Context It's hard to beliave that one of the most well-known dot-coms has now been establishad 15 years. Pierre Omidyar, a 28-year-old French-born software engineer living in California, coded the site while working for another company, eventually launching the site for business on Monday, 4 September 1995 with the more direct name ‘Auction Web’. Legend reports that the site attracted no visitors in its first 24 hours. The site became eBay in 1997. In 2014 eBay had 186 million active buyers, an increase from 90 milion active in 2009. ‘This shows how established pureplays have continued +o grow with global adoption of the web. This summary and many others in the text are based on the SEC filing of the business. The Security and Exchange Commission (SEC) required by company law in the US gives deep, relatively hype-free insights on the ‘main online platforms based in the US and is recom- mended for students studying these types of business. Mission ‘eBay describes its purpose as to ‘pioneer new commu- nities around the world built on commerce, sustained by trust, and inspired by opportunity’. eBay's 2014 report describes the company’s view on current use of ecommerce: Driven by the ubiquity of the Internet and the prolifer- ation of mobile devices, we believe that the wey con- sumers engage with each other, brands and services is fundamentally changing, blurring the lines between offline retail and online e-commerce, and effectively creating one market for commerce and reinforcing the connections between commerce and payments. ee We beliave that this trand has expanded our address- ‘able market. At the time of writing eBay comprises twa major businesses: 1 The eBay Marketplaces. The mission for the core ‘eBay business is to ‘create the world's online mar- ketplace’. In 2008, eBay's SEC filing notes some of the success factors for this business, for which eBay seeks to manage the functionality, safety, ease-of- use and reliability of the trading platform. By 2011 the strategic priorities had changed to trust, value, selection and convenience. 2 PayPal. The mission is to ‘creata the new global standard for online payments’. This company was acquited in 2003 but was repurchased at a later dato. This case focuses on the best known eBay business, the eBay Marketplace. Revenue model The vast majority of eBay's revenue is for the listing and commission on completed sales. For PayPal pur- chases an additional commission fee is charged, The margin on each transaction is phenomenal since once the infrastructure is built, ineremental costs on each transaction are tiny ~ all eBay is doing is transmitting bits and bytes between buyers and sellers. To grow rev- ‘enue eBay has acquired and developed other sites such ‘as comparison site Shopping.com and StubHub (event tickets). eBay has also created vertical formats, such as Classifieds, Daily Deals, Fashion, Motors (vehicles, parts and accessories) and Electronics.eBay also expanded into providing infrastructure for other retailers in 2011 with its purchase of GSI, a provider of e-commerce and interactive marketing senices encompassing websites and fulfilment centres, to enterprise clients that include some of the world’s leading brands and retallers covering merchandise categories, including apparel, sporting goods, toys and baby, health and beauty and home. ‘Advertising and other nor-transaction net revenues represent a relatively small proportion of total net rev~ enues and the strategy is that this should remain the Proposition ‘The eBay Marketplace is wellknown for is core service, ‘which enables sellers fo lit items forsale on an auction or fixed-price basis giving buyers the opportunity to bid forand purchase items of interest. Software tools are provided, particularly for frequent traders, including Turbo Lister, Seller's Assistant, Seling Manager and Seling Manager Pro which help automate the selling process, the Shipping Calculator, Report- ing tools, eto. Today over 60 per cent of listings are faciitated by software, showing the value of automating posting for frequent trading. Fraud isa signifcant risk factor for eBay. BBC (2005) reported that around 1 in 10,000 transactions within the UK were fraudulent; 0.0001 per cent is a small propor tion, but scaling this up across the numberof ransac- tions makes a significant volume. eBay has developed “Trust and Safety Programs! which are particulary important to reassure customers since online services are prone to fraud. For example, the eBay feedback forum can help establish credentials, of sellers and buyers. Every registered user has afeed- back profile that may contain compliments, criticisms andor other comments by users wino have conducted business with that user. The Feedback Forum requires, feedback to be related to specific transactions and Top Seller status was introduced in 2010 to increase trust in the service. Theres also a Safe Harbour data protection method and a standard purchase protection system. eBay has increased use of mobile commerce since 2009, yet it stil only accounts for 20 per cent of pur chases in 2014, including sales from 240 milion app downloads since inception. ‘According to the SEC fling, eBay summarises the core messages to define its propostion as follows: For buyers: trust value selection For sellers: ‘© access to broad markets © cost effective marketing and distribution ‘© access to large buyer base ‘© good conversion rates. In 2007, eBay introduced Neighbourhoods (http:// neighbourhoods.ebay.com) where groups can discuss, brands and products they have high involvement with. This social commerce experiment has now ended. In January 2008, eBay announced significant changes to its Marketplaces business in three major areas: fee structure, seller incentives and standards, and feedback. These changes have been controversial with some sellers, but are aimed at improving the quality of experience. Detailed Seller Ratings (DSRs) enable sellers to be reviewed in four areas: (1 item as, described; (2) communication; (3) delivery time; and (4) postage and packaging charges. This is part of a move to help increase conversion rate by increasing positive shopping experiences, for example by including more accurate descriptions with better pictures and avoiding excessive shipping charges. Powersellers with positive DSRs will be featured more favourably in the search results pages and will ain addtional discounts. Competition Although there are now few direct competitors of online auction services in many countries, there are many indirect competitors. The SEC flings describe compet- ing channels as including online and offline retailers, distributors, liquidators, import and export companies, auctioneers, catalogue and maitorder companies, clas- sifleds, dlectories, search engines, products of search engines, virtually all online and offline commerce par- ticipants and online and offine shopping channels and networks. Objectives and strategy ‘The overall eBay aims are to increase the gross mer- chandise volume and net revenues from the eBay Marketplace. More detailed objectives are defined to achieve these aims, with strategies focussing on: 1 Acquisition ~ increasing the number of newly regis- tered users on the eBay Marketplace. 2 Activation ~ increasing the number of registered users that become active bidders, buyers or sellers con the eBay Marketplace. Activity ~increasing the volume and value of transac tions that are conducted by each active user on the ‘eBay Marketplace. The focus on each of these three areas will vary according to strategic priorities in particular local markets.‘eBay Marketplace growth is also driven by defining approaches to improve performance in these areas. First, category arowth is achieved by increasing the number and size of categories within the marketplace, for example: Antiques, Art, Books and Business & Industial. Second, formate for interaction: the taditional format is auction listings, but it has been refined now to Include the ‘Buy-It-Now’ fixed-price format. This ‘txed-price listing now accounts for well over half ofall transactions. eBay's growth strategy In its SEC filings, success factors e@ay believes are important to enable ito compete in ts market include: © abity to attract buyers and sellers; © volume of transactions and pries and selection of goeds; © customer service; © brand recogntion. ‘According to its 2010 SEC fling: (Our growth strategy is focussed on reinvesting in ‘our customers by Improving tne buyer experience and seller economics by enhancing our products and services, improvirg trust and safety and cus- tomer suppot, extending our preduct offerings into ‘new formats, categories and geographies, and im- ‘plementing innovative pricing and buyer retention strategies. It also notes that in the context ofits competitors, other factors it believes are Important ar community cohesion, interaction and size; system reliability; relibilty of delivery and payment; ‘website canveniance and accessibility; level of service fees; quality of search tools. ‘This implies that eBay beteves It has optimized these factors, but its competitors still have opportunities for improving performance in these areas which will make, the market more competitive, isk management The SEC filing lists the risks and challenges of conducting business intemationally as folows: © regulatory requirements, including regulation of uctioneering, professional selling, distance selling, barking and money trarsmittn © legal uncertainty regarding liability for the listings and, other content provided by users, Including uncer tainty as a result of less Internet-fiendly legal sys tems, unique local laws and lack of clear precedent cr applicable lan; © ciffcutties in integrating with local payment providers, Including banks, credit and debit card associations, ‘and electronic fund transter systems; «© differing levels of retall distribution, shipping and communications infrastructures; © different employee/empioyer relationships and the existence of workers’ councils and labour unions; © difficulties in staffing and managing foreign ‘operations; © longer payment cycles, different accounting prac tices and greater problems in collecting accounts receitable; © potentially adverse tax consequences, including local taxation of fees or of transactions on websites; «© higher telecommunications and Internet servee pro- vider costs; «© strong local competitors; «© clfferent and more stringent consumer protection, data protection and other laws; © cuitual ambivalence towards, or non-acceptance of, contine trading; ‘© seasonal reductions in business activi © expenses associated with localising products, Including offerng customers the ability to transact ‘business n the ocal currency; © laws and business practices that favour local com- petitors or prohibit foreign ownership of certain businacsee; © profit repatriation restrictions, foreign currency ‘exchange restrictions and exchange rate fluctuations; © volatity in a specific country’s or region's pottical or ‘economic concttions; © fering intellectual property laws end taxation laws. Question Discuss how eBay uses ciferent parts of ther site to fooue on certain activitiee and how thie has con- tributed to continued growth,