Business report about:

Auction Business Model

1. Introduction
A business model is a firm’s plan or diagram for how it competes, uses its resources, structures
its relationships, interface with customers, and creates value to sustain itself on the basis of the
profits it earns.
A firm’s business model is developed after the feasibility analysis stage. If a firm has conducted
a successful feasibility analysis and knows that it has a product or service with potential, the
business model stage deals with how to surround it with a core strategy, a partnership model, a
customer interface, distinctive resources, and an approach to creating value that represents a
viable business. There is no standard business model and all business models need to be
modified across time.
There are two general categories of business models-
o Standard business models
o Disruptive business models

Standard business models represent existing plans or recipes firms can use to determine how
they will create, deliver, and capture value for their stakeholders. There are a number of
standard or common business models.
For example-eBay did not invent the auction business model—that has been in existence for
centuries. It moved the auction format online. What Amazon.com and eBay did do is common
among successful start-ups, is adopt a standard business model and build upon it in one or more
meaningful ways to produce anew way of creating value.
Disruptive business models, which are rare, are ones that do not fit the profile of a standard
business model, and are impactful enough that they disrupt or change the way business is
conducted in an industry or an important niche within an industry.

2. Definition of the Auction business model

In an auction model, sellers offer products in an online auction and buyers bid on what they
want to buy. The buyer with the highest bid wins the product. Auction sites make their money
by taking a percentage of the selling price. The largest auction site is eBay. This model usually
works best for sellers who have an inventory that fluctuates, and when the seller does not need
to sell at a set price in order to make a profit. This model is also not as useful for selling
services.
The auction business model has been around since 500 bc, currently synonymous with eBay.
The idea is to provide a platform for individuals and businesses to sell items in an auction
format.
In this massive marketplace, the auction site that rules the game is eBay. According to the
Neilson Ratings, eBay is among the top ten most-trafficked sites on the Internet. eBay leads the
online auction industry with a more than 60 percent share of the market, while its closest
competitor, Yahoo! Auctions, is only half its size. Amazon.com Auctions follows at a distant
third.

3. Pros& Cons of Auction business model

3.1 Pros of Auction business Model:
There are many advantages of auction business model those are as given below.
 Convenience: You can buy an item even if you are in your house or in the office, there is
no need to go anyplace to participate in an auction.
 Access of full information: The buyer can get a full chance to check all the details about
the item on sale. You can even review the terms and conditions of the payment and
feedback rating of the seller. And also possible to get details of other items in sell by the
same seller.
 Time-saving: It saves time in many ways like you don’t need to go to any place for
participating in the auction and get the item from home.
 Multiple choices: The bidder has multiple choices for items because from a single
location you can participate in multiple items auction. And also have a choice to view
the same items or related items.
 Wide geographical area: It covers a large geographical area. It means you can take part
in the auction even that items seller is from out of the country.
 Reduce paperwork: This auction held on the internet so it reduces the paperwork.
 Reduces complexity: This also reduces the complexity.
3.2 Cons of Auction business Model:
Dis-advantages of auction business model are as given below.
 Fakes: The item’s description given in the site may not match the actual item. The
current value of an item may be higher than the current market value.
 Scams: In this, the seller or buyer both may fake. Due to this, possibility that customers
cheated by sellers and vice -versa. Example- bidder bids higher but if an ID is fake then
how you will sell that item to that bidder and there is less scope that he will claim for
theitem.
 Data privacy issue: There may be possible that the private data of you like bank account
number, password, phone number, etc. may get spread.
 Transaction management: The transection of the item is comp le x and long process. It’s
like first get payment by online transaction than send that item to the winner and after
that taking feedback.
  Overpaying: A lot of people carried away in a bidding contests that they tend to pay
over the odds just to get the item that they want.

4. eBay that operating with auction business model

eBay Inc. is an American multinational e-commerce corporation based in San Jose, California
that facilitates consumer-to-consumer and business-to-consumer sales through its website.
eBay was founded by Pierre Omidyar in 1995, and became a notable success story of the dot-
com bubble. eBay is a multibillion-dollar business with operations in about 30 countries, as of
2011. The company manages eBay.com, an online auction and shopping website in which
people and businesses buy and sell a wide variety of goods and services worldwide. The
website is free to use for buyers, but sellers are charged fees for listing items after a limited
number of free listings, and again when those items are sold.

4.1 Latest eBay Products and Services

eBay is always looking for ways to make both buying and selling easier. Here's a rundown of
new tools and services.

eBay Stores Markdown Manager: eBay Stores Markdown Manager is a tool developed
exclusively for Store owners to help boost sales. Sellers can use the Markdown Manager to
temporarily slash the prices of their items and promote the savings to buyers. These sales
events can be scheduled and automated for specific listings and categories or applied across all
Store Inventory or Fixed-Priced listings.

E-mail Marketing Improvements for eBay Stores: E-mail Marketing is an effective way to keep
in touch with buyers and build repeat business. EBay Stores has made improvements that will
make creating professional, ongoing e-mail marketing campaigns a simple, three-step process.
Turn your satisfied customers into loyal customers.

New Promotion Boxes Feature for eBay Stores: Promotion Boxes are a great way to encourage
additional sales by highlighting featured items, encouraging buyers to sign up for e-mail
newsletters and more. It's now easier than ever to create powerful Store merchandising
through new featured slide shows, item showcases and dynamic auction countdowns. Create
Promotion Boxes and provide an alternative way for buyers to browse your Store.

Free Shipping :Free shipping is a great incentive for buyers to bid on an item. Buyers now have
a "Free Shipping" filter when they search and browse results. Sellers can take advantage of this
extra exposure by inserting "0" for their first flat-rate shipping costs when they post their
listings, or by checking the "Free Shipping" box when listing through the "Sell Your Item" form.
The filter does take into account the buyer's location, so sellers can apply the option only to
domestic shipments if they also sell internationally.
eBay MapIt: eBay MapIt helps buyers and sellers leverage the power of local sales. Buyers can
search by distance from their location, and MapIt generates a map showing where items are
located. It's a handy tool for sellers who want to sell large, bulky items without having to ship
them. It can also have a positive effect for sellers who maintain a physical store or distribution
location.

My World: With eBay's My World, members can now showcase their personality by setting up
customizable profile pages. They can add a bio and profile image, discuss their interests, display
their favorite searches, list their items for sale and even start a blog. Members can also change
the layout and make their own reviews and guides. It's a great way to get more involved in the
eBay community.

Learn to Use eBay Giving Works: eBay's Education Specialist Program has added a new course
that teaches experienced eBay sellers and nonprofits how to use eBay for fundraising or selling
for a cause. Sellers will learn how to donate part or all of their sales to select charities, and
nonprofits will learn how to leverage eBay to raise money for their organizations.

Skype Buttons: Skype-using sellers can add a Skype voice or chat button to their listings to give
customers a quick and easy way to contact them. Sellers can opt in during the "Sell Your Item"
process. What's new is that this option is being rolled out to even more categories after the
initial test period proved to be a success. New categories range from Motorcycles to Travel to
expanded areas of Collectibles.

eBay Pop: Want to know what's hot on eBay? eBay Pop uses a fun interface with colorful
content that keeps track of items that are "Movers & Shakers" and how popular items are
selling. Keep up on the latest hot items and headlines, cast your vote in the "Head to Head"
section and play "How Much Is It Worth?"

eBay Deal Finder :Here's a quick and easy way to find great deals on eBay. Type in your search
words, and Deal Finder finds low-priced items that have no bids and whose listings are about to
end! The results are displayed in a dynamic layout with countdown clocks.

4.2 eBay Segmentation, Targeting & Positioning

eBay segmentation, targeting and positioning relate to marketing decisions and efforts
associated with the identification of specific group within the population that eBay aims to sell
its services to.
Segmentation involves dividing population into groups according to certain characteristics,
whereas targeting implies choosing specific groups identified as a result of segmentation to sell
products. Positioning refers to the selection of the marketing mix the most suitable for the
target customer segment.
eBay services can be divided into three categories and segmentation, targeting and positioning
patterns vary according to the type of the service.
a) Marketplace refers to an online marketplace available at ebay.com. The company uses
multi-segment type of positioning for the marketplace and accordingly, exploits more than
one segment with different service packages.
b) StubHub represents a platform to purchase tickets to the games, concerts and theatre
shows and to sell tickets. The positioning strategy used for StubHub can be described as
adaptive and the company periodically repositions its services according to changes in the
segment
c) Classifieds platforms include a collection of brands such as Mobile.de, Kijiji, Gumtree,
Marktplaats, eBay Classifieds and others.eBay uses multi-segment positioning to sell its
classifieds services.
The following table illustrates eBay segmentation, targeting and positioning:

Type of Segmentation eBay target segment

segmentation criteria Marketplace StubHub Classifieds

Geographic Region International International USA

Density Urban/rural Urban/rural Urban/rural
Demographic Age 16 – 60 16 – 40 20 – 60
Gender Males & Females Males & Females Males & Females

Life-cycle stage Bachelor Stage Bachelor Stage Bachelor Stage

Newly Married Newly Married Newly Married

Couples Couples Couples

Full Nest I Full Nest I Full Nest I

Full Nest II
Full Nest II Full Nest II

Full Nest III Full Nest III

Empty Nest I Empty Nest I

Empty Nest II Empty Nest II

Solitary Survivor I Solitary Survivor I

Solitary Survivor II Solitary Survivor
II
Occupation Students, employees, Students, Students,
professionals employees, employees,
professionals professionals
Behavioral Degree of loyalty ‘Hard core loyals’ ‘Hard core loyals’ ‘Hard core loyals’
‘Switchers’
 ‘Soft core loyals’
‘Switchers’
Benefits sought Accessing great Saving time Range,
range of products Convenience
and services Saving time
Convenience
Saving time
Earning money
Personality Easygoing, Easygoing, Easygoing,
determined and determined and determined and
ambitious ambitious ambitious
User status non-users, potential non-users, first-time users
users, first-time potential users and regular users
users, regular users, and regular
or ex-users of users
services
Psychographic Social class Lower class, working Working class, Lower class,
class, middle class middle class and working class and
and upper class upper class middle class
Lifestyle Resigned, struggler, Explorer and Resigned,
mainstreamer, reformer struggler and
aspirer, succeder, mainstreamer
explorer and
reformer.

4.3 How does eBay make money?

eBay’s revenue model is based on three main divisions:

a) Marketplace – it’s e-commerce platform that primarily makes money through fees
b) StubHub – it’s an online platform that sells sports/ event tickets and its primary source
of revenue is through fees.
c) Local classified platform – the primary source of revenue is through advertisements

 Let’s discuss them in more detail: 

4.3.1 eBay Marketplace

eBay has already made its mark in online trading. Now, people to people trading has been
made more convenient especially when the trading process of a digitized nature. This process
 has set the stage of the next evolutionary trading standards which were usually carried out in
garage sales or at flea markets.

On eBay, trading happens at either a fixed price or as an auction. In the case of an auction, it
can be of two types.

 First being the buyer’s auction, which is utilized by buyer’s who wish to buy a single
product.
 The other is the seller auction where the sellers make a bid for their product in a variety
of offers from which the buyer can choose from.
eBay has gone on to produce exclusive features such as eBay Top Rated Seller Program, eBay
Money Back Guarantee, Verified Rights Owner Program, Feedback Forum, eBay Top Rated
Seller Program and the Safe Harbor Program for both buyers and sellers alike.

The purpose of these features is to ensure that their customers feel secure enough to trade
with their partners who they prefer to remain undisclosed.

“Buy It Now” is considered as the simplest way to trade on eBay. Most marketplaces already
utilize this method online. You can use Buy It Now in three different ways.

 If you find the Buy It Now option in the Auction-style listings, you can purchase it
directly or choose to bid in the auction yourself. The distinction will be that the Buy It Now Price
will be higher than the initial price of the auctions in at least 30%.
 If you find the Buy It Now option in the Reserve Price auctions, your option will only be
shown once you meet the official reserve price.
 The last option is Buy It Now without any bidding. Customers can buy any products they
prefer at a given price. This is common in every e-commerce company.
Many of these provided features are free of cost to buyers. However, the sellers will be charged
according to a fixed price.

Insertion Fee:

It’s the money that eBay charges to the sellers for listing their products on its platform.

If a seller lists their article on eBay, he will be charged an insertion fee. The fee varies according
to the item category and is charged per listing.

Zero Insertion fees listings – Every seller on eBay is given at least 50 free listings per month.
The platform then charges sellers for every additional listing after providing them with the first
free 50 listings. 
For Movies, Music, DVDs, Video Games and Books, the price is fixed for 5 cents. For any other
category, it can range up to 30 cents per listing.

Final Value Fee (FVF): 

It’s the money that eBay charges sellers when their product is sold.

If a seller makes a sale on its platform, eBay will charge a commission for it. The commission
ranges from 2% to 12% of the total sales price and is charged by the name of Final Value Fee.
The commission can vary depending on the category of the item or products. Also, there could
be optional upgrade fees and more based on the different categories. 

4.3.2 StubHub

In 2007, eBay took over StubHub. It operates as an enterprise that specializes in online ticket
exchanges that provides an opportunity to buy and sell sports, concerts or theater event
tickets. Owing to its increasing popularity, it went to become the world’s largest ticket
provider.

Sellers Fees – While listing the tickets is free for sellers, they do have to pay for 15% of the
ticket’s sales price at the time of sale. The number of tickets being sold by the seller is also a
factor in reducing its fees. If the sold ticket numbers are met, the seller could see
a 10% decrease in costs.

Buyers Fees – StubHub charges a service and delivery fees from its buyers which is about 10%
of the sales price. All these fees are subject to change based on the popularity of the event,
location, availability, etc. 

4.3.3 Classified Platforms

Much of eBay’s local online trading objectives are given to its local classified
platform subsidiary. On these classified platforms, eBay makes money primary
through advertisement. Its model is similar to Craigslist’s business model as well as Letgo’s
business model.

5. Illustration of the business model ebay:

6. Conclusion:

From the above discussion it can be summarized that,

 A business model describes the rationale of how an organization creates, delivers, and
captures value, in economic, social, cultural or other contexts.
 There are 2 general categories of business models- Standard & Disruptive business
models
 eBay adopt this standard business model & moved to the auction format online. To
build upon it in one or more meaningful ways to produce a new way of creating value.
 ebay segment the market based on geographic, demographic, behavioral &
psychographic. It’s target market- global mass market, shoppers, sellers.
 eBay’s revenue model is based on three main divisions-Marketplace, StubHub &Local
classified platform .