I have always been suspicious of startup origin stories that sound too neat. When I first heard that eBay was invented because Pierre Omidyar’s fiancee wanted to trade Pez dispensers online, it sounded charming — and completely made up. When I dug into the actual history, I discovered that the Pez story was indeed fabricated by a PR manager, that the real first sale was a broken laser pointer, and that the true origin of eBay is far more interesting than the myth.

Why would someone buy a broken laser pointer for $14.83? And what does that transaction tell us about the nature of online markets?

A Side Project Over Labor Day Weekend

Pierre Omidyar was born in Paris in 1968 to Iranian immigrant parents and grew up in the Washington, D.C. area. He studied computer science at Tufts University, graduating in 1988, and moved to Silicon Valley to work as a software engineer. By 1995, he was working at a mobile communications startup called General Magic and writing code on the side.

Over Labor Day weekend in September 1995, Omidyar sat down and wrote the code for a simple auction website. He called it AuctionWeb. The concept was straightforward: anyone could list an item for sale, set a starting price, and let other users bid on it. The highest bidder at the end of the auction won the item.

PayPal headquarters building Photo: The PayPal headquarters, which would later become eBay’s most important acquisition. Wikimedia Commons. License: CC BY-SA 3.0.

He launched AuctionWeb on September 4, 1995, as a personal page on his existing website, which also hosted a page about the Ebola virus and another about his fiancee’s interests. It was not a company. It was a hobby project sharing server space with Omidyar’s other curiosities.

The Broken Laser Pointer

The first item ever sold on AuctionWeb was a broken laser pointer. Omidyar listed it himself, mostly to test whether the system worked. To his surprise, someone actually bid on it — and won it for $14.83. Confused, Omidyar emailed the buyer to confirm that they understood the laser pointer was broken.

“I’m a collector of broken laser pointers.” – The anonymous first eBay buyer, as recounted by Omidyar in multiple interviews

That response contained the entire thesis of eBay in a single sentence. Omidyar realized that the internet could connect buyers and sellers who would never find each other in the physical world. One person’s junk was literally another person’s collectible. The market was not just for valuable items — it was for everything.

The Pez Myth

For years, eBay’s official origin story claimed that Omidyar built AuctionWeb to help his fiancee, Pam Wesley, trade Pez dispensers with other collectors. It was a charming story that journalists loved to repeat. The problem was that it was not true.

These founders took the money they earned from one company and poured it into the next, bigger thing. When I earned money from hosting, I put it in savings. Both are rational responses. But only one of them changes your life.

In 2002, Adam Cohen’s book The Perfect Store revealed that the Pez story was invented by Mary Lou Song, eBay’s first PR manager, because she thought the real origin story — a programmer testing an auction algorithm — was too boring. Song wanted something human and relatable, so she created a narrative about love and Pez dispensers. Omidyar went along with it because it made for better press.

The truth, as I have found with so many garage-origin myths, is that the real story is actually more compelling. A broken laser pointer selling for $14.83 tells you everything about why eBay worked. A Pez dispenser story tells you nothing.

Profitable from the Start

What made eBay remarkable — and almost unique among 1990s internet companies — was that it was profitable nearly from the beginning. Omidyar charged sellers a small listing fee and took a percentage of each sale. The cost of running the website was minimal because eBay never touched the merchandise. It was a pure marketplace: buyers and sellers did all the work, and eBay collected a commission.

Silicon Valley landscape Photo: The Silicon Valley landscape where eBay grew from a side project into a global marketplace. Wikimedia Commons. License: CC BY-SA 3.0.

By 1996, the fees from AuctionWeb were generating so much revenue that Omidyar’s internet service provider upgraded his account to a business plan, which cost $250 a month instead of $30. That price increase forced Omidyar to start charging users, which paradoxically made the platform grow faster — paying customers were more serious and more trustworthy than anonymous free users.

By the time eBay held its IPO in September 1998, the company was valued at $1.9 billion on its first day of trading. Omidyar, who still owned a significant stake, became a billionaire overnight. The company that started as a side project on a personal website had become one of the most successful e-commerce platforms in the world.

Trust as a Product

The real innovation of eBay was not the auction format — auctions had existed for centuries. The innovation was building trust between strangers on the internet. Omidyar introduced the feedback system in 1996, allowing buyers and sellers to rate each other after every transaction. This simple mechanism — a positive, negative, or neutral rating with a short comment — created a reputation economy that made it possible for people to send money to strangers and trust that the item would arrive.

That feedback system influenced every platform that came after it. Amazon reviews, Uber ratings, Airbnb host scores — they all trace their lineage back to Omidyar’s insight that people will behave honestly if their reputation is visible and permanent.

When PayPal launched, its growth was turbocharged by eBay users who needed a fast, secure way to pay for auction items. The two companies became so intertwined that eBay eventually acquired PayPal in 2002 for $1.5 billion. The PayPal Mafia that emerged from that acquisition went on to build YouTube, LinkedIn, Tesla, and a dozen other companies — all because Omidyar’s broken laser pointer had created a marketplace that needed a better payment system.

The Collector’s Instinct

Pierre Omidyar did not set out to build a billion-dollar company. He set out to build a fair, transparent marketplace where anyone could participate. The fact that his first customer was a collector of broken laser pointers was not a quirk — it was a proof of concept. The internet could match buyers and sellers that no physical store, no classified ad, and no flea market could ever connect.

That insight — that there is a buyer for everything, if you can just find them — remains the foundation of every online marketplace built since. From Etsy to StockX to Facebook Marketplace, the principle is the same one Omidyar discovered in September 1995: put the item in front of enough people, and someone will want it.

Sources

  • Adam Cohen, The Perfect Store: Inside eBay, Little, Brown and Company, 2002.
  • Pierre Omidyar, “Founder’s Letter,” eBay S-1 Filing, SEC, 1998.
  • Randall Stross, eBoys: The First Inside Account of Venture Capitalists at Work, Crown Business, 2000.
  • “Pierre Omidyar,” interview with Academy of Achievement, 2001.
  • Mary Lou Song, eBay PR origin, as documented in Cohen’s The Perfect Store.