Online trading platform eBay started in 1995 when Pierre Omidyar started his unique

online auction site. Originating from United States, eBay grew rapidly and soon,
internet users from worldwide were market size that was twice that of US. With
eBay’s globalization into more than 23 countries, problems started to rise. The pace
of eBay’s globalization was, perhaps, too fast for the foreign countries to adapt to
the e-commerce that is operated as an auction site such as eBay.

In general, problems such as translation software, government regulation on various

areas of business, digital divide in the world, and culture of anticipants’ attitude
toward e-commerce hindered eBay’s growth. eBay’s former CEO, Meg Whitman, had
a vision of providing a global trading platform where practically anyone, anywhere,
could trade practically anything at anytime. However, critics of eBay remain skeptical
on whether or not eBay can overcome its elements of barriers and obtain growth.
The problems mentioned above are definitely factors of eBay’s barriers to growth,
but eBay’s stall on growth can be explained in terms of strategies that they
implement overseas.

eBay wanted to expand internationally using global strategy of AAA-Acquisition,

Activation, and Activity. The strategy worked successfully in Europe, but in the face of
East Asia, they confronted some hardships. First, value chain of eBay helps to
understand what eBay is all about.

eBay’s Value Chain

Because eBay is a firm that provides online platform for people to trade with each
other, eBay does not sell anything directly to the users of eBay. Rather, eBay’s
product is the website itself. This makes the value chain of eBay to be quite unique
compared to other many e-commerce companies. There are five primary activities of
which create values for eBay:

Website Building

Maintenance of the Website

Regulation of Policies

Marketing

Service

As eBay’s former CEO, Meg Whitman, said, eBay’s vision is to build an online
platform to let anyone, at anytime, and at anywhere trade anything. In other words,
their ultimate goal is providing an excellent platform that anyone can use. So, the
first and foremost value creating activity is the basis for website building. This is
where most of the value for eBay is created. Next value addition is how the website is
maintained. As the website itself is a virtual product, it can create problems for the
internet users on the process of using it, and the website is rather vulnerable to
attacks from outsiders such as hackers. Therefore, strong maintenance to contribute
to operation of this website is a trust-building activity that adds value for the
customers. Next activity that also builds trust to its users is the regulation of the
website. Policies that help users to have a good experience with usage of the website
are very important to building trust between eBay and the users.

Marketing of eBay can refer to TV commercials, advertisements, and expansion of

eBay to international markets. As eBay is exposed more to the people through ads,
value of eBay will be added through brand awareness. Lastly, through helping users
with technical problems, communication problems, payment problems, and other
means of problems regarding the usage of the website, eBay can add more values
for itself from its service activity.

As one might expect, eBay’s value chain is mainly virtual. Only a fraction of eBay’s
“product” is in a physical form which is the servers they use. In order to handle a lot
of traffic to the website and enhance the capacity of information uploading, physical
servers need to be set up in different areas of the geographical regions. Other than
that, all of the other activities are virtual. The product of eBay only interacts in a
digitized world of internet with the end-users. Because eBay’s product is virtual,
marketing strategies overseas have been not so successful in regards to building the
brand eBay.

Its unique structure of value chain calls for specific coordination for marketing. It
made a good configuration to the product of eBay. Yet, in terms of marketing, the
strategy of global AAA does not seem to work efficiently to expand “eBay”. There is a
need for some local responsiveness for eBay to succeed in foreign markets. However,
when eBay acquires local online trading sites, it loses its value as what eBay has been
standing for because its positioning doesn’t fully comply with the core competency
of eBay. In fact, an option such as “buy it now”-starting in US-made eBay lose its
value as an auctioning website. Not only that, but also that some of the acquired
companies do not operate their trading platform in a form of auctioning, but rather
just sales listing. This makes the eBay’s values to diminish, effectively losing the value
that it has created and added through other primary activities. Simply, configuration
for primary activities other than marketing has been adding value to the company,
but marketing activity has led to eBay’s positioning to be obscure. In other words,
eBay is disregarding its core competency.

Core competency and problems with Korea

The core competency of eBay is as simple as an analyst puts it: “The 3 core sources to
eBay’s success were community, community, and community” In other words, eBay’s
core competency is ‘auction based on community.’ Along with the first boost that
eBay gained by first-mover’s-advantage in the online auction market, eBay gained
sustainable competitive advantage by running its business through equality, trust,
mutual respect and responsibility of the community. This was especially important to
eBay because as Pierre Omidyar said, “people do not do business without trust and
trust is shown when people treat others with respect. Therefore how they treat others
has direct influence with our business.” eBay created and supported this community
culture with several methods:

Being able to upload information about ‘me’

Uploading personal information about the seller themselves (for example, brief
information about their company or procedures of the production)

Feedback grading

Enabling buyers and sellers to grade each others’ performance during the transaction
which makes them to be more respectful and well-mannered; therefore, it eventually
contributed to the overall trustworthiness of the community

eBay café

Chatting site for the buyers and sellers to communicate where users can exchange
information about the needs or demands of each other, enhancing the transaction of
products

customer(both buyers and sellers) support

voice of customer(both buyers and sellers) day

Overall, the platform itself was supported by eBay itself by the constant effort to
make the transaction easier and secure. However, giving a shape to this core
competency can differ from country to country and the method that eBay chose for
globalization, which is through acquisition, made eBay more difficult to exploit its
core competency. This is mainly because it is hard to transfer or build the community
culture of eBay if there already is an existing culture or structure. eBay recently took
over G-market, who once was the main competitor to eBay in Korea’s online market,
gaining 90% of the online market share (Chosun.com) in Korea. Playing a role of
monopoly, eBay will gain substantial amount of profit for the next few years in Korea.
However, until 2008 eBay had to go through a huge struggle in fighting against G-
market.
“When compared with the meteoric rise of G-market, Internet Auction even looks like
a setting sun,” – Kim Chang Kwon, an Internet analyst at Daewoo Securities in Seoul
(Bloomberg business week)

The reason for a failure in the battle against G-market though Auction, in our point
of view, is fundamentally linked to auction that is not adapting to eBay’s core
competencies. The culture of Koreans definitely played role in preventing eBay’s
growth, but if eBay knew about this, there should have been an action to help
Koreans to favor auctioning rather than just plain listing. Providing community with
the auction as eBay used to in earlier years would have helped to perform better in
Korea. Just by taking over a company to maintain profit is not a good idea for eBay
in the long run because acquisition is very costly as well as that acquired company
may not match the core competency of eBay.

Strategy and the Problem

For e-commerce company like eBay, it’s best to adapt high global integration as well
as high local responsiveness. eBay has been using global AAA strategy which called
for acquisition, activation, and activity. In 23 countries, they used acquisition, South
Korea and other two countries with a mix of acquisition and activation, and other 3
countries with all three mechanisms. Their initial strategy of their overseas market
was global strategy which was good for high global integration, yet lacked local
responsiveness. This type of strategy is good for standardization of the product and
cost reduction overall. However, because they wanted to succeed in their expansion,
they had to switch in to the local culture to generate more revenues. What this made
eBay transform into was a “multi-domestic strategy” which is a strategy focusing only
on local responsiveness. Yet, problems still emerged and there was a stall in eBay’s
growth.

With the extensive use of acquisition overseas, eBay try to dominate international
markets. But with the fast growing e-commerce market, eBay had to face many more
competitors which became the targets for eBay’s acquisition. This was not so good in
terms of cost because acquiring a company is very costly. For example, eBay has
failed to break into Chinese market because they implemented wrong strategies. First
of all, eBay sent a German manager to lead the China operation and brought in a
chief technology officer from the United States. They didn’t speak and Chinese, and
didn’t have a good understanding of Chinese culture. This led them to fail their
marketing campaigns and their rival Chinese company, Taobao, took over 67% of the
market shares in Chinese market. Jack Ma, a founder and CEO of Alibaba group
(Parent company of Taobao), knew that TV commercials were better than bus ads or
billboards. Also the website itself only held 10% of its listing as auctions while eBay
put 40% of listings as auctions. Being at a disadvantage, ultimately eBay pulled out of
Chinese market.
There are many other cases in which eBay failed to fully succeed in international
market. Many times multi-domestic strategy of acquiring companies and operating
in the ways of these companies led to too much localization. eBay lost the core of
what they were all about through these acquisitions and high localization.
Localization is a crucial factor in international business strategy, but global
integration is also another factor that must not be overlooked. In the long run, a
company’s identity, core competency, and brand awareness are what determine the
higher value of the firm. In other words, transnational strategy should be regarded
with strong attention for eBay to successfully enter new markets.

Deriving from their failures to compete with foreign firms, Jay Lee, eBay’s senior vice-
president who heads the Asia-Pacific region, says “G-market has been one of the
most successful e-commerce companies in Asia, and we want to use its model to
expand our presence in the region.” However, would this strategy really help eBay
stand in its original position as community-based auctioning website in the future?

Solutions
eBay needs to build a strong brand rather than expanding rapidly and failing at it.
eBay’s users complained that eBay was transforming into corporate monster. The
changes that eBay has made to its website such as removing negative feedback and
changing the fee structure, made eBay’s long standing brand representation of being
a “democratizing force that cut out the corporate world by allowing consumers to
buy and sell directly each other” to a corporation image through changes. Nigel
Walley, the managing director of digital media research and development
consultancy Decipher and former marketing director of NTL’s internet division, said
that eBay lacked innovation and have made a weird transition from being an unruly
brand to a brand struggling with a lack of direction. He suggests that eBay build a
strong brand recognition method to appeal to non-users to make them start trying
out eBay.

Just as Nigel is suggesting there is a need for strong build up for core competency
again for eBay. Because eBay is not positioning itself firmly, there is a blurring effect
on their brand image. Non-users really have no incentive to even glance at eBay.
eBay does not need to introduce new features like “buy it now”, but build a
community. Favoring one customer over another-regulating eBay policies to favor
“better” customers like small businesses-does not go together with their visionary
statement. We do understand that circumstances are hard in different situations, but
that should not be the factor to changing the whole shape of eBay to arrive at small
profits.

eBay needs innovation, an innovation that will not conflict with the core competency
or its vision. Providing new service does not necessarily mean changing its trading
format from auctioning to plain sales listing. They could introduce a physical location
of auctioning for anyone to come and have a fun experience for auctioning. This type
of new break through for eBay could increase their brand awareness and what
they’re really all about to people in physical presence. Again, the point here is to
build and innovate around their core competency rather than being driven by profits
for success. Success will follow when brand image and reputation becomes strong
through core competency and their marketing strategy.

Another alternative solution is to stop expansion and develop more marketing

strategies. Especially in a small world of internet, a type of very effective means of
advertisement is mouth to mouth advertisement. Social Networking Services such as
Facebook can really affect eBay if people talk about eBay on SNS. This is an effective
means of low cost advertising because all eBay has to do for people to talk about it is
to excel at what they’re doing.

Surely, there could be some TV ads, or billboard ads, but this is not a good way of
advertising for eBay because eBay doesn’t have a specific product. What it needs to
do is to tell good stories about eBay. Growing brand awareness through non-
business activities such as charities, or sponsorship, eBay can substantially add value
to their company. eBay failed in some countries in East Asia because they didn’t have
the right marketing strategies. Commercials and ads are not what marketing is all
about. There is a product side of it. If eBay can support what it announces for
through excellent service, then people will naturally have positive experience which
will lead to growth overall. eBay does need a lot of traffic to its website to generate
more transactions to be made; yet, eBay shouldn’t do whatever it takes to just bring
people to their website. eBay should make people “follow” their website because of
its superiority.

So, if eBay stops their expansion and further acquisitions for their greed on the
profits and focus more on developing superior product (the website), then the
company will naturally grow in size and natural demand from overseas. Because eBay
requires internet to be widely used in a country that they wish to expand into, the
natural demand that would grow would source from people with internet. Once the
demand gets large enough, eBay can readily break into new markets without too
much trouble. In order for this to happen, they need significant demand for their
product, and this would require significant differentiation from their competitors in
the e-commerce industry. Again, differentiation could emerge from product
development.