eBay – Case Study

21st May, 2008
Presented By: Rohit Jain Vishal Sharma Lei Huang

eBay’s vision is to help people everywhere connect, discover and interact with each other through commerce

eBay Inc. – Business Segments

eBay Inc. – Timeline

eBay Core Values 2. People are basically good. 3. Everyone has something to contribute. 4. An open environment brings out best in people.
1995 Auction Web founded by Pierre Omidyar 1998 Meg Joined Company Went Public Crossed one million mark 2001 Auction for America 2008 Paypal Compulsory in Australia

1996

1997

1998

1999

2000

2001

2002

2003

2004

2005

2006

2007

2008

1995

1997 Auction Web to eBay

1999 Launched in Australia

2002 Acquired Paypal

2004-2005 Classified business Skype Shopping.com

2008

eBay Inc. – Revenue Model

e-Bay Revenue Model There are two kinds of transaction fees. • When an item is listed on eBay, a non refundable insertion fee is charged based on opening bid on the item. It ranges from AU$.30 to AU$3.50 depending upon on initial starting price. • Once the auction is completed, a final value is charged this fee is ranges from AU$1.25% to AU$5.25%.

Paypal Revenue Model PayPal performs payment processing for online vendors, auction sites, and other corporate users, for which it charges a fee which ranges from US$1.9% to US$2.9%. They also charge a currency conversion fee of 2.5% for non US dollar payments.

eBay – Interesting Facts

eBay engineers have to add about 10 terabytes of new storage every week to cover new transactions. One of the weirdest item sold on eBay is a chewing gum spat out by Britney Spears which went for £270. 222 million of registered eBay users at end of year 2007, greater than the population of Brazil. A piece of jewellery sells every 6 minutes on eBay India. A toy is sold every 10 seconds on eBay Australia and DVD every 10 sec. More than 20 million number of items on the site at any given time, more than 300 times the number of stock-keeping units in a typical Wal-Mart.

Key Success Factors

 Brilliant Business Model  Outstanding Management Team  Strong Established Network of Buyers and Sellers  Excellent Marketing Model  Strong Finances  Brand Name

Starting of eBay as Auction Web

Idea 1: Create a marketplace where people form all over the world can make transactions easily and pay a small transaction fees for that. Question 1: Can a new world-wide, easy to use marketplace be created? Question 2: Can a person own that marketplace to ask for transaction fees?

Business Model

• Uses internet to reach potentially anywhere in the world. • Create a global marketplace and charge fees for facilitating the transactions.
World’s total product output in 2006 was worth U.S.$59 trillion. If these were transacted in a single marketplace, owned by a single person charging .1% fees per transaction. Total fees = $59*.001 trillion = $59 billion for a single year.

Lesson 1: Think Big, there would always be ways to achieve your dreams.

Strengths of Business Model

• Many-to-Many against One-to-Many.
Lesson 2: Involve more people to your cause, it would help.

• No inventories or transportation costs.
Lesson 3: Innovate at each business process, it would provide you distinctive edge for future.

• Easy to expand
Lesson 4: Evolution is the rule, Successful are those who prepare to accommodate for that.

Management team

• In 1998 Meg Whitman was brought in from Hasbro. • She created an experienced management team of senior staff members from companies such as PepsiCo and Disney.
Lesson 5: Bring in the right people at right place before they are needed, so that they are ready to perform when they are actually needed. (important business guideline for succeeding businesses, touching million $ revenue mark. from Drucker. P.)

Great insights of that Management Team

• eBay is a company that's in the business of connecting people, not selling them things.
Its hard to sell people than to welcome them to an interesting community.

Lesson 6: Give choices rather than responsibilities.

• Focus on increasing ASP (Average Sale Price).
In 2003 up to Quarter2(in June) Sun had sold equipment worth of $16Million on eBay.
(from: http://www.sun.com/2004-0127/feature/)

Lesson 7: Size matters, if you cannot get more pies, chose the big pie.

• Acquisitions: Can not beat PayPal, Lets buy it !!
Lesson 8: Money makes the mare go.

Present Management team • John Donahoe, President and CEO, eBay Inc.
Prior to eBay, he spent 20 years at Bain & company worldwide consulting firm at Boston. He had risen to be CEO of the company.

• Beth Axelford, Senior Vice President, Human Resources, eBay Inc.
was previously chief talent officer at Wire and Plastics Prodcuts (WPP Group), one of the world's leading communications services groups, also principal with McKinsey & Company

• Rajiv Dutta,
Executive Vice President, eBay Inc.; President eBay Marketplaces
was President of PayPal overseeing a period of rapid growth and expansion

• Bob Swan,
Senior Vice President, Finance and Chief Financial Officer, eBay Inc
was vice president of finance at General Electrics and CFO of GE Lighting in 1999 and CFO and executive vice president at Electronic Data Systems Corporation (EDS) prior to joining eBay.

Success Continues: Established Network

• Company enjoys large share of consumers’: Market, Mind and Heart.- A distinctive Edge

Global Active Users
1) For Marketplaces:

Q4 06 (in Millions) % growth
2) For PayPal

Q1 07 82.9 10% Q1 07 51.3 18% Q1 07 51.3 18%

Q2 07 Q3 07 Q4 07 83.3 7% 83.0 4% 83.2 2%

Q1 08 83.9 1% Q1 08 60.2 17% Q1 08 60.2 17%

81.8 14% Q4 06

Q2 07 Q3 07 Q4 07 52.8 16% 54.8 16% 57.3 16%

(in Millions) % growth
3) For Skype

49.4 20% Q4 06

Q2 07 Q3 07 Q4 07 52.8 16% 54.8 16% 57.3 16%

(in Millions) % growth

49.4 20%

Network Effect for eBay

 The Network effect :The overall value for each customer increases with addition of each new customer. or a customer gains more to join a bigger network because there are more options. E.g. Mobile phone services  Business Model of eBay highly capitalize this network effect. Its an exit barrier for people thinking of leaving eBay to join competitor.
Revise Lesson 2 Involve more people to your cause, it would help.

21st Century Marketing Model-Holistic Marketing

•  1) 2)

Holistic marketing is based on the development, design and implementation of marketing programs, processes and activities that recognizes their breadth and inter-dependencies. It has four components: Relationship marketing
Lesson 9: Foster the relationships, and business would take care of itself.

Integrated Marketing
Lesson 10: Whole is sum of parts, if parts are taken care of, whole would be healthy.

3) 4)

Internal marketing
Lesson 11: Growth flows from Inside-Out.

Social Responsibility marketing
Lesson 12: What you give to society, it would pay you back.

(pg. 17, 18 ch-1 of Book)

1) Management: One of the best management teams. 2) Employees: • Valued very much • eBay extends concept of community to employees as well. • Employees are eligible to purchase company stock at 15% discount

1)Product: • Over 27, 000 Different categories (Distinctive Competence) 2)Communication: • Web advertisements: Strong alliances with giants like Google and Yahoo! • Events: Online workshops for enhancing awareness 3)Channel: •Very powerful CRM

Internal Marketing Socially Responsible Marketing Holistic Marketing

Integrated Marketing Relationship Marketing

1) One of core Foundation Ideas is to use the Internet for the good of regular people. 2) Established eBay foundation in 1998. 3) In 2006 Appointed Matt Bannick, (Previous President of eBay International ) to take care of eBay's initiatives in corporate philanthropy. 4) Raised Millions of US Dollars for victims of Tsunami tragedy (Asia, 2004 ) and 9/11 US victims. 5) Provides advanced fund raising tool for charities using eBay.

1)Customers: • Sense of Community (Distinctive Competence) • eBay University • Entertaining site 2) Partners: • Over 250 Alliances • Partnership with International Companies 3) Channel: • Global reach

Driving The Success……. Brand Name

• Value and position of Brand:
Rank 2007 48

Brand

Logo

Country of Origin U.S.

Sector

Brand Value
(US$ m)

Change in Value 10%

eBay

Internet Services

7,456

(Source: http://www.interbrand.com/best_brands_2007.asp)

The term 'eBay' has become a generic term for online auctions. Today it is common to hear that someone is 'ebaying' or is an 'eBayer,' or that someone is going 'to eBay.‘

Strengths Strong Finances
• eBay’s online auction market is about connecting people. That frees it from traditional retailing cost structure and helps in more impressive profit margins than "old economy" companies as shown below: Cash King Margin (CKM) : Free Cash Flow Sales Tells how much cash company is generating. CKM > 10% is considered good. • Motley’s flow ratio: Current assets – Cash & Cash Equivalent (MFR) Current liability – Short term debt

Tells How well company is using its cash. MFR < 1.25 is good, MFR<1 is excellent.

Finances Continued

2007 CKM MFR 25.4% .93

2006 33.8% .91

2005 N.A. 1.24

In 2005 there cash outflow was more than inflow because of high cost acquisition of Skype for $2.6 billion. So they had negative free cash flow value. So CKM can not be calculated. Lesson 12: Income figures can deceive, so always consider cash flow in addition to income statement.

Vulnerabilities

• Inability to Measure Illegal Activity on Site
EBay: 1% fraud transactions Experts: 10% fraud transactions

• Lack of In-Depth Descriptions for Products
A factor for counterfeit and wrongly identified products sold to customers

Vulnerabilities

• Technology Malfunctions • Anonymity and Uncertainty of Dealing Online. • Trust Factor • Legislations

Vulnerabilities

• Inability to Penetrate Some Foreign Markets
Launched in Japan only 3% of Japanese market Pulled out of Japan Teamed up with Yahoo! Japan

2000

2001

2002

2007

2008

Penetration in Japan

Vulnerabilities

• Inability to Penetrate Some Foreign Markets
Bought 30% of Eachnet in China Implemented ‘no-fees’ model Controlled 90% of Chinese market Decreased to 29% of market share Squeezed to 7.7% market share

2003

2004

2005

2006

2007

2008

Competition in China

Vulnerabilities

• Competition for New Product Markets
 Google is a strong competitor in new product markets

Markets

Google

ebay

Classifieds Google Base Kijiji, Craigslist Communications Gmail/Talk Skype Payment Google Checkout PayPal

Vulnerabilities

• Competition for Existing Markets
Increasing Number of Online Trading Sites Increasing number of online stores.

Recommendation

• taking care of the email scams • filtering the content of eBay to shun away all the scammers and illegal auctions • implementing a standard method of payment and certified sellers with alternate method

Recommendation

• Improving the eBay mobile version • Strategic alliance with Yahoo

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