Essay on "Ebay Case"

Essay 6 pages (1989 words) Sources: 1+

[EXCERPT] . . . .

EBay Case

In 1995, EBay was established by accident as online auction site. For the first few years, the company was seen as a novelty among computer and Internet enthusiasts. Then, once Meg Whitman arrived in 1997, is when everything changed. She took the basic idea of online auctions and used the marketplace as a way to attract new customers to site. This helped the firm's earnings and dominance inside the sector to grow exponentially. (Ahmed, 2009, pp. 142 -- 149)

However, to evolve with the changes inside the industry, Whitman focused on acquiring up and coming competitors. In the early 2000s, this helped to shield the company from the bursting of the dot com bubble by giving the firm added streams of income. As time went by, executives began to use this strategy as way for the firm to be able to maintain their dominance inside the sector. The problem is that some of the purchases did not fit in with the philosophy of the corporation. (Ahmed, 2009, pp. 142 -- 149)

Moreover, the marketing strategy that the company was using internationally made the underlying situation worse. This is because the firm's auction sites in certain areas did not have the kind of success as they had in other regions of the world (i.e. China and Japan). The combination of these factors created a situation where EBay was forced to take losses from some acquisitions that did not fit well with the business model. To determine what is happening with the company requires: examining the problems facing the firm and possible recommendations for adapting to these challenges. Together, these different elements will provide specific insights as to how the EBay can deal with these challenges. (Ahmed, 2009, pp. 142 -- 149)

Problems

There are a number of challenges that are having an impact on EBay. The most notable include: integration, international expansion issues and increasing competition. The way that the firm has been experiencing integration issues, is mainly through purchasing companies that did not fit in with EBay's business model. At first, this approach helped the firm to find strong businesses that increased the profit margins. This allowed executives to diversify the earnings away from revenues associated with auction fees. (Ahmed, 2009, pp. 142 -- 149)

A good example of this can be seen with the purchase of Pay Pal in 2002. Originally acquired for $1.5 billion, this segment gave EBay the ability to be one of the premier online payment processors. Since this time, the division has helped the firm to be able to increase their earnings and reach into new markets. During the last quarterly report, Pay Pal was able to make major inroads in the rapidly expanding Asian markets with this accounting for 106.3 million members worldwide. This contributed growth rates of 10% a year to the firm's bottom line results. This is significant, because it is showing how this approach helped EBay to diversify their earnings into other areas. (Ahmed, 2009, pp. 142 -- 149) ("EBay Inc. Reports Strong Fourth Quarter," 2012)

However, as time went by, the strategy of acquisition backfired on executives. What happened is managers were trying to purchase companies that had tremendous amounts of promise. The problem was that the technology or the practices of the acquired company could not be successfully integrated with EBay's business model. (MacMillan, 2009) (Ahmed, 2009, pp. 142 -- 149)

Evidence of this can be seen with the Skype acquisition in 2005 for $2.6 billion. When this was announced, the purchase was supposed to provide the firm with a way of integrating sellers and buyers together at the online marketplace. It also helped the company to position itself to take advantage of the voice over the Internet protocols (VOIP). The problem was that customers were not interested in using this service and the company had trouble integrating them into their strategy. As a result, EBay sold Skype for $2.75 billion in 2009. Although executives made this appear to be a win -- win situation for everyone. The reality is that they were happy to unload a company that: had trouble integrating with the business model of the firm and investing their capital in other projects. This is important in showing, how the strategy of growing by acquiring key competitors has backfired against the firm. (MacMillan, 2009) (Ahmed, 2009, pp. 142 -- 149)

The international expansion issues occurred in China and Japan. What happened was EBay believed that they could create similar online auction sites for these markets. The problem was that executives did not take into account specific cultural factors. This caused many of the people who were using them to feel alienated by not incorporating certain characteristics into the auction process. (Ahmed, 2009, pp. 142 -- 149)

For example, in Japan the company had to abandon its strategy in 2002. The reason why is because, many members felt that there was not as much technology incorporated into the process. This made the auction site appear to be unappealing by not offering: the look, feel or products that customers were demanding. As a result, managers were focused on areas that mattered to their core demographic of users in North America (individuals over 45 years old and making above $50 thousand per year). This is completely different from the income and age demographics in both areas. Moreover, the company provided poor customer service and they did not react quickly to changes in the markets in comparison with competitors. These elements are significant, in showing how executives failed to understand the culture and the way they need to be integrated into these areas. (Ahmed, 2009, pp. 142 -- 149)

Increased amounts of competition are having an impact on the kinds of products that are sold by EBay. In the past, EBay has struggled to go after sellers who are using the site to market counterfeit and stolen merchandise. This has been having an impact on the image of the firm by making it appear as if they are not screening the actions of the sellers. At the same time, many different retailers have created their own discount sections on their web sites to attract buyers that are going to EBay. This is increasing the number of lawsuits that the company is dealing with related to the kinds of products that are sold on its site. The combination of these factors is having an adverse impact on EBay by creating the possibility of facing continuous amounts of law suits. There will also be recurring negative fallout associated with the bad publicity from: the litigation and the products that are sold. This has caused earnings to begin to slow with some customers making purchases from competitors because of these issues. (Ahmed, 2009, pp. 142 -- 149)

These different factors are important, because they are showing how the combination of them is having an impact on the profitability of the firm. This is problematic, because it is causing the company to lose market share and face continuous amounts of litigation that are impacting its reputation. Internationally, the firm needs to use tactics that will understand the culture, improve customer service and quickly react to changes in the marketplace. At the same time, EBay needs to carefully evaluate all acquisitions to ensure that they will be able to easily integrate these companies. If these kinds of issues are taken into account, they will help EBay to increase their bottom line results and improve the firm's ability to adapt to a host of situations. (Ahmed, 2009, pp. 142 -- 149) Until this happens, the company will continue to face difficulties that will impact their ability to compete on multiple levels.

Recommendations

To deal with these challenges, EBay needs to use an approach that will address the root causes of the problem. The first way executives can begin addressing these difficulties are to focus on the web site itself. When a person visits EBay they will see the same kind of home page and features as someone who lives in North America. The problem is that these web pages are designed to appeal to individuals who are: more than likely over 45 years old and making above $50 thousand per year. (Ahmed, 2009, pp. 142 -- 149)

The best way that the company can deal with these issues is to create a web site in specific countries that will take into account cultural factors. Moreover, they need to ensure that all of their web pages are embracing a number of elements to include: they are user friendly, appealing, have more detailed descriptions / larger choices of items, offer users with the latest technology, accepts other forms of currency besides U.S. dollars and provides customers with greater incentives. The combination of these elements will allow EBay to improve the user experience when someone is visiting their web site. At the same time, it will allow the company to incorporate customizable features as a part of their strategy. This is important, because it is showing how… READ MORE

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