308-062-1 eBay Strategy (A) “This case was written by Soumtra Dutta, The Roland Berger Chaired Professor of Business and ‘Technology and Subramanian Rangan, Associate Profesor of Strategy and Managernant, both at INSEAD 13 basis for case dscusion rather than to Hlustrate either effective or inetiective handling cf on ‘éminisrative station, ‘Copyright © 2004 INSEAD, Fontainebleau, Franc, Dee a ccomtangetom,3044063-1 SEB 1 ou “eBay s my lif, Tes ny freedom!” “eBay gives me a fin way to bring alte chee 0 pople who realy want to find someting and Ihave i Thave met some wonderfal people through my buys and tell” Comments from members ofthe eBay communi.) Conceived in 1998 on “a really good ides” from Piete Omidvar, a 3-year old software ‘development engineerin California, eBay had grow Beyond the wiles: imaginations of its ound into one ofthe sucesses ofthe Intemet revolution. “While i pees bumed ther Sarvup eas, eBay bectme a phenomenon ~ a ilicen Valley company that has always made 1 profit an is the world's mest successful Intemetgrou."? (Exhibit 1 provides summary of slate financial and operational dats on eBay). From humble roots in enabling trade in candy dispensers, eBay has grown 9 become the ‘Work largest online markeplace forthe sale of goods and services by «diverse community ‘Finividuls snd businesses. Between 1998 and 2002, the number of confined, registered Shay users grew ffom approximately 2 milion to 62 mien worlwide In Q& 2002, eBay trasod 193 million listings, and in that whole year had completed transactions totaling ‘USSI49 tilion According to Media Metrix measures in September 2002, eBay was the Sith ranked Internet portal in terms of reach (289) and fourth ranked in tems of minutesfuser (11) For fr that reported less than USS100 million instr tax pros, eBay boasted ‘marke eaptalization of some USS21.2 bn ‘Was eBay jst avery lucky fin that had caught the wave in time? Or was it doing something Fundamenilly diferent an insightful? Company Background Bay is apace where small people canbe big” Michael van Swaaj, VP Europe tn company documents, eBay defined its mission as belping “pradcally anyone trade fracically anything on earth” The ely treaing platorm was oe suse, topically Erarged, exy-torse, online service tht was available ca a 24 hoursa-dny, sevencdeys-o- ‘eek bass and that enabled sellers to list items forsale and buyers to bd for and purchase ems of interest. 1 pgs ty comioonmny bouton ros nt 2 Abbas ant Thtld Bae, ey, he Flea Market at spre be." Manca Tme, dona 1, 2002 2 ebay Compe Ups Feb, 2008, 4 azo’ mat epinaton ca he same dts Deeside, 208) vas USE lion, Ea, ‘Eiaeadeargs mae cosas ws USS2 slew compe USIS eno Amazon304-063-1 SED 2 oe Bay's big start vas in tapping effectively into a segment of individuals that traded collectibles — one-of-a-kind ites that usualy care with story e some unsual feature ‘Michael van Sw) explained “There were no ecient means of trading collectibles. Colleors found it very iffcat to get in touch with other collector: who may want to buy thelr collsebles. The physical marketplace for tading collectibles, pio to ebay, was very inefficient eBey created an efficient marketplace for adi clletibes and gave easy acess to this marketplace to collectors, The marksplace wes open Everyone coud go there. "This was realy important” ‘The principle of operating & non-exclusive matktplace was an anchor of eBay's strates. One consequence was thst eBay's item mix expanded rapily Crom pimany collectibles include practical everyday items, such ex housshold goods, computer, consumer elctonics, and ther tredeables (uch as tickets to sporng events). liem poiferition and the pattems of interest they generated would guide the creation of new categories. The aim of inoducing ‘new eatgores was to keep search simple and ease of we high, alles of wer interest also ‘guided marketing (especially whore to advertise to draw users tthe ey site). ‘eyond the proliferation of categories, another consequance ofthe nowexcisive policy was reflected in the growing diversity of the user bare. eBay's user base had grown from individes! consumers 10 also include merchants, small to midized busineses, and, eventually, global corporations, and even goverment agencies. Sil, in 2002, 95% of the ‘value of otal transects on eBay was generated by individuals and snl businesses. Between June 1999 and October 2002, the deily average number of bide at eBay hed increased from 0.9 milion to 5.25 mulion, and the éily average manor of pageviews had increased from 54 million to 460 milion. Furthemmore, even while tke numberof registered users and transaction increased, goss merchandise sales (2, tansction vale) per eastomer hhad remained relatively sable’at around USS6S. (Exhibit 2 proves © summary of the ‘wading experience on eBay, and Exhibit 3 provides a brief description af the mor services availabe on eBay ) Bay's revenues came primarily from fees that wers paid for lisings and completed ‘transactions To list tems forsale, sellers onthe site pada nominal listing fee. (Exhibit 4 eseribes the fee structure of eBay), By paying incremental placement fees, sellers could Inae items: featured in various special ways, Tor exanpie seller ad highlight his ot het item for ste by utilizing a bold font forthe item heading or opt forthe Buy-H-Now Feature, ‘which enabled a seller to close an action instantly, once spectia pice was reached. eBy so collected (relatively smal) fees when transactions were complete, ‘Alo, through the soqustons of Buttrflés and Kruse, eBay had entered the “of-ine™ ‘auction business. Butteields, established in 1868, was the lrgest auction house headquartered onthe West coast of the United States, Tpecilized i fine at, antigus, and collectibles. Kruse, which operated in the state of Indiana, was established in 1971, and was ‘one ofthe world's leading collector ca ution compenies