BRIEF INTRODUCTION AND PR O B LEM I OPPORTUNITY STATEM EN T
O ver the last decades, the name o f eBay has become synonymous with evolution Since
In 1995, Pierre Omidyar and his wife, Pamela Wesley, founded eBay in San Francisco, marking a significant milestone in the online auction industry As a pioneering firm, eBay played a crucial role in the evolution of e-commerce by creating an online marketplace that enabled a vibrant person-to-person trading community, supported by an efficient information system.
eBay has a long-standing tradition of fostering new ideas, evolving into a leading innovator in the online auction market With a strong focus on both international and domestic partnerships, eBay continues to achieve significant milestones in its journey of progress.
FIGURE ỉ : THE GROWTH OF EBAY FROM 2001 TO 2003
eBay, a leading corporation in the online auction industry, operated its facilities in Silicon Valley before relocating to San Jose, California By the end of the 2004 fiscal year, eBay boasted over 94.9 million registered users across more than 150 countries, achieving an impressive annual revenue of $3.27 billion.
6 eBay - In a L e a m e bv ỉtse lf
R e lia b le a n d fa rsig h te d m a n a g e m e n t is United w ith th e y o u th fu l d y n a m ism a n d z e st for in n o v a tio n th a t ty p iíy th e C orporation.
Since its inception, eBay has experienced remarkable growth in sales and earnings before interest and tax (EBIT), skyrocketing from $5.7 million in the 1997 fiscal year to $3,271.3 million in 2004—15% higher than expected, surprising the financial community However, despite this impressive performance, eBay faces significant challenges The management struggles to develop effective strategies to sustain growth, while the company is losing its competitive edge in the online auction industry, increasingly shifting towards fixed-price sales Additionally, eBay's efforts to combat online fraud are proving inadequate against sophisticated and innovative scams Furthermore, dissatisfaction is rising among major corporate sellers who are caught between selling high volumes and maintaining profitable margins.
Despite not having significantly impacted the Corporation thus far, these issues could lead eBay to reconsider its future if timely and appropriate solutions are not implemented, especially in the face of growing competition.
eBay faces numerous challenges but also has significant opportunities to strengthen its position in the online auction industry Aggressive acquisitions, such as Skype Technologies, have enabled eBay to reduce operating expenses and lower customer charges, enhancing its competitive advantage and expanding its service offerings Additionally, the economic growth in Asian countries presents a substantial opportunity for eBay to penetrate this burgeoning market, as rising living standards are changing consumer shopping habits and increasing interest in eBay's diverse services Furthermore, despite the maturity of Western European and U.S markets, eBay's current market share in various product categories, such as motors and consumer electronics, indicates potential for growth.
By further enhancing its competitive advantage, eBay can usher in a new era of growth and development in the demanding yet profitable markets of computers, home, and garden This report will shed light on these opportunities in the following sections.
FIG U R E 2 : PROJECTED PC SHIPMENTS F ROM 2 0 0 0 TO 2 0 0 4
(Source: The Organization ofEconom ic Cooperaíion and Development, 2004)
A S S U M P T IO N S
This report serves as the benchmark for completing the Strategy Management course, meticulously prepared through a comprehensive analysis of both primary and secondary data while adhering to key assumptions.
• All the iníòrm ation discussed in the vvhole report is nothing but the truth.
• Asian econom ies will continue to grow sm oothly and maintain their current world highest grovvth rate.
There will be no unforeseen major events causing political or economic turmoil that could significantly impact the USA and European nations, ensuring the stability of these two largest economies.
• The Internet will be increasingly m ore popular; hence reshapes people’s shopping habits more rapidly In addition, more high-tech supporting eBay - commerce transactions will be well on their ways.
• Transportation and carrying expenses will be reduced materially thanks to advancement in transportation technology.
• International governments will impose no rules and regulations unfavorable to the developm ent o f th e Online auction industry.
• In the next 5 years, no other types o f e-com m erce distribution channels that are more efficient for large producers will be found.
• No significant change in eBay’s management, which deeply restructures the
_ eBay - ỉ n a Lea&ue bv ItseỉỊ'
SITUATION A N A L Y S IS
S tren g th s
The íìrst point about eBay to be stressed is that following the partnership with PBL
Founded in February 1999, Online is a prominent internet company in Australia that has consistently achieved profit growth and consolidation over the years Various opinions highlight eBay's strengths, which are widely recognized as critical factors in its success.
eBay is currently the largest online trading platform, founded by Pierre Omidyar with the vision of creating a marketplace reminiscent of traditional business interactions Since its inception, eBay has built a strong reputation for exceptional service quality and ambitious goals, leading to a remarkable surge in registered users Today, the platform proudly serves over 100 million users across more than 150 countries.
• eBay has the broadest caíegory o f items listed f o r sale am ong a ỉl Online actỉons operaíors Betvveen 1998 and 2002, more than 2,000 new categories were added.
By 2004, over 27,000 categories o f items have been offered by the Corporation compared vvith that o f only 10 categories in 1995 - the íìrst year o f its íòundation.
At present, eBay still intends to further expand the number o f categories offered to bring custom ers more choices in an attempt to enhancc their satisfaction Products
10 eBay - In a L e a m e bv ỉtse ỉf offered by eBay vvidely range from motors, custom er electronics to clothing and accessories as vvell as jew elry and gemstones.
eBay's most significant asset is its strong brand name, which has established it as the leading player in the online auction market Despite increasing competition since the turn of the millennium, eBay's brand remains resilient, as noted by David Jarvis (2004, p.23), provided its offerings continue to surpass those of major competitors The platform offers a dynamic and engaging trading environment, prioritizing customer satisfaction by allowing users to determine their own levels of contentment To support this mission, eBay's management has implemented clear rules and comprehensive procedures to enhance communication and facilitate transactions between buyers and sellers Additionally, eBay fosters excellent relationships with its customers through effective customer-to-customer business models, highlighted by initiatives such as the Feedback Forum established in 1996 and regular meetings like the Voice of the Customer.
1999, the íbundation o f eBay University in 2000, the launch o f the Digital
eBay's Opportunity Program for seniors and the establishment of chat rooms enable the platform to foster strong connections with customers, promptly address their inquiries, gather valuable feedback on new features, and streamline the exchange of information effectively.
11 eííìciently These contribute immeasurably to build up thcir custom ers’ trust and loyalty - the m ost precious good will for any organizations.
Trading aí eBay is highly cosí-effecíive and convenient thanks to the application o f PayPal paym en t channel, autom ated checkout services a n d quick delivery
Because there is no need for traditional intermediaries, eBay can provide their customers services at m uch lovver costs than their m ain com petitors do.
The rise of the Internet and mobile communications has provided eBay with an unparalleled ability to store, retrieve, analyze, and share information, which are essential elements that have significantly enhanced the company's success (Deans, c p et al., 2002).
Professional management is regarded as one of eBay's most valuable assets Pierre Omidyar made a pivotal decision by inviting Ms Margaret Whitman, whose extensive experience in management and brand strategy was instrumental for the company As a driven entrepreneur, she has consistently been the backbone of the organization, leveraging her imagination, innovation, and salesmanship to navigate a fiercely competitive landscape.
G ood users inter/ace This helps eBay attracts more registered users more effectively than its m ain competitors.
eBay's marketing activities have proven to be highly cost-effective since its inception Pierre Omidyar recognized the significant impact of marketing early on and effectively utilized it to drive eBay's growth Later, with the addition of Margaret Whitman, whose extensive knowledge and unparalleled expertise in brand marketing further enhanced the company's marketing strategies, eBay solidified its position in the marketplace.
_eBay - In a Leauue by Itseỉf
Twelve well-prepared and effective marketing campaigns are currently underway, poised to enhance the company's growth eBay's mission to "help people trade practically anything on earth" serves not only as a slogan but also as a powerful brand image, solidifying its position as a leader in the online auction industry This well-known slogan fosters a high level of awareness for new advertising initiatives.
eBay operates solely as a broker, avoiding inventory and distribution costs, which is notably different from other e-commerce businesses This unique model contributes to eBay's significantly higher profit margins compared to its main competitors.
W eaknesses ỉ 3 3 ỉ 3 O pportunities
eBay's initial competitive advantage is diminishing due to the rise of several strong online auction firms A closer examination of the online auction landscape reveals six leading companies: Amazon Auctions, BidVille, eBay, ePier, uBid, and Yahoo Auctions Notably, Amazon Auctions has emerged as eBay's closest competitor, surpassing it in overall performance.
eBay is increasingly prioritizing the interests of power sellers, leading to growing dissatisfaction among smaller sellers In response to the challenges faced by large corporate sellers, such as low profit margins and ineffective distribution channels, eBay is revising its level-playing-field policy to offer special perks and generous fee discounts to these top sellers This strategy, however, has resulted in feelings of discrimination among smaller sellers, causing eBay to gradually lose a significant number of them while attempting to retain its larger clientele.
eBay - In a Leatỉtte bv ỉtseỉt'
To sustain its rapid growth, eBay must evolve into a general e-tailer, which exposes it to intensified competition from major players like Amazon and e-commerce solutions such as Microsoft The increasing significance of fixed-price sales, highlighted by eBay's acquisition of Haf.com and the introduction of the Buy It Now feature, positions the company in a challenging landscape Furthermore, eBay faces potential competition from Google, a dominant search engine, making its current strategy increasingly precarious as these competitors hold strong market positions.
eBay has not firmly established itself in many foreign markets, holding a minimal presence in only a few locations Consequently, the likelihood of successfully competing with local rivals is low In its pursuit of continuous expansion, eBay has stretched itself too thin, leading some analysts to describe it as “two inches deep and miles wide.” This situation arises from eBay's aggressive strategy of forming alliances and acquiring various foreign online trading platforms, such as PBL Online and Alando.de AG, Germany’s largest person-to-person trading site The rapid pace of expansion has hindered eBay's ability to adequately tailor its business strategies to these foreign markets, making it highly vulnerable to competition from local players.
Inadequate quality control procedures have become a growing concern for eBay's management A recent study by Empirix, which analyzed six leading online auction sites, revealed that eBay experiences significantly more website breakdowns compared to its competitors.
eBay faces significant challenges due to its high error rate of 3.97%, which is notably worse than its competitors Additionally, the average transaction length on eBay is the longest at 13.2 seconds, indicating inefficiencies in the process Compounding these issues, eBay's payment system, PayPal, has experienced frequent shutdowns and outages, creating considerable inconvenience for both sellers and buyers If these weaknesses are not addressed promptly, they could pose serious threats to eBay's competitiveness in a fierce market landscape.
Fraudulent activities, including the redistribution of stolen goods, misrepresentation, and trading in counterfeit or pirated items, have become an increasingly alarming issue Despite eBay's efforts to combat this problem through initiatives like the Safe Harbor program, statistics indicate a continued rise in these illegal activities.
• The Feedback Forum , initially served as a tool to ensure honesty and integrity among traders, has not been efficient enough to enhance eBay’ community r r , affínity.
{•) C onstant a n d aggressive acquisitions have brou gh t eBay m uch room f o r developmení Being fully aware that Skype Technologies - an Internet telephony
55 m illion m em bers is going to be a real threat to it, eBay has done it utmost
( ị u to buy this Corporation with the net value worth o f $2.6 billion This tum s out to
eBay's strategic decision to acquire Skype significantly reduced its operating expenses, aligning with the company's aggressive expansion strategy Skype's software allows PC users to enjoy free calls and affordable rates for mobile and landline calls In a bid to expand its product offerings while maintaining profit margins, eBay also acquired PayPal in 2002 to enhance person-to-person credit card payment capabilities As a result, revenue from payment services has become an increasingly vital part of eBay's overall revenue, accounting for 33.8% in 2003, highlighting its substantial contribution to the company's financial growth.
(Source: M organ Stanley Conference, February 2005)
Stable economic growth in Asia, particularly in China and India, presents significant opportunities for eBay's development As Asia crafts a new economic narrative, it effectively transforms science, technology, knowledge, and creativity into jobs and economic success The generation and application of unique know-how are now key drivers of growth in this interconnected economy, emphasizing the importance of innovation, agility, and entrepreneurship With rising GDP per capita, consumer shopping habits are evolving, leading to a preference for online shopping due to its convenience and time-saving benefits Singapore’s Prime Minister has even referred to eBay as a leader in this transformative landscape.
A sia as a ju m b o je t S o u th east A s ia ’s 10 e c o n o m ie s are th e b ase, vvhile
Asian countries, particularly India, China, and others in Eastern Asia, are poised for sustained economic growth in the coming years This growth is expected to significantly improve living standards, suggesting a promising future for eBay in this vast continent.
Despite the maturity of the USA and European markets, eBay still has significant opportunities to strengthen its position, particularly given its current market share As of the fourth quarter of the fiscal year 2003, eBay held less than 1% of the motor market, indicating potential for growth and expansion in this sector.
4 % o f the c o n su m e r e lec tro n ics m a rk e t, from 1 to 3 % o f th e Com puter m a rk e t, less th an 1% o f th e h o m e a n d g a rd e n m a rk e t and so o n in th e us
The potential in the two largest global markets remains untapped, as more customers are beginning to recognize the benefits of online auction transactions By enhancing its competitive advantage, eBay can solidify its presence in these lucrative markets while also exploring opportunities for growth and development.
The rapid growth in the number of global internet users presents a significant opportunity for eBay to expand its reach and develop its platform further.
1:20D yr yr yr yr yr yr yr.
F1GURE 4: PROJECTED WORLDWIDE INTERNET USERS
(Source: The (Jrganization o f Economic Cooperation a n d Development, 2004)
Threats ỉ 8
As 2006 approaches, eBay's stock performance instills confidence in lenders and investors alike However, amidst globalization, shifting economic and political landscapes, and intensifying competition, eBay must remain vigilant and proactive in addressing these challenges.
• O ccasional Jraudulent o r iilegai activity ọ f eB ay seỉlers th at gets widely p u b lic iie d a n d erodes user confidence in usin g eBay to either list or bid
A Seattle-area trader of computer equipment noted that 10% of users encounter dishonest sellers on eBay, highlighting common illegal activities such as misrepresentation of goods, trading counterfeit items, failure to deliver purchased goods, and shill bidding These issues pose a significant threat to eBay's reputation Despite the launch of the SaleHarbor program in 1998 aimed at addressing these concerns, there has been little progress reported Given the low switching costs for buyers, eBay risks losing its user base if these alarming threats are not effectively managed.
eBay users are increasingly targeted by phishing scams, where fraudulent emails mimic official eBay communications Additionally, some websites replicate eBay's logos and design, tricking users into entering their personal information unknowingly This deceit allows cybercriminals to steal passwords and identities, posing a significant risk to unsuspecting eBayers.
A s a very com m on econom ic rule, the ntore profitabỉe an ỉndustry becomes, the m ore appeaỉittg ỉt turns ou t and so is com petition (Hofstede, G., 2003, p.18)
Attracted by the significant profit margins in the online auction industry, many operators, including major search engines like Google, Yahoo, and MSN, have entered the competitive landscape alongside eBay This surge in competition is driving innovation, but eBay's vulnerability to powerful rivals may force it to reconsider its position eBay's management has recognized that competition in both domestic and international markets has reached unprecedented levels, with some local competitors engaging in a back-and-forth battle with the corporation in various foreign markets, notably with Yahoo!
A USA-based internet company is striving to dominate the Japanese market, which is a key focus of eBay's comprehensive strategy to capitalize on the vast opportunities within the Asian market.
eBay continues to struggle with managing various costs, particularly delivery and credit charges With rising fuel prices, these additional expenses are inevitably transferred to consumers through increased delivery and postal fees Consequently, the overall cost of auctioned items is becoming prohibitively high.
eBay operates in a highly competitive environment where buyer switching costs are minimal, making it crucial for the platform to maintain its appeal Similar concerns arise for credit card companies like Visa and MasterCard if they decide to impose charges on online transactions Currently, eBay's broker position provides a competitive edge, insulating it from fluctuations in fuel prices and related costs However, as competitors become more adept at managing transportation expenses, eBay must reassess its strategy in the coming years to sustain its market position.
S e rv ic e expenses quite well.
3 2 In du stry and c o m p e tỉtio n a n a ly s is
This article aims to provide an in-depth analysis of the online auction industry, with a focus on eBay's current operations Key topics include industry analysis, emerging trends over the next few years, critical success factors, and the competitive landscape By examining these elements, stakeholders can assess the overall attractiveness of the online auction market.
W ith the em ploym ent o f Porter’s fĩve forces model, this part takes into account the level o f attractiveness o f the O nline auction industry (see íĩgure 5).
The O nline auction industry is ju st a small industry w ithin the e-com m erce ĩield Common
The industry offers a diverse range of products and services, including motors and real estate, along with various pre-and-post-trade services designed to enhance the user experience and provide a comprehensive trading journey Notably, the sector is characterized by a remarkable growth rate and intense competition, dominated by a few key firms Brand recognition plays a crucial role in how companies compete fiercely in this market Additionally, global competition is increasing due to low switching costs for users and the abundance of available substitutes.
According to Porter (1980), brand recognition and customer experience are significant barriers for new entrants in the online auction industry Despite being a free market, the high costs of software development and the importance of brand trust make entry challenging Online auction customers prioritize security, leading to increased brand sensitivity, especially in light of rising fraudulent activities eBay, as the first mover and market leader, has established strong brand recognition that competitors like Amazon.com struggle to match Additionally, experienced firms benefit from economies of scale, allowing them to lower fees for customers, a luxury new firms cannot afford The substantial marketing costs required to attract and retain users further diminish the threat of new entrants in this competitive landscape.
The main e q u i p m e n t f o r eBay is its s e r v e r s to o p e r a t e O n lin e a u c tio n tr a n s a c tio n s Together w ith salaries paid to softw are designers, they com prise o f all thc íixed costs for
eBay - ỉn a Leauue bv lts e lf
eBay operates in a league of its own, as it incurs no marginal inputs for each revenue-generating auction With its existing servers and software infrastructure, eBay can handle a significantly higher volume of transactions without additional fixed costs, resulting in minimal pressure from suppliers This advantage sets eBay apart from many other online companies To further strengthen its leading position, eBay has consistently invested in its software design team, which also reduces the bargaining power of its main suppliers.
eBay's customers, primarily the sellers listing their items on the platform, enjoy a favorable relationship with the corporation due to its excellent services and high transaction volume Although switching costs for these sellers are low, they are reluctant to leave eBay, as they struggle to find better alternatives Consequently, this dynamic results in limited bargaining power for eBay's customers.
• R ivalry am ong Online auction fìrm s
eBay's first-mover advantage has allowed it to continually develop and maintain a dominant position in the online auction market With an estimated market share of 85% in consumer-to-consumer auctions and 64% of total online auction revenue, eBay poses a significant challenge for competitors trying to attract bidders Additionally, eBay's extensive offering of approximately 35,000 categories of items further enhances its competitive edge, making it difficult for other auction firms to match its strengths.
• Threat o f substitutes eBay - In a Leasue by Itselí
Online auction firms face competition from online retailers and traditional brick-and-mortar stores; however, the threat of substitutes is typically low This is because online auction platforms effectively attract price-sensitive consumers by offering significant discounts ranging from 25% to 35% These substantial discounts are designed to offset the higher fraudulent risks that online auction buyers may encounter.
In conclusion, the online auction industry offers significant profitability and growth potential; however, entering this market presents substantial challenges due to high barriers to entry Both external companies and industry insiders, aside from eBay, recognize that while it can be advantageous to join the sector, sustaining a long-term presence is equally demanding.
Competitive anaỉysis
Understanding the competitive landscape is vital for any firm's strategy, particularly in the online auction industry Identifying the strengths and weaknesses of major competitors is essential for a company's ability to compete effectively This section will explore eBay's main competitors, focusing on their size, scope, products and services, as well as their unique strengths and weaknesses.
Founded in 1995, Amazon.com has emerged as eBay's closest competitor, boasting a customer base of 35 million users across over 150 countries The company's growth has been remarkable, achieving a 58.9% increase in 2003 However, despite its rapid revenue growth, Amazon's profit margins remain relatively low compared to eBay, primarily due to its free shipping policy aimed at attracting more customers To secure a leading position in the online auction industry, Amazon.com has implemented various strategic initiatives.
Give custom ers extensive revievv available o f each item This policy has been much o f the corporation’s custom ers’ interest and appreciation.
- Invest heavily into inírastructure In 1999, A m azon.com spent more than $300 m illion on improving and upgrading the inírastructure as well as opening more international website (A m azon.com ’s Annual R eport, 2000).
27 eBay - In a Leauue bv ỉtseỉi'
- Use strategic alliances to support its innovative expansion initiatives It had agreem ents with Borders Books, e-commerce partnerships with Ashford.com,
D rugstore.com , Card Direct.com, and Sotheby’s, and opened a co-branded toy and video game store Online \viih Toysrus.com.
- To com plete with eBay’s fíxed-price formats, A m a/o n nas ìnđuđed links on product pages that allow customers to view identical new and uscd items from third-party sellers.
By 2004 A m azon’s International sales had reached over $2 billion, accounting for 38% o f all Internet sales, posing a real threat to the current position o f eBay.
Bidville has no listing fees and no íĩnal value fees ePier has 600,000 members in January
2004 Both o f them have closely copied eBay’s look and fee structure and named themselves as “altem atives to eBay” So, consequently, they should call no attention from eBay’s management
Founded in April 1997, Ubid went public in December 1998 on the Nasdaq Stock Exchange and has consistently experienced impressive revenue growth Initially competing with eBay in the online consumer-to-consumer auction market, Ubid shifted its focus in 2002 due to concerns over fraud and product quality The company's profit margins have been significantly lower than eBay's, as its merchandise is sourced from both corporate partners and its own operations, which include a 400,000-square-foot warehouse and refurbishment center Currently, Ubid is concentrating its efforts on the business-to-consumer marketplace, where it faces fierce competition with eBay.
" Ì T eBay - In a Leasue bỵ_ h s e lí
Strategies o f Ubid to attract more customers are to offer them w ell-branded Products and
Ubid offers deep discounts and a wide range of products and services, providing customers with the opportunity to make informed choices The corporation aims to build its brand reputation and gain customer trust by exclusively trading with leading manufacturers such as Sony, Hewlett-Packard, IBM, Compaq, AMD, Minolta, and over 1,000 other reputable suppliers Shoppers at Ubid can find a diverse selection of items, including computers and office supplies, consumer electronics, music, movies, games, jewelry, gifts, travel and events, home and garden essentials, sports equipment, toys and hobbies, apparel, collectibles, and much more.
Despite being a player in the online auction industry, Ubid's performance has lagged behind its competitors A benchmark study conducted by Empirix in 2003 revealed that Ubid had the highest error rate at 11.76% and the longest variability in transaction length at 8.39 seconds among six leading auction sites This lack of reliability and consistency poses a significant challenge for Ubid, especially in a rapidly growing market where buyers can easily switch to more reliable alternatives.
In the coming years, Ubid will focus on the business-to-consumer market, aiming to enhance its competitive edge through continuous investments in new technology and talent acquisition The corporation is also committed to improving operational efficiency by implementing regular and substantial workforce reductions Additionally, Ubid is adjusting its product mix to identify and target niche markets for better isolation and specialization.
Ubid is unlikely to pose a significant threat to eBay in the next decade due to its limited competition with the established platform.
Launched in 1998, Yahoo Auctions has become one of the world's leading online auction firms, boasting nearly 200 million registered users across 24 countries and available in 12 languages Its performance metrics, including user engagement rate, average transaction length, and consistency, surpass those of eBay, with an impressive revenue growth rate of 88% from 1999 to 2000 Yahoo Auctions focuses on strategic alliances and marketing agreements to drive traffic, invests in new technologies for enhanced performance and user appeal, offers additional services, and implements a revamped performance-based pricing model.
To boost site traffic, Yahoo Auctions has formed various alliances and marketing agreements, including a notable collaboration with Sina, a leading Chinese web portal, in 2004 to strengthen its international presence in the online auction market Additionally, in 2003, Yahoo Auctions acquired Overture, a top commercial search provider with over 88,000 global advertisers and a robust affiliate distribution network.
- Fully aw are o f the role o f technologies in the industry, Yahoo Auctions has constantly increased its research and developm ent budget (Jonathan Sprague,
Between 1999 and 2003, over $1.5 billion was invested to enhance technology and improve site performance and attractiveness, which are crucial factors for success in the online auction industry.
30 ôSE2taằ ' V ' - In a League bv Ị t se l ớ
To stand out among strong competitors, Yahoo Auctions implemented additional services for users In 2001, the Premium Seller Program was introduced to reward top-performing sellers with benefits such as enhanced promotions, premium placement, and direct access to customer support.
In response to a decline in registered users due to the introduction of listing fees, the Corporation has implemented a revamped performance-based pricing model This new approach significantly reduces listing fees and charges sellers based on the value of their sold items By considering transaction volume, this model offers a fairer system that rewards sellers for their active participation and presence on the Corporation’s site.
Yahoo.com boasts a significant global reach, allowing Yahoo Auctions to operate without numerous local auction sites This strategy reduces operational expenses and enhances efficiency, positioning the corporation as a formidable competitor to eBay.
Margaret Whitman's key message at eBay emphasizes that loyal and well-motivated employees lead to satisfied customers, which ultimately results in increased profits and happier shareholders Enhancing the training of middle managers is also beneficial for the company, alongside adjustments to the corporation's bonus structure.
Em ployees at eB ay have been asked to list in order the 18 reasons for vvorking w here
eBay ranks high in employee satisfaction, with "appreciation of work done" as the top reason for job satisfaction, followed by "respect for me as a person," and "good pay" in third place This positive environment is largely due to the humanistic management philosophy of the Board of Directors Employees are encouraged to engage socially, which helps them express their identity and avoid dissatisfaction at work The central office serves as a hub for collaboration and loyalty, where individuals are evaluated based on their contributions rather than their office presence.
Management philosophy analysis
In 2005, Forbes magazine recognized Ms Margaret Whitman as one of the most powerful women in the world due to her exceptional performance and distinctive management style at eBay Under her leadership, the company established a clear mission that defines individual responsibilities, ensuring that employees report significant issues directly to top management Whitman focused on fulfilling symbolic duties and creating impactful marketing campaigns, while Omidyar Pierre directed long-term strategies for growth and development Together, they fostered a challenging yet rewarding work environment where outstanding performance is recognized, and excuses for underperformance are not tolerated According to Botch H (2005, p.24), eBay's management is characterized by aggressive expansion, strategic alliances for a stronger market presence, and a commitment to achieving effectiveness and efficiency regardless of organizational structures.
3.3.3 Com pany structure analysis (Ịịí^ eBay's business is Setup as a functional structure M anagers work within each o f their distinct groups inside the C o rp o ra tio n Their m ain responsibilities are to control problems in their o\vn sections and ensure that thcir groups are in sm ooth operations Thanks to Ihis sciup, mere 1S detailed training vvithin each branch Ít is said that ai eBay, each manager alvvays knows exactly what needs to be done and how things are supposed to be in the areas that are actually o f their own The only problem w ith this structure is that com m unication can som etim es be an issue am ong the different groups This could be partially solved if each m anager brieíly meets or dỉscusses w ith other managers about their specific groups and on how things are going M s M agaret W hitman - eBay’s CEO would be above o f this structure and under the direct instruction o f Mr Pierre Omidyar, overseeing it all (see íĩgure 6).
Since its establishment in 1995, eBay has maintained strong financial health, despite fluctuations in revenue growth over recent years While the growth rate has faced challenges, it remains significantly higher than that of competitors In 1999, eBay achieved a record net revenue growth of 160.92%, the highest in the industry However, this growth has gradually decreased due to intensified competition and market maturation Notably, the percentage of operating expenses relative to total revenues has consistently declined, showcasing eBay's effective cost management and streamlined value chain.
• Liquidity position The current ratio for eBay is unusually high as the
C orporation holds m uch cash and short - term investm ents However, this ratio
eBay's current liabilities have risen rapidly, reflecting the company's strong commitment to its expansion strategy and the acquisition of competitors Despite this increase, eBay maintains a high level of liquidity, indicating a robust financial position.
FIGURE 6: ORGANIZATIONAL STRUCTURE OF EBAY
eBay's solvency position is strong, as the company relies heavily on internal financing, opting to fund its growth through new common stock issues rather than external borrowing This strategy results in a substantial amount of common stock equity on its balance sheet, contributing to notably low debt-to-equity and debt-to-asset ratios compared to industry competitors In 2003, eBay's debt-to-equity ratio fell to just 1.8%, coinciding with the issuance of 100,000 additional shares and only a minimal increase in debt Consequently, the likelihood of default on outstanding loans is very low Between 2003 and 2004, eBay's long-term debt nearly reached zero, decreasing from $124.5 million to $0.1 million While this reflects eBay's excellent solvency, it raises questions about the optimality of its capital structure, as leveraging debt typically generates higher returns than relying solely on common equity.
(Source: M organ Stanley Con/erence, February 2005)
35 eBay - ỉn a Lẹague bV Ilseìí'
Despite a rapid increase in common equity, eBay's return on assets and return on equity ratios have shown consistent growth driven by impressive net income However, the return on equity remains unsatisfactorily low, raising questions for corporate management about the necessity of repurchasing outstanding shares to enhance this key performance indicator.
eBay's financial condition and balance sheet strength are exceptional, setting benchmarks for liquidity, solvency, and profitability within the industry In 2004, eBay not only met its revenue target a year ahead of schedule but also achieved a record earnings per share (EPS) of $0.57, further reinforcing the financial community's confidence in the corporation's health.
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3.4 S ta k e h o ld e rs a n a ly s is
When formulating corporate strategies, eBay's management must prioritize the interests and concerns of all stakeholders involved Adopting a win-win approach is essential for the company's progress and long-term success, as highlighted by Bartol et al.
(1998, p.880), stakeholders are “any group or individuals in organization’s internal and external environm ents upon vvhom organization indecisions and actions im pact” A nother
Stakeholders are individuals or groups whose personal goals are intertwined with an organization, which in turn relies on them to achieve its objectives (Perry, 1992) Each industry has its unique set of stakeholders In the online auction sector, eBay's stakeholders include owners, sellers, buyers, bargain hunters, shipping companies, suppliers, payment processing firms, employees, lenders, government entities, and general Internet users.
Types o f stakeholders Comraon concerns/necds eB ay’s owners
- L eading position in the industry
- H igh product and services quality
- Stable political and econom ical environm ent
- L ow est possible listing fees and íìnal value fees
- On tim e paym ents form buyers
- Lovvest possible error rate percentage
- Im proved relationship w ith buyers
- Good quality services and Products
- Rational and emotional appealing sites
- Com petitive pricing, satisíying the desire for comraunity
- The excitem ent o f the search
- Regular business and political stability
- Opportunities for se lf improvement
- Revvarding bonus plans, in-path prom otion
- O n tim e payment o f interest and principal
- Lovvest possible level o f default risk
- Avvareness and abeyance on legaỉ rules an regulations
- Tax paym ent on time
- Contribution to economic grow th o f the national economy
- Sim ples easy-to-follow procedures
- Signiíicant contribution to local economic growth
- Contribution to the welfare system
To determine the optimal products and markets for eBay to prioritize, a portfolio analysis utilizing the BCG Growth-Share Matrix is essential This method, developed by the Boston Consulting Group, evaluates two key dimensions: relative market share and market growth rate By analyzing these criteria, businesses can effectively identify strategic opportunities for resource allocation and focus.
B CG grovvth share matrix are divided into 4 main categories nam ely Star, Cashcovvs,
Star holds a significant market share in a rapidly growing market, with its international business experiencing a remarkable 165% growth in 2002 The company's largest international markets are Asia, accounting for 24.3%, and Europe, at 22.5%, driven by increased Internet access and a high percentage of active users, such as 75% in Germany eBay should prioritize these markets by allocating resources and efforts, as competitors have also recognized their potential.
eBay is making significant strides in tapping into new markets, particularly in Japan, where Yahoo Auctions currently holds a dominant position As eBay continues to develop its strategies, it aims to establish a strong presence in this competitive landscape.
Cash cows are characterized by a significant market share in a steadily expanding market, generating more cash than necessary to sustain their current market position.
T h e N o rth A m e ric a n m a rk e t acc o u n ts fo r 5 1 5 % o f to ta l e -c o m m e rc e in 2 004
The market has become highly mature and is dominated by strong competitors According to the BCG model, eBay should not focus on this large market, as only market share and growth are considered when allocating resources However, from 2001 to 2008, revenue from the North American market, primarily the U.S., is expected to account for over 30% of eBay's total revenue, making it essential for the corporation to pay attention to this market Investing more in this area to improve performance and operational efficiency is the best strategy for eBay to maintain and enhance its competitive advantage.
Unlike cash cow markets, the question mark category has a low market share in the rapidly growing Latin American e-commerce sector Despite a significant increase in Internet users in the region, e-commerce transactions only account for 12.1% of the market This low percentage can be attributed to relatively slow economic growth compared to Asian nations, as well as political unrest, which has posed significant challenges to economic development in Latin America.
FlGURE 9: REAL GDP OF EBAY’S MAIN MARKET FROM 2 0 0 1 TO 2004
(Source: The Organization f o r Economic C o-operation a n d Development, 2005)
Financial a nalysis
Since its establishment in 1995, eBay has maintained exceptional financial health, with revenue growth rates that, despite fluctuations, remain high compared to competitors In 1999, the company achieved a record net revenue growth of 160.92%, the highest in the industry However, this growth has gradually declined in subsequent years due to increased competition and market maturation Notably, the percentage of operating expenses relative to total revenues has consistently decreased, showcasing eBay's effective management in reducing costs and optimizing its value chain.
• Liquidity position The current ratio for eBay is unusually high as the
C orporation holds m uch cash and short - term investm ents However, this ratio
eBay's current liabilities have risen rapidly, reflecting the company's commitment to its expansion strategy through acquisitions of competitors Despite this increase, eBay maintains a strong liquidity position, indicating its financial stability and ability to manage its resources effectively.
FIGURE 6: ORGANIZATIONAL STRUCTURE OF EBAY
eBay's solvency position is strong due to its reliance on internal financing, opting to fund growth through the issuance of common stock rather than external borrowing This strategy has resulted in a substantial amount of common stock equity on its balance sheet, leading to notably low debt-to-equity and debt-to-asset ratios compared to industry competitors In 2003, the debt-to-equity ratio dropped to just 1.8%, as the company issued 100,000 additional shares while only slightly increasing its debt Consequently, eBay faces a low risk of default on its loans, with long-term debt nearly eliminated, decreasing from $124.5 million in 2003 to $0.1 million in 2004 While this indicates eBay's excellent solvency, it raises questions about the optimality of its capital structure, as leveraging debt typically offers higher returns than relying solely on common equity.
(Source: M organ Stanley Con/erence, February 2005)
35 eBay - ỉn a Lẹague bV Ilseìí'
eBay has experienced significant growth in common equity, leading to a continuous increase in both return on assets and return on equity ratios, driven by impressive net income growth However, the return on equity remains unsatisfactorily low, raising questions for corporate management about the necessity of repurchasing outstanding shares to enhance this key performance indicator.
eBay's financial condition and balance sheet strength are exceptional, with liquidity, solvency, and profitability ratios serving as industry benchmarks In 2004, eBay not only met its revenue target a year ahead of schedule but also achieved its highest earnings per share (EPS) of $0.57 in its history, further instilling confidence in the company's financial health within the financial community.
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3.4 S ta k e h o ld e rs a n a ly s is
When formulating corporate strategies, eBay's management must prioritize the interests and concerns of all stakeholders involved This win-win approach is essential for the company's continued success and growth According to Bartol et al., addressing these issues effectively is crucial for eBay's strategic development.
(1998, p.880), stakeholders are “any group or individuals in organization’s internal and external environm ents upon vvhom organization indecisions and actions im pact” A nother
Stakeholders are individuals or groups whose personal goals are intertwined with the organization and are essential for achieving its objectives (Perry, 1992) Each industry has its unique set of stakeholders In the online auction sector, stakeholders include eBay's owners, sellers, buyers, bargain hunters, shipping firms, suppliers, payment processing companies, employees, lenders, governments, and general internet users.
Types o f stakeholders Comraon concerns/necds eB ay’s owners
- L eading position in the industry
- H igh product and services quality
- Stable political and econom ical environm ent
- L ow est possible listing fees and íìnal value fees
- On tim e paym ents form buyers
- Lovvest possible error rate percentage
- Im proved relationship w ith buyers
- Good quality services and Products
- Rational and emotional appealing sites
- Com petitive pricing, satisíying the desire for comraunity
- The excitem ent o f the search
- Regular business and political stability
- Opportunities for se lf improvement
- Revvarding bonus plans, in-path prom otion
- O n tim e payment o f interest and principal
- Lovvest possible level o f default risk
- Avvareness and abeyance on legaỉ rules an regulations
- Tax paym ent on time
- Contribution to economic grow th o f the national economy
- Sim ples easy-to-follow procedures
- Signiíicant contribution to local economic growth
- Contribution to the welfare system
To determine which products and markets eBay should prioritize, a portfolio analysis using the BCG Growth-Share Matrix is essential This method, developed by the Boston Consulting Group, evaluates businesses based on two key dimensions: relative market share and market growth rate By assessing these criteria, eBay can strategically allocate its resources and efforts to maximize growth potential.
B CG grovvth share matrix are divided into 4 main categories nam ely Star, Cashcovvs,
Star holds a significant market share in a rapidly growing market, with its international business experiencing a remarkable 165% growth in 2002 The company’s largest international markets are in Asia (24.3%) and Europe (22.5%), driven by increased Internet access and a high percentage of active users, particularly in Germany, where 75% are classified as active eBay should prioritize these markets by allocating resources and efforts, as competitors are also recognizing their potential.
eBay is making strides to penetrate new markets, particularly in Japan, where Yahoo Auctions currently holds a dominant position As eBay seeks to establish itself, it aims to leverage its potential to gain traction in these competitive environments.
Cash cows are characterized by a significant market share in a steadily expanding market, typically generating more cash than necessary to sustain their current market position.
T h e N o rth A m e ric a n m a rk e t acc o u n ts fo r 5 1 5 % o f to ta l e -c o m m e rc e in 2 004
The market has become highly mature and is dominated by several strong competitors According to the BCG model, eBay should not concentrate its resources on this large market since market share and growth are crucial factors in decision-making However, between 2001 and 2008, the North American market, particularly the U.S., is expected to account for over 30% of eBay's total revenue, making it impossible for the corporation to ignore Instead, eBay should invest more in this market to improve performance and operational efficiency, thereby maintaining and enhancing its competitive advantage.
Contrary to the cash cow model, the question mark category holds a low market share in the rapidly growing Latin American e-commerce market, which currently accounts for only 12.1% of transactions despite a significant increase in internet users This low percentage can be attributed to relatively slow economic growth in the region compared to Asian nations, as well as ongoing political unrest that poses significant challenges to economic development.
FlGURE 9: REAL GDP OF EBAY’S MAIN MARKET FROM 2 0 0 1 TO 2004
(Source: The Organization f o r Economic C o-operation a n d Development, 2005)
In the coming years, Latin America, alongside Asia, is poised to emerge as one of the most dynamic economic development regions globally (Peterson H., 2003, p.15) To capitalize on this growth, eBay should allocate significant resources and efforts towards engaging Spanish and Portuguese-speaking communities in countries such as Argentina, Chile, Colombia, Ecuador, Mexico, Uruguay, and Venezuela Currently, the dog category exhibits both a low market share and a slow growth rate, indicating a lack of regions positioned within this segment.
Relative com petitive position (m arket share)
F1GURK 10: BCG GROW IU SIIARi: MARKb'1 1OK SHARE GROVVTH BY REGIONS
(Source: Partly adapted from Pearce a n d Robim on, 1988)
Currently eBav is m ain lv concentrating on Online auctions transaction Service, íixed
eBay's payment facilitating services have become a crucial part of its annual revenue, contributing 33.8% of the company's net revenue in 2003, and should be classified in the Star Square The online auction transactions service remains eBay's primary business, representing the largest share of its revenue and also deserving a position in the Star Square While fixed-price sales are gaining traction, they currently contribute minimally to eBay's overall revenues and face stiff competition from powerful rivals, placing them in the Question Mark Square If eBay successfully leverages its competitive advantages to grow this sector, fixed-price sales could advance to the Star Square; however, failure to establish a foothold may necessitate a downgrade to the Dog Square, prompting the company to refocus on its core strengths.
Market growthrate eBay - ỉ n a Leasue b\' Itse lí
Relative com petitive position (market share)
(1) O nline auctions, (2) Payments, (3) Fixed - price sales
FIGURE i 1: BCG GROWTH SHARE MARKET FOR SHARE GROWTH BY PRODUCTS
(Source: Partly adapted fro m Pearce a n d Robinson, 1988)
The remarkable grovvth o f the Online aucíion industry over the past few years has been shaped by the dynamic interplay o f various macro environm ent factors According to