Pierre Omidyar launched the first online auction in 1995 under the name ‘Auctionwatch’ under the domain name of www. eBay. com with the intention of creating a person-to-person trading community based on a democratized, efficient market where everyone could have equal access through the same medium, the Internet. The initial concept was to attract neighbours and other interested in the San Francisco Bay area residents to the site to buy and sell items of mutual interest. From there, the business grew to succession year after year. 1996: Jeffrey Skoll became co-president and director of eBay. 997: Margaret Whitman became CEO of eBay. 2004: eBay acquired a share in Craigslist. 2005: eBay acquired Rent. com and Shopping. com. 2006: Acquisition of Skype. 2007: eBay acquired Stubhub. com. 2008: Margaret Whitman resigned as CEO. John Donahoe was her successor. During the years 2006-2008, eBay experienced a drop in gross merchandise sales to - 12% and a reduction in number of auctions listed to -15%. This signalled a downturn in business for eBay, and a need to overcome the challenges which it now faced. Between 2006 and 2008 : eBay’s share of the US e-commerce market had fallen from 19% to 17% (Amazon market hares, same period: from 3,7% to 5,3%). In 2008, John Donahoe took over the firm. Donahoe was a man who liked change. He believed that the firms marketplace sector had reached its maturity and a change in strategy was needed for the firm to move forward. In other words, he believed that the emphasis should no longer be put on the market place sector of eBay but on expanding the business by providing an array of other services.
Question 1: Porters’ five forces: When eBay was first set up in 1995, it was the first business in the online auction industry. Since then, the industry has grown significantly. eBays competitors include Amazon, uBid, Yahoo, and Google. Due to the increasing interest in the online auction industry, eBay is now facing competition from a number of different rivals, most importantly Amazon.
- Bargaining Power of buyers: Medium Buyers have the power to negotiate a price which suits them through setting their preferred bid. There is no pressure on buyers to surpass their preferred price limit. However, the number of buyers in the market is vast therefore their power is limited.
- Bargaining Power of Sellers: Low As a result of endless number of sellers in the market, the bargaining power is low as there are many alternatives which an offer buyers good value and at a low price. Unless dealing with high end items or collectibles, which may be rare, the bargaining power of suppliers is low.
- Existing Rivalry among competitors: Medium: The online auction industry is oligopolistic in the sense that there are a few large companies who own a large proportion of the market shares (eBay, uBid). However eBay is facing competition from several online retailers (Amazon, Overstock).
- Threat of Substitutes: High Many consumers still prefer to use traditional methods for purchasing and selling items such as in-store purchases. Consumers prefer to use this type of purchase for many reasons. Firstly for security purposes, there is no risk in giving cash-in-hand to an establishment as opposed to giving credit card details online. Also, buyers have the opportunity to check the value of the good they wish to purchase. Many retail outlets have also extended their market to an online level.
- Threat of new entrants: Medium The threat from new entrants is medium. As a result of low barriers of entry into the market, it is not difficult for businesses to be created. Businesses find it difficult to generate regular customers, as they must build up a reputation of having a safe and secure website.
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In this sense, eBay has a competitive advantage as it has created a strong, trusted environment for its customers. Rising competition in the market will, in turn, cause improvements in product quality and innovation. Also in order to generate good profits, eBay must focus on the sector of suppliers which regulates the most profits, this being the suppliers of high end items such as collectible products. EBay can differentiate by specialising in the market for collectible goods.
Question 2: PEST Analysis: Political: The internet is a tax free environment.
EBay is not affected by the governments’ laws on axes. However, eBay is affected by certain policies considering the sale of certain products in different countries. For example, the CNIL in France. Economical: As a result of the economic crisis, consumer behaviour is changing. Consumers have less disposable income to spend caused by problems associated with the economic downturn such as rising unemployment rates, inflation rates etc. Sociological: Consumer behaviour has changed dramatically in recent years. Consumers want a quick and convenient way to source their products/services; the internet provides this through online retailers and auctions. The number of internet sers has amplified (insert statistics later? ). Technological: The internet has revolutionised, its range of activities has expanded with time. Along with offering search engines to quickly find products/ services, internet now makes it possible to quickly make transactions between buyers and sellers (PayPal). The combined aspects of political, social, economic and technological will strengthen competition in the industry. In reference to economical, the economic crisis will cause companies to differentiate and work harder to find a competitive advantage over its rivals. In relation to technological, the use of e-ommerce is becoming more and more popular; it has transformed the market place. Changing demographics has meant the internet and e-? commerce has become a more prominent force in the lives of consumers. E-commerce is appealing as a more attractive industry as opposed to traditional retail outlets. It is less expensive for companies to create a business online as they can avoid the cost of employing a sales workforce. Also, as technology progresses, there will be the opportunity for firms to globalize, therefore expanding their market reach into different countries, and increasing their consumer base. Online businesses ill be able to target a larger number of consumers worldwide. In the current economic crisis, people need to increase their cash flow. This is an advantage for online auctions such as eBay as people can sell items that they no longer use. It creates a larger market for second-? hand items such as worn-once clothing.
Question 3: Key Success Factors: Online auctions and retailers
These key success factors apply to both online retailers and online auctions. However, in the case of the online auctions, a key success factor would be the necessity to create a community of trusted buyers and sellers. Online auctions uch as eBay emphasise the importance of good values among their users such as honesty and trustworthiness. A second key success factors for online auctions is the importance of attracting and keeping sellers as without sellers supplying the items, the market would not exist. It is essential that online auctions are made attractable to sellers. This can be done by offering suppliers the option to set a minimal price for their products, further advertisements of their products e. g. eBay will display sellers products on their homepage for a minimal fee. As shown, there are specified key success factors for online auctions. Necessity to create a community Necessity to attract suppliers Expertise in technology Brand name Generate traffic to the site: by attracting and keeping customers Overcome internet users nervousness about using the internet for e-commerce Security of payment
Question 4: Our strategic map conveys that this is an oligopolistic market.
There are two main competitors who hold strong positions in the market, those being eBay and Amazon. Both businesses have a strong reputation in the market combined with a wide variety of auctions/product categories. EBay is a household name when it comes to online auctions. The map shows hat eBay holds the strongest position in the market. Amazon lacks in number/variety of auctions compared to eBay but it still managed to hold a strong position in the market through its well-? established brand name. In comparison with eBay, Yahoo holds a weak position in the market. It lacks in brand recognition as an online business. Yahoo also has a limited variety of auctions paralleled with the market giants eBay and Amazon.
Question 5: Swot Analysis Strengths: Global brand for online auctions (Brand awareness). Quality and Quantity of products. Community spirit. Payment security (Paypal).
Opportunities: Acquisition of new business. Develop a market in emerging countries (India, Brazil…). Increase in online shopping. §? §? §? Weaknesses: Model opened to fraudulent activities. System breakdowns. Increasing customer demands Threats: Substitute products (stores, online shopping web sites…). Success attracts competition. Interest and foreign currency exchange rates. Consumers’ fear of fraudulence §? §? §? §? §? §? §? The SWOT analysis reveals that eBays strengths outweigh its weaknesses. eBays most promising strength is its globally known brand name. EBay has been established as a household name with its continued success in the ecommerce industry. It is still possible for eBay to expand and grow in this industry due to the increasing interest in online shopping. A notable weakness of the online commerce industry would be its systems openness to fraudulence. This has been faced by many businesses in the market including eBay. Even though eBay was subject to controversy over this problem it has still emerged in a strong position nevertheless.
Question 6: After computing the current ratio, we found that the company is able to pay its liabilities with its assets.
2005 2006 2007 Current Assets Current Liabilities 3990993 1266792 4970586 2518395 7122505 099579 Current ratio = current 3,15 1,97 2,30 assets /current liabilities It means that in 2007, the company can reimburse its liabilities with its assets 2 times. We noticed that the net income is decreasing (-? 70%). In fact, the gross merchandise sales are decreasing (-? 20%) and the auction listed too (-? 14%). The working capital shows us that eBay has enough cash available for the firm day to day operations. Working capital = current assets-? current liabilities 2005 2006 2007 2724201 2452191 4022926 The average collection period in 2007 is about 22 days. That means the company wait just 22 days before receiving the
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