eBay

.vs. Amazon

Analysis of two first-movers that lasted, in the E-commerce space

Student: Bryan Copeland Student ID: 053171c Submitted to: Wakayama-sensei

eBay

Summary

Founded by Pierre Omidyar in 1995 His wife needed a better way to lookup and trade collectibles; decided to put his computer science skills to use, never thought it would lead to a multi-billion dollar ECommerce company Auction-based online sales of products (and sometimes services) where users try to outbid one another by placing a higher maximum amount; Dutch and Reverse-auction style also recently available in some regions

Transaction fees for listing (regardless of whether item sells or not) and additional fees for Premium Auction features (i.e. extra photos, BuyItNow, Feature It!, etc) or Premium Seller memberships

History

Date
1995 1997

Event
Founded by Pierre Omidyar Menl Park, Calif (VC) 22% stock acquisition

Stock ($)

1998 1999
2000-2006 Feb 2002 Jul 2002

CEO Meg Whitman (July); IPO Alliance with AOL

Global expansion to over 2 dozen countries Withdrew from Japanese market & Hong Kong
(where Yahoo! Auctions/Shopping had head start)

1.871 25.016
12.708 20.833 15.13

Acquired PayPal

2005

Acquired Skype

49.500

Products & Services

eBay started out selling Collectibles and Antiques

Has since grown to include incredibly diverse categories of items:

Entertainment
Movies, Music & Games DVD CD VHS Event Tickets Books Clothing Jewelry Shoes Accessories Home Improvement Dcor Crafts Gardening

Collectibles
Antiques Art Coins Toys & Dolls Memorabilia Motor Vehicles Cars Boats Parts Electronics Cameras Cell phones & PDAs Computers

eBay: Target Segments

Primary target markets are Online Auction & Shopping communities. eBay has business strategies to target specific segments of each. Key segment is Antiques & Collectibles. (It was the lack of a good community-based pet collectibles company that inspired Pierre Omidyar to develop eBay. Collectibles still among highest in gross merchandise sales, boasts by far the most veteran sellers.) Motor lovers: Using credibility of leading car collector Kruse Inc., eBay expanded its categorical offerings with eBay Motors. eBay Motors became one of its most successful target segments with $2,500M Global Gross Merchandise Sales in 2002. Art lovers: eBay also had a somewhat failed strategic partnership targeting Art Collectors directly.

eBay (profit sites)

Internet value network consists of three major groups and they are users, communication service provider and suppliers. Each subgroup of these three segments are called profit sites. Here we will focus on eBays profit sites and its implications . Market maker: A market maker acts as a neutral intermediary that provides a place to trade and also sets the rules for the market .Thus, eBay is acting as a electronic auction market and brings buyers and sellers together to execute transactions through a win-win strategy. And in this way, eBay is developing new markets.

Buyers

eBay is a market maker Acts as an intermediary Charges commission

sellers

Brokers and agents: to complete transactions, buyers and sellers depend on some facilitating organizations like, citigroup or charles Schwab to complete transactions. These groups are parts of eBays profit sites when eBay gets commission from these organizations for each transaction.

Business Process
Seller Account Creation Listing an Item No bids (Auction Type) Reserve Dutch Buy-it Now

Regular

Bids Placed Completing a Sale After-sales Service

-eBay sends Outbid Notice if needed. -Sellers feedback rating dictates bidder confidence.

Final Value Fee = 5% of the first $25 + 2.5% of remaining amount up to $1,000 + 1.25% of any portion of sale over $1,000

Typically covered by Seller, using eBays features.

Online Auction Industry analysis

High threats of new entrants Auction Universe Yahoo! Excite Classified 2000

Low Fixed rate mediation Large number of customer for longer period of time

New Entrants
Threat of New Entrants

Industry Competitors: Intense segment of Rivalry Suppliers

Newspaper cite on the web Bargaining every Internet directory Power of Every music & video retailer Suppliers Every personal homepage Threat of Substitutes Bargaining Power of Buyers

Buyers

Since suppliers are large, so threat is low.

Substitutes

Few substitutes and Low threats because of strong CRM

Porters Five-Force Framework

eBays Business Model

Community platform For global person to person trade Win-win situation Leads Repeat Transaction

More Profit

Transaction Exchange

Decreased Costs

Internet property
Network externality Mediation Universality Information asymmetry Virtual capacity Low cost

sales format
social communication (forums, buyer/seller ratings)
Regional sites Trust and safety large variety Innovative (Bid-based auctioning systems)

Seller

Buyer

Regional sites vs. Network Externality

eBay created > 24 regional trading sites within countries in order to facilitate the process of buying and selling items of local interest. This regional focus and network externality are very much consistent because the larger the network size, the more opportunity for buyers and sellers to have a better match of their needs. Localization and Internationalization of eBays services should also help make the site more accessible in a specific region, for speakers of the native language; thus offering the opportunity to gain new members at a faster rate The only possible downside could be fragmentation and isolation of the individual networks, so each new regional site must feel like part of the main eBay network and family

eBay API

Buyers:

Get the current list of eBay categories View information about items listed on eBay Display eBay listings on other sites Leave feedback about other users at the conclusion of a commerce transaction Submit items for listing on eBay Get high bidder information for items you are selling Retrieve lists of items a particular user is currently selling through eBay Retrieve lists of items a particular user has bid on

Sellers:

Internet Properties
Coordination Mediation Universality Network Externality Distribution Channel Time Moderator
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Commerce
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Community
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Content
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Communication
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Info. Asymmetry Shrinker

Infinite Virtual Capacity Low Cost Standard

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Creative Destroyer
Transaction-Cost Reducer

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Key Drivers
1. Network externality The company believes that this critical mass of buyers, sellers, and items listed for sale created a cycle that helped eBay continue to grow its user base. and one thing is very true for this model is its large number of customers stay for longer period of time to complete transactions. 2. Mediation In addition to providing a venue for selling items, eBay provides buyers and sellers a place to socialize, to discuss topics of common interest, and to provide feedback on one another

3. Universality On the Internet, amateurs and collectors from around the world, rather than locations within a reasonable driving distance, could bid on items. And eBay is applying that latitude by connecting both parties.
4. Time moderation: the property of time moderation assists eBay a lot by tailoring time according to customers needs. sometimes it enlarges time period of auction according to needs of a buyer 5. Distribution channel and replacement effect: eBay uses the traditional distribution channel without any sort of disintermediation and it is called the replacement effect, that means, serving the same customers using the existing distribution channel. 6.Information asymmetry shrinking: eBay reduces all sorts of information asymmetry by allowing sellers to provide all related information to buyers to pave the way for successful transaction. So buyers are no more deprived by short of data .

Success Story: Commission Junction

Partnered with eBay in 2001 as the exclusive Affiliate Network for eBays affiliate program1 Allows partners to revenue-share by creating links to Auctions, Seller sites and/or eBay pages (such as category listings, etc) eBay in charge of payouts for specific actions (i.e. 9 cent clickthroughs .vs. $13 active user signups .vs. 5% purchases)

Commission Junction gains an even smaller ratio per eBay payout to one of its affiliates, but, which adds up over time
Network externalities for both companies

1 - http://www.cj.com/news/press_releases0102/press_010418.html
2 - http://www.cj.com/news/press_releases0304/press_030918.html

Amazon

Summary

Online retailer of millions of products (books, toys, Cookware etc..) Founded in 1995 by Jeff Bezos, in a computer science and electrical engineering graduate from Princeton University. Vision To build the worlds most customercentric company To establish a place where customers could buy anything Located in Seattle Close to the largest book wholesalers in Roseburg, Oregon The sales tax rate of small state is cheaper than big state Sites in 6 countries (US, Canada, UK, France, Germany, Japan); ship to > 200 countries Percentage of sales responsible majority of revenue Financial Status (Year of 2006) Net Sales:$8,49billion Net Income:$359million Achieve a surplus since the 4th quarter of 2002

History
Date
1994-1995

Event
Founded then Launched by Jeff Bezos

Stock ($)
3.917

May 15, 1997 IPO

Sep 23, 1997

Oct 28, 1997 Nov 18, 1997 Mar 2, 1998 Jun 11, 1998 Nov 17, 1998 Dec 21, 1998 1999-2003 2003-2007

Collaborative Filter recommendations launched

Millionth customer personally receives order from Bezos's hands First holiday-gift center opened Amazon.com Kids launched Music sales launched Video sales launched

9.250
9.896 8.833 12.708 20.833 49.500

Acquired IMDB, worlds biggest movie database 54.135 Global growth in key international markets Merchant strategy; major corporate partners 67.85 (mean) 72.29 (6-6-07)

1 - http://www.wired.com/wired/archive/7.03/change.html

Online Retail Industry analysis

Network Externality
(no customer base)

Network Externality +
(many customers )

Low Cost Standard + Universality + Distribution Channel + Transaction Cost Reducer + Mediation
(no social platform)

New Entrants

Mediation +
(reviews/community platform)

Distribution Channel (replacement)

Threat of New Entrants

Info Asymmetry Shrinker + Low cost +

Suppliers
Distribution Channel
(No control over channel)

Bargaining Power of Suppliers

Industry Competitors: Intensity of Rivalry

Threat of Substitutes

Bargaining Power of Buyers

Buyers

Info Asymmetry Shrinker +

(reduces asymmetry, so no manipulation over data)

Network Externality +
(large customer base)

Universality +
(existing suppliers)

Transaction Cost Reducer

(wholesale/retail)

Mediation +,

Universality
(regional focus)

Substitutes

(no social platform for sellers; great platform for buyers)

Universality

Distribution Channel +

Sales Format
User choice Product from Catalogue Store 1 Locate Sellers Store 2 Merchant Storefronts

Transaction

Store n

Sales Format
-Communication (Reviews) -Low Cost -Large Variety -Distribution -Trust & Safety (seller ratings)

Amazon Web Services (AWS)

Amazon E-Commerce Service

Search catalog, retrieve product information, images and customer reviews Retrieve wish list, wedding registry Search seller and offer Retrieve information such as page rank, related sites given a target URL A distributed resource manager to store web services results

Alexa Web Information Service

Amazon Simple Queue Service

5 Benefits of AWS
1. 2. 3.

4.

5.

Pay-per use model Instant scalability Reliable/Redundant/Secure Most services accessed via simple REST/SOAP API Superior Technical Support (Experience & Commitment)

S3 in a Nutshell
Amazon S3
Bucket 1

Idea:
Bucket N

Put/Get objects into buckets based on unique keys.

Put object

Get object

Main Features: Public/Private access. Support for large objects.

Client

Value Configuration Diagram : _________ Repeat Purchases Loyalty & Advocacy

Positioning: Online Shopping

Product Review Information

Order Fulfillment Product Recommendations
(Buyer)

Convenience

1-Click Shopping

Money-back Guarantee

Association Network Externality Brand Image

Low Costs
(Seller)

Merchant Advantage:

Automatic Re-Ordering, etc

Fixed Merchants

Partnering Distributed Web Services

Associates
Program

Strong CRM

Diversification

Email Marketing Customer Base

Cross-selling

Business Process

The Amazon Business Process is built around three main operation:

Shop=
Browse+Manage Account

Browsing: User looks for books available at Amazon (searched,

recommended, or browsed by category)

Browse

Manage Account

Manage Account: check content of user shopping cart, stock of sellers, add and remove products Shop: First browse to find product(s), place in the shopping basket, then complete a purchase
(payment/delivery)

Process Model for Amazon.com

Internet Properties
Coordination Mediation Universality Network Externality Distribution Channel
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Commerce
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Community
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Content
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Communication
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Time Moderator Info. Asymmetry Shrinker Infinite Virtual Capacity

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Low Cost Standard Creative Destroyer Transaction-Cost Reducer

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First-Mover Success
First to move booking retailing online (1994 Jeff Bezos) Brand recognized worldwide, most visited site in USA (2000) Simple Business Model:
Expensive inventory brick and mortar warehousing not required Require WEB to interface with customers and take their orders

Continuous Rapid innovation

one-click, search facilities, collaborative filtering, affiliate programs (250,000

partners in 2000), order tracking mechanisms

Established strong brand presence created psychological switching costs in

consumers (collaborate filtering, privacy policies, builds trust) Pillars (quality of service, value for money, trust worthiness) WEB site easy to use, easy to find, and fast

Key Drivers
1. Low cost platform for transaction: The Internet is certainly a lower cost platform for any transaction, communication or negotiation than any other electronic media. Amazon is using this platform successfully to bring buyers and sellers together for transactions, and doing so not by charging an upfront listing or transaction fee, but by charging a percentage of each sales, which in the long-run could be a much larger pie and better approach for Amazon on volume; on the short-term to merchants it appears to be a win-win situation as well as cumulative listing fees can even become prohibitively expensive in some cases. 2.Transaction cost reducer: The Internet is reducing costs of commercial transactions dramatically by matching the right buyers to the right suppliers, for the right product at the right time. Just-in-time (JIT) theory which dominated the late 80s and early 90s, is taken to the extereme in Amzons business model. In this model, sellers can learn about buyers financial standing, review history and other characteristics of a good customer. Likewise buyers can learn about suppliers reputations, product features, and prices. 3. Infinite virtual capacity: Internet infrastructure gives customers the feeling that it has infinite virtual capacity to serve them. Amazon is taking advantage of their distributed infrastructure through AWS and by bringing a large no. of sellers with large no. of products for transaction. Buyers are confident that just about anything they want must be available on Amazon, and most importantly, the quality and authenticity will be more reliable than eBay. 4.Creative destroyer: The Internet is transforming the traditional retailing distribution structure; business is now conducted by Amazon to remove the middleman of the brick-and-mortar storefront, playing a role as a creative destroyer. Amazon is paving the way for the digital storefront, which is much more affordable and accessible (does not require large amounts of capital to startup). In this way, it is both a creator and a destroyer, but certainly in terms of the traditonal system it is a creative destroyer.

Success Story : Toys-R-Us

1999 Christmas on-line orders flushed into newly establishe ToysRus.com Announced a joint-venture with Amazon for online sales in 2000 Used AWS and Amazon site itself for Web operations, order fulfillment, & customer service Toys-R-us controls buying and managing inventory

Success Story (cont)

65 million and growing number of visitors every year Number one site in its category Explosive growth in sales reaching $300 million Posted profit for the fourth quarter of 2002

Side-by-Side

Technology

Technology

Superior revenue-sharing plan with Affiliate program

Superior technology through AWS, EC2, S3 & catalogue

Strategy

Strategy

Enables big and small sellers/affiliates to earn at roughly the same rate

Tends to prefer big-name brands and retailers with strong distribution chains

Business
B2C loser C2C winner B2B draw Transaction fee structure

Business
B2C winner C2C loser B2B draw Percentage of sales structure

Conclusion

Based on my analysis eBay should not put additional resources towards B2C market, due to saturated market and competitors near stranglehold on market share Should instead surprise competitors like Amazon with a strong B2B initiative or campaign (i.e. introducing a new comparison shopping service for wholesalers) Reinforcing their C2C presence through continued rewards to their loyal seller/buyer base to maintain dominance there would also be a wise strategy, after-all in C2C eventually incentives are needed as parties can communicate offline

Amazon should invest whatever resources necessary to maintain hold of B2C market by continuing to compete on price, convenience & reliability of vendors and continue to bring in new brand-name retailers Should reward smaller users as the longtail works for network membership as well (strength in #s, not just big
enterprise retailers, because if they leave, sales/catalogue can shrink overnight)

Better position than eBay right now for long-term B2B strategy with AWS, should try new programs(i.e. sellerexchanges, etc)