EBay is the leading online auction company. Especially in U.S it has dominated the market with around one third of population registered. It has encountered difficulties in France due to competition from iBazar. It is originally in San Jose, California founded by Pierre Omidyar. It involves the sale of goods and services by person to person online community trading (Docstoc, 2010a). EBay has an automatic system for listing item which was utilized by buyers and sellers. The sellers listed the goods they intend to sell online, after this the buyers bid on the goods using the automatic system provided by eBay. From its foundation, there have been around 186 million bids for over 50 million goods available for sale (Docstoc, 2010b). There has been over $841million made from all the commodities sold with an average of 800,000 bids per day.
EBay has its strategic issues which it’s trying to achieve. These strategies include; capturing the international markets, creating an environment which attract large corporations to buy and sell their products through them and to seek vertical integrations. It is facing much competition even from Amazon.com; therefore what it needs to do is come with mechanisms to beat its competitors. At September 1998, eBay had $18 a share. At the end of February 1999, eBay’s stock was trading at $282 per share (Docstoc, 2010a). It was starting to go behold Amazon.com, which made it the top internet retailer. It survived in the market due to its competitive advantage which lies in its pure play strategy, a breakthrough from the traditional brick and mortar model, which leads to sustainable growth and a competitive edge over the other retailers. This case was written to show how eBay was able to survive in a competitive market. It shows how efforts are made to penetrate the France market but it is facing challenge from iBazar.
1. Internal Analysis
1a. Evaluation of Strategic Direction
• EBay’s mission statement is to provide a global trading platform where practically anyone can trade practically anything.
• The vision of eBay is to pioneer communities built on commerce, sustained by trust, and inspired by opportunity. It brings together millions of people every day on a local, national and international basis through an array of websites that focuses on commerce, payments and communications (Docstoc, 2010b).
• EBay’s main objective is to develop the work ethics and culture of eBay as a fun, open and trusting environment and to keep the organization focused on the big picture objectives and key priorities (Docstoc, 2010a). It applies the pragmatic culture which enables it to meet different client requirements.
• The leadership style is majorly the use of influence and not power. Meg Whitman who is the CEO is a charismatic leader.
• The beliefs at eBay are that people are basically good, everyone has something to contribute, an honest, open environment can bring out the best in people, recognize and respect everyone as a unique individual, treat others the way we want them to treat us.
1b. Analysis of Resources and Capabilities
The product categories at eBay include; antiques, art, baby, books, business and industrial, business and industrial A-C, business and industrial D-J, business and industrial K-Z, camera and photo, cell phones, clothing, shoes and accessories, coins, collectables, computer and networking, consumer electronics, crafts, DVD and movies, doll and bears, entertainment collectibles, health and beauty, home improvement, home living, jewelry and watches, miscellaneous A-Z, motors, music, musical instruments, real estate and sporting goods among others(Docstoc, 2010a) .
EBay has been used as distribution channel by many sellers. Those intending to sell their products could place them at eBay’s system for them to be marketed and distributed. EBay operates at many geographic markets including U.S, Japan, Germany, France, U.K, Italy, South Korea, Canada, Spain, Australia, Netherlands, Sweden, Switzerland, Australia, and Belgium.
Ebay has several strategies which are used in value chain creation. It has established relationships so many websites which help it to be in contact with a large customer base. It also uses the strategy of concentrating in both local and international markets which gives the users opportunity to shop at their own convenience. (Docstoc, 2010a) It creates a strong brand to ensure that their products are on top of those offered by their competitors. It also applies the strategy of broadening the trading platform introducing higher priced products which will increase their profit. It maintains a strong community affinity and continually enhances site features and functionality.
The main vehicles of eBay are that many people are beginning to use internet, therefore doing business online is convenient. Globalization is happening at a very high rate and hence eBay is trying to dominate the international market. Customers need reliable means of buying their goods. Due to this demand, eBay is trying its level best to include market renovations arising with increased technology.
EBay is different from its competitors in different ways including its stickiness to what it does, it has a good reputation due to the good services it offers to its customers, its website is appealing to the users and it functions perfectly, it offers variety of product categories, the money offered for the products is appealing, and the trading environment is community friendly (Docstoc, 2010a).
Resource Value Rarity Inimitability Nonsubstitutability Exploitability Total
3 4 5 2 3 17
eBay’s Site Map 5 2 3 4 2 16
Auction Software Review 4 3 5 5 4 21
Negative Neutral Feedback Tool 3 1 3 4 2 13
eBay Financial Information
5 5 4 5 4 23
EBay puts value at the top of its priority and that is why it is at the top of its competitors. It makes good use of technology by making its website functioning always.
1d. Value Chain Activities
Value chain is the approach which can be used to achieve a competitive advantage. The value chain consist a lot of activities which are applied with the aim of achieving the competitive advantage. Value chain activities at eBay are divided in to primary activities and support activities. Primary activities include; first inbound logistics where eBay conducted online auction activity where sellers listed their products online specifying all the requirements. The buyers bid on the items online. Second is operations eBay increased the categories of items for sale without consulting the community (Docstoc, 2010a). It did not mind about operations but provided a virtual roof to enable transactions. Third are the outbound logistics where eBay was an online auction venture and did not mind about the process of supply chain distribution to wholesalers, retailers and customers. Fourth is the marketing and sales, eBay had to find ways to establish a reputation to convince new traders (Docstoc, 2010a). Fifth are services in which communities had a chance to interact without installation, after sale service, complaint handling and training.
Support services include; first procurement where eBay does not worry about procurement since it does not posses the goods being sold. Second is technology development which is essential as a competitive advantage. The online services innovate, reduce costs and enhance competitive advantage. Third is human resource management which is important to recruit and train employees (Docstoc, 2010b). EBay uses its own strategies to develop the community. Fourth is firm infrastructure which comprises of management information system and other planning strategies. Since eBay is an online market place it uses person to person transactions.
1e Performance Evaluation
The owners of eBay are trying their level best for the success of the company. They make it easy for sellers to auction their products without meeting with their buyers. They have succeeded in U.S market and are now trying either to buy iBazar or fight with it in the competitive market.
Consumers are satisfied especially because we can see that immediately the business started they were overwhelming postings online for sellers (Docstoc, 2010b). They even went ahead to post photographs of the items they wanted to sell. The buyers immediately responded by biding on the items.
Competition is stiff especially from Amazon.com and yahoo. Though they are performing pretty well, eBay is always at the top of its competitors. In addition the employees at eBay are committed to their work. They make sure that buyers get the highest quality products at the most affordable prices.
The community is appreciating the work done by eBay because the company has found a way in which customers can get products at their own comfort. They do not need to engage in transactions which require face to face communication.
1f. Strengths and Weaknesses
Strengths include; eBay has a good reputation among its customers, it offers many categories of products, its management team is strong, its financial situation is good, it has a broad strategic alliance portfolio, they have loyal customers, they use customer to customer business model which improves their interrelationships (Docstoc, 2010b) their website is always functional and it is easy to work with and they value the community hence they are appreciated.
Weaknesses include; the strategy used by the company so complex, it is not very conducive to small sellers, its first mover advantage is likely to fade, it is facing difficulties in some foreign markets, it is facing fraud which it has to overcome, its customer service is not excellent and it competing with online retailers.
EBay considers that everybody has something good and gives people the opportunity to give ideas. It is ranked the top at the online auction industry because of its functioning website which enables sellers and buyers to work at their convenience. It applies person to person strategy where sellers post their items online and even include photographs. The interested buyers bid on the items. It offers a broad category of products hence the buyers have a wide range to choose from. There are forces which are driving eBay to engage in this business. These include; the growing use of internet, market innovations and the high rate of globalization.
2. External Analysis
EBay had lost its market in China. EBay entered China in 2004 with the intentions of dominating the Chinese market. Alibba used to helps companies conduct online businesses. It was afraid that eBay may start competiting with it. Therefore Alibaba’s CEO developed a strategy of a competing consumer to consumer auction site to prevent eBay from taking its customers.
2a. PESTEL Analysis
EBay is a business which is not connected to political structures. Therefore, I predict that any change or alterations in the political structure will not affect the business.
There is a possibility that the economy will improve in the next 3-5 years, therefore I predict that the business will improve due to good economic status.
I predict that social changes which are going to occur will improve the business since they will come with improved living standards.
Technology is changing with time and therefore I predict that the business will be affected and will need to be up to date with the improvements in technology.
I predict that any change in the ecological system will not have any effect on the business.
I predict that changes in the legal structure will occur and will have an impact on the business.
B.2 Conducting an Industrial Analysis
The online auction industry is full competition from different retailers therefore eBay need to pull up its socks even further. The market size is likely to increase with a 19% growth expected by 2008 (Docstoc, 2010b). The level of competition rivalry is also likely to increase therefore those in the industry which gain international recognition. The number of competitors in this industry is likely to increase as years go by. The buyers’ needs are increasing with time creating the need for excellent customer service in the industry. Though new competitors are entering the market, not many have been able to boat eBay. Technology is changing at a rapid rate, therefore a lot of changes are occurring to the industry of which those involved need to be aware of.
B. 2.1 Industry Structure- Porter’s Five Force Model
Porter’s Forces Now Forecast:
Following 3-5 years
Degree of Rivalry High due to many retailers who are in the market but eBay is dominating the market share. It will be higher since many more retailers will be flooding in the industry.
Power of suppliers It is low for sellers but moderate those in web/online services It is going to be lower than now since online auction reduces supply chain distribution to wholesalers, consumers and retailers. Goods are readily available from different suppliers.
Power of buyers It is weak for individuals and moderate for power buyers. It is likely to go lower since eBay makes sure that the prices are as low as possible. The need for buyers is high and they have information about the products.
Threat of substitutes It is moderate since most people prefer online auction because of its convenience. It will be stronger since online auction is becoming convenient for everyone. Substitutes of high value are readily available.
Threat of new entrants Moderate because it is easy to enter the industry High due to the low capital requirements and few barriers.
ATRACTIVENESS OF THE INDUSTRY High since it is convenient for both the sellers and buyers. It is likely to have a higher attractiveness since the world turning to use of internet for everything since it is convenient.
B.2.2 Competitor Analysis
I. Define Key Success Factors for the industry (KSFs)
1. Extend of product categories and selection Customers will appreciate when there are many categories to choose from without limitation. Inclusion of pictures and explanations about the product attracts more customers
2.strong E-commerce capabilities This involves use of website which easy to use and always functional. Having a website which can handle many transactions will attract many customers
3.ability to generate traffic to the site The website should be having new things which will make customers come back. It should also have good things which will help in attracting new customers.
4.ability to build trust online and protect community members The website should create trust between buyers and sellers and protect buyers from fraud and unfaithful sellers. It should also ensure that all products offered for auction are of good quality.
B.2.3 Opportunities and Threats
The use of internet is increasing in the international markets.
EBay can expand the trading platform.
It can also increase trading assistants in order to capture a larger market, Due to the new products which are coming up, eBay has the opportunity of changing customer needs.
There is a lot of competition. There is increased threat of substitute goods. The industry may reach the maturity phase. Supply imbalances may occur with either supply outgoing demand or vice versa.
There are a lot of conditions in the economy which attract the entry in the online auction industry. Though there are a lot of competitors in the industry, eBay has found itself at the top of all competitors. The market size is increasing as many people are finding online shopping as the most convenient way. Rivalry is high in the industry because it is easy to enter the online auction market. There is increased threat to substitutes since they are readily available and at a good price. New entrants are also a threat because it requires a very low capital to enter this industry and it has very few barriers. What attracts many people to this industry is the growing se of internet, increased globalization and market innovation.
C. New Business Strategy
C.1. New Mission/ Vision/Values/culture/leadership style
In the mission, vision, values, culture and leadership style, it is not important to change anything since they incorporate everything which is required.
C.2. Generic Strategies or Strategic Position of this company
It can change the strategy by expanding the existing trade form, improve the functionality of their website, expand value added services and continue with the development of U.S and other international markets. This will help in attracting more customers internationally.
C.3 Market Position
EBay is a leader in the online auction industry. Despite the fact that there are so many competitors in the industry, eBay has been ranged top.
C.4 What Should the Company Pursue?
The company should put emphasis on growth. It should expand its auction market to other markets and introduce cheap payment systems to attract more customers.
C.5. Generating Strategic Alternatives
Preserving their core business
Expand its market to China.
Reduce fraud and ensure high quality goods.
C.6 Label the Alternatives According to the list of Competitive Strategies
1. Preserving their core business
3. Expand its market to China.
4. Reduce fraud and ensure high quality goods.
C.7 Group the alternatives under the same competitive strategy.
The strategies have a synergistic relationship. The success of the first one determines the success of the next.
C. 9. Use Space and Grand Strategy matrices to eliminate alternatives
The financial strength of eBay is strong since it has been attracting customers which have lead to rise in revenues. The revenues rose from $114 million in 2001 to over $800 million in 2005.
Environment is not very stable because some legal aspects may make the business difficulty. For instance tax may increase increasing expenses to the company. Many retailers are entering the online auction market therefore the environment changes as many retailers enter the market.
The online auction industry is one which is not lately flooded with many retailers but they are beginning to venture in that business since it does not require so much capital to begin.
The most competitive strategy is expanding to Chinese market. This is because all other retailers might want to venture in the same market. To implement the strategies, it is important to research about the market in China and know consumer needs so as to meet them effectively.
Alternative1: Preserving their core business
Alternative3: Expand its market to China.
C.11. Compare alternatives using the Standards
Standards Alternative 1 Alternative 2 Alternative 3
Value added It has high value because people already appreciate their brand. It will make communication in China easy. It will increase their customers since they will capture those in China
Cost It costs less since they have already earned their reputation. It might be costly to implement the communication channels used in China. It is costly because they have to Carry on research and implement Skype.
Risk It has no risk rather it has an advantage that people can identify with eBay. It will take time before fully implementing the China system of communication. It has no risk rather it has the advantage of improving customer base.
The most appropriate strategy is to expand its market to China. It is important to expand this market because since it lost its market in Japan. Their expansion to China will help them correct the mistake they committed in Japan.
C.13 Competitor Reactions
I predict that competitors will react to this by trying to develop their own markets in China in order to pose a challenge to eBay.
C.14 New Strategy
Product Categories will increase as it will conduct research on the needs of the customers and increase the product categories.
EBay will remain a distribution channel used by many sellers.
Geographic Markets will increase as China will be included.
Value-creation strategies and vehicles will remain the same.
It will be differentiated from others due to its research and inclusion of products which are mostly preferred by customers.
Economic Logic is likely to change as the market expands and many sales are made, the probability of increasing profit is very high.
C.15 This strategy is implementable but eBay needs to conduct research about the Chinese market in order to know what customers require. They should also invest advertisement. They can also strengthen their partnership with China pay to make payment from its customers easier.
Chaffey, D. (2011). EBay Case Study E-commerce. Retrieved on April 8, 2011 from http://www.davechaffey.com/E-commerce-Internet-marketing-case-studies/eBay-case-study-e-commerce
Docstoc, (2010a). Case Analysis on eBay. Retrieved on April 8, 2011 from http://www.docstoc.com/docs/29095936/Case-Analysis-on-eBay
Docstoc, (2010b). Written Analysis of a Case – For The Case eBay, Inc. Retrieved on April 8, 2011 from http://www.docstoc.com/docs/26343387/Written-Analysis-of-a-Case—For-The-Case-eBay-Inc