EBay, Case Study Example

Corporate History

EBay is a perfect example of a great success among the Internet companies. It all started in September 1995, when the founder of the enterprise – Pierre Omidyar sold the first item through the website. It was a broken laser pointer that was purchased for $14, 83 (eBay Media Center). Initially, the entire idea was to explore the effectiveness of the free market with no information barriers. In case there are no selling subsidiaries and free access to the information about the market state and condition of the good, the entire free market system should be operating with increased efficiency. Pierre Omidyar realized that there is a consumer for virtually any good, so removing the information barriers between the seller and the buyer could give a start to something really, big.

In 1997 eBay dropped its previous name, AuctionWeb and acquired the name is known today. The number of registered users reached 350,000 and the company was already employing 41 people. Monthly number of auctions reached 200,000. The next year was a turning point for the company, as two major events occurred: in an attempt to raise funds for further growth and development eBay declined a merger offer from one of the competitors and decided to conduct an IPO instead. The process is headed by the first hired CEO – Meg Whitman (eBay Media Center).

Starting with 2000, eBay has gone international, launching similar websites around the world – in UK, Germany, Spain, etc. Though the majority of income is still derived from the United States, international division becomes an important part of the overall business. Another important event in the history of the company is acquiring PayPal – an internet payment system. This allowed ensuring greater convenience and security for every client.

Further development of eBay is marked by more acquisitions and broader choice of services. The growth has been exponential, and eBay reached $52, 5 billion in overall merchandise volumes, with over 130 million PayPal users in 2007 (eBay Media Center).

­­­­Management Issues

Strengths

EBay has a number of assets that can be effectively used for the business success. To begin with, the brand recognition is working largely to the company’s benefits. Online auctions are often associated with eBay these days, which increases the customer loyalty and the volume of sales. Experience gained in the online retailing should not be underestimated. The company is one of the pioneers of the market and has a great volume of IT solutions and developments. This makes eBay one of the highly innovative and efficient businesses in the industry.

Senior management also stresses other peculiarities that form the competitive advantage of the enterprise – the broad diversification of its services (Kraueter, C. 2006). There are three branches that eBay successfully operates in:

1. Online auctioning and retail, the initial business.
2. PayPal – the world leading online payment method
3. Skype – leader in the internet communication sphere

A significant amount of international websites is also a great asset, which eBay is capable of using. There are over 30 international eBay portals, placed in the developed countries with broad access to the Internet.

Weaknesses

Major weakness of the EBay Company is its inability to get rid of fraud. As the volume of listings grows with a tremendous speed, administrators simply do not have enough time and resources to find the fraudulent offers and close auctions for them. A common example of fooling the customers is placing just the package of the good on an auction. The fact, that only packaging is offered, is stated, but in a very small or pale font, invisible from the first sight. Hackers have also revealed a number of bugs in the eBay system, which allow scam on great scales. Personal information, including credit card details is rather frequently stolen (Softpedia.com). EBay web sites are also not working properly with all the existing web browsers. Firefox, for example may be tricked into placing a fraudulent listing number (Goodin, D.).

Shipping has also been a problem for the past years. No online retailer can remain profitable running a separately-operated delivery service. Services of the side firms have to be used, and that allows more possibilities for a scam. Sellers place low prices for the goods, but the shipping expenses may be several time higher than of the normal ones.

Opportunities

EBay still has a number of opportunities that should be used to expand the volumes of the merchandise and increase profits. The number one opportunity is the continuing fast growth of the number of the Internet users. Over a billion of people are now actively using various web resources, but that figure is expected to keep growing very fast. Therefore, the target audience for the eBay services will increase in the years to come.

Significant diversification, being one of eBay’s core features, is also providing great opportunities. New IT solutions should allow further integration of the various online shopping methods. PayPal and Skype allow providing the customers a broad range of services without even leaving eBay web sites. An active user can find the auction for the needed good, communicate with the seller through Skype voice chat, arrange the payment and delivery options and finally make the payment through PayPal. All of the services and technologies mentioned are already owned by eBay, which makes the shopping experience fast and pleasant.

Threats

Despite a number of competitive advantages, some threats still exist for the eBay’s business. Online thieves remain the greatest problem for any site related to the online merchandise. It is very hard to control the integrity of millions of auctions that are processed on the number of eBay-owned websites. Considering the volumes of profits and a tremendous cash flow through the company’s sites, hackers will always try to penetrate the system.

Another danger is the appearance of the competitors’ web sites. Amazon.com, uBid and ePier try hard to gain greater market share and offer a number of alternative services. With Google deciding to enter the industry, potential threat is increased greatly. Google checkout is a new payment system introduced by the IT giant, and though PayPal remains a more convenient instrument for consumer-to-consumer operations, some large businesses decided to switch to Google checkout. Further confrontations with the #1 website in the world are definitely worth worrying about.

Recommendations

The first recommendation concerns fraud on the website. The only way to avoid frauds is to hire additional administrators to check listings. Such measure can help to decrease number of frauds on eBay. Unfortunately, this approach requires additional expenditures: additional salaries to be paid, new offices, computers etc. Still there is a solution, enabling not only to decrease number of frauds, but also not to increase administration costs substantially. Frauds usually happen only with particular types of goods. Buying other types of goods, customers are less likely to close a fraud deal. With the help of a detailed research, eBay can define what groups of goods are used by swindlers. These types should be checked more carefully. In this way efficiency of administrators increases, not requiring additional expenditures.

EBay should also perform tests of its IT systems. Disabling hackers to commit any IT crime, eBay can show itself as a reliable e-tailer. These two recommendations are aimed at improvement of eBay’s reliability, which means increase in the number of customers.

Another thing, which eBay management should take into consideration, is an ability to fail opportunities’ realization, which eBay obtained with acquisitions of PayPal and Skype. PayPal was purchased by eBay as a payment option for its customers, because its own payment system, Billpoint, failed the competition with PayPal (Kane M.). PayPal now is one of the leading payment systems in the world. As predicted, PayPal’s revenue can reach $5 billion point by 2011, becoming the main source of revenue of eBay (Fowler G. A.). Thus, eBay should focus not on its original operations, but also on PayPal further promotion. One of the threats for it is Google Checkout. Competition with this payment solution with high potential has to be another point of eBay strategy.

Present Day Issues

In 2008 eBay’s condition has substantially worsened. Its shares have lost approximately 40% in price. In the first quarter eBay reported 16% online-marketplace revenue fall. This numbers a half of its revenue (Fowler G. A.). The main competitor – Amazon.com has substantially influenced eBay revenues from auctions. But it is not the only reason of eBay’s failures. Starting from March 2009 eBay has removed listing fees (Amazon.com has never had any listing fees). These money people have paid for listing of their goods. Additionally to them each customer has to pay a sum, which is calculated as a percentage of the good’s price. New system is good for auctions with small bids – they are paying less than before. But starting from $100, system will charge more than before (Modine A.). Such strategy, when on the decline company is trying to charge even more it has charged before, seems to be not winning, as Amazon.com can lead away a lot of customers from eBay.

Another present day issue concerns types of services eBay offers. Till March 2009, eBay was partially a retailer, selling a lot of goods with a fixed price. Starting from March eBay is not a web retailer any more. Two services, which eBay still offers, are auctions selling and selling of overstocked goods. As a retailer, eBay yields to WalMart and Amazon.com and has failed to compete with them. Retreating web retailing was a wise decision – eBay was originally established as a service, helping to sale used goods. It was not interpreted by customers as a retailer. But still, eBay has an opportunity to launch a project, which will be not associated with selling of used goods, but will be a pure retailer. In this case eBay has still a chance to compete with his rivals.

Conclusion

Having great opportunities to develop, eBay has failed competition with its rivals. EBay auction is one of the best examples of success in IT and e-commerce. Though having a competitive and innovative idea, every leader can be moved from the front line.

In order to acquire new customers, management decided to set retail brunch within eBay, which is concerned by the customers as an auction. Listing fees have also negatively influenced the eBay’a image. These two factors caused fall in eBay revenues. In year 2009 management realized that these factors are obstacles to the company’s growth and made appropriate decisions. As an auction and a reseller of overstocked goods, eBay stands a better chance to succeed.

There are also several opportunities, which can be lost without a competitive strategy of their development.

The first is PayPal. It grows nowadays and seems to be one of the eBay’s main revenue sources. Number of users increases everyday by thousands of people. But still it has an opportunity to fail. Google Checkout, Worldpay and other rival offer almost the same product. Thus, without any innovative ideas, PayPal can stop its development, like eBay did in 2008.

The other opportunity is Skype, acquired by eBay. It has a grate potential, but without any development the growth of the number of subscribes can stop and the purchase will became useless.

Another thing eBay management has to consider is the necessity of development of new ideas. When starting a retail business, eBay had better to launch absolutely new project for retail market. Associating retail business with eBay was a mistake – eBay is considered only as a auction, but not a retailer. If management took a decision to launch a separate project, it might be a serious rival for Amazon.com.

Bibliography

EBay history –eBay Media Center, retrieved July 1, 2009 from: http://news.ebay.com/history.cfm

Mullen, A. “The History of eBay”, retrieved July 1, 2009 from: http://www.happynews.com/living/online/history-ebay.htm

Kraueter, C. 2006 “Whitman Sees EBay Strength In Diversified Brands”, retrieved July 1, 2009    from: http://www.forbes.com/2006/05/04/whitman-ebay-paypal-cx_ck_0504autofacescan08.html

Bear Sterns “Listing eBay’s Strengths”, retrieved July 1, 2009 from: http://online.barrons.com/article/SB120052254122995563.html?mod=googlenews_barrons

Goodin, D. “eBay scammers work unpatched weaknesses in Firefox, IE”, retrieved July 1, 2009    from: http://www.theregister.co.uk/2009/03/08/ebay_scam_wizardy/

Kane M. “eBay picks up PayPal for $1.5 billion”, retrieved July 1, 2009 from http://news.cnet.com/2100-1017-941964.html

Fowler G. A. “EBay Retreats in Web Retailing”, retrieved July 1, 2009 from http://online.wsj.com/article/SB123679413477397787.html

Modine A. “eBay fees rejig will still hit casual auctioneers”, retrieved July 1, 2009 from http://www.theregister.co.uk/2009/05/12/ebay_auction_fee_change_may_12_2009/