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eBay

Strategic Analysis and Competitive Advantage

Anique Sajid Kiani (1024227) Arsalan Ali (1025361) Muhammad Baseer (0914577) Muhammad Aneek Rehman (1022329) Rehan Raza (0918046) 12/2/2011 1|Page

eBay 2011
Executive Summary
We, with our research for this report found out that e retailing and e commerce is one of the fastest growing industries around the globe and is highly competitive. The total sales made on the internet in the U.K last year totaled up to 56.6 billion and 50% of all businesses have websites for their business (ONS). The e tailing business has grown substantially with a growth rate of 13% till the year 2010. The market evaluation tells us that currently eBay has the largest market in e commerce with the most customer share and that Amazon is a fast growing competitor that in a few years time will become equal in market and capital share to eBay. Our research also found out that the nature of market is oligopolistic with very less barriers towards entry of newer competitors and high availability of homogenous products in the market. Thus in this type market the share of customers and loyalty are the key aspects of a firms success. eBay is one of a kind website when it comes to auction with very little competition to this aspect. However we found out that the direct competitors are those businesses that were purely e tailing businesses and now are moving forward in direct competition with eBay buy starting the auction staged business. The success behind eBay is that it was able to design a strategy that differentiated it with others in the same market. Lastly we also found out that the businesses like eBay profited during the recession when many retailing companies recorded severe losses. The reasons behind these to conclude are that suppliers and buyers use eBay as a convenience and cost cutting market where both the buyers and suppliers benefit in a less time consuming manner.

eBay 2011
Table of Contents
Executive Summary....................................................................................................................................... 2 Introduction .................................................................................................................................................. 4 Market and Auction .................................................................................................................................. 4 eBay........................................................................................................................................................... 4 Market Competition.................................................................................................................................. 6 Amazon ................................................................................................................................................. 6 Market Share ................................................................................................................................................ 7 External Analysis ........................................................................................................................................... 8 The five forces frame work ....................................................................................................................... 8 Rivalry among competitors ................................................................................................................... 8 Threats of new entrants........................................................................................................................ 8 The power of buyers ............................................................................................................................. 8 The power of supplier ........................................................................................................................... 8 Threats of substitute products.............................................................................................................. 8 Five forces and eBay ................................................................................................................................. 9 Internal Analysis .......................................................................................................................................... 10 S.W.O.T analysis ...................................................................................................................................... 10 Strength............................................................................................................................................... 10 Weakness ............................................................................................................................................ 10 Opportunities ...................................................................................................................................... 11 Threats ................................................................................................................................................ 11 Value Chain Analysis ................................................................................................................................... 11 Conclusion ................................................................................................................................................... 12 Appendices.................................................................................................................................................. 13 Books ....................................................................................................................................................... 13 Journals ................................................................................................................................................... 13 Websites ................................................................................................................................................. 13

eBay 2011
Introduction
E Business or also known as electronic business is the application of information and communication technologies in relation to all business activities (Beynon-Davies, 2004). The e business industry reflects to the purpose of this report which is the selected online trading and auction houses that are purely based on the internet. eBay, which is the chosen company that will be the main focus of the report and a complete industrial analysis will provide the reader a better understanding of the e business industry with respect to eBay, the leading firm. IMRG (Interactive Media in Retail Group), found that e business was worth 50 billion in 2009, with a constant increase the growth rate touched 13% by the end of 2010. The most popular shopping interests were Clothing, Footwear and Accessories related to films and Music. U.K has the biggest e commerce economy in Europe with a net worth of 81 billion till the third quarter of 2011 and contributes of 9.4% of total retail sales. The current statistics from National Statistics Online show that a total of 51 million people use the internet out of which 37 million people shop online and a total of 1 Billion packages are shipped across the country. These overall industrial statistics are the ground justification for this report.

Market and Auction


Christopher Lovelock (2009) explained Market as a location in physical or cyberspace where there is an interaction between suppliers and consumers for the purpose of business. Auction is the process buying and selling of goods and services by offering them to bid up, take bids and selling to the highest bidder (Milgrom Paul, 2004)

eBay
eBay is an American based company, operating from San Jose California providing online services. Which include online auctions and shopping, not only limited to business but also consumer can interact with consumers in buying and selling. Founded in 1995 by Pierre Omidyar, French-born Iranian-American computer programmer. eBay is not limited to one country or sector; it has managed to spread internationally with a bright future. It provides online marketplaces to sale new and used goods and services, online payments services and online communication to users. We can also say that marketplace, communication and payments are three segments for company. They also provide purchase protection program to the buyer, which is great value to customers and we can say that one of the major point of success. It also include many other features like trust and safety program, feedback forum, customer support and MY eBay, which allow the users to receive a report of their recent activities which include current selling, bidding, watch list and history of

eBay 2011
purchases. Feedback forum is quite interesting in eBay which help buyers to which extend they should trust the seller or vice versa. The payment service provide by eBay is through pay pal, which is known as one of the safest way of sending and receiving money online. Since the foundation from 1995 till 1999, an approximate of 186 million bids had been made among the list of 50 million items that were listed on eBay. This resulted in a gross sale of nearly $841 million. It has up till now managed to have a customer base of 135 million with a new user login in every 43 seconds.

eBay
$ millions Total Revenue Gross Profit Operating Income Net Income 2011 Q3 2010 2009 2008 8,298.37 9,156.27 8,727.36 8,541.26 4,061.70 6,591.61 6,247.60 6,313.19 1620.37 2,053.57 1,456.77 2,075.68 1,249.78 1,800.96 2,389.10 1,779.47

The above table gives a brief summary of consolidated net revenues of the company for the last three years based on the US market but the aspects of growth here in U.K are quite different. The Net revenue back in 2009 December was $2.08 million, with an increase of 5% in 2010 December with $2.19 million. Till 2011 September the recorded Net revenue was $2.53 million, which was 28% increase since its last year quarter (money.msn). This shows that despite major competition in the industry and the recent recession eBay managed to maintain not only its market share but also was able to increase its profit. IMRG reported in June that e retail index show that buyers in U.K had spent more cash shopping on the internet rather than in local retail stores during the first half of 2011 as compared to previous years. This resulted in 21% increased sales of online shopping and a 0.6% decrease in retail shopping. eBay on the other hand benefitted with a total of 24.4 % increased sales during this month. This might not be true globally but eBay is the most popular online retail and auction website in the U.K. The market trends in United States market suggest that Amazon one of the major competitors has higher revenues than eBay though eBay still has the highest amount of unique visitors and the most searched brand. However this report is concerned only with the existing U.K market.

eBay 2011
Market Competition
eBay has some major competition in the U.K that do try to copy the business model of eBay and that is one of the reasons that the competitive brands are quite closely related to the work style of eBay. One of the major competitors is Amazon. Amazon The company was founded by Jeff Bezos in 1994, operated from Seattle Washington. Similarly like eBay, Amazon also succeeds in rapid growth and in short period of time. Amazon also starts providing his services to European countries with international shipping. It was firstly begun as an online bookstore but they were successful to extend their services to the customers and now we can find many categorize of thing in it. Amazon did not showed any profit in beginning five years and finally turned profit in year 2001 of 2.8 billion. The selling method of selling is internet; same as eBay and many other competitors are using it because of rapid increase in internet usage and rapid growth in e business industry. To compete with the growing market of eBay, Amazon recently started its Amazon Auctions so the buyers can have the option of buying directly or bidding for items, the way eBay has been doing it for years. Amazon has a total number of 18,640,000 unique visitors per month and the current growth rate is at 11.7% a year. At this rate it is expected that Amazon will have the same audience as eBay in the next 2 years. The total pages viewed in a month are approximately 606 million which in comparison to eBay is only 16% of 3,847 million pages.

Amazon
$ millions Total Revenue Gross Profit Operating Income Net Income 2011 Q3 2010 2009 2008 30646.00 34,204.00 24,509.00 19,166.00 7188.00 7,643.00 5,531.00 4,270.00 602.00 455.00 1,406.00 1,152.00 1,129.00 902.00 842.00 645.00

The above table shows the consolidated data from Amazons financial reports from the last three years up till the third quarter of 2011. This shows a significant growth of 36 percent from the year 2009 till the start of 2011. The only problem in highlight is that these financials are concerned with the American market.

eBay 2011
Market Share
Amazon is the biggest competitor of eBay. Its ever growing business has become a huge problem for eBay. Revenues also show that Amazons growth has been the fastest in history of internet websites and the industry of e commerce. eBay on the other hand has managed to attain a huge market share globally, because eBay focuses more towards communities and connecting people while Amazon on the other hand focuses on products and its delivery.

Market Share with % of Searches


1 eBay UK www.ebay.co.uk 0.99% 1.18% 1.18% 1.22% 1.57% 1.83% 15.89% 2.69% 4 Play.com www.play.com 5 Tesco www.tesco.com 8.39% 6 eBay www.ebay.com 0.95% 2 Amazon UK www.amazon.co.uk 3 Argos www.argos.co.uk

7 John Lewis www.johnlewis.com

WSI 2011s report showed the market share figures for top 10 most popular e commerce web sites around the globe. Those figures were then brought in percentages as the following and this pie chart was developed. This research was conducted in Britain and takes in consideration of only the U.K market. As seen that eBay.co.uk has the highest amount of searches, more than ebay.com and Amazon.com. So we take in consideration eBay as whole, which means that the market share of eBay.co.uk and eBay.com combined is 17.11% as compared to the major competitor Amazon which has a market share of 8.39%. This shows that although the vast competition in the industry is constantly increasing eBay has managed to attain a substantial market share in the U.Ks e commerce industry.

eBay 2011
External Analysis
The five forces frame work
Michael E. Porter of Harvard University developed the five forces module in 1979, which was originally developed as away of assessing the profit potential of different industries. This can be measured in term of attractiveness of the firm, the firm with more attractiveness ability of the firm means more profit and vise versa. The five forces are the rivalry among the competitors, threats of potential entrants, bargaining power of buyer, power of supplier into the industry and finally threat of substitute product. Rivalry among competitors Rivalry among the firm exists when competitive rivals aimed the same customer group and providing the same product and service. Threats of new entrants Low barriers to entry often increase the threats of new entrants, it highly depends on the extent and height of barriers to entry. The power of buyers The bargaining powers of buyers are more when they are huge in number and consumers purchased in higher quantity. Mostly companies offer discount and better services to switch the consumer form one brand to another. The power of supplier

The power of supplier always matter to the producer, the role of supplier is very important in production not only goods but also in delivering the services. Suppliers bargaining power can directly impact on the intensity of competition.
Threats of substitute products

Substitute products are those products that offer same benefit but in some different process. Substitute products offered by different companies with similar features or even better feature acting as substitute product. The higher number of substitute product results in higher threats to existing company. (Fundamentals of strategy by Gerry Johnson)

eBay 2011
Five forces and eBay
As taking into account the industry rivalry, we know that e-business is one of the fastest growing business and more competitors are entering in the market. eBay online auction changed the way people were buying and selling, as dealing in auctions selling and classified sales. They are highly focused on consumer-to-consumer selling, where as they also deal in business-to-consumer and business-to-business. Threat of new entrants is too high because of no technological barriers and the consumer are the same, therefore each new entrant focus on the same market which result in more bargaining power of customers. Thus customer base retention is the most important for companies like eBay to retain a market share in this industry. The e-tailing business is similar to the traditional auction type market thus increasing the new entrants threat. Due to the broad range of products that are being sold on eBay, there is high chance for new entrants to enter the market with targeting a much more specific segment. Companies like Amazon have the advantage of fixed prices, where buyers do not have to wait for the end of the auction. This has drastically increased the number of fixed price sales over auction websites like eBay. Search engine websites and that do comparison between products, like Google are now also moving forward towards online retailing and auction, thus also increasing the number of substitute products. Traditional retailing and auctions that are offline are direct substitute products. The bargaining power of buyer in this case is very low because the seller sets most of the prices for their products and the rest of the sales are based through the auction stage. Thus eBay and the buyer have very less control towards the prices of products. Though due to high competition in the market the sellers keep the prices of the products low to meet up with the competition. So eventually the consumers benefit from these competitive prices, the easy trade environment but not on the power of price bargaining. In respect to buyers, the bargaining power of suppliers is high. The reason behind this is that, eBay has to keep a loyal market share of sellers to earn its fees and commission. Although it is relatively higher than the buyers but it seems that they also have some drawbacks. The sellers gain power when they have to sell high end products because these items are riskier and need more protection. So as long as the suppliers sell high end products and buyers buy them they both have power.

eBay 2011
Internal Analysis
The strategic statement of eBay that describes its all business activities can be derived as the following: eBay by allowing customers to create individual auctions and online stores in order to sell new and used products. This process is facilitated by the ability to create communities of interest, providing secure transaction services, and a peer review process in a global environment What eBay is trying to imply here by creating such a statement is the main concern for this internal analysis. It states firstly that individual auctions and online stores which implies to removing the physical barriers between the buyer and sellers which eBay has been successfully able to do. Secondly it mentions communities of interest, which refers to the added benefits and value eBay adds to existing products and services through additional information. Thirdly it mentions Peer Review, which buys the confidence of the consumers and hence brings forward brand loyalty. Lastly the mentioning of Global Environment portrays eBay itself as a Global market that has eliminated the distance and barriers between suppliers and consumers all around the globe. eBay has been able to open a new market venture with vast growth and opportunities. To understand eBay strategic position we will in depth look at the internal analysis through S.W.O.T analysis.

S.W.O.T analysis
Strength Being the one of the leading online trading firm is one of the biggest strength of eBay. One third of Internet users already have eBay account and millions of peoples are interacting in buying and selling of products, which is great achievement. The brand showed a rapid growth more than their conception, in short period and not only limited to one nation but achieve its market internationally as well. Company also featured from more than 250 Alliances and partnerships with international companies. The firm also featured with business to consumer business model and company also gets benefit of Customer Relationship management as the buyers and sellers have to register with the company. The main business model of eBay is consumer-to-consumer model, not only locally but also internationally and we can also say it as publicly traded company. One of the positive points for eBay is that they have zero inventories cost and also the company was started with little assets. Weakness One of the biggest weaknesses of eBay is that fraud activities are immeasurable and they are doing their best to overcome this weakness, but the company responses to these kinds of activities as quicker as they can. The frauds include marketing and selling of fake product and selling stolen product online. eBay also fails to penetrate some foreign markets. Technology is not only the problem with eBay but with every online business, which can disturb the business to a large scale and we have one case of technology issue in past.

eBay 2011
Opportunities A rapid increase in usage of internet and people are getting more addicted to online shopping is great opportunity for eBay to expend more. As eBay is already extended in many countries and the firm can use its opportunities to enter in many different and expend the business throughout the world. ebay has partnership with yahoo.com and they can use this opportunity to benefit both parties as acquisitions provide new business strategy opportunities. Threats One of the biggest threats for the firm is the increasing number of online auction sites or we can say that increasing number of competitors. One of the major and rapid growing competitors of eBay is Amazon.com. Every successful business attracts more competitors. Technology is too advanced that every store is providing online sales, which can be a threat to eBay. Majority of internet users already have account on eBay, so the future growth of the company can be slow. Cost of shipment and credit card charges is not controllable by the firm, which can result in extra cost to buyers that is a treat to the firm.

Value Chain Analysis


We will evaluate both eBay and Amazon with the Value chain model to find out the major differences and have a further look at both of their models closely. eBay Amazon

As seen from the value chain model from both the companies there are substantial. Although bothe the companies are technologically advanced and have a vast background of data work of their customers and both of them are friendly to use but amazon focuses more on its delivery and shipping. In Amazons point of strategy sucessful delivery and shipping is more important as to eBays strictness towards payments and lesser fraud cases. The core competencies of both the organizations differ at large, first of all eBay is classified as a bidding site while the Amazon is a cataloged site where people buy stuff according different catogories and also through cross-selling, although eBay has also the same style catogorization. The distinctive qualities among both is that eBay relies on peer review while Amazon provides product reviews.

eBay 2011
Conclusion
All in all, we have concluded that in todays world e-business is one of the fast moving business and many new entrants were entred in the market. As we have discuss a deep analysis of the eBay and we can conclude that the company was able to achieve its vision and they are still working hard for their mission but in other hand the fast growing Amazon business is creating more challenges to ebay. eBay faced a decline in the business due to Amazon. They should look forward for this competator because many expert advice showed that in future amazon will be more popular than eBay and if this case remian the same and no doubt that ebay will not be able to achieve its mission and future market will be of Amazon.

eBay 2011
Appendices
Books
Gerry Johnson, Kevin S., Richard W., (2009) Fundamentals of Strategy. 1st edition. Prentice Hall. Barney, J.B, and W.S. Hesterly,W.S, (2010) Strategic Management and Competitive AdvantageConcept and Cases. 3rd edition. London: Pearson.

Journals
Harvard Bioscience, Inc. S.W.O.T Analysis, Harvard business review, (December 2003). Data monitor Plc G.D. Karagiannopoulos, N. Georgopoulos, K. Nikolopoulos, (2005) "Fathoming Porter's five forces model in the internet era", info, Vol. 7 Issue: 6, pp.66 76 Ormanidhi, O and Stringa, O. (2008) Porter's Model of Generic Competitive Strategies, Business Economics Ina Steiner, (2009) eBay Reveals News and Strategy at Analyst Day, EcommerceBytes-Update, Number 235 - March 15, 2009 - ISSN 1528-6703 Michael E. Porter, (2008) The Five Competitive Forces That Shape Strategy, Harvard Business Review

Websites
www.ebay.co.uk/ www.money.msn.com/ www.statistics.gov.uk/ www.ons.gov.uk/ www.imrg.org/ www.mintel.com

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