Case Study

EBAY

Summary of Case Study

EBay, Inc. is the largest and most popular marketplace on the Internet, allowing members to buy
and sell almost anything. Launched in 1995, about 147 million people now use eBay. An estimated
430,000 people in the United States make all or most of their living by selling on eBay. EBay’s
online payment service, called PayPal, enables transactions nearly anywhere in the world. EBay
proclaims “trust” between buyers and sellers as the key to the success of the marketplace. EBay
is the “The world’s Online Marketplace”, which is its positioning statement, and it means many
things about the company’s identity. It enables trade on local, national and international basis, with
a diverse and passionate community of individuals and small businesses. EBay offers an online
platform where millions of items are traded each day. The objective at eBay was to “to develop
the work ethic and culture of eBay as a fun, open and trusting environment and to keep the
organization focused on the big picture objectives and key priorities.

The company market capitalization had surpassed that of even Amazon.com, making it the
“world’s most valuable Internet retailer”. Pierre Omidyar, founder, is focused to achieve
excellence in strategic management for improving the company’s strategy, sustaining the
company’s growth and business performance, and potentially expanding from online auctions into
general “retailing”, and to become “the world’s largest online mall”. This research paper intends
to study the click and click business model of eBay, whose competitive advantage lies in its pure
play strategy, a breakthrough from the traditional brick and mortar model, which leads to
sustainable growth and a competitive edge over the other retailers.

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QUESTION

1. Why has eBay succeeded as an online auction marketplace while so many others have
failed?

EBay was one of the first online marketplaces on the world-wide web. It was created as an
online auction website, but it has now became the largest online marketplace that exists.
EBay’s success truly created a pricing revolution by allowing buyers to determine what
they would pay for an item; the result pleases both sides because customers gain control
and receive the best possible price while sellers make good margins due to the site’s
efficiency and wide reach. This is what we know as perceived value pricing: The
customer’s value perception is estimated on the image of the product etc., then the price is
determined, and later this will be observed. Nowadays even companies first check items
on eBay before they estimate the price they will charge for their products.

EBay’s success truly created a pricing revolution by allowing buyers to determine what
they would pay for an item; the result pleases both sides because customers gain control
and receive the best possible price while sellers make good margins due to the site’s
efficiency and wide reach. EBay’s business model is based on connecting individuals who
otherwise would not be connected. EBay’s originators did two things well: they worked
hard to make their Web site a community, and they developed tools to help reinforce trust
between strangers. EBay’s millions of passionate users also have a voice in all major
decisions the company makes through its Voice of the Customer program. The result is
that users (eBay’s customers) feel like owners, and they have taken the initiative to expand
the company into ever-new territory. EBay continues to expand its capabilities to build its

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 community and connect people around the world by adding services, partnerships, and
investments.

Asia is different. Asia is different in culture, in economics, in political systems, people

argue. But the problem is, although Asia country is different from the U.S.
Google/Facebook/Yahoo/eBay succeeded in middle-east. They succeeded in Africa, and
they succeeded in Muslim and Arabic countries. Compared to the economic and culture
difference those regions have with US, the gap between Asia and the U.S. cannot be
claimed to be bigger.

2. Evaluate eBay’s fee structure. Is it optimal or could it be improved? Why? How?

EBay doesn’t sell or buy anything itself. It earns its money by collecting fees: an insertion
fee for each listing plus a final value fee based on the auction or fixed price. This pricing
structure was developed to attract high-volume sellers and deter those who list only a few
low-priced items. This price setting is also known as second degree price discrimination:
eBay charges less to buyers who buy in a larger volume. This pricing strategy is a good
way to attract larger volume buyers, but I think that eBay should not forget the small
consumer who will also buy more and more online. It is not a good idea to charge the small
consumers with high fee’s because this can scare them off to other online marketplaces.
For example, if an item sells for $60.00, the seller pays 8.75 percent on the first $25.00
($2.19) plus 3.5 percent on the remaining $35.00 ($1.23). Therefore, the final-value fee for
the sale is $3.42.This pricing structure was developed to attract high-volume sellers and
deter those who list only a few low-priced items. This fee structure is optimal.

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3. What’s next for eBay? How does it continue to grow when it needs both buyers and
sellers? Where will this growth come from?

When a company needs more buyers and sellers it will need to expand. EBay should invest
more in mobile applications. They must develop a mobile application that tells you where
you can buy it, or sellers nearby you. This way it can create more a social media idea and
it will become more personal, in marketing terms this is called personal selling. Personal
selling refers to a set of activities directed at the attainment of marketing goals by
establishing and maintaining direct buyer-seller relationships through personal
communication. Also it is important for eBay to become more active in developing
countries, like for example the BRIC countries. But not only the BRIC countries can
provide growth, eBay should invest in western Africa. In this part of the world people are
already very familiar with buying on market places, and the development of better internet
can help them do the same online. As the video underneath shows us the internet is
becoming better and better in Africa.