EBay’s Founder Bets on ‘Participatory Media’

October 17, 2007 – Pierre Omidyar, the founder of eBay Inc., is getting interested in the media world. A generation ago, he might have acquired a newspaper, taken a stake in a cable operator or made some other splashy investment—befitting a man with a net worth topping $10 billion.

But Mr. Omidyar doesn’t have much use for that time-honored route. In fact, no one in Silicon Valley does. People who grew rich in the Internet age believe that the best media opportunities involve new ways to attract millions of users at low cost, with only light guidance from a small team at headquarters. Their reasoning deserves a close look.

The obvious champions of this approach are upstarts like Google Inc. founders Larry Page and Sergey Brin, or Facebook founder Mark Zuckerberg. Google’s $192 billion market capitalization is public. Facebook’s negotiations to sell a stake at what might be a $15 billion valuation are being chattered about constantly. In those cases, the sheer size of those new-media fortunes comes across as a triumphant roar.

Mr. Omidyar is no shouter. At age 40, he has been retired from day-to-day duties at eBay for years, though he remains chairman of the online auction company. He lives in Henderson, Nev., where taxes are lower. We’ve chatted intermittently since 1998, and it’s always mind-stretching. Mr. Omidyar may be a low-key engineer, but he likes to defy tradition if he sees a compelling opportunity.

In recent interviews, Mr. Omidyar and his new investment chief, Matt Bannick, explained why they want to build "participatory media" companies, in which vast numbers of ordinary citizens call the shots. To them, that’s the future of media, even if it won’t always be profitable.

Both men say their perspective is shaped hugely by their time at eBay. (Mr. Bannick, a former McKinsey &Co. consultant, was eBay employee No. 140; worked as head of eBay Inc.’s international and PayPal units for eight years.) Not only was eBay a great business success, Mr. Omidyar says, "it also created all these social benefits by connecting people with shared interests. That led us to think: ‘How can we find other opportunities to do the same thing?’"

After a slow start, Mr. Omidyar’s main investment vehicle, Omidyar Network, has put money into a wide array of Web-based communities. It has backed Digg Inc., which lets ordinary users play editor and highlight the news stories they find most interesting. It helped fund Linden Lab, creators of the wildly popular Second Life simulated world. Another Omidyar Network-funded venture, Federated Media Publishing Inc., sells ads for bloggers, making thousands of them more economically viable.

Mr. Bannick, the managing partner of Omidyar, wants the group to take more board seats and make bigger investments in companies it finds intriguing. He and his staff aim to make or at least seriously consider 10 to 20 investments in participatory media over the next year, which would more than double that part of their portfolio.

To some degree, Messrs. Omidyar and Bannick have never met a Web-user community they didn’t like. Leaving aside a few nightmare scenarios, it hardly matters to them what content people are creating or swapping, as long as there’s interaction going on. The mass appeal of these sites delights them—along with the sense that they are making media access more democratic than it’s ever been.

"At a very fundamental level, the Internet gives ordinary people a global voice," Mr. Omidyar explains.

It’s becoming easier and cheaper to create such companies. Content-management software used to cost $1 million or more; acceptable versions now are free. Computer-server and storage costs have plummeted. There haven’t been comparable breakthroughs in old-media costs.

To be sure, even the popular media companies that Omidyar Network helps create may seem flimsy. Digg last month got 5.6 million unique visitors, according to comScore Inc. (and far more by other tallies that Digg prefers), with just 38 employees. By contrast, many major news organizations employ thousands without getting that much Web traffic. Digg’s content consists of repackaged stories from elsewhere. No matter. Its users’ ability to vault stories to prominence—and consign others to obscurity—defines one of the simplest, most profitable media specialties.

By contrast, in Mr. Omidyar’s world, it may not be possible anymore to turn a profit from old-fashioned news gathering. As a philanthropic gesture, he is helping fund the Sunlight Foundation, which seeks fuller disclosure of government documents. The Omidyar Network also is funding some nonprofit media enterprises, such as Common Sense Media Inc., which invites users to rate movies, videogames and the like for family suitability.

Mr. Omidyar says he still likes some traditional news outlets, such as the Economist, WSJ.com (the online edition of The Wall Street Journal) and BBC podcasts. He thinks there may be ways to partner his types of interests with old-media companies.

Mr. Bannick isn’t so sure. "It’s really tough for the incumbents to make decisions that are as decisive as they need to be. They’ve got models that worked for 50 years. It’s really hard to cannibalize yourself. We saw this a lot when eBay was getting rolling."