Threat of Substitute Products
Substitutes for the online auction industry could be the other types of auctions and resellers. Some substitutes can be retail shops and any other second hand place, a consumer could purchase goods. The threat of substitute products for online auction industry is relatively low because the other auctions or resellers are not in a direct competition with the online auction companies. Buyers could reach wide variety of customers to sell their products. As a result the threat of Substitute products will be low.
Intensity of Rivalry among Competitors
As general speaking about the auction industry the flea markets, garage sales, physical auctions could be considered competitors; however they are limited in regional markets. Online auction industry eliminated the distance barrier and time barrier results from those traditional regional auctions. There are lots of online auction competitors in the world. Although most serve much smaller niche markets, the larger auction companies include eBay, Yahoo, and Amazon among the others. The rivalry among these companies is high.
2. What are the strengths and weaknesses of eBay?
Strengths
- Market Leader
- First in the Market
- No Inventory Cost
- Work Ethic and Culture
- Customer Loyalty
- Functionality of the site
- Personalized Options (“my eBay, about me”)
- Connecting People not Selling Things
- Broad Product Offerings
- Pioneer of P2P
- Distribution Channels (small-medium companies)
- Strategic Alliances (Disney, AOL)
Weaknesses
- Not Responsible of the Products
- Customer Service
- Technology Breakdowns
- Lack of Backup Capacity
- Aggressive Sales Forecast
3. What are the opportunities and threats faced by eBay?
Opportunities
- Enabling Security Systems
- Mergers with other companies in other regions
- Agreement with Disney will give Massive Opportunity to Sustain Profitability in the Future
- Application Programming Interface
- Global Expansion
- Growth of Internet
- Automobile and Regional Sales
- Business to Business auctions
Threats
- Concern over Privacy
- Competitive Environment
- Not responsible of Products, DMC Act. (1998)
- Increased Costs of Joint Ventures
- Updating Technology
- Smaller online auctions that are gaining the market share from eBay
- Auction Aggregators
4. Is eBay successful? If so, why and if not why?
The online auction industry is profitable and growing very fast. Industry leaders situated themselves and may not move when it comes to taking their sales. Removing them from their thrones is not impossible, but requires either a new market for sales or takes some of the current market. Some shifts are occurring with the recent development of the newer auction companies but to have a stabile market share companies must have a brand name in the auction industry, which leaders such as eBay, Amazon and Yahoo have already done.
According to the text book eBay has a market share of %80. Their market share and financial results shows that eBay is very successful. EBay established a system where everyone had accessed to the same information and could compete on the same terms as everyone else. People from all over the world started to buy and sell things to each other with a reasonable price. Their revenues increased from month to month and they have a low debt. This enabled the company to create partnerships with other companies all around the world and compete in new markets. Giving customers more than they want and providing them a unique service with advanced features gained the company to be the market leader.
EBay’s strategic alliances played an important role for their success. Their partnership with AOL expanded their market to new AOL customers. It gave eBay a great market share and power across the domestic and international AOL family of brands. AOL helped eBay to do all advertising with their co-branded sites. As a result partnership with AOL gave eBay a community of 16 million members, which helped the company to expand international markets. Also eBay expanded its services to other countries by acquiring local companies. Establishing businesses in Europe, Australia, and Japan helped the company to expand its market share along with its brand name.
On the other hand they increased their revenues by improving the volume of people. For this reason they acquired Butterfield & Butterfield Company. Acquiring this company enabled eBay to accelerate its penetration into higher priced items on global basis, because of the acquired company’s expertise in premium markets and extensive relationship with dealers. To compete in every areas and categories eBay entered in automobile market by acquiring Kruse International. This strategy enabled eBay to move on to this market and offer high priced items to its community. High priced items returned as high price transaction costs.
“As a result eBay created a convenient efficient and entertaining market place where buyers and sellers could list, bid for and trade goods.”(Hoskisson) EBay is the first in the market and this helped the company to have a significant market share and growth. At the end of September 2000 eBay had 18.9 million registered users. EBay proved them selves by achieving higher value than many of Fortune 500 companies. As all things concerned eBay moves when opportunities shows up and they are very good at it because they have the potential and have a good capital.
So in conclusion, eBay is sitting on the top of the auction industry. This is due to their ability to maintain low debt while offering the best service available. The company pioneered the industry of P2P auction sites and has maintained a dominant market share. Some of the key factors that help them maintain their market share are easy of use, brand name, reputation, competitive cost. With the help of these factors eBay built the largest and best online auction site and have a great competitive position.
5. Evaluate eBay’s growth strategy.
EBay never had any formal plan to develop the business, but they rather took advantage of opportunities as they rose. Their major goal is to be the world’s largest P2P online auction company. Their growth strategy has managed to gain and maintain the top market share in the industry. They first started to grow the eBay community and strengthen the brand and enabled the company a reputation. Second, they broaden the trading area by growing existing product categories. Third, they provided security systems and rating systems along with other services which increased the community trust and loyalty. EBay’s loyal customers performed the marketing and sales function through word of mouth to bring new customers to the community. Fourth, eBay improved the web functions by accomplishing features like About Me. About Me allowed people to create their own home page free of charge and customize their eBay services. Finally the last one is to develop international markets by creating partnerships or acquiring companies that have strong powers on their local markets.
EBay Company has built strategic partnerships in all stages of its value chain; they tried to seek customer feedback and made improvements based on the feedback information. They also actively monitored the external environment for developing opportunities. EBay trusted the users for suggestions to improve the site and by giving the customers what they wanted; they were improving both customer retention and loyalty. EBay paid attention to their customers’ expectations and followed their values.
As it is clear that, eBay’s growth strategy is focused on the goal to be the world’s largest P2P online auction company. To do this they must have access to the other markets of the world. After completing the steps that are mentioned above eBay moved to dominate the world markets. They built new user community along with acquiring companies that were in the market local companies and partnering with strong local companies. They entered Europe, Australia, and Japan and gained a significant market share. Their growth strategy of acquiring and partnering gave them the brand name in all over the world as they strongly increase their market share.
