Can eBay Continue Growing? 1. What is eBay’s business model and business strategy? How successful has it been? According to the course textbook there is several internet business models found on page 444. The internet business model that best describes eBay is an “online marketplace”. As it says in the case itself, “eBay is an online auction service…who stores no inventory and ships no products. Instead, it derives its revenue from the movement of information”. This is essentially what an online marketplace does. It provides a digital environment where buyers and sellers can meet.
From there, they can exchange products. This is done by displaying and searching for products and then setting the prices at which the transaction will occur. EBay’s business strategy is to generate revenue from the fees and commissions charged to the customers who use the site to exchange products. The commission scale is somewhat complicated, but seems to be successful. The revenue is generated by the people who use the site. However, the interesting part of this business strategy is that none of these people actually work for the company. EBay is very successful.
According to the case, the company has been profitable and had attracted more than 200 million users by 2006. It has operations in 32 countries. In 2005, eBay users listed 1. 8 billion items in auctions. This caused about $46 billion dollars exchanging hands. One of the most successful parts of the company is that it is fully automated. This significantly reduces costs to eBay, keeping net income high. 2. What are the problems that eBay is currently facing? One problem is that analysts report that many of eBay’s top sellers aren’t interested in adding voice calls to their sales models.
They can barely keep up with the e-mail they receive on eBay and may like the simplicity and above all the anonymity of the current system. Another problem is that since eBay is growing internationally, it may not be able to keep up with all the different laws found in each country. Liability seems to be the common issue among many different countries. Of course, there is a problem that eBay has always had to face. This is the problem of auction’s honesty and integrity. The difficulty here is that eBay has some control over this issue but not complete control.
Some buyers claim to have been defrauded by online sellers. Another problem is the fear that some sellers collect inflated fees; especially on collectible or antique items. EBay users have also been subjected to identity theft scams and have caused many fraudulent sales. Since eBay facilitates these transactions, it has a responsibility to ensure that the online trade environment is secure for its customers. Customer service is another problem for eBay and it is primarily due to the size of the company.
EBay experiences essentially two types of customers, sellers and buyers. Often the need of one customer is not the same as the need of the other. Unfortunately, eBay encourages customers to deal with the problem on their own and not involve eBay in the process of recovering goods or receiving proper payment. On the other hand, if eBay were to increase the responsiveness of customer service, costs are surely to increase as well. If costs increase, so will the commission fees that are charged by eBay in an attempt to sustain the net income currently experienced.
However, if costs are increased and commission fees are kept the same (as customers would like to see happen), net income decreases and this makes investors weary about the company’s success and the investment. 3. How is eBay trying to solve these problems? Are these good solutions? Are there any other solutions that eBay should consider? EBay has done a lot to try and solve these problems. One solution includes great expansion. Growth rates have been hindered by the increase in seller fees, however, these loses have been covered by the expansion into other countries. EBay has added extra measures of protection.
One of these extra measures is the additional vehicle warranties and purchase protection up to $2000 on vehicles purchased through eBay. EBay has also entered into a number of relationships with major competitors such as Yahoo! and Google. Google and Yahoo! now provide advertising on eBay’s sites. This agreement has allowed the companies to work together to be profitable rather than face each other head on in competition. EBay purchased PayPal which is essentially a peer-to-peer payment system. This has allowed its eBay’s customers to buy and sell goods and receive payments easily.
This has increased the user base of eBay’s customers. To remain in touch with its customers, eBay has started a program called Voices which brings buyers and sellers together 10 times a year at corporate headquarters. This program allows users to talk to management and discuss what the users like and dislike about eBay and make suggestions. A group of judges called the Rules, Trust and Safety committee decides whether or not certain items should be allowed to be sold on the website. Items that raise medical concerns such as human organ donation are not allowed on the site.
EBay has tried to create a dialogue between customers. It has created a wiki where customers can discuss tips on how to sell and purchase items. It is also creating a component of the website where people can discuss items that people collect and trade. Using these ideas can help to decrease the number of fraudulent transactions. The solutions that eBay has come up with to solve various problems seem to be effective. EBay believes that the most important task of the company is to keep customers happy. EBay is trying to maintain the selling capabilities of the merchants on eBay as well as the confidence of its customers.
EBay has recognized that there are several solutions to the many problems that it has been facing. Diversifying the number solutions ensures a greater possibility that the company will actually satisfy its customers with these solutions. For example, if eBay only focused on improving security, it neglects problems involving communication between customers. Customers are then not fully satisfied. Another solution that eBay should consider includes helping to avoid fraudulent purchases. EBay could act as a mediator between the two parties.
It could set rules stating that the purchaser must pay the amount of the item to eBay (plus any commission). Once the item has been sent to the purchaser, the payment will then be forwarded to the seller. 4. What management, organization, and technology factors play a role in eBay’s response to its problems? Management factors include recognizing that there are problems in the company and coming up with the solutions to the problems. Management has to figure out how allocate its 8000 full time workers as eBay purchases new technologies and programs that will be used on the website and that will need support.
Management will have to talk to buyers and sellers to determine if the company’s new services are satisfying the demands of the users. Organization factors include having enough employees to carry out the changes to the company. It must be made sure that the organizations business model is modified to satisfy new and emerging demands. The organization needs to have enough finances to fund the purchase of the new programs and services that it may use to respond to the problems. Technology factors include the components and programs that will be run by eBay such as PayPal, Half. com, Shopping. com and Skype.
EBay will most likely have to also increase storage space to accommodate the new programs. EBay will have to develop the technologies and have the programs written that will power eBay’s new AdContext program that will compete with Google’s AdSense program that runs contextual online ads based on keywords that are searched in the website. 5. Will eBay be successful in the long run? Why or why not? Yes, eBay will be successful in the long run. But this success will not come without a lot of work. The case finishes by discussing the fact that eBay has experienced declining number of transactions and a coinciding drop in sales.
This has lead to much concern on the behalf of the sellers that use eBay (which are the source of income for eBay). EBay will have to design ways of attracting new buyers to the website so that transactions can continue to take place. EBay has been investing heavily in VOIP (Voice Over Internet Protocol), but at the moment VOIP is not necessarily considered a mainstream service. EBay needs to find ways of making this service more available not just to its current users but to people in general. EBay can work with computer manufacturers and supply financial investment to have VOIP technology installed into computers.
As people purchase new computers, they will find that VOIP components already exist in the computer. As eBay enters new markets, they can advertise the use of VOIP on eBay. As customers are attracted to eBay they can use there VOIP service to communicate with sellers online and reinvigorate the transaction experience that eBay tries to offer. This is of course simply a suggestion, but it is one that needs to be made seeing as there was little discussion as to exactly what eBay plans to do with Skype (the VOIP service that it recently purchased).
With eBay’s heavy investment in VOIP technology, if they don’t implement the service with a clear business plan, eBay will have lost an investment and future customers at the same time (making eBay unsuccessful). Having said that, eBay has a large marketspace spanning dozens of countries. This maintains a large base for customers to sell their products easily and effectively. EBay is trying to implement more interactivity with the purchase of Skype, so that customers and sellers can communicate two-way.
EBay provides a high level of price transparency, or in other words, the ease to which customers can find out prices in a market. EBay has recognised that it is more profitable to work with competitors such as Yahoo! and Google. The subsequent ads that eBay now shows has generated a source of revenue. The use of wikis has given customers more information so that they can make intelligent purchases that help to decrease the occurrence of fraud. The newly purchased peer-to-peer payment system PayPal has allowed once again the ease of money transactions between buyers and sellers that wasn’t necessarily there before.
