doled out by investment banks to influential executives until the practice was banned in 2003.
In the late 1990s, banks showered Westly with sought-after IPO shares in more than 100 companies. He usually sold the stock in the first day or two of public trading.
Westly said the practice was “commonly done and completely legal” at the time. “Probably thousands of people did it in Silicon Valley.”
Westly said he didn’t make the decisions about which banks to hire for EBay’s business on Wall Street. But because Westly oversaw corporate acquisitions, it was reasonable for the banks to assume that he had influence, said University of Florida professor Jay Ritter, an expert in IPOs.
“Stockbrokers don’t allocate hot IPOs to individuals without expecting to get something in return,” Ritter said. Westly said he didn’t recall recommending any banks to EBay.
Other EBay executives eventually settled a shareholder lawsuit alleging that they shouldn’t have taken “friends and family” stock. Westly, who left EBay in 2001, was not named in the suit.
Westly arrived at EBay with years of experience in politics and business. He had worked for Sprint, for a small investment bank and for database consulting firm Codd & Date. After serving as deputy director of San Jose’s economic development office, he joined early Internet service provider Netcom On-Line Communications Services Inc. as director of sales.
Since Westly first ran for statewide office in 2002, his campaigns have said he started at Netcom in 1994, suggesting to technology and finance professionals that he worked there before its December 1994 IPO.
In fact, Westly joined Netcom in August 1995, eight months after the IPO, according to EBay’s initial stock prospectus. Campaign spokesman Nick Velasquez said more than two weeks ago that the campaign would change the timeline on its website. As of Wednesday, it hadn’t.
Westly did very well in sales at Netcom, his boss at the time said, but left in 1996 for WhoWhere, an online directory of people and organizations. Joining EBay a year later, Westly “was the first grown-up to show up who had any real experience in managing people, the first person to show up to have any ability to bring disparate folks together on a team, the first to know how you motivate people to achieve a goal,” said EBay’s first in-house lawyer, Brad Handler.
Initially, Westly’s top responsibility as an EBay senior vice president was to forge business alliances. The most crucial of those proved to be with AOL for prominent links that sent AOL subscribers to EBay. Westly analyzed which sorts of ads drew what number of registered users and pushed to quantify what each new user was worth.
“We understood the importance of a text link versus a banner ad versus a button,” EBay colleague Tom Adams said.
Because it had a small staff and charged for listings and sales, EBay was profitable from the beginning. Westly helped keep it that way, eschewing many costly alliances and acquisitions.
Every dollar spent on radio and television, Westly had estimated, produced 34 cents’ worth of customer traffic, while every dollar invested in online advertising brought back $1.34. “Hundreds of companies went bankrupt because they could never figure that out,” Westly said.
Not long after joining EBay, Westly took over marketing and public relations as well. In the months leading up to EBay’s public offering, the key message was that the online auction house was fun and safe.
Handler and others said debates among senior executives revealed a range of preferred pitches. The lawyers wanted to disclose every possible risk and get the users to acknowledge them, while the marketing people wanted to attract everyone the company could.
Under Westly, EBay said little about fraud. As the company grew, so did media attention to allegations that some buyers and sellers were getting ripped off. When reporters began calling, Westly asked colleagues for a number he could respond with, and he got one: Fraudulent transactions made up less than 0.01% of the total.
The problem with EBay’s statistic was it excluded cases in which no complaint was filed to EBay within a set period or to legal authorities. It also didn’t include sales of counterfeit goods -- which companies such as Tiffany & Co. say make up more than half of EBay transactions in some categories. If practically any item is shipped, EBay doesn’t consider it fraud. The same is true when a bad seller persuades buyers to conclude their transactions offline.
“There was always the chorus of folks who said it was underreported because some people didn’t complain, and I’m sure there’s some truth to that,” Handler said.
A more reasonable figure is probably closer to 3%, 300 times more than advertised, and the proportion is even greater on expensive items, said Rosalinda Baldwin, who runs the Auction Guild newsletter from her home in Fayette, N.Y. EBay, meanwhile, gets a cut even of fraudulent transactions.
“EBay has always been in denial about fraud, and I think that’s because their philosophy is that would scare people away,” said Ina Steiner of the Auction Bytes newsletter. “It’s better to educate people so they can avoid fraud.”
Westly said the truth wasn’t shaded to leave consumers in the dark. “Anybody who made a claim, we counted it. We got the numbers, and people said, ‘Wow.’ ”
