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eBay Institution, launched in 1995, is one of the most successful and popular online auction and shopping websites, providing marketplaces for sellers and buyers to list, sell, bid and buy products and services. With hundred thousands of the United States citizens make their living by buying and selling on eBay, and with more than 56 million active users, in 2009, acquired many companies, e.g. PayPal, Skype, shopping.com, wishes to stay as a leader in online distribution channels. eBay asserts "trust" between buyers and sellers as the key to the success of the marketplace.
"The world's Online Marketplace" statement declares the company's position in the global marketplaces. eBay has built a successful business model either within the national borders or internationally and attracts diverse communities of individuals and small businesses. The company attempts to expand the work ethic and culture of eBay as an open and trusting environment to increase its daily millions transactions.
eBay market capitalisation had exceeded that of even Amazon.com, and has brought it to the light as the "world's most valuable Internet retailer". Despite environmental dangers and competitors threats, eBay's management desires to make use of the opportunities and alter the company as the "world's largest online mall". This research paper aims to study eBay business model and to verify challenges the company might confront.
In the late 1995, Pierre Omidyar established "Auction Web", as an online auction website which had few visitors during the first days. He desired to provide a visual marketplace for individuals to advertize and launch their goods and services. Auction Web was more successful during the next two years, when more visitors were attracted and eBay entered into its first third-party licensing deal to sell travel products. In September 1997, the company's name changed to eBay Inc. The company's mission, furthermore, strengthened to create online person-to-person marketplaces, where customers bid on the listed items, provided by sellers.
Procedure / Research (350)
The case study research method, defined as a case study of a specific Institution. It is the most frequent qualitative method applied in information systems context. Yin (2002) [i] describes the scope of a case study as "an empirical inquiry that investigates a contemporary phenomenon within its real-life context, especially when the boundaries between phenomenon and context are not clearly evident". Obviously, the case study research method is particularly well-suited to Information System research, and since the interest of this research was to study of Electronic Commerce in eBay Institution, the interest has shifted from technical to organizational issues.
The main purpose of this research was to verify a successful ecommerce business model, from a strategic perspective. eBay Inc., hence, selected to fulfil the research requirements, i.e. an accessible database, adequate research works, and most importantly distinctive business model.
In order to comply with research necessitates, empirical materials collected from trustful contemporary divers sources. Most of research papers found via Infolinx available in university computer cluster, by selecting find database, business and management and e-journals. Then business source complete (EBSCO), advanced search of Science direct, and Emerald management Xtra respectively selected to find the best results. The keywords used differed from e-business and ecommerce for introduction part, to eBay objectives, strategies, strengths, customer to customer, etc. for analysis part. Google Scholar also was an alternative search engine, although, more accurate and related results are acquired by using Infolinx. Another trustable source of extracting data was eBay.com, where valuable empirical materials, such as FORM 10-K Annual Report, and accurate data, e.g. Financial Statements, were archived.
Findings / Analysis (825)
Soon after the earliest success, eBay set foot into other markets with higher average sales price (ASP). The higher the ASP, the more profit eBay obtains. In other word, its transaction fees are based on a percentage of sales. Nowadays, eBay has become one of the most successful and profitable international automatic auction and shopping websites all around the world. The online marketplace enables sellers to categorize their selling items by a few minutes and facilitates buyers to find the best items through thousands of products.
eBay enables its website users, i.e. buyers and sellers, to bid and browse freely. As an item is being sold, seller would be charged eBay transaction fees. There are two sorts of transaction fees, "insertion fee" and "final value fee". Insertion fee model charges seller according to the opening bid once an item is registered on eBay. The later is charged when the auction is ended.
Figure - eBay Marketplace Business Model
eBay informs both seller and buyer via email when the auction is ended. The transaction then would be completed by their confirmation.
As it is shown in Figure 1, eBay permits its users to communicate liberally via creating forums, individual content creation, and rating. That is, the customer-to-customer side of eBay business model, operates alongside of business-to-customer side as a result of buyer-seller interactions specifically provided an small business acts as the seller.
Most of eBay's revenue gains through the listing and commission on fulfilled transactions. PayPal users have to pay an additional commission fee per purchase. Margin on every single transaction is remarkable because when the infrastructure is built, incremental costs on each transaction is tiny - all eBay is doing is transmitting bits and bytes between buyers and sellers, Dave Chaffey 2009.
eBay missions could be outlined in continuous e-commerce leading expanded on trust, and motivated by opportunities.
Nowadays, eBay incorporate three large-scale businesses, i.e. Online Marketplaces, PayPal, and Skype Internet Telephony. As the biggest online marketplace, eBay's mission is to "create the global online marketplace". Besides, as a subsidiary of eBay, PayPal seeks to "create the new worldwide standard for trustful online payments". Furthermore, Skype Internet Telephony, took over to allow buyers and sellers to speak prior to biding, SEC 2009.
Meg Whitman, former President and CEO of eBay Inc. announced "eBay, PayPal and Skype are successful businesses on their own, and together they create additional opportunities for innovation and expansion."
eBay Objectives and strategy
As a for-profit company, eBay's core objective is to augment its revenue from the eBay marketplaces. First of all, they direct their strategies toward attracting new users and increase the number of customers, so called acquisition. Then they aim to active more users to bid by imposing alluring regulations, such as lowering fees for listings items and offering proper incentives and discounts for their customers. Finally, they wish to mount up the gross merchandise volume and value of transactions which are conducted by every single active user. eBay Annual report (2010) [ii] showed 90.1 million active users at the end of 2009 in comparison with the 56.1 million active users at the end of 2007, eBay Annual Report (2007).
These are the main eBay strategies, although, different local markets desires distinctive strategies. Category expansion, new interaction formats, and marketplace enlargement have been eBay fundamental tools of performance improvement.
There are few remarkable online auction websites in plenty of countries, although, lots of indirect competitors threaten eBay marketplace. Figure 2 demonstrates the variety of eBay competitors.
Figure - eBay and divers range of competitors
Few years ago, eBay cancelled its operation in Japan because Yahoo! was more powerful in the market. Its operation is also being threatened in other Asian countries; particularly china where Yahoo! provides boarder range of services.
As an online auction and shopping website, eBay provides virtual marketplaces for selling goods and services in addition to commerce, platforms, online payments services and online communications offering to individuals and small businesses. The strong brand value and market position, apart from high risk of internet fraud, are the fundamental factors of eBay success.
Table - eBay SWOT analysis
Efficient business model have probably presented eBay as one of the most successful online channels globally. The distinctive business model has moved buyers and sellers in union and has made a flexible and cost effective model. The most important features of this business model are zero inventory and a place for end-of-life and scarce.
eBay has made a strong market position and brand through the years. According to Datamonitor 2009, the eBay brand value rank stood as the 54th brand, estimated around $12.9 billion by the end of 2009. In December 2009, eBay had around 90.1 active users and approximately 150 million listing worldwide. Increasing the number of customers has brought about worldwide growth, which enables company to present in 39 countries and gives eBay substantial bargaining power.
From 2005 to 2007, eBay's total revenues increase by 13% as a result of excellent performance and helped the company to keep its position as the market leader.
The world's online auction and shopping company has continuously been involved in different litigations. Many companies like Netcraft Co. claims that eBay and its subsidiaries undermined their patent right. From 2006 to 2007 many lawsuits was filed claimed that eBay Inc. were monopolizing markets, almost all of these lawsuits are still open.
Up to the present time, eBay has not been able to screen its process in order to control counterfeit products sales. Some sellers unconsciously commit infringe the certain product resale, regardless of intentional fraud cases. Lack of appropriate monitoring has exposed the company in danger of negative public attention and divers' quality check litigation. The image of eBay's brand, consequently, would be sullied and this influences the revenue.
Internet advertising grows rapidly and is expected to generate $147 billion by the end of 2012. eBay gains remarkable profit from advertisement and classifieds, specifically after the launch of their own advertising service. Thus, increase of Internet advertisements will raise revenues directly from advertising service provided and selling advertising space.
During the uncertain economic periods, consumers are more interested to buy used goods, as a way to save money. According to Securities and Exchange Commission (2009), around 75 percent of adults economized on money by purchasing used goods in 2008. Through eBay Marketplace, eBay is able to influence the consumer's behaviour for pre-owned items and acquire leadership in the niche market.
Internet markets are exposed to various kinds of fraud, including counterfeit goods, credit card frauds, etc. The average loss was around $931 per complaint, according to the Internet Crime Complain Center's statistics. Approximately 64 percent of this loss registered as auction fraud, defined as distorted description of the items sold in auction websites such as eBay. Efficient monitoring is costly as the company has to incur considerable expenses to eliminate deceptive actions.
System breakdowns may raise operational risk for the company during the long term. The interruption of eBay.com for about a day and PayPal for 5 days in 2008 could reduce the service reliability, which is specifically critical for the payments division. eBay marketplace transactions include numerous business daily and system shutdowns might influence revenues substantially. Moreover, frequent system failures make users to switch to rivals and the company's reputation and brand value would be affected negatively.
Conclusions and recommendations (470)
eBay's strategies to provide an online marketplace seems to be chosen correctly. As the "world's online auction and shopping website", they have been able to increase customers numbers, acquire new companies and develop biding, selling and purchasing methods. Indeed, eBay business model has been succeeded to convert yesterday opportunities to the current strengths and to build a strong market position and brand, and to raise revenue.
On the other hand, fragility of eBay Inc. endangers company's performance and profitability. eBay should undertake more precautious monitoring arrangements in order to reduce risk of fraud, since the company is exposed in danger of negative public attention. Efficient monitoring is costly as the company has to incur considerable expenses to eliminate deceptive actions, although, innovative security procedures appears to be vital .In addition, eBay should take safety measures to make sure that its operations are not further involved in any litigation.
In conclusion, eBay Inc., who set the pace in virtual shopping market around a decade ago, should consider new strategies in order to reach the company's ambitions, i.e. "world's largest online mall". This research was an attempt to study an ecommerce business model from a strategic perspective. This analysis requires more information and data to fulfil a comprehensive strategic study. Keeping that in mind, this attempt has ample scope for improvement and further research will add value undoubtedly.