Introduction

Pierre Omidyar founded eBay in 1995 , which was the first company in its market that

offered people the ability to trade their goods online. eBay began as a “pet project” and

ended up becoming a pioneer in person-to-person online trading. After having exponential

growth in such a short time period, it was only a matter of time before competition

surfaced. “Its valuation had increased from $700 million at the time of its initial public

offering to $24 billion by mid-May 1999 a 3,400% increase in less than a year”. eBay

utilized its first mover advantage to gain a stronghold within this emerging market but

competition did arise with online sites like Amazon.com, Craigslist.org, and also other

auction like sites like ubid.com. In addition, all online retail businesses compete indirectly

as well.

Problem Statement

eBay has had great success over the years, they still face many challenges, especially the

occurrence of fraudulent transactions. The business model relies upon trust and eBay

seems to have no control of what people are selling on the site, since they do not have

possession of the items that are actually being sold. These issues cause much concern for

the company and it can harm its image and future business.

Strategic Analysis

SWOT Analysis

In order to better asses eBay , a SWOT analysis was conducted to identify the variables

that can affect them and their positioning within the online market..

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Strengths

Brand recognition with eBay is significant as it has a strong trusted brand image as the

largest online auction. Their product line is expansive as it offers products such as toys,

stamps, memorabilia, collectibles, antiques, and coins. This appeals to multiple

demographic groups and can allow for multiple revenue streams. The company

established a clear vision; “to be the world’s largest online person-to-person trading

community.” This vision is well known throughout the company and accepted by the

employees.

eBay has a strong sense of a community between its online users as well as between its

own employees. The three most important keys to eBay’s success is” community,

community, community”. A strong sense of culture exists as eBay hires employees that

share the same culture of the company. They encourage teamwork and expect its

employees to be open, honest, and respectful among each other. The employees welcome

feedback and comments from others and are always open to modify their opinion. Their

management team described the culture at eBay as being “open” and “low risk,” where

employees were encouraged to voice opposing opinions. eBay is characterized as

“nonhierarchical” and “democratic” organization where even the CEO works in a cubicle.

eBay is not just limited to selling and buying goods, it is also a place where people can

interact with similar interests, engage in discussion, exchange information through chat

rooms, bulletin boards, and e-mail services put into place by the company. The “Feedback

Forum” created a self-regulating mechanism that encouraged honest behavior and

developed a strong sense of community for eBay. Their business model requires very

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little overhead and this is a service based medium with the onslaught of internet growth as

a substantial strength.

Weaknesses

One of eBay’s weaknesses, as previously mentioned in the problem statement, is the

limited control on fraud and other issues that could arise from the daily transactions

performed on eBay. It is extremely difficult to monitor every single item that is sold

through eBay and one could imagine it is not easy to determine if certain products are

counterfeit. Counterfeit issues, fake sales, and stolen products through the eBay website

can severely weaken the company’s reputation, trust, and sincerity towards their users.

Another weakness of eBay is their technological difficulties and service interruptions.

Two weeks after Meg Whitman joined eBay, the system went down for eight hours,

which created frustration and anger with eBay users. Even with increased spending on

technology, eBay continues to experience periodic system outages and technical

challenges. According to the case, as of April 1999, there were 50 million page views per

day, as well as over 7 million searches, more than 1 million bids, and $6 million in

merchandise sales. With this Internet volume, interruptions can damage eBay’s reputation,

brand, productivity, and reliability. Also their business model is easily replicable and that

can lead to fierce competition.

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Opportunities

The growth of the internet and international market access is a huge opportunity for eBay.

They can try to expand their international demographic, expanding its market to countries

overseas, especially those whose economies are rapidly growing. Another area of

opportunity for eBay is in their member sales department. eBay’s profits are generated by

receiving a percentage of the sale price of products, which gives an opportunity to

produce more revenue through the sale of higher priced products. To accomplish this, the

company could provide an incentive that will attract eBay users to list expensive goods.

Currently, eBay charges a $0.25 fee for listing products. eBay could offer free product

listing for goods over a certain amount, only collecting the percentage sale fee. This free

product listing incentive may help attract users to list more and possibly expensive goods.

eBay should take advantage of the increase of internet usage by expanding its marketplace

around the world. There are still opportunities in current markets potential consumers that

have not discovered the benefits of online auctions. Acquisition of other online auction

sites is another opportunity available to the eBay depending upon their strong financial

position.

Threats

eBay must continually monitor its external environment to protect themselves from

competition such as Amazon.com and Yahoo.com. The success of eBay over the years

could attract others to enter the online trading market. Amazon offers many of the same

services that eBay offers that allow people to purchase an array of goods from one site.

Amazon is able to offer similar products to eBay, also at low prices. Although

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Amazon.com isn’t comprised entirely of third-party sellers, this segment has grown in

2009. “Sales of products by third party sellers on our websites represented 30% of unit

sales in 2009. Active seller accounts increased 24% to 1.9 million for the year”

(Amazon.com). Amazon has been doing extremely well, despite that the economy hasn’t.

In 2009, they reported that “net sales increased 28% year-over-year to $24.51 billion in

2009. This is 15 times higher than net sales 10 years ago when they were $1.64 billion in

1999” (Amazon.com). Compared to eBay, who reported $8.7 billion in revenue

(eBay.com), you see that there is quite a difference. Part of the reason for this success has

been because of the 21 new product categories that Amazon introduced last year. These

new product categories include “Automotive in Japan, Baby in France, and Shoes and

Apparel in China” (Amazon.com). Because Amazon doesn’t solely bring third-party

sellers together, it has been able to bring in more revenue from its.

Another competitor in this industry would be Craigslist.org because they too help people

sell their belongings by posting them on their website. Craigslist also was founded in

1995 as an email distribution list for some friends. Although this company was founded

around the same time as eBay, Craigslist is significantly smaller in volume but has been

growing at a steady pace.

According to USA Today, “Craigslist’s revenue is on pace to rise 23% this year to reach

$100 million for the first time” (Liedtke). This company is still relatively small, operating

with just under thirty people. The website, however, still gets a lot of frequent visitors to

see what sort of new things are being offered. “The site serves over twenty billion page

views per month, putting it in 37th place overall among web sites worldwide and 11th place

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overall among web sites in the United States with over 49.4 million unique monthly

visitors in the United States alone” (Wikipedia). Unlike eBay or Amazon, Craigslist offers

a much smaller array of products. They focus on serving only certain cities at a time,

unlike the other websites that offer products to anyone in the United States. Craigslist also

does not operate with the intention of making large profits; their idea is to stay simple and

offer their services so that people can easily present their products. Because of this threat,

eBay has to differentiate itself from the competition.

A second threat is the new laws and regulations that may affect eBay’s operations. For

example, the government can ban the sale of certain items on eBay, which can result in

upset and dissatisfied eBay users. In addition, the government may decide to begin taxing

certain items on eBay. If something like this was to take place, it could decrease eBay’s

profitability.

Lastly, counterfeit items, fraud, identity theft, and hackers can all be serious threats to

eBay. Because of the confidential information handled on eBay, it attracts hackers and

identity thieves, who see the opportunity to steal credit cards and other personal

information from eBay buyers. If an eBay user experiences this, he/she will stop buying

and selling products on eBay site. eBay runs the risk of losing loyal users or potential

new users by ignoring the growing threat of identity theft.

Porter’s Five Forces Analysis

The Porter’s five forces model can help us examine the external environment that further

can be used to determine the overall attractiveness of the online auction industry. The five

forces described below are deciding factors affecting eBay’s competitive environment.

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1. The threat of new entrants- High

Since the industry is still in the growth stage of the product life cycle, there is a possibility

of new competitors. The online auction industry has the potential for high profits making

it even more attractive to new firms to enter. In addition, the Internet is more accessible

than ever before. If a new online company can develop a business plan that makes them

diverse, customer oriented, and unique, the potential of success is possible. There are

many factors that can determine the success of a new entrant. First, a new company in the

industry must establish a brand and make sure their brand is respected. This is crucial to

any firm in order to obtain and keep customers. Next, personalized customer service is

important. EBay has focused through many years on creating a sense of community

within their company. Customers must feel appreciated in order to remain loyal to a

company. Global distribution is also a key to success in the online auction industry. As

the internet becomes more prominent in countries such as Europe, Asia, and Latin

America, new customers are created. This gives firms in the industry a chance to obtain

these new customers. Finally, overall low costs are important. Each firm must come up

with a strategy to keep costs low. If a firm can keep their costs low they can also keep

their fees to customers low.

2. The bargaining power of buyers- Low to moderate

The bargaining power of buyers is moderate because the seller sets the prices of the

products and because a majority of the sales are in an auction platform. The buyers benefit

from the competition of the sellers, convenience of a trade environment, and not on the

power of price bargaining. There is also no standard product for buyers as online auction

product is still pretty new. Also, sellers are available globally and buyers still make small

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quantities of purchases. The factor that contributes to the moderate power of buyers is

very low switching costs to another provider and there is a large amount of consumer

information on the Internet, which gives the users more guidance in shopping for quality

at a bargain. Although buyers don’t know what they are actually buying on eBay, they

appreciate the fact that eBay lets them make purchases in the comfort of their houses in

their casual clothing.

3. The bargaining power of suppliers- Low to moderate

In general, the costs of switching a supplier by a buyer, such as eBay, are very low and

good substitutes are also readily available. However, the bargaining power of suppliers

can be moderate because eBay must keep its fees and commissions low in order to attract

and keep loyal sellers. Sellers are the suppliers of the products and are able to pick from

different auction companies and select one offering the lowest fees and commissions. The

ability for the suppliers to select the company offering lower selling costs and higher

profits per sale, forces eBay to remain competitive in selling costs. With the power more

in the suppliers hands, eBay is required to satisfy their needs with higher customer

service, more convenient selling platform, and lower selling costs in order to keep a large

supplier base and attract new sellers.

4. The threat of substitute products and services- High

Substitutes are readily available and attractively priced from numerous distribution

channels including, other auction sites, online stores such as Target.com, and brick-and-

mortar organizations such as Wal-Mart. The switching costs to other services and

products are also low. The threat of substitution is high due to the growing number of

online auction and shopping sites. Online retail is a highly volatile and rapidly growing

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industry where substitutes and rivaling competitors can emerge with relatively minimal

costs and in a short amount of time. This high degree of substitution forces eBay to

continuously use its strong finances to maximize user satisfaction and to acquire high

quality auction properties in order to remain dominant in its industry.

5. The intensity of rivalry among competitors in the industry- Moderate

Rivalry is usually the most important of the five forces. In the online auction industry

rivalry is moderate but not too rigorous. Some aspects of the industry such as low

switching costs make rivalry stronger but the fact that the industry is growing especially

in global markets weaken rivalry. There are not too many large competitors to eBay

Company. There are actually only two large competitors in the online auction industry.

EBay is the dominant firm and it is followed by Amazon, which has the best strategy for

the future. Other firms in the industry hold a much smaller market share and they are not

considered a big threat to eBay.

In conclusion, we believe that the online auction industry is an attractive industry

overall. The rivalry is moderate but not too rigorous. The industry has the potential for

high profit making and the products are more affordable, which gives them advantage

over brick-and-mortar retailers. Although the future of the online auction industry is

somewhat unknown the growing use of the internet makes potential for continuing growth

very likely.

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Generic Strategies

We think that eBay uses differentiation generic strategy. The degree of service offered by

eBay differentiates it in the online auction industry. The company prides itself in leading

its customers through the buying and selling process from beginning to end and beyond.

EBay also focuses on creating a sense of community within its company. Another

defining characteristic is geographic coverage. EBay has saturated the global market

while companies such as Yahoo have not been as successful. EBay is highly diversified

in the types of products it provides. The range of products varies from collectibles to cars,

almost anything that a user is willing to sell. The site makes it easy for the buyers to locate

the products with everything divided into categories and a convenient search engine for

quick access to a specific item. We believe that the overall concept of business for eBay is

simple, to provide the most convenient and reliable way for users to buy and sell products

on the Internet.

Financial Analysis-Industry Financials

The person- to-person trading industry is a huge market in the world. People will always

be looking for classic items, collectibles, and other items of fancy. In order to obtain these

items, people used to have to go to classified ads, auctions, flea markets, or garage sales.

All of these are profitable industries. According to the case, the collectibles market was

estimated to be about 103 billion dollars. The collectibles market includes flea markets,

garage sales, and collectible auctions. Also according to the case, the U.S. personal

property auction market was estimated to be about 80 million dollars. Finally, the U.S.

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classified ad market was estimated to be 17 billion dollars. Combined that total to about

200 billion dollars, which is a significant market to be a part of.

The only problem with the person-to-person trading market is that in order to access the

items, a customer must go on a long journey to find a particular item. Whether the

customer has to wait for the trade show, go to a flea market, or drive around town looking

for garage sales, the market is inconvenient to customers. The items are not at the

customer’s fingertips, and the customer’s searches are limited to their local areas. eBay

allows users to specifically search for a specific item, and eBay expands the area searched

from the customer’s local area, to nearly the whole world. This enables not only buyers,

but also sellers to reach a larger market. eBay puts what buyers and sellers want at their

fingertips. eBay revolutionizes the person-to-person trading industry, by allowing buyers

to find exactly what they want, with a backing by eBay to ensure customer satisfaction.

eBay Financials

eBay is the largest person-to-person trading site on the Internet. eBay controls most of the

market share of the person-to-person trading market. This is shown by the high rate of

growth that eBay has shown during the time stated in the case. eBay became a publicly

traded company in September of 1998. At this time, eBay’s stock was valued at 700

million dollars. In May of 1999 eBay’s stock soared from 700 million to 24 billion

dollars, a 3400 percent increase. This rapid growth was also shown in eBay’s net revenue.

In 1997 eBay’s net revenue was $604,000; in 1999 eBay’s net revenues skyrocketed to 34

million dollars. eBay’s growth was also large in gross merchandise sales. With 9 million

dollars in sales in 1997, eBay’s sales grew to 541 million dollars in 1999. Even with this

rapid growth, Meg Whitman still wanted to expand eBay.

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According to the case, Whitman expanded eBay’s presence by signing a 75 million dollar

joint marketing and development deal with America Online. The details of the agreement

were that eBay would pay AOL 75 million dollars, and in return eBay was featured as

AOL’s “preferred online service”. This deal allowed eBay to be exposed to over 16

million Internet users, the most of any one Internet provider at the time. According to the

case, investors loved the deal, and one analyst was quoted saying” It’s a very, very sound

strategic move. It makes a lot of sense for both companies.”

Whitman was not done either. In 1999, eBay purchased the Butterfield and Butterfield

auction house, one of the most prestigious and oldest auction houses, for 260 million

dollars of stock. Butterfield’s net revenues for 1998 were 21 million and had profits of 1.5

million dollars. By gaining Butterfield, eBay allowed itself to attract higher end

customers. This is because Butterfield’s average item was sold at auction at $1,400 were

as eBay’s average item was sold for $47. This helped eBay because eBay receives a

percentage of the final selling price of an item, so the more expensive the item is the more

money eBay makes. The acquisition of Butterfield produced over $400,000 in

memorabilia sales, which included O.J. Simpson’s Heisman trophy, for eBay. By adding

Butterfield to eBay, eBay marketed themselves to a different market of consumers than

the regular eBay users.

With the acquisitions and partnerships that eBay has made throughout the years, eBay will

continue to grow in the person-to-person trading market. This is shown in the incredible

growth in eBay’s stock, net revenues, and gross sales. eBay will continues to be a highly

successful company if Meg Whitman continues to lead eBay as aggressively as she has.

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The key to eBay’s continues success is to stay aggressive, and by keeping their current

customers satisfied.

Options

There are a few major options that we believe eBay can take to ensure long-term success

for the company. eBay should consistently train and inform their employees on the newest

technological advancements in online trading and social interaction. Applications and

social media would add to the feeling of a close knit community and belonging for eBay

users. They could also partner with major companies such as Microsoft or Sony and

giving them the option to become sellers themselves. This would give users have a chance

to get products directly from the company itself at a lower than normal price without ever

having to worry about bad reputation points or fraud.

Recommendations

It is stated in the case that “eBay’s internal culture mirrored many of the characteristics of

its external community culture in tangible ways: they were empowered to develop

recommendations, and the company employed a nonhierarchical, team-based approach to

problem solving”. The internal community indirectly influences the community. Because

of this power, the internal community must be careful what it releases, they should only

put useful information to the public. This will be very challenging if they do not know

what their customers want.

eBay should conduct focus groups, and complete surveys to find out what new

technologies that they need to keep up on in order to keep their users coming back. As

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technology expands at an increasing rate each year, eBay should analyze the trends that

many of their customers have with these new technologies. For most Power Sellers,

managing all of the items you are selling can be a hassle, so implementing a desktop or

phone application that keeps you updated 24/7 can really bring online transactions to a

whole new level.

Customers also tend to focus on certain products that they love, such as apple products,

baseball cards or jewelry. Creating special pages that are dedicated to the items that you

love, in an easy to use, navigate and purchase process, eBay users new and old can have a

dedicated section of their favorite website that suited specifically for what they are most

interested in.

Fraud has become a growing issue as more and more people begin trading on eBay. One

of the attractive features of eBay is the fact that it gives the user a sense of safety when

users trade amongst each other. When fraud does occur, it is up to the internal team of

safety to quickly and quietly solve the problem in a very efficient manner. In order to do

this we recommend eBay give very strict rules and penalties that can fine and even

permanently ban people who commit scams and fraud. The more users that trade, the

bigger that chance fraud will occur, so having a dedicated anti-fraud task force would be

crucial for the future success of eBay and the morale upkeep of its users.

They should start a personal blog, so that they are connecting with the outside

community. This will entice eBays customers to stay on their site for longer periods of

time. This will give eBays users a better sense of belonging and make them much more

loyal to eBay.

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Conclusion

eBay is a growing company that experienced an exponential growth. The culture has been

established and through countless innovations their business model has been able to

expand .They have been working hard at being the best that they can be and they

definitely proved and distinguished themselves specifically in the online auction market.

eBay thinks ahead of time and think of how to make their company better. In order to

continue to grow the business, they must really consider all the different problems that are

occurring with fraudulent exchanges and with competitors. eBay truly has a great

opportunity to continue to grow and keep moving forward. In addition, the growth of

international markets and internet access has allowed eBay to maintain the standard for

online auctions and continues growth. Because there is relatively little barriers to entry on

a small scale, the large volume of eBay transactions can allow for tighter margins due to

the economies of scale. Technology must stay a focus as the system must continually

adapt to increased volume and the emergence of fraud and dishonest transactions must be

monitored.

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Works Cited

http://investor.ebay.com/

Amazon.com. <http://phx.corporate-ir.net/External.File?item=UGFyZW50SUQ9Mzc2NjQ0fENoaWxkSUQ9Mzc1Mjc5fFR5cGU9MQ==&t=1>.

http://www.cs.brandeis.edu/~magnus/ief248a/eBay/history.html

eBay.com.<http://files.shareholder.com/downloads/ebay/897941466x0x345224/b455630d-4bb9-4ba5-adb1-40dcf29e82ce/eBay_Q409EarningsRelease.pdf>.

Hill, Linda and Maria Farkas. April 2010 <http://primis.ebrary.com/docDetail.action?banner=1&ebrary_username=primis_3835409&session_id=13176434&isbn=0390977888>.

www.btinternet.com/~chris.heaton/ebay/ebat.htm

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