Ebay online company

Task 1

A)

eBay is an online company that provides online marketplaces for the sale of goods and services. It also provides commerce, platforms, online payments services and online communications offerings to individuals and businesses.The company primarily operates in the US. It is headquartered in San Jose, California and employs 15,500 people.

The company recorded revenues of $7,672.3 million during the financial year ended December 2007 (FY07), an increase of 28.5% over FY06. The operating profit of the company was $613.2 million during FY2007, a decrease of 56.9% compared to FY06. The net profit was $348.3 million in FY07, a decrease of 69.1% over FY06.

Financial

eBay currently has set itself into a position of strong financial success and growth in the key areas of its business. Sales have increased due to the strengths of past acquisitions and low costs have returned high profits back into free cash flow. Cash is being held and used to advance success in fast-growing businesses in order to receive quick returns for stockholders. Cash is currently listed at $3.8 billion and with borrowing power increase by $1B to about $2B, they are in a strong position to continue their advancement in key acquisitions. Another strong financial factor to consider for eBay is that it has permitted leverage of 3x EBITDA, up from their past permitted leverage of 2x, allowing for the use of more debt in their cost of capital structure. The stock market seeing eBay as a strong company has been important when they are adding capital and their current market capitalization is $15.70B. Through the use of this capital being raised through the sale of its own stock eBay has built two strong forces to finance their growth, debt and equity.

Organizational

The executive team has been built in order to provide management among a variety of business areas which are especially specific to eBay. These include senior managers of human resources, platform technology, general counsel, corporate communications, marketplaces, finance, and PayPal. These managers report to the CEO and then to the board of directors, who are actively involved with the company and include former CEO Meg Whitman.

Within the organization eBay has made many advances to aid in their growth. Three operating segments have been designed within the company to handle the commonly used marketplaces, along with the additions of payments and communications. Marketplaces are made up through the use of eBay auction listings, fixed price listings, as well as the additions of their other online platforms, Half.com, Rent.com,  Shopping.com and StubHub. The payments segment is made up of PayPal, and communications consists of the acquired Skype VoIP.

Human Resources

eBay currently holds a veteran management team under the control of the newly appointed CEO John Donahue. Donahue’s predecessor was the well known Meg Whitman who had many successes after her arrival at eBay in its infant stages. Whitman took the company public and through many successful years she was able to create an effective executive work force which was made to last.

The employees at eBay are extremely well taken care of, and this is an area of pride for the company. Fortune has listed eBay as the 83rd best company to work for in its 2009 100 Best Companies to Work For edition, and in 2008 it was ranked 68th.

Capabilities

The vast amount of resources held within the eBay company throughout each different area allows them to create capabilities for the company. This is done by packaging the necessary resources together and using them in a way to give value to those surrounding them.

Through the systems which have been created and acquired, along with the technological advances, eBay has created a wide array of websites to bring millions of buyers and sellers into a number of marketplaces on a global level. This makes them the world’s largest online marketplace with 84 million active users worldwide. The marketplaces are able to support more than a hundred million items on any given day through the addition of physical assets to technology and organizational systems. By developing an immense combination of facilities, eBay has the resources to handle large amounts of data and IT support. In addition to the strong marketplace division at eBay, payments and communications make up its success. PayPal and Skype as organizational resources gives eBay the capability to develop communication between users as well as making payments secure, easy and quick to send and receive payments online. These tools increase the amount of business eBay can do and the number of customers it attracts.

Innovation and technology has been used in order to create marketplace platforms which seek to bring buyers and sellers together through fully automated and easy-to-use online websites that are available 24 hours a day, seven days a week, from any place in the world at any time.

Working as an online company has allowed eBay to save costs which are normally held by brick-and-mortar businesses. This has given them the capability of offering buyers and sellers lower fees than traditional intermediaries.

A large component of the success eBay has received is through its reputational resources. By keeping a good name with its customers, they continue to return and recommend others. eBay has taken the route of combing technology, innovation and reputation to create a system to match users wants and needs. The SafeHarbor program was implemented in order to provide guidelines for trading and user dispute resolution. The staff investigates users’ complaints of possible misuse of marketplace platforms and takes appropriate action, up to suspending users from bidding on or listing items for sale. Another innovation which was created with reputation is the Verified Rights OwnerProgram.This Program lets intellectual property rights owners request the removal of listings that offer items or contain materials that infringe on their rights. This helps to protect community members from purchasing items that may be counterfeit or otherwise unauthorized. More generally, technology, innovation and reputation have built personalized, accurate and timely support services to the community of users. Buyers and sellers can contact eBay through a variety of means, including email, online text chat and also by telephone. Resources are focused on improving accessibility, increasing capacity, expanding category-specific support, extending online self-help features and improving systems and processes in order to provide efficient and effective support.

Company Value Chain

Primary Activities

Raw Materials

Being a technological e-commerce based company eBay originates from computer coding and software to develop its company’s requirements. In addition to these technologies, electricity is necessary to support all functions within the development stages of the product.

Inbound Logistics

eBay consists of technological system development to support their services. These technological systems began through the use of simple coding and have since required the development and enhancement of computer systems. The requirements have included the use of data management systems to handle the large amount of data which is used in the creation and support of eBay marketplaces. Servers are needed to store this data and also back-up servers to be used in the instance of system crashes. Also needed is obtaining database software through a third party vendor, Sun Microsystems. The collection of these logistics provides a backbone for the operations that will be completed in the final product.

Outbound Logistics

The end of operations brings in the outbound logistics of the company. In eBay’s case this represents finalization of bringing together suppliers and buyers and the processing of payments.

During the outbound logistics phase, suppliers and buyers enter into an order contract which commits each other into the purchase. eBay facilitates this action through administering the communication between each party.

Handling payments from buyers involves the use of eBay owned PayPal, to transfer money directly from buyer to seller, while making payment for usage back to eBay. PayPal enables individuals and businesses to securely, easily and quickly send and receive payments online in approximately 190 markets worldwide. The other aspect of payments which eBay owns is the use of Bill Me Later, enabling online U.S.merchants to offer, and U.S.consumers to obtain, credit for the transaction at point of sale. These economic tools have given eBay a financial network to support global, real-time payments.

Marketing and Sales

Market and sales directly completed by eBay is on a broad level in order to obtain both new buyers and suppliers. They also offer their customers a way to market and sell their own products through the use of their marketplace.

They directly market and sell their product through the use of product differentiation, such as online auctions, and the use of promotions. These occur through marketing campaigns in the U.S. and pricing promotions within the website to drive traffic and continue the growth in the amount of products listed and purchased.

Providing products and services for the use of customers also promotes the eBay name, in an indirect manner. Marketing in this way adds into advertising which is ultimately received by the company, and aids in the sale of products within the marketplace.

Customer Service and Retention

In order to remain successful and hold market share in the catalog and mail order business, customer service and retention is a key function of eBay’s business. This is facilitated through the use of feedback forums and the use of several features added onto the platform to gain trust and loyalty of the customers.

The feedback forum encourages users to provide feedback ratings and comments on other users with whom they trade. It requires feedback to be related to specific transactions and provides an easy tool for users to match specific transactions with the user names of their trading partners. This information is recorded in a profile that includes a feedback rating for the user, with feedback sorted according to whether the feedback has been provided over the past month, six months or twelve months. Users who develop positive reputations have color-coded star symbols displayed next to their user names to indicate the number of positive feedback ratings they have received. As a customer-focused company, eBay no longer allow sellers to leave negative feedback for buyers, but do give them the tools designed to avoid negative feedback.

The other areas of value for customers are the creation of trust and safety features integrated to the platform.These include the Safe Harbor Program and Verified Rights Owner Program, Customer Support and Value-Added Tools and Services, as well as Loyalty Programs, such as PowerSeller, top buyer and coupons and buyer rewards. These features are designed to make users more comfortable dealing with unknown trading partners and completing commercial transactions on the internet which can be a stressful idea.

Supporting Activities

Procurement

eBay’s activities within procurement involve creating systems for suppliers to be successful in their use of the marketplace platform. They complete activities in order to consume the inputs needed for the company’s products. In this case computer servers, database systems and IT software is combined to create a strong online marketplace.

Technological

Engineering is a strong focus at eBay in order to strengthen its innovation and technological development. In the e-commerce industry this focus in necessary in order to keep the advantage on new entrants attempting to enter the market and also those which already exist. Research and development totaled $736M for the 2008 year and this applies to new product design, product upgrades and services additions to the website.

Human Resource Management

eBay currently holds a veteran management team under the control of the newly appointed CEO John Donahue. Donahue’s predecessor was the well known Meg Whitman who had many successes after her arrival at eBay in its infant stages. Whitman took the company public and through many successful years she was able to create an effective executive work force which was made to last.

The employees at eBay are extremely well taken care of, and this is an area of pride for the company. Fortune has listed eBay as the 83rd best company to work for in its 2009 100 Best Companies to Work For edition, and in 2008 it was ranked 68th.  With out a large force of human capital eBay would not be able to function. The focus on employee satisfaction and attitudes is important to achieve the success of the company. This takes place throughout the company and even in the hardest times. Recently eBay was forced to layoff employees due to the economic circumstances and paid out handsome severance packages to those who were forced to leave.

Firm Infrastructure

eBay, being an online company has also advanced their infrastructure online as well. Financially, all reports are easily accessible through the company website along with media on quarterly statements and company updates, available for all to access. These display the structure which has been applied both financially and executively in order to support their company goals and vision. This business is also susceptible to government relations dealing with issues of the law and eBay has a strategy to deal with these government relationships. Finally, an important detail in today’s markets includes the development and promotion of environmentally sustainable actions. eBay sees this as a need to give back to their communities through various community wide and broad activities to support environmental friendliness.

SWOT Analysis

A SWOT analysis of eBay was prepared to examine what the company does well and what aspects may need some attention.  Also, eBay has many opportunities that are available to them in the future.  Just like any company though they do have threats that may pose a problem for them.  Some of the main strengths of their company include the variety of products offered, their customer service, and a tremendous global reach.  Although they do not have very many weaknesses eBay should still work on keeping illegal activity to a minimum on their site.  Also, they should look at Amazon.com to help provide better product descriptions for their customers. 

eBay must continue to look for opportunities to expand their company in the future.  The changing lifestyles of people can be an opportunity for eBay to penetrate the market even further and broaden their customer base.  Also, eBay should look at other online auction sites for possible acquisitions or partnerships.  eBay must continue to expand internationally to keep the number one spot in this market.  Threats to eBay’s reign include the continual growth of Amazon.com and also thievery within their own site.  eBay should keep a close eye on threats to their company and do what they can to make them opportunities for change. 

B)

If the Internet has torn down so many of the traditional barriers that prevented businesses from becoming successful, why is making money online so much harder than doing business in “the real world”?

Well, strangely enough, the lack of barriers is actually a disadvantagesince it pushes more competitors into your market. This actually makes it HARDER to do business online, rather than EASIER.

Also, you must keep in mind that if you DO become successful, other people will begin to copy you… or even automate your tactics! If you haven’t properly defended your position, they can quickly move in to drown out your lead generation channel. We see this every day with successful online start-ups.

This is especially true of business models that rely heavily on PPC, SEO and Social Media marketing.

You can protect your position by firmly establishing a sustainable competitive advantage for your company. Since most of your competitors will be mainly focusing on easy sales and low-hanging fruit, you can intentionally go after markets that offer very difficult barriers to entry.

For example:

• You might try exclusively targeting large companies. (Requires access to hard-to-reach high-level decision makers)
• You could get a celebrity to endorse your company in exchange for equity. (This would give you access to a market/fan base that your competitors can’t reach)
• You might try to get featured on national television or in major newspapers & magazines. (GoldenPalace.com has done a great job with this)

All of these strategies have 2 things in common. They are extremely difficult to implement, and nearly impossible to copy once you’ve got first-mover advantage. These are all long-term sustainable competitive advantage.

But once you attain this position, it’s very easy to keep it.

These sustainable competitive advantages are often all-or-nothing propositions. You have to commit to your plan and follow it through all the way. You either make it big or fail in spectacular fashion.

Unlike with SEO, your competitors will never be able to hire a team of off-shore workers to knock you out of your sustainable competitive advantage. You’ll be securely protected, with exclusive access to a lucrative customer base.

Let’s take a look at ebay online company with true sustainable competitive advantages:

Ebay isn’t just an online auction site. They’ve invested heavily in establishing a strong presence as a community leader in a number of niches. They don’t just build customers, they cultivate long-term relationships.

Sure, ebay is the traditional online marketing channels are great for generating leads. But if your company is serious about long-term success, you need to pick a strong, focused position and just go for it. Throw all of your energy into being the best at something that your customers care about, and that your competitors will never be able to duplicate.

Task 2

eBay’s strategy is a global one, given the fact that they compete in both domestic and international markets.  The company’s corporate strategy incorporates the ideas of expanding services and the trade platform, building the markets, enhancing its current services, and fostering community affinity within eBay.  These elements of the corporate strategy were designed to figure into the companywide game plan that sets the standards for the business.

eBay’s business strategy uses broad differentiation to attract customers.  The company’s goal is to stand out as a leader in the industry, providing unique services and opportunities for its customers.  Two of these services that are keys in eBay’s differentiation approach are My eBay and About Me.  eBay also attempts to differentiate itself from its competition by creating a user-friendly and more reliable site.

The business model used by eBay is based on the belief that the company should act as a support system responsible for maintaining a trading environment that is helpful and appealing to sellers and buyers.  eBay’s business model incorporates trust and safety programs, cost-effective and convenient services, and the philosophy of strong community affinity to help it act as a facilitator of trade.  The business model developed by eBay allows the company to set forth the ways in which it will follow through on its goals for customers and the business alike.

A weighted competitive strength assessment of eBay and its competitors uses the key success factors of the industry and weights them to determine a company’s standing within the industry.  Five of the eight key success factors were given a weight of 0.15, the highest ranking, while a network of buyers and sellers was given the lowest weight of 0.5.  eBay received the highest score followed by Amazon and Yahoo.

Financially eBay has been almost literally an overnight success. Its current ratio percentages, which have always been above 300%, peaked in 1999 due largely due to a highly successful second offering of stock that produced and additional $600 million in capitol Although eBay experienced a lower then average return on total assets in 1999, most likely due to the second release of stock, the firm has enjoyed a positive return on total assets from 1996 through 2003. This implying that eBay does have the capitol to invest in itself, and/or further integrate vertically.

A strategic group map shows the positioning of the companies within an industry in regards to two main categories that competitive companies are likely to possess.   The two proficiencies that are important within the online auction industry are a strong amount of security for consumers and a sense of community within the trading environment.  eBay has both a high amount of security and sense of community, placing it in the best position on the map relative to its competitors.  Amazon is eBay’s most significant competitor, with positioning just slightly below eBay, while BidVille and ePier prove to be the least significant competitively.

The key strategic issues that face eBay translate into recommendations for the company.  Our first recommendation for eBay is to take advantage of the growing internet usage occurring in international markets.  Developing countries are seeing a significant growth in internet usage; therefore, eBay needs to explore the opportunities these markets provide.  By advertising and creating partnerships with local portals, eBay will be able to establish itself as the industry standard in the online auction industry. 

A second recommendation that we have for eBay is centered on its relationship with large corporate sellers.  Corporations have expressed dissatisfaction with eBay’s fairness policy that does not provide them with extra incentives.  We suggest a separate community within the eBay site that allows professional organizations to conduct business-to-business transactions.  By creating a special site for these users, eBay is not alienating its bargain hunters, hobbyists, collectors, small professional buyers, casual sellers, and hobbyist and collector sellers, and it is not compensating its fairness policy.

Our final recommendation for eBay is for the company to explore its options with vertical integration.  eBay’s established brand name and reputation make it a considerable to be considered.  We recommend for eBay to integrate into the shipping aspect of the buying and selling experience.  An ideal partnership would require all eBay buyers and sellers to use UPS as the primary shipper in all geographic locations where UPS is available.  This partnership would provide incentives for eBay as well as advertising opportunities on the eBay website for UPS.  eBay would share in a percentage of the profits resulting from UPS shipments of eBay products in return for guaranteeing a certain amount of product to be shipped.  UPS would be ensured of a certain volume of shipping and would then receive complementary advertising on the eBay website to encourage users to use the service even when not transacting on eBay.

eBay is currently the leader in the online auction industry; however, it is important for the company not to lose sight of its goals and opportunities.  The company must continue to update and strengthen its strategy, improve upon its weaknesses, and take advantage of its opportunities.  eBay must also compare its position in the industry by utilizing a strategic group map and competitive strength assessment to see that its still at the top.  Finally, by considering the previously stated recommendations, eBay will have the capability to maintain its position as the industry leader as well as the financial backing to consider new horizons.

There is no doubt that eBay holds the power in the online auction industry.  An analysis of the key factors of their company was compiled to find out what the eBay strategy is, and how they are doing financially.  Also an internal analysis of their strengths and weaknesses and an external analysis of their opportunities and threats have been provided.  Finally, a strength assessment of the main competitors in the online auction industry has been determined to see how strong each competitor is.  From its beginning in a San Francisco living room, eBay has grown to be in a league by itself.

Analysis of eBay’s Strategy and Business Model

Before eBay could begin to compete in the online auction industry a strategy and business model needed to be developed .  eBay had to define the businesses they would be competing in and how they would compete in those specific businesses.  They also needed to define how they would be a successful service to their customers.

Corporate level strategy

eBay’s corporate level strategy was to become a diversified business.  They wanted to diversify not only the products they offered but also their customer base and global reach.  By using the eBay service you can find virtually anything you are looking for. 

eBay is a very diverse company.  The service they provide is appealing to both individual customers as well as large corporate customers. Hobbyist and collectors, casual sellers, professional buyers, and corporate sellers all belong to the eBay customer base.  The products that are offered on the eBay website range from shoes to automobiles.  This makes their product line very diverse as well.  The creation of eBay motors, eBay Real Estate, and the LiveAuctions specialty site, as well as the acquisition of Half.com have all contributed to the growth and diversification of this company.  In addition to diversifying their customers and their products, eBay has expanded their business by branching out into domestic markets as well. 

Business Level Strategy

eBay competes in the online auction industry using a broad differentiation strategy.  Although they may not be the most inexpensive online auction site, they have the largest variety of products offered.  They also appeal to a larger group of consumers that include individual sellers, small entrepreneurs, and corporations all over the world.  eBay achieves broad differentiation through their strong eBay community, a global reach not matched by any competitor, and a category span of 27,000.  These aspects of the eBay service among others set their company apart from the rest.  Customers see the value in using the eBay service.  This is why eBay has become so successful.

eBay competes in the online auction industry using a broad differentiation strategy.  By choosing this strategy eBay determined that the best way to achieve a sustainable competitive advantage over its rivals was to differentiate their service.  The way in which eBay has set their online auction site apart from its competitors has lead customers to prefer their site over other online auctioneers and retailers

eBay’s Broad Differentiation Strategy

eBay has created a one-stop-shopping experience that is appealing to large corporations, independent entrepreneurs, and individual buyers and sellers.  They have created value through many facets of their business that appeal to their customers and differentiate them from the competition.  The main ways that eBay differentiates themselves is through:

1. Variety of products offered

When customers visit eBay they can search for virtually any product.  eBay boasts a category variety not matched by any competitor with over 27,000.

2. The eBay Community

eBay wants their customers to feel like they are a part of a community.  This community feel gives customers the sense that they are branch of something and cared about.  By showing the customers that their feedback, opinions, and feelings are important eBay has gained tremendous ground with their customers.

3. The eBay Website

eBay has created an auction and retail website that is unique and interesting.  This creative site sets them apart from their competitors.  The site is set up with many facets that reach a broad span of visiting buyers and sellers.  The site is also entertaining and easy to use making it very appealing for online shopping and trading.

4. The eBay Brand Name

eBay was the creator of the online auction industry.  When customers think of online buying the immediately think of eBay.  This has given them a competitive advantage that sets them apart from other online auctions. 

5. eBay’s Global Reach

The global reach of eBay is not achieved by any other online auction site.  For large corporations international selling and buying is done everyday.  Even for an individual buyer or seller, having the option of searching throughout 150 countries with a span of 94.9 million users is very appealing.

Why the Differentiation Strategy Works Best for eBay

The users of eBay have many different preferences and needs depending on why and how they use the service.  eBay has determined a way to satisfy their customers whether they are large businesses or individuals.  By offering a wide variety of products, globally expanding, and creating a community for all customers to join eBay has created a distinctive value unmatched by its rivals.

eBay’s Business Model

eBay’s business model was based on creating and maintaining a person-to-person trading community.  After implementing their model, eBay has been able to build strategic partnerships, continue to make innovative changes and improvements, and monitor its internal and external environments for possible future opportunities.  This has given them the prestige of being the world’s largest online auction company. 

Analysis of eBay’s Business Model

eBay’s business model was based on creating and maintaining a person-to-person trading community.  This allows buyers to easily search for what they want to purchase.  It also allows sellers to post their items minutes after they have registered.  There are a few specific elements of eBay’s business model that they recognized as key to its success they are (as given in the case study):

• Being the largest online trading forum with a critical mass of buyers, sellers, and items listed for sale
• Its compelling and entertaining environment, which had strong values, established rules and procedures that facilitated communication between buyers and sellers
• Establishing programs such as Safeharbor to aid in disputes and to punish users who violate eBay
• Cost effective and convenient trading
• Strong community affinity
• An intuitive user interface that was easy to understand, arranged by topics, and fully automated

By implementing their business model, eBay employed three main tactics.  First, they looked to build strategic partnerships.  Second, they looked for customer feedback to constantly make changes and improvements.  Finally, they monitored its internal and external environments for possible opportunities.  By doing all of these things, eBay was able to adapt to the changing ways and keep their customers satisfied.  To be successful eBay must continue to mold and change their business model to satisfy its customers and keep the level of quality they employ to the highest degree possible.  If eBay is able to do this they will continue to be successful.