Strategic Analysis of eBay


Seminar Paper, 2003
43 Pages, Grade: 1

Excerpt

7DEOH RI &RQWHQWV
..
,QWURGXFWLRQ
..
&RPSDQ\ 9LHZ
)RXQGLQJ DQG 0DQDJHPHQW
&RPSDQ\ ([SDQVLRQ
&RPSDQ\ )LJXUHV DQG 6WUDWHJLF &KDQJHV
..
0DUNHW 9LHZ
0DUNHW 3RWHQWLDO
3(67(/ $QDO\VLV
&RPSHWLWLYH )RUFHV
)LQDQFLDO 3RVLWLRQLQJ
6:27 $QDO\VLV
..
&RQFOXVLRQV
..
$SSHQGL[

3
7DEOH RI $FURQ\PV
B2C
business-to-customer market
B2B
business-to-business market
C2C
customer-to-customer market
C2B
customer-to-business market
etc.
et cetera

4
,QWURGXFWLRQ
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-
egy 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.
&RPSDQ\ 9LHZ
)RXQGLQJ DQG 0DQDJHPHQW
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 grow-
ing. 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

5
trading platforms in the Asia/Pacific area. Altogether, buyers and sellers were able to trade
products and services in 27 countries worldwide on eBay in 2002 as shown in Figure 2.
5
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 loy-
alty (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
How important it is to be the first mover can also be seen by the failed marketing entry of
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
&RPSDQ\ )LJXUHV DQG 6WUDWHJLF &KDQJHV
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 mil-
lion in 1996 up to $15 billion in 2002 (Figure 5).
10
Next to the worldwide expansion strategy, eBay's business model experienced some strategic
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

6
with the "buy it now" feature at fixed prices.
11
The "buy it now" feature is closely connected
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
0DUNHW 9LHZ
0DUNHW 3RWHQWLDO
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 fol-
lowed.
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 poten-
tial.
16
Another comparison of the market potential shows that the 31 million active users on eBay
equal about 5 percent of the global market potential.
17
Briefly mentioned should be the fact
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

7
3(67(/ $QDO\VLV
Political / Legal Forces
The most important political and legal factors for eBay are the increasing risks of
GDWD VHFX
ULW\
¢¡
the increasing danger of
IUDXG
£¥¤
as well as the increasing trade with
LOOHJDO SURGXFWV
21
on the Internet. Another issue for eBay is that many users apply the trading platform profes-
sionally
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
UHJXODWHG VKRS KRXUV
, which cur-
rently means an advantage for eBay where users can do their trading for 24 hours, yet.
24
Gov-
ernments are going to liberalise the shop hours more and more within the next years.
25
Economical Forces
The economical forces are the
ZRUOGZLGH HFRQRPLF GRZQWXUQ
£§¦
and the
GHFOLQH LQ QHW SD\
in
countries such as Germany, for instance.
27
Especially in Europe, people has felt an increase of
SULFH 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
LPSRUWDQFH RI LQWHUQDWLRQDO WUDGH
.
32
Social Forces
The Internet continues to spread worldwide with high growth numbers and will reach a
SHQH
WUDWLRQ UDWH
such as the telephone and the television nowadays. Market research institutes ex-
pect 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
SURSRUWLRQ RI
ZRPHQ XVLQJ WKH ,QWHUQHW
will be higher in the future than nowadays.
33
Technological Forces
Technological factors are the increasing
SURGXFW DQG SULFH WUDQVSDUHQF\
, which enables buyer
to find sources of products easier and they will be better informed about product prices.
34
Es-
pecially
QHZ WHFKQRORJLHV
such as Wireless LAN, DSL, UMTS and the
FRQYHUJHQFH DQG FRP
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

8
SDWHQW SURWHFWHG WHFKQLFDO NQRZOHGJH DQG IHDWXUHV
. eBay could be affected by patent disputes,
could be prohibition to use specific techniques
36
or could have to pay royalties for specific
techniques.
Ecological Forces
No significant ecological forces affecting eBay were found.
Note: A graphical overview of the PESTEL Analysis (Johnson G. & Scholes K., 1999) is
shown in Figure 8.
&RPSHWLWLYH )RUFHV
Rivalry / Competition
The competition between the
ELJ 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 s
PDOOHU FRPSDQLHV
such as Ricardo in Germany, for instance, have
been declined.
38
Another development is the
DGDSWLRQ RI WKH EXVLQHVV PRGHOV
, especially be-
tween the big players Amazon
39
and eBay
40
.
41
Buyers
The power of buyers is medium to high. On one hand, the power in the
&& PDUNHW
on eBay
will still increase. On the other hand, especially the
%& DQG %%
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.

9
Potential Entrants
Generally, the power of potential entrants is rather medium as high and depends on the pro-
spective entrant. Potential entrants for eBay are
,QWHUQHW SRUWDOV
¨©
VHDUFK HQJLQHV
¨
¦
PHGLD
FRPSDQLHV DQG HVSHFLDOO\ SRVVLEOH FRPELQDWLRQV RI WKHP
47
Potential entrants could also be
companies offering
UHYHUVH DXFWLRQ V\VWHPV
.
48
We also see the increasing efforts of
PDQXIDF
WXUHU DQG 2(0¶V
selling products directly on the Internet.
49
/DUJH UHWDLO VHOOHUV
and
PDLO
RUGHU EXVLQHVVHV
are also trying to generate more revenue by their Internet pages.
50
7UDGL
WLRQDO DXFWLRQ 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 entry is the
ODUJH VFDOH RI EX\HUV DQG VHOOHU
53
Substitutes
The power of substitutes is rather low as medium. Reasons for choosing substitutes are espe-
cially fraud protection
54
and that not all products are applicative to be traded on the Internet
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
WUDGLWLRQDO
UHWDLO RXWOHWV
.
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
FODVVLILHG MRXUQDOV
©
or at
IOHH PDUNHWV
.
Suppliers
The power of suppliers is relatively low. eBay has fixed costs for
VHUYHUV
and payments for
VRIWZDUH VROXWLRQV
. Suppliers, which sell standardized products and services to eBay, have
little power because of low switching costs. Suppliers, selling customized products and ser-
vices to eBay, have a stronger power. Another power of suppliers could be occur by
SDWHQW
ULJKWV
.
58
The power of
QDWLRQDO PDLO RUGHU ILUPV
, delivering the traded items, is relatively low.
The power of
YHQGRUV IRU SD\PHQW V\VWHPV
is also low, especially since eBay took over Pay-
pal.
59
However, the suppliers itself have little ability to integrate forward into eBay's industry.
Note: A graphical overview of Porter's (1985) Five-Forces Analysis is shown in Figure 9.

10
)LQDQFLDO 3RVLWLRQLQJ
Most former competitors from the Internet sector could not keep up eBay's growth.
60
In addi-
tion, 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 Ya-
hoo, 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 phar-
macy 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¶V
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 busi-
ness 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-
lion)
69
and is much bigger as Drugstore.com and many smaller ".com's" or auction and trad-
ing 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 mil-
lion.
70
Note: A financial portfolio for all considered companies is shown in Figure 10.
Excerpt out of 43 pages

Details

Title
Strategic Analysis of eBay
Grade
1
Author
Year
2003
Pages
43
Catalog Number
V185885
ISBN (eBook)
9783656982333
ISBN (Book)
9783656982616
File size
3317 KB
Language
English
Tags
strategic, analysis
Quote paper
Martin Lüthge (Author), 2003, Strategic Analysis of eBay, Munich, GRIN Verlag, https://www.grin.com/document/185885

Comments

  • No comments yet.
Read the ebook
Title: Strategic Analysis of eBay


Upload papers

Your term paper / thesis:

- Publication as eBook and book
- High royalties for the sales
- Completely free - with ISBN
- It only takes five minutes
- Every paper finds readers

Publish now - it's free