Critical Analysis of an E-Business

The Internet has become an effective marketplace for most businesses today. Its many applications including communication, transaction and interaction resulted organisations putting up their websites to utilise such applications. Such applications of the internet led to the conceptualisation of the term e-business which has affected almost all areas of business. E-business can be simply defined as doing business electronically (Kalakota & Robinson, 2000) but it has integrated the communication and the value chain of the business, two of the most important aspects of the business.

Due to its many applications, there are actually organisations whose business models are designed specifically for e-business. That is, the core competency of their business is the effective utilisation of the internet using appropriate resources and effective strategies. One of these organisations is the very popular eBay. eBay has been the epitome of every e-business today due to its success in the dot com world and has been the study of many business organisations from which they can get some ideas on how to make their e-businesses a success.

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Company Background eBay Inc. , the world’s most popular and by far the largest auction company has been around since 1995. It was founded as a sole proprietorship by Pierre Omidyar, a computer science graduate of Tufts University. He worked for Claris, Innovative Design and General Magic before creating eBay. eBay was conceptualised when his wife then fiancee was interested with Pez dispenser collection and was frustrated that the buy and trade of such collectors’ item is limited by geographical considerations (Krishnamurthy, 2004).

Having a programming background, Omidyar saw the potential of the Internet and created the program for the website that will help his girlfriend sell her collections, calling it AuctionWeb. A section of the website called Echo Bay Technology Group was for some consulting work to which the site was named after. But another company had registered echobay. com thus he chose eBay (Krishnamurthy, 2004). Having a good background with IT, he himself developed the program and the web design of his business utilising the C++ program.

When he met Jeff Skoll, an MBA graduate from Stanford Business School, they became business partners; Omidyar’s programming experience was balanced by Skoll’s business skills (Anonymous, 2007). Skoll wrote the business plan for the company they called eBay Inc. Initially, trading on the site was free but as the site generated traffic, it moved to a more expensive Internet Service Provider and began charging customers at 5% of the sale price for items $25 and 2. 5% for items more than $25 (Krishnamurthy, 2004). In 1997, the business moved from being an accidental company to becoming a real company due to the tremendous growth it experienced.

In that same year, the company officially became eBay and brought in its CEO Meg Whitman, a Harvard Business graduate who was the general manager of Hasbro’s Preschool Division, an executive of the Walt Disney, Proctor & Gamble, and the president and CEO of FTD to help the company grow. Omidyar, Skoll, Whitman and another person in name of Mary Lou Song came up with the idea of setting up a place where people could buy, sell and trade their items; they set the rules and provided a safe place in which to do business with banks and moneylenders helping with financial services (Anonymous, 2007).

eBay is basically an online community used by buyers and sellers for the exchange of goods from memorabilia, to collectors’ items such as coins, computers, stamps and various items that can be sold usually those that are hard to find in regular stores. Figure 1 shows the breakdown of gross merchandise listed on eBay. Big companies also began trading and eBay is now considered as the world’s biggest used car dealer (Maney, 2005). Sellers list items for sale and buyers bid on those items. Since it is based online and the service is fully automated, trading happens 24 hours a day, providing the convenience of online shopping to customers.

Over the years since its foundation, eBay experienced tremendous growth. Figure 1: Breakdown of Gross Merchandise Listed on eBay (Moraes & Smit, 2007) eBay is present at 33 countries including the USA, UK, and China with buyers from 150 countries. It has about 157 million registered users worldwide and at any given time there are approximately 55 million items available on eBay worldwide and approximately 5 million items are added each day in any of the 50 categories (eBay, 2007). The company revenue grew significantly that in 2005 it reached $1.

09 billion; gross merchandise volume worth $10. 09 billion; and 440 million listings (see Appendix A). In 2001, eBay ranked number 1 in the list of top auction site by revenue share, with more than 70 percent market share as shown in figure 2 and a satisfaction rate of 8. 42 (Krishnamurthy, 2004).

eBay Market Share (Moraes & Smit, 2007) eBay Business Model eBay’s business model during that time was considered to be new and unique, thus its CEO decided to back it up with a strong experienced management team mostly from big companies like PepsiCo and Disney.

Unlike any other e-businesses, eBay is not a retailer but basically an auction/trading community where people to people trading occurs; it serves as the intermediary between the sellers and the buyers. According to its CEO Meg Whitman, eBay is a business that took unique advantage of the Net’s ability to connect many to many, utilising a business model that was created out of the Internet technology, and is one of those companies that could not have existed without the Internet (Krishnamurthy, 2004).

The company’s business model is based on its mission statement which is “to provide a global trading platform where practically anyone can trade practically anything” (Chen, 2005). From this mission, it can be viewed that technology and information systems are critical to the success of eBay. It must have an efficient system to support customer to customer (C2C) communications and transactions. The customers are both the sellers and the buyers that used eBay site to trade.

eBay uses a strong system with programs that enable eBay provide quality and effective services; it uses a reliable website that enables global customers access to the services; and it establishes policies and guidelines that helps the customers use the services easily and safely. Figure 3 shows the business model used by eBay to create value to its customers and conduct its businesses. The model has five components and all of them play significant roles for eBay that no value is possible to be created without the use of the Internet.

eBay’s system serves as the backbone of its activities such as its operations, marketing, services, and firm infrastructure. The system was created using the services and products provided by outside suppliers such as software and hardware vendors and ISPs. Its primary component is the application programming language (API), a collection of database calls that includes the following functionality: listing items for viewing; viewing information about the listed items; getting categories of items for sale; retrieving lists of items for sale by a specific seller; and leaving feedback on a specific seller after transaction (Chen, 2005).

Important information are all stored and retrieved in the searchable databases. As an online marketplace, it has a customer support which is available 24/7 to answer and help customers with whatever queries they have and the company’s IT support ensures that the system is always up and running because its business model does not allow eBay to function offline. The programming language it used on its early years was already upgraded today to be able for eBay to provide value-added services.

It now uses different tools such as the Seller Tools, the Merchant Kit, Editor Kit, and automatic email response technology. The system, using specific software, organised items by topic and by category in automated way, providing convenience to the customers. Anyone can browse and bid on items free of charge but eBay earns by charging sellers with the following charges:

• Insertion fees – a non-refundable fee for listing an item on eBay. The fee ranges from 30 cents to $3. 30 depending on either the seller’s opening value or reserve price;
• Promotional fees – These are fees charged for additional listing options that help an item catch a buyer’s attention such as highlighted or bold listings;
• Final value fee – This is a commission that is charged at the end of the auction, ranging from 1. 7 to 5. 25 percent of the final sale price (Anonymous, 2007). The ‘complementors’ as the term implies complement eBay’s business. Banks and credit card companies provide made possible online purchase of items; search engines are the channels that drives traffic to eBay’s website, and the shipping companies enable the products purchased via eBay to be delivered to the buyers.

eBay also partnered to companies which provide essential services: iEscrow eliminates auction fraud while the AOL promotes eBay auctions and also provides internet security, helping eBay gain the loyalty and trusts of both the sellers and the customers. eBay’s business seems to be less complicated than other business models. It does not create its own line of products; it has no worries about inventory; and is located strategically on the largest marketplace today which is the World Wide Web.

The Internet enabled eBay to easily expand its market globally and eBay’s growth can be considered to be the envy of most businesses today who find it hard to expand their market which is hindered primarily by geographical circumstances as well as capital intensiveness. Business Strategies The business strategy of every company is basically the moves that will lead a company to achieving its objectives, mission and profitability. It is the choice of a game plan for how a company will compete in the marketplace (Moraes & Smit, 2007).

A company’s choice of strategy is chosen based as on the company’s capabilities and the environment in which it operates as well as its mission which directs the company to direction it wants to go. For eBay, it is its mission ‘to provide a global trading platform where practically anyone can trade practically anything’. It is also eBay’s mission to enhance the online trading experiences of all including collectors, hobbyists, dealers, small businesses, unique-item seekers, bargain hunters, opportunistic sellers, and browsers (Moraes & Smit, 2007).

Basically, eBay has six core strategies:

1. continually enhancing site features and functionality;
2. broadening the trading platform;
3. local and international expansion;
4. Creation of a strong brand;
5. establish a large use base;
6. eBay’s has taken advantage of the changes occurring in its technological environment; that is, people are starting be modernised and the Internet is the primary driver of this modernisation. Leveraging its IT leads eBay to one of its core strategy: continually enhancing site features and functionality (Moraes & Smit, 2007).

It has been eBay’s strategic decision to be hands off to its customer transaction and to maintain being a service provider only thus its site must be reliable and user-friendly. eBay maximises the advantages provided by IT by developing and creating a website with various functions. eBay is also investing effectively on marketing as reflected by its acquisitions of AOL for the promotion of eBay auctions (Krishnamurthy, 2004) so that customers can easily find their website.

Growth strategy is also one of eBay’s choice particularly horizontal growth and related diversification strategy. Horizontal growth is the expansion of the company’s existing product into other locations or market segments while related diversification strategy is expanding into related industry, one having synergy with the company’s existing lines of business (Mitchell, 2007). Specifically, broadening the trading platform and local and international expansion are two of eBay’s core strategies (Moraes 7 Smit, 2007).

By 1999, 4 years after eBay’s launch, eBay’s competitors began to emerge including its biggest rival up the Amazon. eBay responded to the challenge by expanding its core businesses through several acquisitions. It acquired the offline auction house Butterfield & Butterfield and created the eBay Premier which allows user to bid online for antiques and collectibles on offline auction house floors (Moraes & Smit, 2007). It created the eBay motors by acquiring Kruse International, the largest collector-car auction in the United States, and the AutoTrade. com (Moraes & Smit, 2007).

eBay Motors is basically the market place specifically designed for car auctions with supporting features like car financing, auto insurance and lemon checks. eBay Stores was also created after the acquisition of Half. com. It was created for buyers who do not want to bid, allowing for the immediate purchase of multiple fixed price and auction-style items. eBay expanded also expanded its market geographically by putting up sites on various countries like Austria, Australia, Canada, France, Germany, Ireland, Italy, Japan, Korea, Philippines, China, new Zealand, Switzerland and the United Kingdom.

This expansion enables eBay to allow trading outside the United States, overcoming the problems created by trade barriers, political environment and financial barriers. In the United States, alone, eBay has local sites in 53 markets. The company has plans of acquiring other related companies in foreign markets where eBay has not penetrated yet and where customers are not yet aware about eBay (Moraes & Smit, 2007). Creation of a strong brand is another core strategy of eBay (Moraes & Smit, 2007).

The company’s CEO along with her management talent and experiences has been an asset to the company and the driver behind the choice of this strategy. She clearly devised a clear market segmentation strategy and marketing strategies that would make the eBay brand known to many. Before the emergence of various competitors, eBay was marketed in publications, and exhibitions at collector trade shows. When its competitors increased, it invested so much on marketing campaigns such a television ads resulting to popularity that eBay easily introduced its services to other market.

eBay also established a large user base by establishing relationships with more than 60 websites including American Online, providing eBay the access to the largest user base on the Internet and prevented AOL from entering the auction business (Moraes & Smit, 2007). eBay also created the Business Exchange targeting the small business market for businesses to buy and sell business merchandise and professional tools in their local market (Moraes & Smit, 2007). Conclusion The business model of eBay can be infinite depending on the capacity of its infrastructure and the number of customers who uses the site.

Thus, the core strategies of eBay are very balanced that as it expand its market, its IT infrastructure and capabilities is also upgraded, ensuring that it support the infinite scalability of eBay’s business. This balance in strategy is also brought about by the balance in the organisation; its founder is technologically inclined while its management is a group of people with wide experiences in the business arena, making the eBay organisation appropriate for the business model of the company.

So far, its choice of strategies has been very effective in sustaining its advantages over its rival companies as reflected by its market share over the past years. However, the company is very reliant on the Internet and related technologies, making it a pure e-business that is vulnerable to the changes in its technological environment.

References

1. Anonymous, Chapter 1: eBay’s Business Model Retrieved online on January 13, 2007 http://media. wiley. com/product_data/excerpt/27/07645594/0764559427. pdf Cartwright, Shawn D. Supply chain interdiction and corporate warfare.
2. Journal of Business Strategy, Mar/Apr 2000, 21(2) Chen, Edward (2005) Leveraging IT for a Competitive Advantage – Case of eBay Issues in Information Systems Volume 6 No. 2 eBay, Global Trade on eBay India retrieved online on January 13, 2007 http://pages. ebay. in/community/aboutebay/GlobalTradeEvent. pdf Kalakota, R. & Robinson, M. (2000). E-Business: Roadmap for success. Reading, MA: Addison Wessley Longman, Inc. Krishnamurthy, Sandeep (2004) A comparative Analysis of eBay and Amazon Retrieved online on January 13, 2007

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