Strategy and Competition: The case of eBay: Essay Solved

Strategy and Competition:

The case of eBay: Essay Solved

(2500 Words)

Through online auctions, individuals are able to obtain and purchase their needed and wanted items directly, without the hassle of traveling and physically looking for the products. With this, this paper discusses success in terms of online auctioning, and investigates how eBay has become the largest online auction house. The use of the World Wide Web has become one of the inevitable ways in obtaining and gathering relevant information regarding a myriad of subject matters and issues. Its use is most popular among the society, most especially the younger generation, who perceive the Internet as one of the most helpful tools in terms of education and communication. In addition, its use is being maximized and utilized in terms of business and marketing, such as being done by the eBay company, with their online auction.

 

SWOT Analysis

STRENGTHS

Þ    Strong financial performance

Þ    Dedicated, satisfied, and loyal consumers

Þ    Continuous innovation and improvement of services

Þ    Extent of products and services

Þ    Established in the industry

 

 

WEAKNESSES

Þ    High prices of products

Þ    High cost of shipping and insurance

Þ    Customer losses

Þ    Availability of products

Þ    Existing conflict with buyers

 

 

OPPORTUNITIES

Þ    Development of e-commerce in business and marketing

Þ    Increase in use of e-commerce and Internet

Þ    Further expansion in other potential markets around the world

Þ    Established reputation in e-market

Þ    Popular with the younger generation

 

 

THREATS

Þ    Competitive marketplace

Þ    Increase in number of online auction competitors

Þ    Indirect competitors

Þ    Fear of online auction fraud

Þ    Increasing popularity of other websites

 

eBay is an online auction and shopping website where people and businesses buy and sell goods and services worldwide. It is managed by ebay Inc., an American Internet company. Millions of people are brought together by eBay everyday on a local, national and international basis using an array of websites that focus on commerce, payments and communications. According to Bunnell and Luecke (2000) from eBay’s origin as a home business founded by Pierre Omidyar (“o-mid-ee-yar”), the company has become the world’s leading auction market and one of a handful of major dotcom companies to actually turn a profit (p.4). They further stressed that eBay is just one of many important players in an expanding e-commerce industry (p.6). eBay participates in the demand-based or dynamic pricing segment of online commerce. There, transaction prices are determined entirely by buyers. This is fundamentally different from what most of us are accustomed to. Usually, vendors make the pricing decisions, and we either accept their prices or look elsewhere for a better deal. In demand based pricing, buyers make these critical decisions. The auction is the most familiar form of demand-based pricing. Auction forums have been around since ancient times, and everything from foodstuffs, minerals, timber, animals, securities, and human beings have been bought and sold through them (Bunnell and Luecke 2000, pp.8-9). The beauty of eBay’s vision is that it has eliminated many of the inefficiencies of traditional person-to-person commerce. It provides a place where buyers and sellers can conveniently meet, exchange information about goods and prices, and transact sales at minimum costs. And it has made collecting and bargain hunting fun.

 

The Role of Digital Media and Internet

Digital media particularly the Internet or the World Wide Web is the key to success of online auction sites such as eBay. eBay introduced several crucial innovations tailor-made for the internet. One was the model of online auctions bringing together buyers and sellers to establish prices for goods and services that had never been marketed before (Guttman 2002, p.184). The online auction model developed by eBay marks an important extension of e-commerce, offering millions of individuals a low-cost opportunity to engage in a new type of economic activity which until now they had no chance of realizing. It has been reported that through the World Wide Web, eBay built an online person-to-person trading community in the Internet (Casseres 2001, p.2). eBay users can browse through listed items in a fully automated way. The sellers are allowed to list items that they want to sell while the buyers bid on items of interest. The items on eBay’s site are arranged by topics and each type of auction has its own category. Person-to-person trading was both streamlined and globalized by the company. Using eBay’s web interface, the buyers can easily explore the site and the buyers can immediately list an item for sale within minutes of registering. The internet is a powerful tool in bringing together the buyers and sellers. Because of Digital Media and the Internet Ebay continues to grow.

Bringing the auction online was an important innovation, and is one of the greatest uses of Internet technology. The Internet has facilitated a variety of commercial activities. Many are lifted directly from offline models and provide no greater value or convenience for customers. Ordering a pair of gloves from an e-retail site is a prime example. From the customer’s perspective, this is neither cheaper nor more convenient than buying the same gloves from the retailer’s catalog using an 800 number. Online auctions, in contrast, have created something very new. It has been reported that the computer revolution ushered in totally new types of businesses based on the Internet (Bunnell and Luecke 2000, p. 17). If the Internet has introduced a revolution in the pace and the manner in which we do business, the leaders of that revolution are people who introduce new business designs and make them work. And the most successful of these have good heads for business, or work closely with people who do. This combination of a powerful business design tailored to the Internet economy, a philosophy of openness and community, and business savvy came together in the company the world now knows as eBay. Computing power is what makes an Internet auction effective. The combination of the digital media and eBay’s strategic business concept makes it possible for a few hundred people to handle transactions worth over 7 million dollars everyday of the year. Initially, eBay had developed proprietary software capable of supporting a robust, scalable user interface and transaction-processing system. Today, that system can handle all aspects of the auction process. It sends e-mails when users register for the service, when they place a successful bid, and when they are outbid, and it communicates the outcome of auctions in which they participate. The same system sends daily status updates to active sellers and bidders and maintains user registration information, account information, current auctions, and historical listings. All of this information is archived to a data warehouse. Working around the clock (with weekly scheduled downtime for maintenance), the eBay system keeps track of every listing and every seller-selected enhancement option. When an auction successfully closes, the system automatically calculates the fee, bills the seller’s billing account, and sends a monthly invoice via e-mail. Most invoices are billed directly to seller credit-card accounts. Other parts of the eBay information infrastructure support eBay customer service and the various community bulletin boards and chat rooms that underbid the online user community. The entire system includes company-owned and -operated equipment and other equipment provided by outside service providers. eBay’s share of the total system consists of Sun database servers running Oracle relational database management systems and a suite of Internet servers that operate on Microsoft’s Windows NT. Loadbalancing systems and redundant servers provide for fault tolerance. System hardware is hosted in close proximity to the company’s San Jose headquarters at the facilities of Exodus Communications and at AboveNet, where redundant communications lines and emergency power backup are maintained. Ebay is an online auction site that facilitates the process of listing and displaying goods, bidding, and payment. The Internet is the key element on eBay’s success. Over the Internet, participants bid for products and services. Sellers and bidders can participate wherever they are as long as they have an Internet connection. The Internet makes eBay more accessible to the bidders and sellers. The large number of bidders and sellers makes the system bigger and the auction site successful.

 

Key Strategic Decisions

Several aspects of eBay have been specifically designed to support an almost freestanding economy (Bradley and Porter 2000; Hof 2003). eBay built a free market. As a facilitator, users are allowed to decide what they want to sell, encouraging continuous growth. The users or citizens are the ones who control the direction of the site. eBay created a legal system that promotes self-governance. The auction site devised a feedback forum to let users rate one another to discourage fraud. The users are constantly educated; eBay teaches people how to use the site. eBay also has its own banking system. eBay has been bounded by two things: a clear mission to be the world’s largest person-to-person online auction company, and a focused strategy with five key elements

expanding the user base, strengthening the eBay brand, broadening the trading platform by increasing product categories and promoting new ones, Fostering community affinity and Enhancing site features and functionality.

The arrival of Meg Whitman in early 1998 marked a watershed in the effort to build brand recognition at eBay. The company’s early growth relied strictly on word of mouth. But as an old hand at consumer product marketing, Whitman made branding one of her first initiatives. In a series of meetings with the senior management team, she broke the problem into two parts. The first was clarifying what eBay stood for. In their judgment, it was a personal trading community where users could buy and sell almost anything. This definition set it apart from most existing auction competitors and the several that eventually followed. All market communications now reflect this unequivocal definition. Part two of Whitman’s branding exercise came directly from Marketing 101: market segmentation. The user community was analyzed in terms of user segments. Serious collectors and small dealers were identified as the heaviest site users. These individuals and the people who sold to them accounted for 80 percent of total eBay revenues even though they represented only 20 percent of registered users. Based on this knowledge, the company decided to concentrate its marketing and brand-building resources on them (Bunnell and Luecke 2000, pp. 123-124). eBay’s boldest and most costly effort of gaining greater name recognition began in August 1998, when it entered into a three-year marketing deal with America Online (AOL). Under the terms of this relationship, AOL would feature eBay as its preferred provider of person-to-person trading services in its classifieds and interest areas. In addition, an eBay link would appear on the AOL home page, a portal for some 64 million subscribers. This threeyear deal was priced at $12 million (Bunnell and Luecke 2000, p.124). The company has incrementally attacked the barriers to auction trading over the years, spending $4.6 million and $23.7 million in 1998 and 1999, respectively, on product developments aimed at site enhancement and valueadding features. The various SafeHarbor features such as the Feedback Forum, the Mister Lister bulk-listing tool, help boards, and My eBay, which allows a user to track multiple auctions simultaneously, fall into this category. Generally, the most important chore-reducing features have been added through arrangements with partner firms or third-party suppliers such as iEscrow, iShip, Mailbox Etc., and Wells Fargo’s Billpoint credit-card arrangement (Bunnell and Luecke 2000, p.132).

eBay made acquisitions in order to support its growth. These acquisitions aid in the expansion and improvement of the company’s services. PayPal, a global leader in online payment solutions was acquired by eBay in October 2002. PayPal makes receiving and sending of payments online secure, easy and quick. Paypal aims to create a safe payment solution by using the world’s most advanced propriety fraud prevention systems. In October 2005, eBay acquired Skype – the world’s fastest growing Internet communication offering. Skype allows its software users to make unlimited voices and video communication for free. It is available in 27 languages and is used in almost every country worldwide. In August 2005, Shopping.com was acquired by eBay. Shopping.com is the pioneer in online comparison-shopping. It is one of the fastest growing shopping destinations on the Internet. Rent.com was acquired by eBay in February 2005. Rent.com is the most visited online apartment listing service in the United States. It has more than 20,000 properties listed across the country. Ebay also launched various online classifieds websites in hundreds of cities and regions around the world. Online classifieds are designed to help people meet, share ideas and trade on a local level.

It has been reported that electronic commerce or e-commerce is becoming increasingly important to consumers, sellers, and entire communities (Black 2005). As a proof of this, during 2003, approximately 40 million households in the United States made at least a single purchase from the Internet (Black 2005). With this, online marketing has become and will continue to become a full and complete business model for other companies (Black 2005). The increasing importance of e-commerce and the use of the Internet, led many online companies, such as eBay to engage in online auctioning. Ten aspects are attributed to the success of eBay, namely, commitment, well-spent funds, an effective and persistent marketing and public relations, great products or services to sell, not selling of junk, great customer service, efficient and pleasant facility, polished listings and photos, paying attention to details, and good recordkeeping (Mansfield 2006). These ten aspects are perceived to be contributory to the success of eBay in the industry as the leading online auction house, and determine its edge over its competitors.

The success of eBay has inspired other online companies to engage in the same business, of perceiving the same attention that it receives from consumers. With this, several competitors can be pointed out, which are also online companies that engage in the same services that eBay offers. Aside from Amazon.com, Yahoo! and Netscape (Black 2005), several other online companies have also emerged, including Ubid.com, bid-alot.com, uauction.com, auctionfire.com (‘eBay’s Direct and Indirect Competitors’ 2005), and Google (‘eBay Inc.’ 2007). However, the competition against eBay is not only based on e-commerce and the use of the Internet, for many still use conventional methods in advertising and selling their products and services, thus, points out the indirect competitors of eBay. The indirect competitors of eBay include online stores, retail outlets, physical auctions such as galleries, shops, boutiques, and estate sales, newspaper classified ads, radio and television ads, bulletin boards in stores and offices, billboards, cable TV channels (‘eBay’s Direct and Indirect Competitors’ 2005), and other forms of media. From this, it can be seen that eBay has many direct and indirect competitors, which somehow lessens the amount of consumers that are being helped buy and sell their stuff. However, despite the presence of a number of competitors, eBay is still considered the largest online auction house that is being accessed by most consumers. This issue leads many researchers and analysts to recognize the importance and significance of e-commerce as a primary factor of generating an online community. Through online communities, such as those developed groups that access eBay, help introduce and promote specific brands of products and services. It has been reported that in the traditional brand relationship, communication flows between the vendor and the consumer, while with brand-based online communities, the potential dialogue flowing between consumers is achieved through real time ‘chat’ taking place in chat rooms, and through asynchronous discussions that play over days, weeks, and months in discussion forums or bulletin boards (Brynjolfsson and Urban 2001). From this, it can be understood that word-of-mouth and online conversations contribute to the information of consumers, on where to access their needed products and services in the Internet.