Tuesday, March 23, 1999

Local team makes millions with Web site


Ex-execs link up with eBay auctioneers

BY URSULA MILLER
The Cincinnati Enquirer

[up4sale]
The Up4Sale team includes Eric Stein, Josh Knepfle, Wally Carroll, Tom Duvall, Rob Ratterman and Chris Downie.
(Tony Jones photo)
| ZOOM |
        There's no mistaking strait-laced Cincinnati for the hip high-tech mecca of California's Silicon Valley. But you might forget you're in a conventional Midwest town when you visit with the young, casually clad founders of an Internet success story in Cincinnati called Up4Sale.

        And that's the way the founding partners of the online auction site like it. Their unpretentious office above a pool hall in Over-the-Rhine is the antithesis of the corporate life they left behind.

        “I burned all my suits in a ceremonial ritual,” said co-founder Rob Ratterman, 27, pointing to a tie that has been cut below the knot and is hanging on a blank wall next two clocks. A sign that reads Cincinnati hangs above one clock, which displays Eastern time; a sign that reads San Jose hangs above the other clock, which shows Pacific time.

        The clocks are the first clue of Up4Sale's connection to one of San Jose's hottest companies - eBay Inc. The Web's biggest online auction company bought Up4Sale last summer, paying Mr. Ratterman, Chris Downie, Tom Duvall and Wally Carroll in cash and stock options now worth nearly $70 million.

        EBay has been one of the best-performing stocks of the last six months. It has increased more than 10-fold in price since its initial offering in September.

        Messrs. Ratterman and Downie, who became friends while attending the University of Cincinnati, started Up4Sale in late 1996.

        They both had good corporate jobs in Cincinnati but quit them midway through 1996 to do something they could be “passionate about.”

        What, they weren't sure of.

        Mr. Ratterman was assistant to Carl H. Lindner, chairman of American Financial Group. Mr. Downie worked in finance and accounting at Procter & Gamble Co.

        “We both liked our jobs,” Mr. Ratterman said. “We just wanted a different challenge.”

        Trying to explain all this to parents wasn't easy.

        “We were getting it from all angles — friends, families, co-workers, parents,” Mr. Downie said.

        The duo's first “office” was the apartment of Mr. Ratterman's girlfriend, now his wife.

        They would meet and brainstorm. Occasionally, they would surf the Net.

        They began by starting Spark Leadership, a non-profit organization designed to teach leadership skills to young people.

        Soon, the need for money drove the duo to focus on more concrete plans. The two promised themselves that they would eventually re-energize Spark with proceeds from their for-profit company.

        The idea for Up4Sale dated to the early 1990s, when Mr. Ratterman first noticed people using newsgroups to post electronic messages. The computerized message system was used like an informal classified ad. He noted what he saw in a journal, thinking one day it might provide the seed for a business.

        “The whole Internet window was opening,” said Mr. Ratterman, who taught himself the rudimentaries of computer programming and built the company's first server.

        By early 1997, Up4Sale was up and running. At the time, Mr. Downie was 26 and Mr. Ratterman, 24.

        Within a few months, Messers. Ratterman and Downie were able to convince their friends Wally Carroll and Tom Duvall to become partners in their budding venture.

        Mr. Carroll was finishing law school at UC and Mr. Duvall, a graduate of UC's College of Design, Art, Architecture and Planning, was working at a design firm in California. Mr. Du vall helped improve Up4Sale's look. Mr. Carroll provided legal help.

        “We noticed Up4Sale very soon after it (was) launched,” said Jeff Skoll, vice president for strategic planning and analysis at eBay. “Back in the early days, we would scour the Web for competitors. Right off the bat, they stood out.”

        The foursome relaunched Up4Sale on July, 1, 1997, as an auction format similar to eBay's.

        “That was a huge day for us,” Mr. Downie said. “We were starting to get some real traffic, a thousand or two thousand people a day.”

        EBay, the pioneer in online auctions, was and still is the dominant player. At that time, eBay listed 200,000 to 300,000 items. Now, eBay has 1.6 million items at any given time.

        To differentiate Up4Sale, they decided to offer their basic service for free and seek revenue through advertising. EBay and other online services charged a listing fee and sales commission.

        The site was growing rapidly. By March 1998, Up4Sale had an estimated 10,000 to 12,000 items listed. The group was being ground down from the grueling 24-hour schedule they shared.

        “By early 1998, things really started ramping,” Mr. Ratterman said. “Every day, we're more in debt. It's like a razor's edge we're walking on. We're completely unhealthy. Every relationship in our lives is suffering. But at the same time, we're building a site that we realize every day is gaining in value and momentum and size. We're growing this to the point that something has got to happen.”

        About that time, venture capitalists and other Internet companies started calling.

        In May, eBay called.

        “We didn't even know they knew who we were,” Mr. Downie said, explaining that he and his partners couldn't have been happier.

        The two companies, though rivals, had similar cultures.

        “We were impressed with our semblance of values,” Mr. Skoll said. “Right away, we just really loved these guys. They were just so creative, genuine and down to earth.”

        Up4Sale is the only online auction company eBay has bought, Mr. Skoll said. Up4Sale operates as a subsidiary of eBay. EBay uses Up4Sale to test new ideas, such as localized auctions.

        Mr. Skoll said he was surprised that Up4Sale was based in Cincinnati and even more surprised that the founders insisted on staying in Cincinnati as part of the sales agreement.

        “There aren't many creative Internet companies in Cincinnati.”

        And that's exactly why the founders of Up4Sale want to stay in Cincinnati — to inspire other entrepreneurs.

        “Cincinnati is still sort of stoic and old-fashioned,” Mr. Ratterman said. “By bringing this new energy, we think we can really become a strong force for anything Internet-related.”

       



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