Seminar Paper, 2003
43 Pages, Grade: 1
B2B business-to-business market C2C customer-to-customer market C2B customer-to-business market etc. et cetera
In the middle of the 90’s, the importance of the Internet increased significantly. Due to the prognosticated prospects and expectations of the Internet, it did not need a long time until innumerable companies with business models focused on the Internet were established. 1 Only
few of these Internet business models have reached an international size or work profitable so far. 2
However, one of the companies, which reached theses objectives, is eBay. 3 Within this strat- paper, the development of the enterprise and the strategic figures are identified, analysed and evaluated. Furthermore, an evaluation of the environment, the market, the competition as well as financial indices was conducted, in order to evaluate the development potentials as well as the future chances and risks of the company.
)RXQGLQJDQGG0DQDJHPHQW eBay was founded by Pierre Omidyar, who is still the chairman of the company, in San Jose in September 1995. The company’s business is an online person-to-person trading community, using the World Wide Web. Buyers and sellers are brought together in a manner where sellers are permitted to list items for sale, buyers to bid on items of interest and all eBay users to browse through listed items in a fully automated way. From the start, it was meant to be a marketplace for the sale of goods and services for individuals.
In 1998, Pierre and his cofounder Jeff Skoll brought in Meg Whitman to sustain the success. eBay was going public on the New York Stock Exchange in 1998 and has continued its growing. At the end of 2002, there are about 4.000 people working for eBay. 4
&RPSDQ\\([SDQVLRQ eBay operated its first trading platform in the US and has expanded worldwide since 1999. In 2002, eBay was operating 10 websites in the American area, 11 platforms in Europe and 6
One of the most important critical success factors in the Internet business is to be the first mover in the market in order to quickly gain a high market share and to build a customer loyalty (Hill C. W. I, 2000). Since the middle 90’s, many Internet trading platforms have been launched in several countries. eBay did not only operate its expansion strategy in the form to establish their own platform into existing markets. eBay also took over some well established competitors, adapted their businesses to eBay’s strategy and re-branded them step by step.
As eBay is listed on the stock market and has reached a high market capitalisation, acquisitions were mostly conducted by issuing shares without cash transactions. Examples for this expansion strategy are the former German competitor Olando, which was taken over in 1999, 6 and the French competitor iBazar, which was taken over in 2001. 7
eBay into the Japanese market. eBay tried to expand into the Japanse market at a point in time where Yahoo already reached a market share of 95 percent. eBay was only able to gain a market share of 3 percent 8 and finally decided to go out of the Japanese market in 2002. 9
The company increased the number of registered users from 40,000 in 1996 up to 62 million in 2002 by internal growth and its worldwide expansion strategy as shown in Figure 3. The number of listings on eBay was 300,000 in 1996 and reached 638 million listed items worldwide in 2002 as shown in Figure 4. The total value of items sold increased from $7 million in 1996 up to $15 billion in 2002 (Figure 5). 10
changes. Actually, eBay was a trading platform where only auctions took place. The company expanded the trading opportunities so that items could alternatively be traded by auctions or
with the introduction of the feature “eBay stores” which enables seller to establish their own virtual Internet shop on eBay. 12 In the first Quarter 2003, approximately 26 percent of all transactions were already completed on eBay by fixed prices as shown in Figure 6. 13
The vision of the founder Pierre Omidyar was that eBay should be a typical C2C market. 14
This starting base has been developed in the way that nowadays products and services are also be traded between companies to private customers that eBay can also be considered as B2C market. A small proportion of trading activities is also taking place between B2B and C2B. This conscious expansion of the business model also increases the number of new products traded on eBay. 15
0DUNHW3RWHQWLDO Market potential can be determined by specification of the target group, regional aspects, growth and time concerning dimensions. eBay described its global market potential as followed.
As shown in Figure 7, the number of global Internet users was approximately 655 million at the end of 2002. In the 27 countries eBay is operating an online trading platform, there were about 442 million Internet users at the end of 2002. Comparing these figures to the 62 million registered users on eBay, the company covers 11 percent of the current global market potential. 16
that eBay’s used definition of the market potential covers only the today’s market and did not consider any future dimensions or the growing Internet penetration. 18
3(67(/$QDO\VLV Political / Legal Forces
The most important political and legal factors for eBay are the increasing risks of GDWD VHFX ¢ ¡ £ ¥ ¤ as well as the increasing trade with LOOHJDOO SURGXFWV 21 the increasing danger of IUDXG
on the Internet. Another issue for eBay is that many users apply the trading platform professionally 22 and do not pay tax to the government. Government agencies increasingly concerned about WD[[ HYDVLRQ enhancing their investigations. 23 Especially in Europe people can buy and
sell products and services in traditional shops only during UHJXODWHGG VKRSS KRXUV, which cur- means an advantage for eBay where users can do their trading for 24 hours, yet. 24 Governments are going to liberalise the shop hours more and more within the next years. 25
SULFHH OHYHO since the introduction of the Euro currency 28 with the result that people are more price oriented by their buying decisions. 29 eBay is one of the companies which benefit from the weak economic situation. 30 Independently of the general economic cycle, we can also see a general VKLIW RI UHYHQXH from traditional retail trade to trading activities on the Internet. 31 Another economical force is the still increasing LPSRUWDQFHRIILQWHUQDWLRQDOWUDGH. 32
WUDWLRQQUDWH such as the telephone and the television nowadays. Market research institutes expect an increase of the worldwide Internet penetration from 9.8 percent in 2002 up to 15.8 percent in 2006. Men are still using the Internet more than women, but the SURSRUWLRQQ RII ZRPHQQXVLQJJWKHH,QWHUQHW will be higher in the future than nowadays. 33
pecially QHZZWHFKQRORJLHV such as Wireless LAN, DSL, UMTS and the FRQYHUJHQFHDQGGFRP SOLFLW\of technologies will increase the Internet penetration and substantially affect the inten- sity and the way we are using the Internet. 35 Another problem could occur by an increase in
SDWHQWWSURWHFWHGGWHFKQLFDOONQRZOHGJHHDQGGIHDWXUHV. eBay could be affected by patent disputes, could be prohibition to use specific techniques 36 or could have to pay royalties for specific
No significant ecological forces affecting eBay were found.
shown in Figure 8.
&RPSHWLWLYHH)RUFHV Rivalry / Competition
The competition between the ELJJ SOD\HUV is relatively high. 37 The big international players
such as eBay, Amazon and Yahoo have increased their worldwide market share. The market share and importance of sPDOOHUFRPSDQLHV such as Ricardo in Germany, for instance, have been declined. 38 Another development is the DGDSWLRQQ RI WKH EXVLQHVV PRGHOV, especially between the big players Amazon 39 and eBay 40 . 41
will still increase. On the other hand, especially the %&& DQGG %%% on eBay will become a more important force. Regarding the increasing penetration of women using the Internet 42 will
affect eBay in the way that women have different trading preferences and different trading behaviours on eBay. Despite the increase in online marketing spendings, 43 eBay’s business
model is relatively independent of incomes from advertisements. Revenue from UG SDUW\ DGYHUWLVLQJV on eBay declined by 27 percent from 2001 to 2002 44 what means that this power
of buyers against eBay is declining.
WXUHUU DQGG 2(0¶V selling products directly on the Internet. 49 /DUJH UHWDLOO VHOOHUV and PDLO RUGHUU EXVLQHVVHV are also trying to generate more revenue by their Internet pages. 50
7UDGL WLRQDOO DXFWLRQQ FRPSDQLHV are another party, which are trying to expand their business on the Internet, 51 but they currently have problems adapting their auctions on the Internet. 52 On one
hand, the original business model of eBay could be copied relatively easily. On the other hand, eBay’s largest barrier to entryis the ODUJHVFDOHHRIIEX\HUVVDQGGVHOOHU 53
similarly. 55 One disadvantage of buying on eBay is that people can not touch and feel the
listed products and therefore many people prefer to buy their products especially at WUDGLWLRQDOO 56 Another substitute for eBay is the PDLO RUGHU EXVLQHVV where people can buy
products via catalogue or telephone. For second-hand goods people can also choose the alter- © native to buy products at FODVVLILHGGMRXUQDOV or at IOHHPDUNHWV.
VRIWZDUH VROXWLRQV. Suppliers, which sell standardized products and services to eBay, have little power because of low switching costs. Suppliers, selling customized products and services to eBay, have a stronger power. Another power of suppliers could be occur by SDWHQWW 58 The power of QDWLRQDO PDLOORUGHUILUPV, delivering the traded items, is relatively low.
The power of YHQGRUV IRU SD\PHQW V\VWHPV is also low, especially since eBay took over Paypal. 59
)LQDQFLDO3RVLWLRQLQJ Most former competitors from the Internet sector could not keep up eBay’s growth. 60 In addition, many companies from the “old economy” have expanded their sales channels to the Internet, so that eBay can only be compared directly to a few competitors regarding the core business, revenue, profit, and market capitalization. The most important competitors are Yahoo, Amazon and possibly Microsoft Network (MSN).
There are many Internet companies, which are selling products on the Internet, even if there are not sold such a broad range of products as on eBay. One of them is 'UXJVWRUHFRP. The company is the leading online drugstore for health, beauty, wellness, personal care, and pharmacy products 61 with a market capitalisation of $400 in 2002. 62 Analysts often compare the company to eBay because it is also one of the most successful Internet companies. However, despite a revenue of $400 million, the company made a loss of $94 million last year. 63
On 061¶VV Internet portal products and services are marketed by auction prices and fixed prices. The operating revenue reached $531 million, but the company also made a loss of $97 million in 2002. 64 As MSN.com is part of the Microsoft network, the market capitalisation in not declared separately.
<DKRR is the second biggest competitor for eBay with a market capitalisation of about $19 billion. 65 The company’s revenue was $953 million in 2002. The company changed its business model from a pure search engine with revenue only from online advertisements and is now offering added services, which are not free of charge, and operates as a trading platform for products and services. However, Yahoo still made a loss of 43 million last year. 66
$PD]RQ is the strongest competitor for eBay. The market capitalisation of Amazon is about $15 billion 67 and the company reached a revenue of $4 billion last year. But up to now, this competitor is also still in the red and made a loss of $150 million in 2002. 68
H%D\¶V market capitalisation has nearly the size of Amazon and Yahoo together ($ 35.8 bil- 69 and is much bigger as Drugstore.com and many smaller “.com’s” or auction and trading platforms. eBay’s revenue was $1 billion in 2002 and contrary to all competitors, the company has been profitable since the beginning. Last year the profit was nearly $250 million. 70
Note:A financial portfolio for all considered companies is shown in Figure 10.
eBay’s strengths are especially the EUDQGG DZDUHQHVV and the QXPEHU RII ELGGHUVV VHOOHUV. Competitors mostly struggle to find sellers because they don't have enough bidders to attract sellers. On the opposite note, competitors have trouble attracting bidders because there are not enough items. The reason for eBay’s VWURQJJ UHSXWDWLRQ 71 is the predominantly functioning 72 Another strength is that nowadays QHZZ DQGG VHFRQGKDQGG SURGXFWV are
traded by DXFWLRQVV DQGG DW IL[HGG SULFHV. eBay’s trading platform enables WUDGLQJJ URXQGG WKH FORFN, regardless traditional shopping hours, 73 whereby eBay GRHV QRW KDYH W\SLFDOO UHWDLOLQJJ
Buyers can not WRXFKK DQGGIHHO the items on eBay. Despite the feedback system, there is also a GLVWUXVWW EHWZHHQ EX\HUVV DQGG VHOOHUV due to the risk of fraud. 74 Although the motivation for many eBay users is to buy products at a lower price as elsewhere in the market, even some second-hand goods often reach ILQDOVVSULFHV, which are higher than those of new goods. 75
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