1. eBay.vs.Amazon Analysis of two first-movers that lasted, in the E-commerce space Student: Bryan Copeland Student ID: 053171c Submitted to: Wakayama-sensei

2. eBay 3. Summary

Founded by Pierre Omidyar in 1995

His wife needed a better way to lookup and trade collectibles; decided to put his computer science skills to use, never thought it would lead to a multi-billion dollar E-Commerce company

Auction-based online sales of products (and sometimes services) where users try to outbid one another by placing a higher maximum amount; Dutch and Reverse-auction style also recently available in some regions

Transaction fees for listing (regardless of whether item sells or not) and additional fees for Premium Auction features (i.e. extra photos, BuyItNow, Feature It!, etc) or Premium Seller memberships

4. History 15.13 Acquired PayPal Jul 2002 12.708 Global expansion to over 2 dozen countries 2000-2006 49.500 Acquired Skype 2005 20.833 Withdrew from Japanese market & Hong Kong(where Yahoo! Auctions/Shopping had head start) Feb 2002 1.871 CEO Meg Whitman (July); IPO 1998 25.016 Alliance with AOL 1999 Founded by Pierre Omidyar 1995 Menl Park, Calif (VC)22% stock acquisition 1997 Stock ($) Event Date 5. Products & Services

eBay started out sellingCollectiblesandAntiques

Has since grown to include incredibly diverse categories of items:

Collectibles

• Antiques

• Art

• Coins

• Toys & Dolls

• Memorabilia

Motor Vehicles

• Cars

• Boats

• Parts

Electronics

• Cameras

• Cell phones & PDAs

• Computers

Entertainment

• Movies, Music & Games

• • DVD

• • CD

• • VHS

• Event Tickets

Books

Clothing

• Jewelry

• Shoes

• Accessories

Home Improvement

• Dcor

• Crafts

• Gardening

6. eBay: Target Segments

Primary target markets areOnline Auction & Shopping communities .

eBay has business strategies to target specific segments of each.

Key segment isAntiques & Collectibles.

(It was the lack of a good community-based pet collectibles company that inspired Pierre Omidyar to develop eBay. Collectibles still among highest in gross merchandise sales, boasts by far the most veteran sellers.)

Motor lovers:Using credibility of leading car collector Kruse Inc., eBay expanded its categorical offerings with eBay Motors.eBay Motors became one of its most successful target segments with $2,500M Global Gross Merchandise Sales in 2002.

Art lovers:eBay also had a somewhat failed strategic partnership targeting Art Collectors directly.

7. eBay (profit sites)

Internet value network consists of three majorgroups and they are users, communication service provider and suppliers. Each subgroup of these three segments are called profit sites. Here we will focus on eBays profit sites and its implications .

Market maker : Amarket maker acts as a neutral intermediary that provides a place to trade and also sets the rules for the market .Thus, eBay is acting as a electronic auction market and brings buyers and sellers together to execute transactions through a win-win strategy. And in this way, eBay is developing new markets.

Brokers and agents:to complete transactions, buyers and sellers depend on some facilitating organizations like, citigroup or charles Schwab tocomplete transactions. These groups are parts of eBays profit sites when eBay gets commission from these organizations for each transaction.

eBay is a market maker Acts as an intermediary Charges commission Buyers sellers 8. Business Process Seller Account Creation Listing an Item Reserve Dutch Buy-it Now Regular (Auction Type) Bids Placed Completinga Sale After-salesService Typically covered by Seller,using eBays features. No bids Final Value Fee = 5% of the first $25+ 2.5% of remaining amount up to $1,000+ 1.25% of any portion of sale over $1,000 -eBay sends Outbid Notice if needed. -Sellers feedback rating dictatesbidder confidence. 9. Online Auction Industry analysis

Industry Competitors:

Intense segment

of Rivalry

Newspaper cite on the web

every Internet directory

Every music & video retailer

Every personal homepage

Suppliers Buyers New Entrants Substitutes Porters Five-Force Framework BargainingPower ofBuyers Threat of Substitutes BargainingPower ofSuppliers

Low

Fixed rate

mediation

Large number of customer for longer period of time

High threats ofnew entrants Auction Universe Yahoo! Excite Classified 2000 Fewsubstitutes and Low threats because of strong CRM Since suppliers are large, so threat is low. Threat of New Entrants 10. eBays Business Model Seller Buyer Internet propertysales format Network externalitysocial communication Mediation(forums, buyer/seller ratings) U niversalityRegional sites Information asymmetryTrust and safety Virtual capacitylarge variety Low costInnovative(Bid-based auctioning systems) Exchange Transaction Community platform For global personto person trade MoreProfit Decreased Costs Win-winsituation Leads Repeat Transaction 11. Regional sites vs.Network Externality

eBay created > 24 regional trading sites within countries in order to facilitate the process of buying and selling items of local interest.

This regional focus and network externality are very much consistent because the larger the network size, the more opportunity for buyers and sellers to have a better match of their needs.

Localization and Internationalization of eBays services should also help make the site more accessible in a specific region, for speakers of the native language; thus offering the opportunity to gain new members at a faster rate

The only possible downside could be fragmentation and isolation of the individual networks, so each new regional site must feel like part of the main eBay network and family

12. eBay API

Buyers:

• Get the current list of eBay categories

• View information about items listed on eBay

• Display eBay listings on other sites

• Leave feedback about other users at the conclusion of a commerce transaction

Sellers:

• Submit items for listing on eBay

• Get high bidder information for items you are selling

• Retrieve lists of items a particular user is currently selling through eBay

• Retrieve lists of items a particular user has bid on

13. Internet Properties///// Transaction-Cost Reducer// Creative Destroyer//// Low Cost Standard// Infinite Virtual Capacity/// Info. Asymmetry Shrinker//// Time Moderator/// Distribution Channel// Network Externality///// Universality///// Mediation Communication Content Community Commerce Coordination 14. Key Drivers

1. Network externality

The company believes that this critical mass of buyers, sellers, and items listed for sale created

a cycle that helped eBay continue to grow its user base. and one thing is very true for this model is its large

number of customers stay for longer period of time to complete transactions.

2. Mediation

In addition to providing a venue for selling items, eBay provides buyers and sellers a place to socialize, to

discuss topics of common interest, and to provide feedback on one another

3. Universality On the Internet, amateurs and collectors from around the world, rather than locations within a reasonable

driving distance, could bid on items. And eBay is applying that latitude by connecting both parties.

4. Time moderation:

the property of time moderation assists eBay a lot by tailoring time according to customers needs.

sometimes it enlarges time period of auction according to needs of a buyer

5. Distribution channel and replacement effect:

eBay uses the traditional distribution channel without any sort of disintermediation and it is called the

replacement effect, that means, serving the same customers using the existing distribution channel.

6.Information asymmetry shrinking:

eBay reduces all sorts of information asymmetry by allowing sellers to provide all related information to buyers

to pave the way for successful transaction. So buyers are no more deprived by short of data .

15. Success Story:Commission Junction

Partnered with eBay in 2001 as the exclusive Affiliate Network for eBays affiliate program 1

Allows partners to revenue-share by creating links to Auctions, Seller sites and/or eBay pages (such as category listings, etc)

eBay in charge of payouts for specific actions (i.e. 9 cent click-throughs .vs. $13 active user signups .vs. 5% purchases)

Commission Junction gains an even smaller ratio per eBay payout to one of its affiliates, but, which adds up over time

Network externalities for both companies

1 -http://www.cj.com/news/press_releases0102/press_010418.html 2 -http://www.cj.com/news/press_releases0304/press_030918.html 16. Amazon 17. Summary

Online retailer of millions of products (books, toys, Cookware etc..)

Founded in 1995 by Jeff Bezos, in a computer science and electrical engineering graduate from Princeton University.

Vision To build the worlds most customercentric company To establish a place where customers could buy anything

Located in Seattle Close to the largest book wholesalers in Roseburg, Oregon The sales tax rate of small state is cheaper than big state

Sites in 6 countries (US, Canada, UK, France, Germany, Japan); ship to > 200 countries

Percentage of sales responsible majority of revenue

Financial Status (Year of 2006) Net Sales:$8,49billion Net Income:$359million Achieve a surplus since the 4 thquarter of 2002

18. History 1 -http://www.wired.com/wired/archive/7.03/change.html 54.135 Acquired IMDB, worlds biggest movie database Dec 21, 1998 Founded then Launched by Jeff Bezos 1994-1995 49.500 Video sales launched Nov 17, 1998 67.85 (mean) Global growth in key international markets 1999-2003 12.708 Amazon.com Kids launched Mar 2, 1998 72.29 (6-6-07) Merchant strategy; major corporate partners 2003-2007 20.833 Music sales launched Jun 11, 1998 9.896 Millionth customer personally receives order from Bezos's hands Oct 28, 1997 8.833 First holiday-gift center opened Nov 18, 1997 3.917 IPO May 15, 1997 9.250 Collaborative Filter recommendations launched Sep 23, 1997 Stock ($) Event Date 19. IndustryCompetitors: Intensity of Rivalry Supplier s Buyers New Entrants Substitutes Threat of New Entrants BargainingPower ofBuyers Threat of Substitutes BargainingPower ofSuppliers Network Externality ( no customer base ) Low Cost Standard + Universality + Distribution Channel + Transaction Cost Reducer + Mediation ( no social platform ) Network Externality + ( many customers) Mediation + ( reviews/community platform ) Distribution Channel - (replacement) Info Asymmetry Shrinker + Low cost + Transaction Cost Reducer ( wholesale/retail ) Universality ( regional focus ) Distribution Channel + Distribution Channel ( No control over channel ) Info Asymmetry Shrinker + ( reduces asymmetry, so no manipulation over data ) Universality + ( existing suppliers ) Network Externality + ( large customer base ) Mediation+, ( no social platform for sellers; great platform for buyers ) Universality Online Retail Industry analysis 20. Evolution: From Retailer to Retail Platform 21. Sales Format B S -Communication (Reviews) -Low Cost -Large Variety -Distribution -Trust & Safety (seller ratings) Sales Format Transaction Product from Catalogue Userchoice Locate Sellers Store 1 Store 2 Store n MerchantStorefronts 22. Amazon Web Services (AWS)

Amazon E-Commerce Service

• Search catalog, retrieve product information, images and customer reviews

• Retrieve wish list, wedding registry

• Search seller and offer

Alexa Web Information Service

• Retrieve information such as page rank, related sites given a target URL

Amazon Simple Queue Service

• A distributed resource manager to store web services results

23. 5 Benefits of AWS

Pay-per use model

Instant scalability

Reliable/Redundant/Secure

Most services accessed via simpleREST/SOAP API

Superior Technical Support (Experience & Commitment)

24. S3 in a Nutshell Client Idea: Put/Get objects into buckets based on unique keys.

Main Features:

Public/Private access.

Support for large objects.

Amazon S3 Bucket1 Bucket N Putobject Getobject 25. Value Configuration Diagram :_________ Strong CRM 1-Click Shopping Convenience Low Costs Diversification Partnering Network Externality Brand Image Product ReviewInformation Customer Base Fixed Merchants ProductRecommendations Cross-selling Distributed Web Services Money-backGuarantee Email Marketing Loyalty &Advocacy Merchant Advantage :Automatic Re-Ordering, etc Associates Program Association RepeatPurchases Positioning: Online Shopping Order Fulfillment (Buyer) (Seller) 26. Business Process

The Amazon Business Process is built around three main operation:

Browsing:User looks for books available at Amazon(searched, recommended, or browsed by category)

Manage Account : check content of user shopping cart, stock of sellers, add and remove products

Shop : First browse to find product(s), place in the shopping basket, then complete a purchase(payment/delivery)

Process Model for Amazon.com Browse Manage Account Shop=Browse+Manage Account 27. Internet Properties///// Transaction-Cost Reducer/// Creative Destroyer//// Low Cost Standard//// Infinite Virtual Capacity//// Info. Asymmetry Shrinker//// Time Moderator/// Distribution Channel/// Network Externality///// Universality///// Mediation Communication Content Community Commerce Coordination 28. First-Mover Success

First to move booking retailing online (1994 Jeff Bezos)

Brand recognized worldwide, most visited site in USA (2000)

Simple Business Model:

• Expensive inventory brick and mortar warehousing not required Require WEB to interface with customers and take their orders

ContinuousRapid innovation

• one-click, search facilities, collaborative filtering, affiliate programs (250,000 partners in 2000), order tracking mechanisms

Established strong brand presence created psychological switching costs in consumers (collaborate filtering, privacy policies, builds trust)

Pillars (quality of service, value for money, trust worthiness)

WEB site easy to use, easy to find, and fast

29. Key Drivers

1. Low cost platform for transaction:

The Internet is certainly a lower cost platform for any transaction, communication or negotiation than any other electronic media. Amazon is using this platform successfully to bring buyers and sellers together for transactions, and doing so not by charging an upfront listing or transaction fee, but by charging a percentage of each sales, which in the long-run could be a much larger pie and better approach for Amazon on volume; on the short-term to merchants it appears to be a win-win situation as well as cumulative listing fees can even become prohibitively expensive in some cases.

2.Transaction cost reducer:

The Internet is reducing costs of commercial transactions dramatically by matching the right buyers to the right suppliers, for the right product at the right time. Just-in-time (JIT) theory which dominated the late 80s and early 90s, is taken to the extereme in Amzons business model. In this model, sellers can learn about buyers financial standing, review history and other characteristics of a good customer. Likewise buyers can learn about suppliers reputations, product features, and prices.

3. Infinite virtual capacity:

Internet infrastructure gives customers the feeling that it has infinite virtual capacity to serve them. Amazon is taking advantage of their distributed infrastructure through AWS and by bringing a large no. of sellers with large no. of products for transaction. Buyers are confident that just about anything they want must be available on Amazon, and most importantly, the quality and authenticity will be more reliable than eBay.

4.Creative destroyer:

The Internet is transforming the traditional retailing distribution structure; business is now conducted by Amazon to remove the middleman of the brick-and-mortar storefront, playing a role as a creative destroyer. Amazon is paving the way for the digital storefront, which is much more affordable and accessible (does not require large amounts of capital to startup). In this way, it is both a creator and a destroyer, but certainly in terms of the traditonal system it is a creative destroyer.

30. Success Story : Toys-R-Us

1999 Christmas on-line orders flushed into newly establishe ToysRus.com

Announced a joint-venture with Amazon for online sales in 2000

Used AWS and Amazon site itself for Web operations, order fulfillment, & customer service

Toys-R-uscontrols buying and managing inventory

31. Success Story (cont)

65 million and growing number of visitors every year

Number one site in its category

Explosive growth in sales reaching $300 million

Posted profit for the fourth quarter of 2002

32. Side-by-Side

Technology

• Superior revenue-sharing plan with Affiliate program

Strategy

• Enables big and small sellers/affiliates to earn at roughly the same rate

Business

• B2Closer

• C2Cwinner

• B2Bdraw

Transaction fee structure

Technology

• Superior technology through AWS, EC2, S3 & catalogue

Strategy

• Tends to prefer big-name brands and retailers with strong distribution chains

Business

• B2Cwinner

• C2Closer

• B2Bdraw

Percentage of sales structure

33. Conclusion

Based on my analysis eBay should not put additional resources towards B2C market, due to saturated market and competitors near stranglehold on market share

Should instead surprise competitors like Amazon with a strong B2B initiative or campaign (i.e. introducing a new comparison shopping service for wholesalers)

Reinforcing their C2C presence through continued rewards to their loyal seller/buyer base to maintain dominance there would also be a wise strategy, after-all in C2C eventually incentives are needed as parties can communicate offline

Amazon should invest whatever resources necessary to maintain hold of B2C market by continuing to compete on price, convenience & reliability of vendors and continue to bring in new brand-name retailers

Should reward smaller users as the longtail works for network membership as well(strength in #s, not just big enterprise retailers, because if they leave, sales/catalogue can shrink overnight)

Better position than eBay right now for long-term B2B strategy with AWS, should try new programs(i.e. seller-exchanges, etc)