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Case StudyE-BAYCompany History

E-bay, the world’s largest personal on-line trading community, was founded in September of 1995 by Pierre Omidyar. Pierre was working as a software developer in Silicon Valley, and hehad always been fascinated by how you can establish marketplaces to buy and sell goods andservice. Because of his interest in the Internet and his background in software, he developed asoftware program that allowed people to list items of various interest and various degrees in onespot. It allowed people to be able to come to that very same site and look at what’s for sale and bid on and buy those items. He used the auction process as the method for establishing howmerchandise is valued and eventually how it is exchanged between buyer and seller.Pierre’s wife was interested in her Pez collection, which was a key component that promptedPierre to develop e-bay business. She was experiencing a frustration that many collectors haveexperienced: a collector’s ability to buy and trade or sell with other people of similar interests islimited by geographical considerations, or it can run several weeks if not months to trade througha trade publication.All of that was shortened down when Pierre, at the promoting of his wife and interest in Pezdispenser collections, used his interest in fragmented markets and efficient marketplaces as alaboratory for what eventually became eBay.

Company Current Situation

Margaret C. Whitman, CEO of eBay Inc., is Silicon Valley’s newest star and one of the onlywomen to head a leading E-commerce site. After tenures at Hasbro and Disney, Whitman presides over an upstart that has seen cult-like following explode and its market value surpass.As the world’s largest person-to-person online trading community, eBay has developed anefficient and entertaining trading site on the Web that is available 24 hours a day, seven days aweek. EBay mow has more than 10 million registered users. EBay members add more than 500,000 items to the site daily in more than 4,200 categories, including automobiles; antiques; books,movies and music; coins and stamps; collectibles; computers; dolls and figures; jewelry andgemstones, photo and electronics, pottery and glass; sports memorabilia and toys.The first challenge that always confronts and online merchant is the idea of creating trust andconfidence among users. Each Internet site that is going to engage in commerce must create anenvironment of trust and safety that will allow the users to come back over gain and over again.Ebay has grown at a phenomenal rate, both in terms of amount of people who are using eBay, theamount of items that are being listed for sale, and also the amount of transactions that close everysingle day. With the phenomenal increases in all of those areas, eBay has attempted to listen tothe users and develop and provide new services in addition to the ability to just buy and sell.Those new services include everything from allowing users to list their items by a photograph inthe eBay gallery, the feedback forum, establishing categories that deal with higher priced itemsand collectibles and automobiles

. In June 2000, eBay realized that they were experiencing somegrowing pains, which was creating new architecture an enlarging infrastructure to provide thenew service and continue to allow the business to grow. The traffic level is increasing

continually since eBay’s inception. More than 60 million auctions have been completed. InJanuary 2000, the number of unique visitors to eBay on an average daily basis set a new record

of 1.782 million. For the first quarter of 2000, eBay generated net revenues of $85.8 million, a100 percent increase over the year-earlier period.The international auction orders also brought up unexpected challenges. EBay needs tounderstand what particular rules and regulation may apply in different countries, in order tounderstand how a business may or may not operate or what considerations a business may haveto factor in, and then proceed from there. Beyond that, ebay is also working on ways to addressthe different languages and the currency exchanges that take place. Also when considering the business now of shipping merchandise across international boundaries, it is a little bit moredifficult than shipping within your own state or from one state to another.EBay is also considering improving or expanding upon its business model. In earlier 1999, eBay purchased Butterfield & Butterfield with the precise goal of creating a new service online for

ebay, which is now called eBay Great Collections. It is designed to bring higher valued items tothe site. EBay also purchased a company called Cruise International Auctioneers, which is anautomobile auctioneer company, and have since created an automobile site that allows people tolist automobiles in a separate category and automobiles can be auctioned off on eBay. Fromthose two examples we can see eBay got idea for those purchases from user community becausethey were sending signals that they were interested in list additional higher priced items.One year from now, ebay is going to stay focused on the personal, online trading environment.They are also going to continue to offer new services to eBay users and to enhance those servicesthat are already available to them. The opportunities over the next year are going to continue toexpend into global regions.

Technology

As the CIO of eBay Inc., Maynard Webb’s first task after his arrival in eBay is to stem a series of embarrassing service disruptions that have cost the world’s largest online auctioneer millions of dollars in lost revenue and lowered the price of its stock.

He says the distributed architecture andredundant servers should reduce costly outages. EBay has an extremely scalable and tightapplication that is written in C++. The reason of the occurrence of outages is that eBay didn’thave as much as recovery and flexibility as it needed. Right now eBay has a warm backupsituation where it should be able to get back up within two to four hours of an outage.Running on Sun technology since its earliest days in 1995, today eBay is one of the Internet'smost heavily trafficked sites with more than 1.8 million daily unique visitors and over $12million in gross merchandise sales transacted on the site each day. The eBay site is built aroundSun Enterprise servers running the Solaris operating environment, as well as Sun StorEdgestorage devices. The servers include Sun's highest-end, 64-processor Ultra Enterprise 10000systems, touted by the company as fail-safe, reliable platforms for Internet applications. Despiteseveral well-publicized system crashes that froze its Web auction site last year, eBay has decidedto stick with Sun as its primary supplier of servers, software, storage and professional services.Earlier this year, eBay sent out requests for proposals (RFP) from other companies to replaceSun as technology provider and attracted heavyweights such as IBM, Hewlett-Packard andCompaq. However, Sun "demonstrated a proven combination of technology performance andservice," said Maynard Webb in a statement. EBay will upgrade Sun's Enterprise 10000 Unixservers, which run on Sun's UltraSparc II chip architecture, with its next-generation UltraSparcIII architecture, as it becomes available in the second half of the year. In addition, Sun will provide eBay with midrange E 4500 servers, using UltraSparc II architecture, to increaseworkload and availability.

Information Technology Usage

The entire corporation is based on information. EBay has very little physical inventory relativelyspeaking. They have supplies for their 1300 employees but have no production materials. Theonly materials required for business operation is computer hardware and software that take theform of servers and databases. Communication between employees is generally doneelectronically through electronic mail or telephone.

eBay Troubles

eBay has experienced several problems lately due to their immense success and poor technology planning. EBay is in the mist of several legal proceedings as well.

Fraud

As eBay's popularity rises among Internet users, fraud increases as well. Most on-line fraudoccurs when sellers fail to deliver the goods they advertise or substitute for inferior products.To help combat on-line fraud, eBay now requires a credit card to help verify the address of theseller. Additionally, eBay now provides free insurance for buyers up to $200 with a $25deductible. eBay regularly communicates with law enforcement agents to stop domestic andinternational fraud.Their best approach to on-line fraud was the purchase of Billpoint. The company allows the buyer to pay for the product with a standard credit card. This allows the customer to be protected by traditional credit card laws.

Network Downtime

eBay has suffered a number of outages within the past year. The most prominent failure lasted22hours in June of 1999. No customer transactions were able to occur during the systemdowntime. Although some of the failures have been hardware related, eBay had little or no backup strategy in case of an emergency.

Denial of Service (DOS) Attacks

eBay was the victim of a malicious distributed Denial of Service (dDOS) attack. Several largecorporations became inoperable in February 2000 to an attacker called “Mafiaboy.” The attacker was able to attack large sites such as Yahoo, CNN, ZDNet, Amazon and eTrade. EBayexperienced a very large attack, which was 8 times larger, their system’s maximum capacity. Thenormal system load is around thirty percent of the maximum.

Lawsuits

EBay is currently in litigation with a customer who is expecting to file a class action lawsuit. Thecustomer claims that eBay should be responsible for verifying the seller’s contents before salesare finalized. The customer sited a California law, which requires the auctioneer to verify thevalidity of all sports memorabilia. EBay counters the claim by stating that they only provide theservice and cannot guarantee the validity of every auctioned item. They also equate their serviceto a newspapers classified section.

Bots

Bots are servers that constantly crawl through the web looking for and storing content. These bots automatically scour the internet for specific content such as web pages for search engines. If used improperly, bots can cause unusually high load on the target’s network. Several auction