Case 004: eBay - Without a .NETBy Deborah Gage Print
Microsoft may have thought it had an inside track on getting eBay to support its Microsoft.NET services initiative. But eBay had other ideas.
Meg Whitman of eBay and Steve Ballmer of Microsoft were a happy couple when they held a joint press conference on March 12.
Microsoft would host eBay's auction listings on its online network, MSN. In return, eBay would become the first company to publicly back Passport and Hailstorm, Microsoft's controversial scheme for tying services like wallets and contact directories to digital identities that follow people around the Web. EBay customers would use their Passports to sign into eBay's site and would then become part of the larger world of Microsoft.NET, Microsoft's way of delivering software services to businesses and consumers via the Web.
But five months later, eBay, in what has come to be a typical display of its power as the one profitable Internet-born commerce company of size, would leave Ballmer and Microsoft at the altar. Microsoft, Sun Microsystems and IBM all would compete, in a series of tests, to supply eBay with new software to run its auctions—the heart of its business. When the competition was over, eBay would pick IBM; along with Java, a Net programming language that is no longer supported in any substantive fashion by Microsoft.
Afterward, Ballmer would say only that Microsoft was "disappointed'' in losing that deal, which for the first time begins to put an outside company's code at the core of eBay's $700 million-a-year online auction business. And he vowed, with a bit of Microsoft chutzpah, that his company will be back "when the other solution doesn't work out."
In and of itself, this wasn't such a big deal. By the estimate of some Wall Street analysts, the September deal may have been worth only $60 million. But it was a foot in the door for IBM to work with eBay on a long-term basis, refashioning the crown jewel of its business.
After six years in operation using homegrown code, eBay wanted to replace its antiquated software for managing its never-ending menagerie of auctions for everything from Barbie dolls to Cisco routers, say industry executives. And, with its choice of IBM, Microsoft may have eBay auction listings on MSN; but it won't have eBay auctions on Microsoft software. IBM's software supports Sun's Java 2 Enterprise Edition (J2EE), which Sun developed in partnership with IBM, BEA Systems and just about every other enterprise software vendor in the industry except Microsoft.
Microsoft may have thought its Hailstorm and Passport deal gave it a leg up on the auction software prize. But Whitman and eBay, which netted $48.3 million on revenue of $431.4 million last year, were looking at every company that made application server software which might be mature enough to replace the software that eBay had. Ballmer was not the only executive courting the company. So were Sun CEO Scott McNealy and IBM President Sam Palmisano, according to participants in the contest.
But IBM threw the sink at eBay, using a favorite technique that analyst Amy Wohl calls "darkening the skies with vice presidents." Big Blue called in its High Volume Web Site team, which has won business from Charles Schwab and other large Web sites with transaction rates similar to eBay's.
Sun, meanwhile, backed two approaches, according to participants in the competition. These two included its own iPlanet application server, which eBay eliminated, and BEA's WebLogic, which became a finalist. WebLogic has led the industry in adopting J2EE as Sun rolled it out and leads the market for Java application servers, according to Gartner and several other research firms.
In moving to any of these three choices—IBM or the two Sun-backed options— eBay would be picking Java over C++ as its Net programming language. "EBay would tell you they've moved from not knowing a lot about Java to running possibly the largest J2EE site in the world," says IBM VP Willy Chiu.
To make its choice, eBay devised its own tests, according to participants in the competition. Contestants were given sample code from eBay's current auction software and told to develop an application that processed a representative mix of eBay's top four transactions on its auction site—View Item, List Item, Bid, and Seller List.
EBay then rated the applications based on a number of pass/fail tests: performance compared to eBay's current software, performance gained on a server with additional processors and memory, performance gained on multiple servers, and the ability to recover in the midst of a transaction. EBay is now determining which of two operating systems—Microsoft's Windows 2000 Server or Sun's Solaris—will run on the new tier of servers that will run WebSphere.
"We did not have the luxury of long-standing relationships like Microsoft and Sun," says IBM VP Lou D'Ambrosio, reflecting on IBM's triumph. "But we beat the competition on technology and standards, and were able to build on that a very strong relationship from the sales rep to the most senior level of both organizations. It enabled both organizations to see how well we could work together and how responsive each would be when there are disagreements."
EBay has declined repeatedly to discuss the details behind its choice of IBM, or the competition in which participants say they engaged. But, outside executives say, the choice is a clear outgrowth of eBay's ongoing battle to heighten control of its infrastructure, a battle that began in earnest in June of 1999 when a Sun server at eBay failed and the site went down for 22 hours.
Both Sun and eBay acknowledged a share of the blame for the outage, and outages have intermittently reappeared, albeit with less severity. But outages have never stopped eBay from driving itself to grow. In August of 1999 Whitman hired Maynard Webb, an ex-Gateway CIO, for the new position of president of eBay Technologies. And as Webb's team worked to reduce the points of failure on eBay's site—clustering the servers for greater availability, dividing the workload among its Oracle databases—Whitman did business deals. EBay since 1999 has made acquisitions or joint ventures in several countries and is expanding beyond auctions into selling goods at fixed prices. Wall Street has been told to expect $3 billion in revenue by 2005, a target that Andale CEO Munjal Shah, an eBay partner, says will require tripling the number of sales going through eBay's system.
EBay's current bottleneck is the two-tier auction software that runs on its Windows servers. At the front end, the software works overtime sending Web pages to eBay's customers and requesting information from eBay's databases to generate bills, all the while accommodating the business rules of eBay's many transactions.
EBay will use J2EE to transfer some of this workload to a third tier of servers, running software from IBM. With this new setup, one set of servers at the front will present information to auction participants, a second set in the middle will execute the business logic of the auctions (for example, "don't bid on an item over $100"); and, a third set at the back end will continue to handle access to Oracle databases. The triple-tier model is well suited to an environment where items are suddenly in high demand and where new services need to be added quickly. Components written in Java can be reused in new services; partly as a result, IBM expects this WebSphere platform to support billions of transactions per day and the addition of up to 30 new application services per week.
"Think of J2EE as a car where the pieces are born to fit together," says Mike DeVries, the CEO of Wakesoft, which sells a server to help companies make the transition to J2EE. "You can use the same set of wrenches and the same screws and the same metrics to design the screws. When the nuts and bolts are different sizes, it's hard to work on the car and keep it hung together."
Sun made J2EE available in 1997, the same year that it sued Microsoft for trying to "extend'' Java to run better on Windows. Even so, J2EE is still considered cutting-edge technology. And IBM intends to keep it that way, at eBay at least.
IBM says it has staffed a Center of Excellence at eBay and will spend 16 months installing WebSphere, its apps framework that sits on companies' servers and helps interact with data and queries flooding in from buyers and sellers on the Internet. IBM also sold eBay its WebSphere Commerce suite to add shopping carts and other aspects of online commerce.
The deal with IBM is a blow to Ballmer's and Microsoft's nascent Microsoft.NET initiative, which is also designed to help companies run complex businesses across the Internet.
Perhaps in part to prove the moxie of .NET and perhaps partly because it paid Sun $20 million in January to extricate itself from Sun's Java license agreement and settle Sun's lawsuit, Microsoft wanted the eBay deal badly.
A Microsoft spokesman agrees that Microsoft has been after eBay for "a long time." But he declines to confirm the account of an ex-Microsoft employee that Ballmer's courting of Whitman began in July 1999—right after eBay's big service outage. Competitors say Microsoft partnered with the integrator Avanade and pulled developers off its own projects to build prototype applications for eBay. Avanade declines to comment, saying it cannot discuss its relationship with eBay.
In any case, Microsoft.NET did not make the cut. "It's unfortunate [that eBay didn't select] a much better solution," says Ballmer. But, he noted, eBay was interested anyway in "pre-.NET stuff'' and even rejected Microsoft's proposal that it start with "pre-.NET stuff'' and later transition to .NET.
Ballmer acknowledges "it'll be a while'' before Microsoft gets another good chance to get into the heart of eBay's operations. But, as is typical, the company will keep circling for that chance.
Sun, too, says it will be back. "That's the beauty and the power of Java," says Sun VP Marge Breya. "You can have these kinds of shoot-outs, and what it is doing is making us fight harder. The real winner is eBay."
EBay, for its part, even continues to court the combatants. Microsoft Passport, albeit with limited features, went live on eBay's site on Sept. 27, the day after eBay revealed its participation in the Liberty Alliance, a coalition of companies organized by Sun to develop an alternative to Passport.
Meanwhile, industry executives contend that eBay has been searching for the last four to six months for another data center to host a mirrored copy of its Web site and that IBM might be involved. EBay's current provider, Exodus, filed for bankruptcy on Sept. 26. IBM declines to comment.
Additional Reporting by Larry Barrett
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