The next few years saw more of the “organic growth” championed by eBay’s founder, as well as company directed growth through an acquisitions, alliance and international expansion strategy. In 1999, eBay purchased German online auction site Alando along with Billpoint, a person-to-person credit card technology. Other acquisitions that year included a 6% interest in TradeOut.com (online seller of corporate surplus materials). In 2000, eBay entered into an agreement with Disney’s GO Network to develop auction sites and joined in an alliance with Wells Fargo to offer eBay sellers the option of accepting online checks. A key acquisition in 2000 was eBay’s equity stake in the online used car dealer AutoTrader.com; eBay then launched a co-branded used car auction site (eBay, Real World Case 1, 2005 page. 257).
The company also bought Half.com, a discount online trading community. Significant international expansion occurred in 2000 with the launch of Canadian and Austrian sites and a joint venture with NEC to form eBay Japan. In 2001, eBay launched sites in France, Ireland, New Zealand and Switzerland. Ebay also expanded its core business that year by adding business-to-business auctions as well as virtual storefronts for retailers to sell fixed-price items. Ebay’s 2001 purchase of HomesDirect, an auctioneer of foreclosed property, gave the company a foothold in the housing market. One of eBay’s most important acquisitions was its 2002 purchase of PayPal for $1.5 billion.
The online payment system was already in wide use on eBay at the time of the acquisition and today, 75% of the goods and services sold on eBay’s U.S. site are paid for with PayPal. PayPal is more than just an enhancement to eBay’s services, however. It also represents a way for eBay, Inc. to extend its interests beyond its own marketplace site. While the 2002 PayPal acquisition was widely heralded as a smart move, other signs emerged that year indicating that eBay had a less than perfect track record. In 2003, eBay acquired EachNet, FairMarket, and Internet Auction acquisitions which boosted eBay’s already dominate share of the U.S. online auction market.
Mission & Guiding Corporate and Business Strategic Vision
In its 2005 annual report, Ebay (2005) reported that “our eBay Marketplace mission is to create the world’s online marketplace”. This is quite obviously a very far-reaching mission and strategic objective. In stating that it wants to create the world’s online marketplace, eBay clearly aims at being the dominant player in all markets around the world. Moreover, although eBay has had trouble moving some very high end items eBay specifically does not want to set any limits on the scope of its online trading business so long as the goods and services are legal, presumably.
Ebay’s mission for its PayPal business, while more narrowly focused on the online payments business, is also quite ambitious. As stated in the company’s 2004 annual report: “Our PayPal mission is to create the new global standard for online payments.” Thus, as is the case with its eBay.com business, Ebay aims for global market leadership. At the time that eBay acquired PayPal in 2002 it was already the leading online payment system in the United States. Over past few years, PayPal’s market dominance in the United States has actually increased and the system is making inroads in foreign markets. While PayPal is the overwhelming market leader in the U.S., eBay is likely to face stiff challenges in the future. Search engine giant Google is preparing to launch its own online-payment system that will directly compete with PayPal.
Current Operations & Strategic Issues
Ebay Inc.’s core business is ebay.com, its online marketplace. Ebay’s CEO Meg Whitman has described ebay.com as a “dynamic self-regulating economy” (Meg Whitman CEO eBay, p. 257). As previously noted, eBay.com is no longer focused on collectibles which currently account for only about 25% of items traded on the site. There are more than 18,000 categories of items on the site with major categories including computers, consumer electronics, dolls and figures, books, coins and stamps, antiques, photo, pottery, sports memorabilia, toys, jewelry, and automobiles. Ebay has been surprised by the success of some categories such as used cars. Currently, more automobiles are sold on eBay than are sold by Auto Nation, the leading volume car dealer in the U.S.
Auto and auto parts sales are handled on a sub-site called eBay Motors. There are also separate sub-sites for other leading or specialty categories like industrial products (eBays B-to-B marketplace). In addition to listings of different individual items within categories, eBay.com features entire “online stores” including milling machines. While eBay is known as the online auction house, a growing percentage of eBay transactions are non-auction or “buy now” transactions. It has been speculated that about 30% of the gross merchandise volume traded on eBay was exchanged at a fixed price, rather than through bidding and auction. While it is believed that many eBay users enjoy the “entertainment” of the auction as well as believing that this is the best way to get a good bargain on the site, there also appears to be a substantial percentage of eBay users who prefer the expediency and certainty of the “buy it now” fixed price option.
From the seller’s perspective, the auction option is probably most effective and lucrative for unique items or items of unknown value, where bidding wars are more likely. For moving multiple commodity-grade items, sellers might prefer the certainty of the fixed price. Ebay.com is able to enjoy very high operating margins because the business is structured so that the users do most of the work. Ebay functions as a sales facilitator by providing automated trading systems allowing automatic bidding, a place to list items; a large repository of items for sale and an easy, automated way to search for them; sales assistance for sellers (e.g., how-to-sell courses, various electronic tools); buying assistance for buyers (e.g., search functions, auction tracking systems, notification systems, how to bid classes, etc.); monitoring for fraud and scams; and providing ancillary services such as an online payment system (PayPal).
Ebay refers to its users (buyers and sellers) as its “community”. It is eBay’s community that determines what items are offered and the terms under which they will be offered. To facilitate monitoring for problems and fraud, all of eBay’s users (buyers and sellers) must register on the site. Buyers are also encouraged to register with PayPal so that they will have an anonymous system of making payment. Buyers pay no fees other than the cost of the item purchased and any applicable shipping. Buyers also pay nothing for using the PayPal payment system only sellers pay a fee for using PayPal as a payment acceptance system.
While buyers are obviously critical to the success of the online marketplace, eBay’s most important customers are arguably its sellers, since they provide the company with its revenue. Sellers who sell more than $150,000 per month on eBay are designated as “Power Sellers” and given specialized, personal service (Meg Whitman CEO, 2005, p. 275). While eBay provides the venue, sellers must write their own advertising copy and supply their own photos. They also must attend to their own auctions, although the actual process is automated. Once a sale is complete, sellers are responsible for collecting the payment and shipping out the goods. After a sale on eBay is complete, both buyers and sellers are asked to provide “feedback” on the transaction, with buyers essentially rating the seller and sellers rating the buyer. This feedback system is a key aspect of eBay’s self-governing system.
It is important to note that PayPal is not just an online payment system for eBay.com although with around 75% of eBay.com’s transactions settled through PayPal which allows buyers to keep their financial information, credit cards or bank accounts confidential from sellers and which allows sellers who would otherwise be unqualified for merchant card accounts the possibility of allowing credit card purchases. This practice obviously represents a key revenue source for eBay.com. Consistent with eBay’s strategy for its online payment system, PayPal is increasingly being used as an online payment system outside of the eBay.com site. PayPal is the most visited financial services website in the U.S. and the U.K. and users from 45 countries can use their PayPal accounts as buyers (Ebay, 2005).
Finances & Competitive Analysis
Ebay has millions of very tiny competitors notably, the sellers who sell directly from their own websites and just a few major competitors. Ebay’s biggest top competitors are Amazon.com and Yahoo, both of which have online stores and auctions. Other major although smaller competitors include uBid, Auction Concepts, Overstock.com. The table below provides a comparison of eBay against its top competitors on key measures as of the end of 2005.
Competitive Comparison
Source: Hoover’s Online, 2005.
Conclusion
Ebay.com’s key strength is its status as the established leader in online marketplaces. The company’s vast size with its massive user base and incredible range of items, its strong balance sheet and low level of debt, and its integrated online payment system are other critical strengths. The established feedback system represents additional strengths.
Although eBay’s size and market leadership status is a key strength, it can also serve as a weakness in a maturing market of ecommerce, especially when these factors drive down prices and encourage sellers to seek other venues. Ebay’s somewhat rocky relationship with sellers who increasingly perceive that eBay is gouging them on fees is probably its biggest weakness. While finances are a big strength for eBay, it should also be noted that eBay compares unfavorably with its top competitors on some key financial measures such as revenue per share, ROE, ROA, and ROIC.
Ebay.com has tremendous opportunities for geographical expansion, especially in the still emerging online markets of Asia. Ebay also has numerous opportunities to expand out of its core auction/sale business and to offer ancillary services like Web hosting, private auction management, and advertising services. Ebay’s PayPal division also offers tremendous opportunities for expansion beyond Ebay both in the U.S. and in foreign markets.
Ebay.com biggest threat comes from competitors. For many years eBay successfully trounced its competition, especially its smaller auction house rivals. Top rivals Yahoo and Amazon.com have figured out how to fight back and in many cases are offering their customers a broader range of services at a lower rate and with a more personalized touch. Changes in technology, the progression of pay-per-click advertising and growing tech sophistication among users has also made the independent web site more of a competitive threat.
Ebay must find a way to effectively compete head on with its top rivals at Yahoo and Amazon.com and the only way it is likely to do this is by offering more and different services. It is recommended that eBay begin to offer a broad range of Web hosting and Web marketing services to sellers. Sellers are clearly dissatisfied with eBay on a number of levels. Ebay must start devoting more attention to customer service so that these sellers don’t migrate to other venues. Meanwhile, eBay should also attend to the desires of its buyers. Ebay should intensify its efforts to use data-mining technology to build buyer profiles so that it can direct market to buyers as well as provide for a fee “lead lists” to sellers.
Bibliography
eBay Inc.: Managing Success in a Dynamic Online Market Place (2005). Introduction to Information Systems Real World Case #1 (page 257)
eBay (2005). Company information, investor data on eBay, annual reports. Ebay.com Corporate website. Retrieved February 24, 2005 from
Hoover’s (2005). eBay Inc. - Company Profile. Hoover’s Online.
Retrieved February 24, 2005 from
