E-commerce Industry Analysis

Yogesh Agarwal
Finance: - 2
Roll no: - 39
 TABLE OF CONTENTS
Introduction
3
Application of e-commerce in functional areas
4
Different product offering
4
Firms in e-commerce
4
Internet users and usage statistics
5
Industry size
5
Industry life cycle
6
Direct competitors comparison
6
Catalog and mail order houses by market cap
7
Industry trend and global industry alert
7
Online retail growth spiral
8
Key success factors
9-10
How e-commerce transaction work
11
Frame work for e-commerce
12
Analysis of five competitive forces of e-commerce
13-14
Value chain frame work 14-15
E-commerce SWOT
16-18
PESTEL of e-commerce 19-22
Acquisitions 22

2
Amazon.com-Business summary
23
Strategic vision of Amazon
24
Amazon SWOT Analysis 24-25
Amazon financials
26-28
eBay- business summary
29
ebay facts and figures
30
Strategic vision of ebay 30
ebay SWOT analysis
31-35
ebay financials
36-38
ebay vs. Amazon –website traffic
39
Comparison of key financial statistic
40-41
Weighted competitive strength
42
Bibliography
43

E-Commerce Industry

3
Electronic commerce, commonly known as e-commerce, consists of the buying
and selling of products or services over electronic systems such as the Internet and
other computer networks. The amount of trade conducted electronically has grown
extraordinarily since the spread of the Internet. A wide variety of commerce is
conducted in this way, spurring and drawing on innovations in electronic funds
transfer, supply chain management, Internet marketing, online transaction
processing, electronic data interchange (EDI), inventory management systems, and
automated data collection systems. Modern electronic commerce typically uses the
World Wide Web at least at some point in the transaction's lifecycle, although it can
encompass a wider range of technologies such as e-mail as well.
E-business improves business performance by using electronic information
technologies and open standards to connect suppliers and customers at all steps
along the value chain.

E-commerce industry as a division as the catalog and mail order houses

which sells products online.
.

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Different product offering :-products such as DVD’s, CD’s, PC’s, books, phones,
mobiles, perfumes, bicycles, furniture, households articles, watch’s, academic
articles, clothes (for men, woman, and children),music, jewelry, foot wear, flowers,
tools and hardware, software etc. is being sold In this industry

Some firms which are present in this industry:

Amazon.com, rakuten.com,
ecampus.com, netshops.com,
gameplay.com Yahoo.com,
ebay.com, MSN.com,
Yahoo.com, Rediff.com,
Sify.com, Indiatimes.com,
Priceline.com and many more

5
Industry size:-
Online retail reached $5trillion in 2007 and is set to increase to $12 trillion by 2012,
according to the latest survey from Verdict Research. . E commerce sales projected
to reach Rs. 9210 crores in 2007 - 2008 (India)

Electricals accounted for a quarter (25.1 %) of online retail spending, followed by

food and grocery.
88% of online shoppers in India were male, with 86% having at least a bachelor’s
degree
Electronic gadgets, apparel, railways, air and movie tickets were most shopped
items last year
Products likely to gain popularity this year include jeweler, books, apparel, gift
products, music, movies, and hotel bookings

6
Industry life cycle

Life Cycle Phase: Mature

Business Cycle Reaction: Cyclical

Direct competitors comparison:-

7
Top catalog and mail order houses companies:-

Industry Trend Alert

E-commerce has become a priority for many corporations within the context
of Info-communications and Technology (ICT), since managers see it as a way
to overcome certain limitations of the traditional distribution channels.

Global Industry Trend

Today, Internet communications are very significant for hundreds of millions
of users, for social, political and business reasons. With the increase of high-
speed broadband connections, the Internet economy is poised for growth.
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However unlike the e-commerce environment of old, the new Internet
economy incorporates innovative services such as tele-education, tele-health
and mobile-commerce (or m commerce). Where large areas are covered by
high-speed broadband, government organizations and businesses are using
it to more efficiently and effectively deliver products and services to their
customers. This dynamics
will eventually lead to more or less free broadband access to most people
and information and service providers will largely pay for the costs of the
infrastructure through the services they deliver. On top of that, customers
can of course also buy extra and premium services from these organizations.
Underlying economic trends are developing that will shape the future of this
market and influence the nature of strategic investments. These economic
trends will increasingly set the agenda for the future; and it will be the video-
based applications, linked to communications (as distinct from, for example,
entertainment) that are going to make the difference. An estimated one
million companies, worldwide, now rely on the Internet economy for more
than 50% of their revenue. The largest of these are among the largest
companies in the world. Google, Yahoo and eBay were in at the beginning,
but Microsoft and News Limited are not far behind, and so are at least over
1,000 media companies, good for revenues of well over US$100
billion1.Business transactions over the Internet are expected to top US$211
billion in 2006 with some experts expecting the final figure to approach
US$250 billion. As estimates for 2008 approach US$300 billion, many
entrepreneurs and small businesses are finding their customer service needs
are outpacing their operational resources2. AC Nielsen reported in 20053
that one in ten of the world’s population now shops online, but improved
Payment options are needed to ensure the continued growth of online
shopping. More than 627 million people have shopped online globally,
including over 300 million/month towards the end of 2005. Unmet demand
exists for online payment card use in France, Japan, South Korea, Poland and
Russia, whereas in Canada, there is unmet demand for PayPal payments.

Online retail growth spiral:-

9
Key Success factors in E-Commerce

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1. Providing value to customers. Vendors can achieve this by offering a product or
product line that attracts potential customers at a competitive price.

2. Providing service and performance. This can be done by offering a fast, user-friendly
purchasing experience.

3. Providing an attractive site. This can be done by the tasteful use of colour, graphics,
animation, photographs, fonts, and white space percentage.

4. Providing an incentive to buy and to return. This can be done with sales promotions
like coupons, special offers, and discounts. Cross-linked web sites and advertising
affiliate programs can also be used.

5. Providing personal attention. This can be done by personalized web sites, purchase
suggestions, and personalized special offers.

6. Providing a sense of community. This can be done with chat-rooms, message boards,
soliciting customer input, and affinity programs.

7. Providing reliability and security. Parallel servers, fail-safe technology, information

encryption, and firewalls can enhance this requirement.

8. Providing a 360-degree view of the customer relationship, defined as ensuring that

all employees, suppliers, and partners have a complete view, and the same view, of
the customer.

9. Owning the customer's total experience. This can be done by treating any contacts
with a customer as part of a total experience, an experience that becomes
synonymous with the brand.

10. Streamlining business processes. This can be done through re-engineering and
information technologies.

11. Letting customers help themselves. Provision of a self-serve site, easy to use without
assistance, can help in this respect.

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 12. Helping customers do their job. E-tailer s can provide such help through ample
comparative information and good search facilities.

13. Constructing a sound business model. If this key success factor had appeared in
textbooks in 2000, many of the dot coms might not have gone bust.

How E-commerce transaction work:-

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The consumer moves through the internet to the merchant's web site. From there,
he decides that he wants to purchase something, so he is moved to the online
transaction server, where all of the information he gives is encrypted. Once he has
placed his order, the information moves through a private gateway to a Processing
Network, where the issuing and acquiring banks complete or deny the transaction.
This generally takes place in no more than 5-7 seconds.

There are many different payment systems available to accommodate the varied
processing needs of merchants, from those who have a few orders a day to those
who process thousands of transactions daily. With the addition of Secure Socket
Layer technology, ecommerce is also a very safe way to complete transactions.

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Analysis of five competitive forces for E-Commerce

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 1) Threats of entrance of the new enterprises
The industry is very attractive .There are not significant barriers to entry on
industry, because perhaps the firms of the industry have adopted a diversification
strategy of sell, the products available to customers are not much differentiated.

2) Rivalry among Existing Firms

It is strong; there are divers firms in the industry, such as eBay, Yahoo, MSN, FNAC,
etc. This industry is growing, and the products that are being sold are not very
differentiated. Some of the firms try to differentiate themselves by adding
some competitions, blogs & a nice shopping for the customer to make him
spend more time at the site.

3) Bargaining power of Buyers

It is strong, because it is easy to find other supplier in the industry. They have no
loyalty to the brand. They look for cheap & better products. They are also
provided with lots of options in the industry.

4) Bargaining Power of Suppliers

In general level, it is low, because the products existing in this industry are sold by
many firms. In case of products like Books, DVD’s and CD’s the bargaining power of
suppliers is low, caused by existence of many suppliers in the Industry. Firms like

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Microsoft due to their position in the software product market; we can say that their
bargaining power as supplier of firms that sells products like Office, for
Example is strong; perhaps to have others firms in the industry.

5) Threats of substitute products or services

In general, it is easy to sell in the internet, so, there are threats of substitute
products or service in the e-commerce industry. There is threat of substitute
products, by fact of products sold in the industry
Could be sold by others firms that are inside or outside of industry, for example, if
the buyer do not get satisfied with price of a DVD or Book supplied by Amazon.com,
for example, these can choice to buy other product that is being sold by another
firm that belongs or not this industry, to a price more low.

THE E-COMMERCE VALUE CHAIN FRAMEWORK

The electronic commerce, value chain can be a convenient means of being

able to organize the examination of the business processes within a
business.

Porter (2001) argues that the basic tool for understanding the influence of
information technology on companies is the value chain. He defines the
value chain as the set of activities through which a product or a service
created and delivered to customers.

Grant (1995) argues that when a company competes in any industry, it

performs a
Number of discrete but interconnected value-creating activities, such as
operating a
Sales force, fabricating a component, or delivering products, and these
activities of
Suppliers, channels, and customers.

Porter (2001) then in agreement states that the 47 value chain is a

framework for identifying all these activities and analyzing how they affect
both a company's costs and the value delivered to buyers.

The special advantage of Internet e-commerce is the ability to link

One activity with others and make real-time data created in one activity
widely
Available, both within the company and with outside suppliers, channels, and
Customers. Taking the value chain (Porter and Millar, 2001) and placing e-
commerce

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Into the framework gives an insight into the reach of e-commerce into the
value
Activities.

How e-commerce reaches all activities of the organization.

Linkages already exist between activities; some of these linkages have been
integrated by using e-business technologies, ultimately providing a fully
integrated ecommerce process. It is important to realize that these new
applications have to be integrated with supporting and, if applicable, primary
processes to prevent creating islands of automation.
The physical processes might have to be rearranged to better align the
original value chain to the new e-commerce oriented value chain. Integration
of the physical processes and e-business applications is essential to achieve
maximum results. Analyzing the e-commerce value chain can help in
lowering the costs and increasing the value of activities. Taking the Web
marketplace as an example, one can see that, if a marketplace requires
sound estimates for the delivery time of a product, e-fulfillment systems
have to be in place and the factory floor automation has to be capable of
providing this information. Supporting processes are not only the technical

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infrastructure, but also the databases holding all information and people
capable of working with the systems.

E-Commerce Strengths, Weaknesses, Opportunities and

Threats

Strengths
Ability to compete with other companies global and locally
Implementing an e-commerce business solution allows companies to expand
their customer base to a global level without considerable time or expense.

Specialization and niche selling

The larger customer base created by online sales allows e-tailers to
specialize in certain niche products that could not support a more traditional
business model.

Low overhead cost and low barrier to entry

Startup costs for an e-commerce retail operation are a fraction of the costs of
starting a traditional brick and mortar company.

Direct consumer communication

This form of commerce allows the business to maintain a higher level of
consumer communication. The communication happens when the order is

18
placed, when the order has shipped and then at a point in the future, should
the customer opt-in to receiving regular email communication.

Weaknesses

High Customer Expectations

Small businesses can appear to be large companies on the Internet. Customers
have no way of gauge the business’ actual level of man power and resources. This
leads to customers that demand the same level of service from business with 1-2
employees as they would from industry giants like amazon.com.

Search Engine Unpredictability

Web retailers live and die by organic search engine placement. The higher the store
is placed on the search engine result pages (SERPs) translates to more traffic and
sales. Search engines regularly change their ranking systems and this can cause
major fluctuation in placement and create an unpredictable environment.

Opportunities

Global Exposure
Adding an e-commerce component to a business allows the company to sell their
products to a global market.

High Availability: 24/7 business

Selling on the Internet allows the company to take orders around the clock on every
day of the week. Orders can then be filled and processed during set business hours.

Strong business-to-business networking

Websites allow for business-to-business exchange links to increase traffic and
search engine placement for each businesses’ sites. This opens lines of
communication on a business-to-business level and aids in the cooperation between
companies.

Industry Growth
Retail sales on the Internet in America have seen double digit growth each of the
past 8 years. Growth is expected to continue at high rates and having a business
online allows the merchant to be in a position to benefit from this expansion.

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Threats

Competition
The low barriers and the comparatively low overhead costs allow a for a relative
easy entry into the market. This increases the level competition and can cause a
reduction in prices and profit margins. Threats are produced not only by other
retailers within the same industry but also by the manufactures that supply the
products that the retailer sells. It is not uncommon for online retailers to directly
compete with the manufacturer of the lines they carry.

Innovation
Future innovation could have an adverse effect on e-commerce businesses.

Fraud
Some consumers are leery of doing business online out of concerns of fraud and
misuse of their financial data. This alienates an entire segment of the population
from conducting business via the Internet.

Privacy Concerns
Some consumers prefer not to give any personal information out over the Internet
because of fears that the information will be misused, lead to spam email or identity
fraud.

Future Legislation
Internet sales only have tax applied to the purchase if the buyer and seller reside in
the same state. Considering the growth and amount of tax revenue lost to e-
commerce, the federal government and individual states could write legislation to
impose tax on all online sales. This would remove one incentive to conducting
business online.

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PESTEL

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Economic factors:-
Cost Justification
The initial investment in developing an e-commerce Web site is relatively high. For
example, the initial investment for creating an e-commerce Web site usually
includes the cost of hardware and software, future maintenance, and training for
staff. Whether or not the initial investment can be returned
Remains uncertain for a long period. Quite often, manufacturing firms do not want
to participate in e-commerce because of the fear of losing their investment. Thus,
cost effectiveness is a key issue upon which organizations concentrate.
Internet Access
Internet access is the first step in ecommerce practice. Typical Internet access
includes the use of e-mail, browsing Websites, and so forth. It is possible that
organizations may not use the Internet for any commercial purposes, but Internet
access still can benefit the organization through effective information exchange.
However, it is believed that a manufacturing industry that is familiar with the
Internet may be more aware of the potential benefits to be derived from e-
commerce activities.
Telecommunication Infrastructure
Telecommunication infrastructure is the backbone of e-commerce. Many argues that
a major area of concern for e-commerce is the construction of a telecommunications
infrastructure that
can support its explosive growth. For example, the establishment of a national
broadband network may pass on this message to organizations: the network is
ready, are you ready for e-commerce?
Lack of Knowledge and Skilled Personnel
Many organizations lack information technology literacy, especially in the area of
ecommerce. In their study (1999), the authors found that managers generally lack
understanding of the most appropriate technology or applications. Many
manufacturing firms are experiencing some difficulty in finding skilled World Wide

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Web developers, content providers, and knowledgeable professionals to manage
and maintain a customer hotline. As suggested by these authors, the lack of skilled
personnel accounts for the slow progress of e-commerce uptake
Performance Measurement
E-commerce performance measurement is a difficult task. Based on a comparative
study of e-commerce across the UK, U.S., Japan, and Germany, undertaken on
behalf of the UK government by the consultant
firm of Spectrum Strategy (1997, 1998), Chaston et al. (2001) suggest that studying
the Internet and e-commerce is hampered by a lack of validated tools for measuring
the degree to which firms benefit
From exploiting the technology. Further, Nath (1998) points out that companies
adapt
Internet and e-commerce technologies at different levels. Many companies are
Merely using e-mails. Hence, measures of how efficient and effective the companies
could be often are uncertain.

Technical Factors
Security Issues
Security problems and challenges (as a technical issue) that is associated with
ecommerce
Applications and the Internet can never be ignored. Nath (1998) suggests that when
an organization uses the Internet to engage in electronic commerce, it exposes
itself to security risks. Although many security
Protection technologies, such as data encryption, firewalls, and virus checking can
be
Found in the commercial market, no one can claim that security is no longer a
problem.
Reliability
Successful e-commerce services rely on a reliable platform, including the use of a
reliable system (hardware and software) and a reliable network. However, Prasad
(2000) indicates that current online systems may not be totally reliable, especially
when the transaction volume goes northbound.
Bandwidth
Bandwidth has become a major issue in the development of e-commerce
Solutions, because it determines the speed and capacity for communication. Due to
the current limitations on Internet bandwidth, organizations may not be able to
deliver rich media information, such as video and audio information. Bandwidth not
only restricts communications between end-customers and manufacturers, but it
also restricts the information exchange between manufacturers and their suppliers.
For example, if there is a large volume of inventory information to be exchanged,
low bandwidth may result in a traffic jam, which disables the manufacturers’ just-in-
time (JIT) inventory management initiatives.
Integration Difficulties
Technological integration is not an easy task. FUJII, KAIHARA, et al. (2000) highlight
that, as manufacturing systems becomes automated, so-called automation islands
have appeared in factories. This concept refers to various individual units and their
respective headquarters, each having a different platform for their information
systems. If various units use differ types of computer hardware and software

23
systems, managers will have only a partial view of the data, and overall information
gain will be reduced. With such a lack of accurate information, the decision making
process will not gain significantly from the tremendous investments made in
building the e-commerce technology and other information technology.

Social Factors
Security (as a Social Issue),
Privacy — Trust
Security and privacy issues are major hurdles for the growth of e-commerce.
According to the survey conducted by Panet al. (1998) on the problems that e-
commerce was facing from 1995 to 1997, 60% of participants were not convinced
by assurances of e-commerce security. As a result, consumers are hesitant to
transact with companies and to disclose confidential data, such as their home
address, social security number, and credit card number, over the Internet.
Cultural Diversity
E-commerce practitioners in the manufacturing industry are concerned with the
cultural diversity of consumers. The ability to customize the interface for individual
and group needs is one of the greatest assets of e-commerce, especially for the
global market.
Absence of “Touch and Feel”
Further, due to the current technology, the absence of “touch and feel” on Web
sites is always a big issue for online service providers. For example, automotive
manufacturers cannot provide their customers with test-drives on their Web sites.
Compared to buying a computer online, purchasing a car is an expensive
transaction. Thus, further assurance (i.e., a trial drive) is required; however, this
kind of services cannot be provided by online services.

Political Dimension
Intellectual Property
During the implementation of e-commence projects, manufactures may
recognize intellectual property as an important asset in their organization.
Intellectual property may include the organization’s new vision
(i.e., new target market), details of current market, and information of new
products (new designs). Thus, whether or not the organization is aware of
this sensitive information and whether or not adequate protection is in place
can be critical.
Taxation
The taxation system for the e-commerce market is still under development.
Most online retailers are selling goods and services with Tax inclusive, but
many transactions are still processed without any contribution to the
taxation system. For example, E-Bay treats individual transactions as private
auctions, which do not include any taxes.
Policing and Regulation

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The e-commerce industry has legal protections in the traditional market. For
example, various laws (e.g., the Sales Act) and regulations (related to quality
assurance, public liability, and warranty issues) have been passed. However,
when conducting business in the e-commerce market, particularly in the
areas of security and privacy, relevant legal protection is also essential.

Acquisitions
Acquisition Bought by Price Date
Hotmail Microsoft $400,000,000 December 1997
Internet Movie
Amazon.com 1998
Database
CDNow Amazon 2001
PayPal eBay $1,500,000,000 October 3, 2002
Skype eBay $2,600,000,000 October 14, 2005
February 27,
Shopbop Amazon.com
2006[12]

Amazon.com, Inc. operates as an online retailer in North America and

internationally. It operates various retail Web sites, including amazon.com,
amazon.co.uk, amazon.de, amazon.fr, amazon.co.jp, amazon.ca, and
amazon.cn. The company serves its consumer customers through its retail
Websites and focuses on selection, price, and convenience. It also offers
programs that enable seller customers to sell their products on its Websites
and their own branded Websites. In addition, the company serves developer
customers through Amazon Web Services, which provides access to
technology infrastructure that developers can use to enable virtually any
type of business. Further, it offers co-branded credit card programs,

25
fulfillment, and other marketing and promotional services, such as online
advertising. Amazon.com, Inc. was founded in 1994 and is headquartered in
Seattle, Washington

Platform Distinctions & Strategic Vision

Amazon looks more like a retailer from the bricks-and-mortar world just
bigger. Amazon buys products in bulk, using its economies of scale to create
pricing benefits for buyers. About 70% of Amazon’s revenues are derived
from products that Amazon sources, holds in inventory, and sells at a fixed
price. The remaining 30% comes from third-party sellers selling at a fixed
price, putting Amazon in the role of aggregator. Amazon operates enormous
warehouses filled with inventory around the US, making the Amazon model
far more capital intensive, but giving it more control over its buyer
satisfaction ratings, product focus, seller relationships, and its strategic
future

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Amazon.com SWOT Analysis
Strengths
• Amazon describes themselves as the leading on-line retailer of
media products which educate and entertain.
• Product diversification from books and CD/DVD markets has
provided additional customers in other product areas and indicates
strategic movement to grow the business through new customer
bases.
• Functions such as the User Reviews are seen as a positive attribute
to share information and feedback which can help to stimulate
sales.
• The use of an on-line market place providing the facility for
customers to sell unwanted items adds a point of difference to
competing retailers and succeeds in building strong customer bonds
with younger clients who will provide longevity in loyalty to the
brand.

Weaknesses
• The focus on technology is important for on-line facilities as the use
of technology is needed for all aspects of interface with the
consumer. These systems require constant maintenance to ensure
the customer receives the level of service the brand is expected to
provide.
• Amazon are dependent on external delivery companies to carry out
the delivery function of the interface with the customer which can
lead to uncontrollable service level problems and potential cost
increases in line with the wider transportation industry such as
rising fuel and increased vehicle taxation. If these costs are not
absorbed they are passed back to the consumer both with potential
negative effects.

Opportunities
• Amazon have the opportunity to develop specialist relationships
with publishers to offer exclusive editions and launch new authors
as part of exclusive rights which will provide a point of difference
within the market place and generate stimulated growth through
followers of specific artists.
• Investment in fulfillment will provide an increases level of actual
customer service meeting consumer expectations. Consumer
expectations are relied upon by Amazon.com to ensure repeat
business and longevity.
• Through acknowledging the change in technology and buyer
behavior Amazon have obtained controlling share in LoveFilm.com,
a new online service to film rental providing growth through a new

27
 area and diversification whilst using existing technology indicating
low level costs.
• A membership facility has been introduced to offer customers prime
delivery slots during key seasonal times and member benefits can
lead to providing a differential within customer service expectations
around seasonal times which may lead to the growth in sales
through this facility.

Threats
• Growing on-line facilities from high street brands with provisionally
better economies of scale suggest Amazon may not be able to
compete on like for like service and product price. Thus with no
specific differential to the competition there is the potential
customer sales will migrate.
• Increasing transportation costs will directly impact delivery charges
to customers - as these costs are not absorbed into the direct
business but paid to a third party it is assumed these will be directly
passed onto the consumer which can have a negative impact to
brand perception from the consumer viewpoint.
• General economic conditions will drive retail prices down and
customer expectations for promotional deals will become a focus for
all product areas - with smaller economies of scale overall within the
marketplace the buying power may not be sufficient to carry such
offers.

Amazon.com income statement

28
Amazon cash flow

29
Amazon.com Balance sheet

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31
eBay Inc. and its subsidiaries provide online marketplaces for the sale of
goods and services, online payments services, and online communication
offerings to individuals and businesses in the United States and
internationally. It operates in three segments: Marketplaces, Payments, and
Communications. The Marketplaces segment provides online commerce
platforms that enable buyers and sellers to interact and trade with one
another. It enables online commerce through various platforms, including the
traditional eBay.com platform and other online platforms, such as StubHub,
Kijiji, Den Bla Avis, Gumtree.com, LoQUo.com, OpusForum, Marktplaats.nl,
and mobile.de, as well as Half.com, Rent.com, and Shopping.com. This
segment also provides various services, including feedback forum, safe
harbor program, verified rights owner program, loyalty programs, customer
support, and tools and services. The Payments segment offers PayPal, a
payments platform that enables individuals or businesses with an email
address to send and receive payments online. Its services include joining the
network, verification of its PayPal’s account holders, withdrawing money, and
trust and safety programs, including PayPal’s seller protection and buyer
protection programs. This segment also provides Bill Me Later, a payment
solution, which offers transactional credit at the point of sale for the U.S.
online consumers. The Communications segment consists of Skype, an
Internet communication product, which enables voice over Internet protocol
communications between Skype users, as well as provides Skype users
connectivity to traditional fixed-line and mobile telephones. This segment
offers its software in approximately 28 languages. The company was founded
in 1995 and is headquartered in San Jose, California

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Platform Distinctions & Strategic Vision of eBay

eBay.com, at its core, is a trading post where buyers and sellers meet to sell goods
for cash. eBay is a facilitator and a mediator, historically driven by auction-based
pricing, although >50% of eBay’s GMV may be fixed-price sales in 2008E. eBay
owns no inventory and therefore has no product obsolescence risk and its capital
spending and working capital requirements are minimal. eBay takes a fee when
goods are listed and another fee when they are sold, implying it is a toll-booth for
online retail sales growth. Its control over buyers and sellers is minimal.

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 eBay S.W.O.T Analysis

Strengths Weaknesses
 Largest online trading forum  Inability to measure illegal
 Sense of community activity on site
 Recognizable Brand Name  Inability to penetrate some
 Over 250 Alliances foreign markets
 Partnerships with international  Lack of in depth descriptions of
companies products
 Global reach  Technology malfunctions
 eBay University
 Entertaining site
 Over 27,000 different categories
 Publicly Traded
 Zero inventory held by company
 No need for the traditional sales
force

Opportunities Threats
 Changing lifestyles of people  Thieves
 Acquisition of Yahoo.com  Increasing number of online
 Continued international auction sites
expansion  Rapid growth of Amazon.com
 Increasing use of the internet  Increasing number of online
 Expand community services stores
 1/3 of internet users already
registered on eBay

eBay’s Strengths

EBay is the leading provider of online auction and customer-to-customer trading in

the world. They have many competencies, core competencies, and distinctive
competencies that set them apart from their competitors. Their alliances,
international dominance, and recognizable brand, name just to name a few, are
some of the main reasons why eBay is a company that is hard to top.

Largest Online Auction Forum (core competence)

From its beginning in the mid-1990s, eBay has been growing in leaps and bounds.
They now have over 94.9 million registered users in more than 150 different
countries. eBay’s founder Pierre Omidyar did not even see the tremendous
possibilities that eBay had when it was first developed over ten years ago. eBay
now holds the top spot in the online auction industry. In the United States alone

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one-third of the population is already registered with the site and with increasing
use of the internet that number is sure to grow.

Recognizable Brand Name (core competence)

A recognizable brand name is important to the success of a company. eBay has
made sure to use color and unique writing to show their brand name off. They also
use television and Internet advertising to get continued publicity on different media
avenues. Amazon.com does not have as much face value as eBay. Their name is
not distinctive to the customers like eBay’s.

Over 250 Alliances (competence)

eBay holds alliances with some of the largest companies in the world. They include
UPS, America Online, IBM, PayPal, and Walt Disney. These alliances create more
opportunities for eBay to advertise and reach potential customers. eBay has also
created alliances with companies that help to maintain customer satisfaction. Trade
safe and I-Escrow have both partnered with eBay to make sure that all customers
get what they pay for.

Partnerships with International Companies (competence)

Partnerships abroad can be crucial to a company succeeding in foreign markets. By
partnering with established foreign companies eBay is able to easily transition into
that countries culture with the help of citizens who work with the partnering
company. eBay also immediately acquires ties with companies in the foreign
market, which makes it simple for them to make more partnerships and alliances.

Global Reach (core competence)

The global reach that eBay has obtained is not matched by any other online auction
site. Although Amazon.com is in a close second to eBay, customers obviously
prefer eBay’s global ability. They have the capability to reach people in virtually any
part of the world and get them the product they are looking for.

Sense of Community (distinctive competence)

Caring about your customers and making sure they know the lengths you go for to
keep them happy is crucial to the success of a business. eBay makes their
community a main priority at all times. eBay is continually coming up with new
ways to reach out to their customers. They have come up with the Feedback Forum
that is used for customers to provide comments about their trading partners. Two
new personalization features have also been added for their members, my eBay and
about me. eBay takes great pride in their community and will go to great lengths to
make sure that it stays intact.

eBay University(competence)

eBay University is a distinctive feature of the eBay community. It was created in

hopes of gaining more entrepreneurs and also educating new users. It has been a

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great success for eBay. It has helped new users gain knowledge as well as eBay.
eBay used the many questions asked by participants in eBay University to their
benefit.

Entertaining Site (competence)

eBay has created a site that makes people want to come back again and again.
They are constantly revamping their site to make sure that it is the easiest, fastest,
and most fun auction site on the web.

Over 27,000 Different Categories (distinctive competence)

The wide variety of products offered on eBay gives them a competitive advantage
above all other online auction sites. They are like the Wal-Mart of the Internet!
They say that anything you want you can find on eBay.

Publicly Traded (core competence)

EBay is a publicly traded company. The initial public offering generated $66 million
in new capital for the company. Their second IPO generated another $600 million
for the company. Being a publicly traded company has been a success for the
company and brought in new capital.

Zero Inventory Held by the Company (competence)

eBay does not have stores or warehouses. They do not hold any of their own
inventories. This is strength for the company because it keeps costs down and does
not put any threat of having to liquidate the company. eBay has kept it simple by
simply being a place for people to trade items.

No Traditional Sales Force(competence)

EBay has no need for the traditional sales force. This is another way that they keep
their costs down. The do not have to train or keep a sales force on payroll.

eBay’s Weaknesses

Like any company, eBay has weaknesses. They are not able to do everything to the
best of their abilities. A lack in ability to monitor all illegal activity as well as failure
in some foreign markets is two weaknesses of eBay.

Inability to Measure Illegal Activity on Site

eBay has taken many precautions to prevent illegal activity on their site. They
estimate that only 1 percent of transactions on their site involve fraud. The
customers however disagree to some extent. Some say that there are as much as
10 percent fraudulent transactions. EBay has no real way to measure the extent of
illegality on their site.

Inability to Penetrate Some Foreign Markets

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Penetration in foreign markets is crucial to the success of online auctions. EBay has
done an outstanding job of penetration in foreign markets. However, they have
been unable to take over one of the most crucial foreign markets, Japan. Japan is
one foreign market that is on the rise. They are becoming more prosperous and use
of the internet is growing. If eBay is not able to gain ground in this market it could
hurt its foreign market standing.

Lack of In-Depth Descriptions for Products

Amazon.com boasts in-depth product descriptions for all merchandise sold on their
site. This is not one of eBay’s outstanding features. The lack of description in
products could be a factor in the amount of counterfeit and wrongly identified
products that are sold to customers.

Technology Malfunctions
Technology malfunctions are always going to be a factor when dealing with websites
and online shopping. eBay must take measures to keep malfunctions as low as
possible to retain happy customers and to keep hackers out of personal PayPay and
eBay accounts.

eBay’s Opportunities

EBay must continue to search out new opportunities for its company. Continuing its
growth and innovation is crucial to continuing its success. eBay can continue to
seek alliances, partnerships, and new customers to continue its reign as number
one.

Changing Lifestyles of People

People are using the internet more and more to pay bills, talk to family, and shop.
eBay can use this opportunity for continued market penetration and expansion.

Acquisition of Shop Yahoo.com

Yahoo.com’s shopping site is very weak in the online auction industry. eBay should
explore the possibility of acquiring their shopping site, along with its members and
alliances already formed to broaden their customer base. EBay already has
partnerships with Yahoo.com in other areas so this acquisition would benefit both
parties.

Continued International Expansion

As internet use continues to grow throughout the world eBay must take every
opportunity to enter desirable international markets. With the amount of internet
users already registered on eBay in the United States continued international
expansion is critical.

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Increasing Use of the Internet
The internet is being used more and more each day. eBay can take this opportunity
to expand and penetrate new markets.

Expand the eBay Community

For continued customer satisfaction eBay can increase its community feel. With
new resources and sites tailored specifically to their community member’s eBay will
continue to be the most highly respected internet auction site by its members.

eBay’s Threats

eBay must take its threats head on. eBay should acknowledge their threats and
take steps to protect their company. There might also be the potential of turning
some threats into opportunities.

Thieves
There will always be the threat of fraud and illegal actions in online shopping. No
matter how many precautions eBay takes computer hackers and thieves will find
new ways to trick honest shoppers. eBay has taken precautions to prevent these
illegal actions and they must stay on their toes to make sure they do all they can to
prevent illegal activity on their site.

Increasing Number of Online Trading Sites

When an industry is attractive new competitors will always try to enter and steal
some of the market share. eBay already has many competitors surrounding them
including Amazon.com, uBid, and ePier. Some boast that they are an alternative to
eBay while others just try to be better than eBay. To sustain a competitive
advantage above their competitor’s eBay must continue to grow and advance in the
online auction industry. Strategies must be determined and defenses formed.

Rapid Growth of Amazon.com

Amazon.com has continued to grow since it was formed in the mid-90s. They the
largest competitor of eBay and may have the potential to take over the largest
market share in the online auction industry.

Increasing Number of Online Stores

Online shopping is becoming more and more common. Stores such as Target and JC
Penny have developed sites where people can shop from the comfort of their own
home. This poses a large threat to eBay. They are now not only competing with
other online auction sites but also online retailers.

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eBay already allows people to purchase products on their site with a set price
system. This system accounted for 28 percent of eBay’s gross merchandise sales.
They must make sure that they continue to offer a fixed price program for
customers who are not looking to auction products and instead only want to
purchase or sell with a set price.

EBay Income statement

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40
 EBay Cash flow

EBay Balance sheet

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42
eBay vs. Amazon Website Traffic:

Competition
In many ways, the competitive environment is similar for eBay and
Amazon. For example, competition in online retailing is intensifying for both.
eBay began life as the online marketplace for used goods, typically priced at
auction, while Amazon began as The online marketplace for books and added
items over time, all at fixed prices. Seeking growth, these two behemoths
have increasingly encroached into each other’s markets. In addition, as
ecommerce becomes more main stream, this undermines Amazon’s and
eBay’s early role of gatekeepers to online retailing. Today, Amazon and eBay
compete with thousands of brick and mortar retailers, niche web sites, price
comparison search engines, free classified websites and social networks. In
addition, there are thousands of ecommerce companies that use search
engines to attract buyers.

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Comparison of eBay and Amazon financials key statistics

and industry leaders

Ebay.com Amazon.com

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Comparison of eBay and Amazon financial highlights:-

EBay financials highlight Amazon financial highlights

Abbreviation Guide: K = Thousands; M = Millions; B = Billions

mrq = Most Recent Quarter (as of 31-Dec-08)
ttm = Trailing Twelve Months (as of 31-Dec-08)
yoy = Year Over Year (as of 31-Dec-08)
Lfy = Last Fiscal Year (as of 31-Dec-08)
Fye = Fiscal Year Ending
1 = Data provided by Thomson; 2 = Data provided by EDGAR Online;
3 = Data derived from multiple sources or calculated by Yahoo! Finance;
4 = Data provided by Morningstar, Inc.;
5 = Shares outstanding is taken from the most recently filed quarterly or
annual report
And Market Cap is calculated using shares outstanding.

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Weighted Competitive Strength

A weighted average competitive assessment of eBay and its

competitors has been developed to determine how strong each is in the
online auction industry. The assessment was divided into eight categories
each carrying a separate weight determined by importance. The scale
ranged from 1-10, with 1 being the worst, 5 being average, and 10 being the
best. After multiplying each score by its given weight, we were able to add
all the scores to determine the strongest company. eBay ended up on top.
Even though eBay was not the strongest in each category, they had the
highest score on the top three weighted averages. This led to the conclusion
that a company does not necessarily have to be better than its competitors
in all areas, just as long as they are ahead in the most important ones.

KEY SUCCESS IMPORTANC EBAY AMAZON YAHOO UBID

FACTORS/COMPA E WEIGHT AUCTIONS
NY STRENGTHS
BRAND NAME 0.15 10/1.5 8/1.2 8/1.2 5/.75

QUANTITY OF BUYERS 0.3 10/3 8/2.4 7/2.1 4/1.2

AND SELLERS
CONVENIENCE 0.1 8/.8 10/1 5/.5 4/.4

CUSTOMER SERVICE 0.1 8/.8 9/.9 7/.7 6/.6

SPEED OF TRANSACTION 0.05 5/.25 10/.5 6/.3 8/.4

ERROR RATE 0.05 7/.35 9/.45 8/.4 6/.3

LOW INVENTORY/COST 0.1 10/1 7/.7 7/.7 8/.8

GLOBAL DISTRIBUTION 0.15 10/1.5 8/1.2 6/.9 1/.15

WEIGHTED TOTAL 9.2 8.35 6.8 4.6

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 Bibliography
Ebay.com
Amazon.com
Internetworldstats.com
finance.yahoo.com
http://home.earthlink.net/~lindberg_b/GECGrwth.htm
http://www.exchange4media.com/e4m/izone1/izone_fullstory.asp?section_id=
4&news_id=28109&tag=23015
http://www.ecommerce-
journal.com/articles/14028_e_commerce_and_internet_industry_in_india
http://www.commercewiki.com/forum/topic/indian-e-commerce-figures
http://www.commercewiki.com/ecommerce/e-commerce-india-%e2%80%93-
is-it-really-profitable/
http://www.creativewebsols.com/key-success-factors.htm
http://industries.hoovers.com/retail/nonstore-retail/internet-
retail/industry_trends
http://www.asiaing.com/ebay-2008-annual-report.html

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