Case Study

EBAY

Summary of Case Study

EBay, Inc. is the largest and most popular marketplace on the Internet, allowing members to buy
and sell almost anything. Launched in 1995, about 147 million people now use eBay. An
estimated 430,000 people in the United States make all or most of their living by selling on
eBay. EBay’s online payment service, called PayPal, enables transactions nearly anywhere in the
world. EBay proclaims “trust” between buyers and sellers as the key to the success of the
marketplace. EBay is the “The world’s Online Marketplace”, which is its positioning statement,
and it means many things about the company’s identity. It enables trade on local, national and
international basis, with a diverse and passionate community of individuals and small businesses.
EBay offers an online platform where millions of items are traded each day. The objective at
eBay was to “to develop the work ethic and culture of eBay as a fun, open and trusting
environment and to keep the organization focused on the big picture objectives and key
priorities.

The company market capitalization had surpassed that of even Amazon.com, making it the
“world’s most valuable Internet retailer”. Pierre Omidyar, founder, is focused to achieve
excellence in strategic management for improving the company’s strategy, sustaining the
company’s growth and business performance, and potentially expanding from online auctions
into general “retailing”, and to become “the world’s largest online mall”. This research paper
intends to study the click and click business model of eBay, whose competitive advantage lies in
its pure play strategy, a breakthrough from the traditional brick and mortar model, which leads to
sustainable growth and a competitive edge over the other retailers.

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QUESTION

1. Why has eBay succeeded as an online auction marketplace while so many others
have failed?

EBay was one of the first online marketplaces on the world-wide web. It was created as
an online auction website, but it has now became the largest online marketplace that
exists. EBay’s success truly created a pricing revolution by allowing buyers to determine
what they would pay for an item; the result pleases both sides because customers gain
control and receive the best possible price while sellers make good margins due to the
site’s efficiency and wide reach. This is what we know as perceived value pricing: The
customer’s value perception is estimated on the image of the product etc., then the price
is determined, and later this will be observed. Nowadays even companies first check
items on eBay before they estimate the price they will charge for their products.

EBay’s success truly created a pricing revolution by allowing buyers to determine what
they would pay for an item; the result pleases both sides because customers gain control
and receive the best possible price while sellers make good margins due to the site’s
efficiency and wide reach. EBay’s business model is based on connecting individuals
who otherwise would not be connected. EBay’s originators did two things well: they
worked hard to make their Web site a community, and they developed tools to help
reinforce trust between strangers. EBay’s millions of passionate users also have a voice in
all major decisions the company makes through its Voice of the Customer program. The

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 result is that users (eBay’s customers) feel like owners, and they have taken the initiative
to expand the company into ever-new territory. EBay continues to expand its capabilities
to build its community and connect people around the world by adding services,
partnerships, and investments.

Asia is different. Asia is different in culture, in economics, in political systems, people

argue. But the problem is, although Asia country is different from the U.S.
Google/Facebook/Yahoo/eBay succeeded in middle-east. They succeeded in Africa, and
they succeeded in Muslim and Arabic countries. Compared to the economic and culture
difference those regions have with US, the gap between Asia and the U.S. cannot be
claimed to be bigger.

2. Evaluate eBay’s fee structure. Is it optimal or could it be improved? Why? How?

EBay doesn’t sell or buy anything itself. It earns its money by collecting fees: an
insertion fee for each listing plus a final value fee based on the auction or fixed price.
This pricing structure was developed to attract high-volume sellers and deter those who
list only a few low-priced items. This price setting is also known as second degree price
discrimination: eBay charges less to buyers who buy in a larger volume. This pricing
strategy is a good way to attract larger volume buyers, but I think that eBay should not
forget the small consumer who will also buy more and more online. It is not a good idea
to charge the small consumers with high fee’s because this can scare them off to other
online marketplaces. For example, if an item sells for $60.00, the seller pays 8.75 percent
on the first $25.00 ($2.19) plus 3.5 percent on the remaining $35.00 ($1.23). Therefore,
the final-value fee for the sale is $3.42.This pricing structure was developed to attract
high-volume sellers and deter those who list only a few low-priced items. This fee
structure is optimal.

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3. What’s next for eBay? How does it continue to grow when it needs both buyers and
sellers? Where will this growth come from?

When a company needs more buyers and sellers it will need to expand. EBay should
invest more in mobile applications. They must develop a mobile application that tells you
where you can buy it, or sellers nearby you. This way it can create more a social media
idea and it will become more personal, in marketing terms this is called personal selling.
Personal selling refers to a set of activities directed at the attainment of marketing goals
by establishing and maintaining direct buyer-seller relationships through personal
communication. Also it is important for eBay to become more active in developing
countries, like for example the BRIC countries. But not only the BRIC countries can
provide growth, eBay should invest in western Africa. In this part of the world people are
already very familiar with buying on market places, and the development of better
internet can help them do the same online. As the video underneath shows us the internet
is becoming better and better in Africa.