Online trading platform eBay started in 1995 when Pierre Omidyar started his unique online auction site. Originating from United States, eBay grew rapidly and soon, internet users from worldwide were market size that was twice that of US. With eBay’s globalization into more than 23 countries, problems started to rise. The pace of eBay’s globalization was, perhaps, too fast for the foreign countries to adapt to the e-commerce that is operated as an auction site such as eBay.
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In general, problems such as translation software, government regulation on various areas of business, digital divide in the world, and culture of anticipants’ attitude toward e-commerce hindered eBay’s growth. eBay’s former CEO, Meg Whitman, had a vision of providing a global trading platform where practically anyone, anywhere, could trade practically anything at anytime. However, critics of eBay remain skeptical on whether or not eBay can overcome its elements of barriers and obtain growth. The problems mentioned above are definitely factors of eBay’s barriers to growth, but eBay’s stall on growth can be explained in terms of strategies that they implement overseas.
eBay wanted to expand internationally using global strategy of AAA-Acquisition, Activation, and Activity. The strategy worked successfully in Europe, but in the face of East Asia, they confronted some hardships. First, value chain of eBay helps to understand what eBay is all about.
eBay’s Value Chain
Because eBay is a firm that provides online platform for people to trade with each other, eBay does not sell anything directly to the users of eBay. Rather, eBay’s product is the website itself. This makes the value chain of eBay to be quite unique compared to other many e-commerce companies. There are five primary activities of which create values for eBay:
Maintenance of the Website
Regulation of Policies
As eBay’s former CEO, Meg Whitman, said, eBay’s vision is to build an online platform to let anyone, at anytime, and at anywhere trade anything. In other words, their ultimate goal is providing an excellent platform that anyone can use. So, the first and foremost value creating activity is the basis for website building. This is where most of the value for eBay is created. Next value addition is how the website is maintained. As the website itself is a virtual product, it can create problems for the internet users on the process of using it, and the website is rather vulnerable to attacks from outsiders such as hackers. Therefore, strong maintenance to contribute to operation of this website is a trust-building activity that adds value for the customers. Next activity that also builds trust to its users is the regulation of the website. Policies that help users to have a good experience with usage of the website are very important to building trust between eBay and the users.
Marketing of eBay can refer to TV commercials, advertisements, and expansion of eBay to international markets. As eBay is exposed more to the people through ads, value of eBay will be added through brand awareness. Lastly, through helping users with technical problems, communication problems, payment problems, and other means of problems regarding the usage of the website, eBay can add more values for itself from its service activity.
As one might expect, eBay’s value chain is mainly virtual. Only a fraction of eBay’s “product” is in a physical form which is the servers they use. In order to handle a lot of traffic to the website and enhance the capacity of information uploading, physical servers need to be set up in different areas of the geographical regions. Other than that, all of the other activities are virtual. The product of eBay only interacts in a digitized world of internet with the end-users. Because eBay’s product is virtual, marketing strategies overseas have been not so successful in regards to building the brand eBay.
Its unique structure of value chain calls for specific coordination for marketing. It made a good configuration to the product of eBay. Yet, in terms of marketing, the strategy of global AAA does not seem to work efficiently to expand “eBay”. There is a need for some local responsiveness for eBay to succeed in foreign markets. However, when eBay acquires local online trading sites, it loses its value as what eBay has been standing for because its positioning doesn’t fully comply with the core competency of eBay. In fact, an option such as “buy it now”-starting in US-made eBay lose its value as an auctioning website. Not only that, but also that some of the acquired companies do not operate their trading platform in a form of auctioning, but rather just sales listing. This makes the eBay’s values to diminish, effectively losing the value that it has created and added through other primary activities. Simply, configuration for primary activities other than marketing has been adding value to the company, but marketing activity has led to eBay’s positioning to be obscure. In other words, eBay is disregarding its core competency.
Core competency and problems with Korea
The core competency of eBay is as simple as an analyst puts it: “The 3 core sources to eBay’s success were community, community, and community” In other words, eBay’s core competency is ‘auction based on community.’ Along with the first boost that eBay gained by first-mover’s-advantage in the online auction market, eBay gained sustainable competitive advantage by running its business through equality, trust, mutual respect and responsibility of the community. This was especially important to eBay because as Pierre Omidyar said, “people do not do business without trust and trust is shown when people treat others with respect. Therefore how they treat others has direct influence with our business.” eBay created and supported this community culture with several methods:
Being able to upload information about ‘me’
Uploading personal information about the seller themselves (for example, brief information about their company or procedures of the production)
Enabling buyers and sellers to grade each others’ performance during the transaction which makes them to be more respectful and well-mannered; therefore, it eventually contributed to the overall trustworthiness of the community
Chatting site for the buyers and sellers to communicate where users can exchange information about the needs or demands of each other, enhancing the transaction of products
customer(both buyers and sellers) support
voice of customer(both buyers and sellers) day
Overall, the platform itself was supported by eBay itself by the constant effort to make the transaction easier and secure. However, giving a shape to this core competency can differ from country to country and the method that eBay chose for globalization, which is through acquisition, made eBay more difficult to exploit its core competency. This is mainly because it is hard to transfer or build the community culture of eBay if there already is an existing culture or structure. eBay recently took over G-market, who once was the main competitor to eBay in Korea’s online market, gaining 90% of the online market share (Chosun.com) in Korea. Playing a role of monopoly, eBay will gain substantial amount of profit for the next few years in Korea. However, until 2008 eBay had to go through a huge struggle in fighting against G-market.
“When compared with the meteoric rise of G-market, Internet Auction even looks like a setting sun,” – Kim Chang Kwon, an Internet analyst at Daewoo Securities in Seoul (Bloomberg business week)
The reason for a failure in the battle against G-market though Auction, in our point of view, is fundamentally linked to auction that is not adapting to eBay’s core competencies. The culture of Koreans definitely played role in preventing eBay’s growth, but if eBay knew about this, there should have been an action to help Koreans to favor auctioning rather than just plain listing. Providing community with the auction as eBay used to in earlier years would have helped to perform better in Korea. Just by taking over a company to maintain profit is not a good idea for eBay in the long run because acquisition is very costly as well as that acquired company may not match the core competency of eBay.
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Strategy and the Problem
For e-commerce company like eBay, it’s best to adapt high global integration as well as high local responsiveness. eBay has been using global AAA strategy which called for acquisition, activation, and activity. In 23 countries, they used acquisition, South Korea and other two countries with a mix of acquisition and activation, and other 3 countries with all three mechanisms. Their initial strategy of their overseas market was global strategy which was good for high global integration, yet lacked local responsiveness. This type of strategy is good for standardization of the product and cost reduction overall. However, because they wanted to succeed in their expansion, they had to switch in to the local culture to generate more revenues. What this made eBay transform into was a “multi-domestic strategy” which is a strategy focusing only on local responsiveness. Yet, problems still emerged and there was a stall in eBay’s growth.
With the extensive use of acquisition overseas, eBay try to dominate international markets. But with the fast growing e-commerce market, eBay had to face many more competitors which became the targets for eBay’s acquisition. This was not so good in terms of cost because acquiring a company is very costly. For example, eBay has failed to break into Chinese market because they implemented wrong strategies. First of all, eBay sent a German manager to lead the China operation and brought in a chief technology officer from the United States. They didn’t speak and Chinese, and didn’t have a good understanding of Chinese culture. This led them to fail their marketing campaigns and their rival Chinese company, Taobao, took over 67% of the market shares in Chinese market. Jack Ma, a founder and CEO of Alibaba group (Parent company of Taobao), knew that TV commercials were better than bus ads or billboards. Also the website itself only held 10% of its listing as auctions while eBay put 40% of listings as auctions. Being at a disadvantage, ultimately eBay pulled out of Chinese market.
There are many other cases in which eBay failed to fully succeed in international market. Many times multi-domestic strategy of acquiring companies and operating in the ways of these companies led to too much localization. eBay lost the core of what they were all about through these acquisitions and high localization. Localization is a crucial factor in international business strategy, but global integration is also another factor that must not be overlooked. In the long run, a company’s identity, core competency, and brand awareness are what determine the higher value of the firm. In other words, transnational strategy should be regarded with strong attention for eBay to successfully enter new markets.
Deriving from their failures to compete with foreign firms, Jay Lee, eBay’s senior vice-president who heads the Asia-Pacific region, says “G-market has been one of the most successful e-commerce companies in Asia, and we want to use its model to expand our presence in the region.” However, would this strategy really help eBay stand in its original position as community-based auctioning website in the future?
eBay needs to build a strong brand rather than expanding rapidly and failing at it. eBay’s users complained that eBay was transforming into corporate monster. The changes that eBay has made to its website such as removing negative feedback and changing the fee structure, made eBay’s long standing brand representation of being a “democratizing force that cut out the corporate world by allowing consumers to buy and sell directly each other” to a corporation image through changes. Nigel Walley, the managing director of digital media research and development consultancy Decipher and former marketing director of NTL’s internet division, said that eBay lacked innovation and have made a weird transition from being an unruly brand to a brand struggling with a lack of direction. He suggests that eBay build a strong brand recognition method to appeal to non-users to make them start trying out eBay.
Just as Nigel is suggesting there is a need for strong build up for core competency again for eBay. Because eBay is not positioning itself firmly, there is a blurring effect on their brand image. Non-users really have no incentive to even glance at eBay. eBay does not need to introduce new features like “buy it now”, but build a community. Favoring one customer over another-regulating eBay policies to favor “better” customers like small businesses-does not go together with their visionary statement. We do understand that circumstances are hard in different situations, but that should not be the factor to changing the whole shape of eBay to arrive at small profits.
eBay needs innovation, an innovation that will not conflict with the core competency or its vision. Providing new service does not necessarily mean changing its trading format from auctioning to plain sales listing. They could introduce a physical location of auctioning for anyone to come and have a fun experience for auctioning. This type of new break through for eBay could increase their brand awareness and what they’re really all about to people in physical presence. Again, the point here is to build and innovate around their core competency rather than being driven by profits for success. Success will follow when brand image and reputation becomes strong through core competency and their marketing strategy.
Another alternative solution is to stop expansion and develop more marketing strategies. Especially in a small world of internet, a type of very effective means of advertisement is mouth to mouth advertisement. Social Networking Services such as Facebook can really affect eBay if people talk about eBay on SNS. This is an effective means of low cost advertising because all eBay has to do for people to talk about it is to excel at what they’re doing.
Surely, there could be some TV ads, or billboard ads, but this is not a good way of advertising for eBay because eBay doesn’t have a specific product. What it needs to do is to tell good stories about eBay. Growing brand awareness through non-business activities such as charities, or sponsorship, eBay can substantially add value to their company. eBay failed in some countries in East Asia because they didn’t have the right marketing strategies. Commercials and ads are not what marketing is all about. There is a product side of it. If eBay can support what it announces for through excellent service, then people will naturally have positive experience which will lead to growth overall. eBay does need a lot of traffic to its website to generate more transactions to be made; yet, eBay shouldn’t do whatever it takes to just bring people to their website. eBay should make people “follow” their website because of its superiority.
So, if eBay stops their expansion and further acquisitions for their greed on the profits and focus more on developing superior product (the website), then the company will naturally grow in size and natural demand from overseas. Because eBay requires internet to be widely used in a country that they wish to expand into, the natural demand that would grow would source from people with internet. Once the demand gets large enough, eBay can readily break into new markets without too much trouble. In order for this to happen, they need significant demand for their product, and this would require significant differentiation from their competitors in the e-commerce industry. Again, differentiation could emerge from product development.
We recommend the first solution that eBay should start building its brand in compliance with the core competency. Stopping the expansion and developing the product might take too long and may let the competitors take away market shares in the short run. Although both of the solutions are aiming for the long term success, the first solution can be implemented quickly without disrupting their main operation of business. Innovation and new ways to appeal to users as well as non-users of eBay are the keys to success. eBay should focus on success not by the means of profit, but in a perspective of brand recognition amongst people around the world. Success will follow once eBay is firmly established as benevolent unique entity.
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