(FORTUNE Magazine) – Meg Whitman works in an open cubicle. Not one of those cubicles with a view but a real one, with short walls and surfaces piled with paper, wedged tightly between two other people's cubicles. It's a casual setup, typical for Silicon Valley. When Whitman needs to talk with technology chief Maynard Webb, she shouts through the partition; when she wants to show him something, she simply tosses it over the top. When she sits down to speak as CEO of eBay, however, there is nothing offhand dot-com casual about her bearing. She is all about profit margins, sales growth, and managing her 2,400 employees.

Meg Whitman is many things--a mom, a sometime paper billionaire, a Wall Street darling, maybe even, as some say, the best CEO in America. One thing she isn't is the stereotype of a new-economy executive. A onetime Procter & Gamble brand manager, Bain consultant, and Hasbro division manager, Whitman, 45, is a person with experience and discipline. The casual trappings, the cubicle and whatnot, only go so far.

Seeing Whitman in her cubicle is to be struck by a core truth about eBay: This company looks like a dot-com, but its soul is utterly corporate. Whitman's deputies manage categories (toys, cars, collectibles) much as brand managers at P&G do Bounty or Tide; they have faith in data, following every transaction and customer hiccup just as executives do at Wal-Mart. This MBA-in-geek's-clothing feat turns out to be one of eBay's greatest strengths, a reason it's the only startup among all its once promising peers--think of eToys, Webvan, and Amazon--that isn't dead or under the gun. Four years after Whitman came to run this online flea market, eBay is thriving, attracting 37 million customers, expanding abroad, selling more and more things every quarter, and most tellingly, ringing up honest-to-goodness ever-increasing profits: $129 million on $740 million in revenues this year, according to First Call consensus estimates for 2001.

I've come to the San Jose office park where eBay is housed to nose around and figure out what makes this business apparently immune to the dot-com curse. How does Whitman do it? Perhaps more important, how will she continue? The company's sky-high price/earnings ratio of 143, based on 2001 estimated results, shows that investors are hungry for more, even faster, growth. Whitman has promised to transform eBay from an online auction house into a much bigger, general-purpose shopping destination--the first place people turn when they want to buy, well, anything at all. Analysts, who applaud this strategy and are reassured by Whitman's record, see eBay as the one company that really taps into the boundless potential of the Internet. There's truth in that. eBay owns no inventory or warehouses, which helps make it highly profitable. It has cleverly used e-mail, message boards, and the natural watchfulness of its virtual community to forge bonds with customers and police the behavior of its buyers and sellers. Its Website enables small sellers to participate in a vast marketplace--and lets eBay collect fees on even the tiniest of transactions. Long after investors gave up on other dot-coms and hammered their stocks, they are still betting on eBay. It's up to Whitman to bear the weight of Wall Street's Internet hopes and dreams.

A land of charts and graphs

The superficially casual, fundamentally businesslike quality is everywhere at eBay. Employees are cheerful, informal, full of breezy chatter; their no-nonsense cubicles are littered with sports souvenirs, Godzilla figurines, and Beanie Babies. (You know--eBay stuff.) There are free sodas in the kitchen and electric scooters for employees to ride. But when you talk to eBay people, you don't hear much about fun and games. (I never saw anyone use those scooters.) You hear about plans, systems, numbers, and results.

Take Michael Dearing, the bearded vice president of marketing and merchandising. Dearing, at 33, looks like a computer programmer but is actually a retail wonk with a decade of experience under his belt. (He worked as a retailing consultant and did stints at Disney and Filene's Basement.) Dearing is trying to hone eBay's understanding of customer behavior by tracking how prospective buyers respond to promotional spots on the site. For example, he might follow how often people use the search page, or whether people are more likely to click on a button about eBay's holiday offerings or one that advertises Harry Potter knickknacks.

Dearing's job doesn't sound especially glamorous, but it's vitally important. The company's computers record every click, bid, and purchase on its site, and the resulting statistics are a treasure trove. "When I was in retail, I always wanted to know the ratio--who walks in vs. who buys," says Dearing. "I'm really fired up that I can know that now. So much in the offline world is gut."

The company's technology renders gut less essential. When Dearing comes to chat with me in an eBay conference room, he carries a pile of printouts and spreadsheets filled with pie charts and line graphs and tables detailing exactly how many people visited eBay in the past week, which items they looked at, which they bid on, which they bought, and which special promotions they seemed to like. Dearing explains excitedly that executives have had access to the data in this format for only four months or so, that it's "great" and "amazing," and that it has already helped the company's marketers "improve the efficiency of eBay's front page ten times." Waving a spreadsheet, he says, "From this I can tell you that our winter sports promotion rocked, and that 'Baby's first holiday' didn't. I can tell why, and I won't promote it the same way again."

All eBay managers study a monthly summary of the report that Dearing is so attached to. Category managers--who oversee product areas on the site--are also steeped in data. One of the most amusing of these stats follows the formula "We sell a [blank] every [blank] minutes!" At an eBay presentation to analysts in October, eBay Motors head Simon Rothman told the audience, "eBay sells a Corvette every three hours!" In San Jose, jewelry category manager Shira Levine tells me, "I have a diamond ring on sale every six minutes!" And so on.

Whitman loves this craving for statistics and, more specifically, for bottom-line results. Asked what it is like reporting to Whitman, Rothman says, "I have numbers. I know them. They're very clear. And the expectations are high." The company has posted profits nearly from the start. When most dot-coms were spending millions on parties, eBay was pumping money into technology. "We're trying to apply old-school discipline here," says Dearing. He's not the only Fortune 500 alum on the Meg Whitman faculty: Marketing head Bill Cobb worked at PepsiCo, U.S. business chief Jeff Jordan at Disney, Rothman at McKinsey and General Electric. "I never thought of eBay as a dot-com," says Afshin Youssefyeh, who works for a company that sells on eBay and who spent some time in the Silicon Valley startup scene. "You were dealing with adults from day one."

Going beyond crockery

The grownups-in-charge factor goes partway to getting at eBay's success, but it can't explain everything. After all, there were seasoned executives at the helm of Webvan and Excite@Home, and those companies still went belly-up. To fully understand what makes eBay tick, you have to get out of San Jose, which is why I'm sitting in a Mexican restaurant in suburban Atlanta on the night before Thanksgiving. I'm talking to Angie Cash and Kerry Grubb, two enthusiastic eBay sellers with improbably Dickensian surnames who have formed a club, the eBabes, that meets once a month to discuss eBay strategy.

Grubb, 29, quit her job as operations manager at a paper-shredding company in June 2000. Now she sells antiques. Cash, 34, is a stay-at-home mother who sells gift items. Both women move a ton of stuff on the site, and Cash's output is truly astounding. She pulls in some $10,000 a month on items that cost no more than $20 each. The night we talk, she has some 400 auctions in progress. Four rooms in Cash's house are devoted to her business. They're filled with a 30-day supply of boxes and bubble wrap, three scales, a postage meter, and the 2,000 or so items she hopes to sell in the next four weeks. "My husband would say I'm just an eBay person--not a mom, not a wife," she says. "This has really taken on a life of its own."

In the course of the evening, the eBabes compare notes on how to price items (research other auctions on the site), how to process large quantities of mail (bake cookies for the post office staff), and how to collect payments ("I accept everything but beans and chickens," Cash says). They spend a ton of time talking about feedback ratings, the scores and colored stars that appear next to their names on the site and show the number of customers who've given them positive reviews. This self-monitoring system, made possible by the miracle of Web technology and the community spirit fostered on the site, gives sellers a powerful incentive to provide good service. A high feedback rating usually means a seller gets more bids and better prices for her wares. Even a single negative comment stings. "I had someone neg me recently," says Cash, whose positive-response rating is 5,752. "She had a 200 feedback, and she was trying to argue with me!"

"We take our feedback really personally," adds Grubb.

The eBabes are familiar types. When Chairman Pierre Omidyar founded eBay in 1995, it was a small, not-for-profit trading community where enthusiasts of all stripes could gather, swap messages, and buy and sell stuff. The populist ethos is central to the company's iden-tity even as the place becomes more corporate. "This is an economic democracy," Jeff Jordan tells me during my visit to San Jose. "It's our million sellers who make us."

The million sellers do make eBay, or at least they prove that you can auction just about anything online. But eBay's managers shape the auctions, building them up big here, squeezing them down there. Things that seem so obviously sensible to users of the site--like the formal categories and subcategories ("antiques" breaks down into "Asian antiques," "books," "silver," etc.)--came about only after Whitman's managers analyzed auction activity. The result is a glorious bazaar, an easy-to-browse gallery of delightful surprises. If that was all there were to the business, the story would end here. But it's been clear ever since eBay's 1998 initial public offering that enthusiasts' auctions could never deliver enough growth to make shareholders happy: eBay would have to evolve.

So now Whitman and her crew are going after bigger fish. "Two years ago we were a secondary collectibles marketplace," says Jordan. "Now we're a trading platform." In plain English, that means that eBay wants to diversify, offering not just old ceramic plates and baseball cards but a wide array of products from bigger brand-name stores, including new items at set prices. "We want people to think of eBay first when they're in shopping mode, the way they might think of Wal-Mart," says marketing head Cobb. Collectible items make up the single largest category on eBay, but well over 50% of eBay's sales are now "practicals"--things people use in everyday life, such as consumer electronics, cars, clothing, and sports equipment. Some 16% of eBay's sales are fixed-price items of all kinds, which attract a different customer than auctions do--potentially, the buyers that now flock to Amazon.

To achieve that vision, the company is now courting new kinds of sellers, people like Brad Albers, Home Depot's director of information services. Albers has launched eight Internet initiatives in recent months, including a pilot on eBay in which items such as chain saws and bathroom fixtures are offered for auction. For Albers, eBay is just another venue for unloading goods, not a way of life; you can bet he won't be baking cookies for the local post office. "eBay is a great alliance opportunity for us," he says. "They're very interested in supporting enterprise sellers." He won't offer specific numbers but says almost every item he's posted on eBay has sold, and at a good price. Albers started out selling just a few hundred items on eBay; at press time Home Depot was offering more than 4,000 items on the site. Only about 30 giant companies are on eBay--including Sears, IBM, Sun, Mitsubishi, and Palm, some of which use the site to unload returned or hard-to-sell inventory. The company is trying to recruit more.

Even though the addition of big-name players is supposed to help eBay, their presence angers a lot of old-style sellers. Whitman and Jordan emphasize that eBay plans to keep an "even playing field": The big guys don't get breaks on eBay's cut of the sale--it's the same percentage based on the price of the item for everyone--and their listings appear right next to the smaller sellers' wares. But there are unavoidable inequities. For example, large companies are more likely to get featured in onsite promotions than, say, your uncle in Kansas. "It's all about getting buyers to the site," says Bob Hebeler, eBay's vice president of categories. "Big partners provide awareness, marketing, and traffic. They're not the only sellers who get efforts on their behalf. But realistically, the larger the seller, the better the opportunity to drive traffic."

Cash worries a little about what might happen if the big guys move in on her turf. But neither she nor Grubb has any plans to abandon the site--eBay is the place to be. "I get aggravated with eBay, but I'm going to stay where the customers are," Cash says. "You just have to adapt."

Wall Street in love

Unlike the eBabes, Wall Street analysts are cheering eBay's drive to attract the Home Depots of the world. Investors are looking for big growth from the company--growth that could get a pretty significant boost if lots of brand-name retailers made a habit of selling on the site.

I begin to get an idea of the high hopes financial types have for the company when I meet Rajiv Dutta, eBay's CFO. Dutta shows me a presentation he often gives on Wall Street. It's full of impressive-looking statistics and charts. The company, Dutta begins, has 37.6 million confirmed users. In the third quarter its sellers listed 109 million items, selling goods worth $2.4 billion, from which eBay received $194 million in revenues (from listing fees and a cut of the final sale). That's 71% more revenues than the company got in the third quarter of 2000.

Those numbers should continue to improve. Analysts estimate eBay's full year 2001 revenues will jump 72% from last year. The company's international business is picking up nicely, spreading throughout Europe and into Asia. eBay Germany became profitable this year. eBay is also selling more and more big-ticket items. Its computer business is growing 57% year over year; its auto business, 200%.

Dutta likes to say that the total size of eBay's potential market--all those collectibles, cars, computers, and chain saws--is $1.8 trillion. Which means that eBay has a teensy 0.5% share today. So theoretically, there is room to grow for years to come. But what really turns investors on are eBay's expanding operating margins, which are around 24% and which analysts predict could rise as high as 35% as new businesses mature.

The truly amazing thing is that you can't find a soul who thinks the company won't deliver. It's almost as though the dot-com crash never happened. Analysts feel unusually confident in their projections for eBay, because, as David Ricci of William Blair puts it, "they have every piece of data in the world" right there on the site. All an analyst has to do to understand eBay's business is lurk online and study the auctions. And Wall Street trusts the company. Says Goldman Sachs analyst Anthony Noto: "They set realistic goals. They have no hidden agenda. No hubris. They're frank when things don't do well. You can rely on their word."

The combination of bright prospects, transparency, and great execution has done a lot for eBay's stock. At press time it was trading around $66, just over half the $122 it reached in early 2000 but only 9% off its 52-week high. Even at $66, eBay still has an Internet-bubble p/e of 143 (compare that with Dell's p/e of 42). eBay's market capitalization is an extraordinary $18.4 billion--more than Sears' and Kmart's combined. In other words, the stock is trading in a dream world of hope, expectation, and gamesmanship. U.S. Bancorp Piper Jaffray analyst Safa Rashtchy calculates that to hit the $75 to $80 stock price that some investors are looking for, eBay's earnings per share next year would have to beat the First Call consensus estimate of 75 cents by at least 25 cents. "That's hard to do," he says. Moreover, the minute eBay stops surprising people and starts to deliver just steady growth, momentum investors could drop the stock like a hot Pet Rock. "Once you know how big it can be, the stock can't go up the way it used to," Rashtchy says. People who recommend and buy eBay admit that some part of the decision comes down to faith. "If you think the opportunities will pan out, it's attractive. If you don't, you struggle with it," says Paul Cook, manager of the Munder NetNet fund, which has about 4% of its holdings in eBay and which is down 47% this year.

Whitman, whose eBay holdings are currently worth nearly $700 million, sees a bright future. Last year she declared that eBay planned to achieve $3 billion in annual revenues by 2005. To hit that target, eBay says, its international and fixed-price businesses must reach $1 billion each in revenues. International now brings in $112 million a year, according to Goldman Sachs, and fixed-price selling is just getting off the ground. The goal is extremely ambitious. Maybe eBay won't be able to expand into as many markets overseas as it would like. Maybe big sellers--who've only dabbled in eBay so far--will decide not to sell more goods on the site.

Dutta says he doesn't think about the valuation issue much. He doesn't believe that eBay needs a high stock price to grow (acquisitions are not a major part of its strategy), and he doesn't think its employees will bolt if their options lose value. (In today's lousy employment climate, fewer people are bolting anyway.) If eBay does well, the thinking goes, its stock will too. "In the end," Dutta says, "it all boils down to performance."

When I first got to Silicon Valley to report on eBay, an industry contact made a comment that stuck in my mind. "Ha," she said, when I told her what I was up to. "Analysts love eBay. It makes them feel like they aren't stupid." She wasn't completely joking: In the aftermath of the dot-com crash, this company has a special place in Internet people's hearts. Says Rashtchy: "The beauty of eBay is that you can't do it without the Internet. It really is affirmation that there can be a paradigm shift."

In our San Jose interview, CEO Whitman talks mostly about how eBay works and how the company will implement its plans to grow. It's a conversation that lives in P&G's universe more than Buy.com's, so I almost expect her to respond unhappily when I ask about eBay's importance for the believers in the Internet dream. But Whitman surprises me. "People are really pleased to have a survivor--a thriver," she says. "They're enthusiastic that eBay has done well because it bodes well for other companies. eBay will not be the only great company that comes out of the Internet, but it's proof that this wasn't just two years where nothing happened."

As I thought about that, I realized that maybe her reaction is not so surprising after all. Why shouldn't the queen of the Internet auction understand what has made her stock--for now at least--the ultimate collectible?

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