Pay Pal
Pay Pal now belongs to eBay Inc. and has helped them to increase the satisfaction of eBay users. Pay Pal now is included in eBay’s interface and gives users an easy way of payment. Pay Pal itself had its revenues rise by 90% year-on-year, experiencing an 80% rise in payment volumes.
Market Leadership
eBay is clearly the market leader in online auction houses, which first of all gives them high brand awareness. Secondly they have a high influence on this market, which enables them to deal with new entrants to the market.
Growth
eBay has shown an amazing growth in sales and profit over the last years. The three in the main product categories eBay Motors, Media and Collectibles a revenue increase of 88%, 52% and 22% respectively was recorded over one fiscal year. The total revenue was around $ 1.2 billion in 2002 at the end of this year they are expected to be somewhere around $ 3 billion. Their enormous growth gives them economies of scale and enough capital to expand further.
Business Model
One of eBay’s biggest strengths is probably its business model. It has low capital requirement and in comparison rather low operational costs. These are so low because they do not directly involve in the sale of product but only provide a platform.
3.2. Weaknesses
High Expectations
Due to the recent extremely high financial results of eBay, expectations of investors might be too optimistic or even unrealistic. It does not seem so likely that they will continue to have further growth or even sustain such good results in future. This means that the investor’s confidence had to be kept by setting aggressive financial targets which might not be reached.
Advertisement Revenues
Revenues from online advertisement on eBay’s homepages still remain rather low, as they make up only 2% of their total revenue. The market for online advertisement is growing rapidly over the next years, which means they should seriously look into exploiting into this in order to increase their total revenue and not to fall behind.
Technological Development
eBay’s websites still have some areas of improvement in order to increase their profit. They will need to look into the user interface in order to improve payments and have to work on their shopping search engine. This will not only result in higher customer satisfaction but also more awareness.
3.3. Opportunities
Internet Usage
Globally more people are expected to gain access to the internet in the forthcoming years. If eBay is able to grab those peoples awareness they might be able to increase their user numbers and hence revenues and profits. Internet Usage is expected to the higher accessibility of broadband technology.
International Expansion
Over the last years eBay has already made use of International Expansion and also with much success. Currently revenues made in international activities make up 30% of the companies total revenue. In future they could broaden their international expansion into at present untouched markets which have the potential of generating revenues.
Market Penetration
Even though the current user count of eBay internationally is around 62 million, they could penetrate the market further. Many million Internet users in the world could potentially become eBay users. If eBay now conducts a business strategy, which would gain the awareness of those people, this would promptly increase their profits.
New Markets
Diversification is a great opportunity for eBay. In this the company could use their technological knowledge and their extremely well known brand name to do so. Once more this would increase revenues and profits
3.4. Threats
Competition
See 7. Competition
Consumer Confidence
If eBay were to loose consumer confidence this would reflect on there sales and profits. There is already some fraudulent selling taking place but eBay has taken measures to put a halt to this. Internet Shopping sites have also always had troubles with security issues and this would have a deep impact on eBay because many people are still very hesitant to and suspicious off online shopping.
Dependence on Seasons
eBay in the vein of most online shopping sites subjected to seasonal factors. During public holidays, such as Christmas and Easter and during the summer months fewer people use eBay. Therefore eBay has to rely on good performances in the first and fourth quarter of the year. Poor performance during those while have a bad effect on the company’s total fiscal year revenues.
Interest and Exchange Rates
The fluctuation of interest and foreign exchange rates has an immediate and significant effect on eBay’s earnings.
Lawsuits
eBay is currently facing a lawsuit filed by the privately held company called MercExchange. MercExchange supposed that eBay infringed their patent for online auction technology, shopping search engines and other systems used in the creation of online electronic marketplaces. In case eBay would be found guilty of this patent infringement they might be asked to pay MercExchange compensations seriously affecting their earnings.
4. PEST Analysis
Table 2
4.1. Political
eBay is a company, which is not very much influenced by political developments. Some countries might put some policies affecting them in place and the on-going globalization might have effects on them as well.
Globalization
Globalization is an issue that will positively affect eBay’s business. They will be able to expand internationally and find new markets.
Government Policies
Some government policies in favor and against interests might be introduced. When looking in the past though, national governments have left e-commerce alone.
Regulatory bodies and processes
Regulations could be passed making sites ensure a certain level of security in online shopping, increasing customer security but also costs for online businesses.
4.2. Economic
Interest and Exchange Rates
A future instability in Exchange rates would have heavy effects on eBay. Interest rates would also be affected by the instability and therefore affect eBay in bad ways.
Economy Situation and trends
Economic situations of course have a direct impact on eBay’s good performance. Another Wall Street crash would probably devastating effects on eBay while a second boom e-commerce would make eBay’s profit rocket.
Taxation
Taxation might affect eBay in two ways. First of all higher taxing of their profit might be possible. Secondly and more importantly if taxation for every sale in online auction houses would be introduced this would seriously damage eBay.
4.3. Social
Lifestyle Trends
Further integration of the Internet in the daily life will be a major issue in the next years. This is a great opportunity for eBay and will affect them very positively.
Consumer buying patterns
Consumer might develop completely different buying patterns meaning that they might start buying everything online and getting it delivered. eBay could make use of this and find new markets.
Brand image
eBay’s brand image might suffer over time and their competition might then overtake their position as market leader.
Demographics
In some countries the population is becoming older and in some younger. Older generations might not show much interest in a service like eBay while younger generations generally show more interests in innovations. This means that older societies might not be such a market for eBay to aim at.
4.4. Technological
Consumer buying mechanism
In future buying of products will more and more take place on online platforms. eBay might be able to take advantage of this by finding new markets and increasing their market share.
Innovation potential
If innovations come, which they will, and eBay does no steps towards them, one of their competitors will do so and maybe even inherit eBay’s position as market leader
Patents
eBay might be confronted with further patent or licensing issues, which can do them major harm. In very bad cases this could mean that eBay’s earnings are cut down to large percentages because they go to patent owners.
5.
Currently eBay is the market leader in online auctioning but they also compete with other e-commerce business like Amazon.com, Yahoo, MSN, uBid and different smaller national businesses. Their extremely superior brand name though, does not make it look like any other company might overtake there position.
6.
The special thing about eBay is that they do not have a specific target group. eBay users are not of one special age group, gender, racial group or ethnic group. Therefore there target markets almost all internet users in richer countries, which includes North America, Latin America, Europe, Asia and Oceania.
7.
eBay was set up as a small business in 1995 since then it has grown into a big multinational company and over time encountered some bigger and some smaller competition. As it has now established its position as market leader its competition might not seem very challenging. Their competitors include some other big multinational companies like Amazon.com, Yahoo, MSN, uBid, Sotheby Holdings Inc. and Onsale. All of them combine to take away some of eBay’s sales and market share. eBay’s popularity though towers all of them and they will continue to be the market leader.
8. in Ten Years?
eBay’s growth have been amazing over the last few years but can this enormous success sustain and will they still exist in ten years? Even though growth might slow down or even stop eBay will still be making high profits. The operational costs of eBay are rather low in comparison to other businesses with such large revenue, because of their business model and therefore making loss is highly improbable. Competition might grow over the next years but not so soon can anyone compete against eBay credibility and their brand name.
9. Future Strategies
This section will describe some strategies eBay could take to even increase their market share and therefore improve their performance.
Make use of Higher Internet usage with the help of Market Penetration
eBay is fairly large with its 62 million registered users but that still is a comparatively low percentage of the total number of internet users all around the world. The number of internet users though is still growing and eBay could concentrate on making them members. They could do so in several methods. First of all they could start making joint ventures with internet providers. The provider would place a link to eBay’s homepage in their dial-in program and in return they would get a commission for everyone who signed up at eBay later on. This would of course also work with users of eBay inviting their friends to sign up in order to get a reward. This would drain a lot of new and old internet users on eBay’s homepage and even dramatically increase user numbers. The question is though if those new users also make use of eBay and this of course is a very expensive strategy and mean loss at first. In a similar way they could pay computer manufacturers to install a link to eBay on all new computers. At last new users can be attracted by giving out little presents after the registration process. These strategies are all rather simple but also effective methods of gaining a higher awareness from internet users and boosting the user numbers. They are also all very similar and have the same purpose and can therefore be summarized as a strategy used for attraction of mainly newer internet users.
Overcoming problems with Seasonality
eBay’s problem with Season based losses during the summer months could be overcome in several ways. First of all the company should start advertising more strongly during those months increasing the awareness of customers. This might be expensive but will decrease the dependency of the company on the Quarters 1 and 4. More importantly though, users could be attracted to use eBay during those summer months too by giving them discounts on the eBay fees. This could be tested for a couple of days to see whether this increases sales on the sites all around the world. In case this works the company no longer will be so dependant on Quarters 1 and 4 which is a major risk.
10. Bibliography
16.10.2004:
http://globalization.about.com/gi/dynamic/offsite.htm?site=http://siliconvalley.internet.com/news/article.php/3102051
http://www.ebay.com