Essay on "Strategic Audit"

Essay 5 pages (1643 words) Sources: 5 Style: APA

[EXCERPT] . . . .

EBay: Mission, Vision, Strengths and Weaknesses

Of all the companies recently generated by the Internet boom, eBay can be described as either the most innovative -- or the most old-fashioned. It is a portal rather than a manufacturing company: it does not sell anything intrinsic to its brand name. It offers a virtual space for buyers and sellers to interact and exchange goods and services in a manner that never would have been possible before the creation of the Internet. On the other hand, eBay is basically an auction, where offering the highest price gives a buyer the ability to purchase the good in question, whether this is fair or unfair to either the buyer or seller. The auction format is perhaps the oldest form of commerce in the world.

The additional value conveyed for buyers by using eBay rather than other venues is generated by having the eBay company allow former consumers to rate a seller's reliability. Buyers may also purchase products through the online auction at a far lower price than they could in other venues and purchase more unusual products than they might at a local antique or charity shop. Finally, the use of Pay Pal allows buyers to use credit cards when they do not have cash on hand.

The value for sellers conveyed by using eBay is that sellers may offer items to a wider range of purchasers. For example, a dealer in vintage comics may not have many individuals living near him that share his obsession: on the web there are thousands of potentially interested customers. The wider range of potential bidders will often drive up the price of a good, benefiting a seller. Or, conversely, to the advantage of the buyer, the auction format may reveal that there is little market and keep the price of the item lower than its purchase price. On eBay, sellers may also purvey unusual items -- everything from religious relics to sports memorabilia.

According to eBay's website, regarding its vision and mission: "with more than 88 million active users globally, eBay is the world's largest online marketplace, where practically anyone can buy and sell practically anything. Founded in 1995, eBay connects a diverse and passionate community of individual buyers and sellers, as well as small businesses. Their collective impact on e-commerce is staggering: In 2008, the total worth of goods sold on eBay was $60 billion -- $2,000 every second."

One of eBay's strengths as a business model is that it has little in the way of overhead. Other than screening buyers and sellers and providing technical support, buyers and sellers do most of the hands-on shipping and physical work. Its 'brand name' and first-mover power within the virtual auction market has given it few real competitors on a mass scale. Sellers often go to eBay first because it offers the widest number of potential buyers. The main competition for eBay would be Amazon's second-hand market in a few items, such as books. Consumers can also engage in second-hand transactions online by posting such items on their own websites -- another source of competition. This allows customers to carefully target their clients: for example a crafts blogger can sell her items to a segmented audience. But such small markets mean sellers lack the ability to receive pre-determined ratings of potential buyers, and thus run the risk of being 'cheated,' in contrast to eBay's rating system. They also cannot have as wide or extensive auctions to potential buyers to gain a more competitive price.

Another continued source of competition for eBay, in addition to Amazon and smaller venues online, are real-life auctions and second-hand shops, which have the advantage of a lack of shipping and handling costs, and the opportunity for buyers and sellers to 'vet' one another more closely: a buyer can hold and view the item while the seller can decide instinctively if the buyer is trustworthy. The buyer and seller can engage in a cash transaction, to minimize risk. However, because this opportunity does not always connect a willing match of consumer and retailer, and may make the use of credit cards difficult, eBay is likely to remain profitable in the future.

Strengths and weaknesses: Investor letter

Today, "eBay is the leading global brand for online auctions. The company is a giant marketplace used by more than 100 million people to buy and sell all manner of things to each other. Pierre Omidyar, a French entrepreneur, was just 28 when he sat down over a long holiday weekend to write the original computer code for what eventually became an Internet megabrand. The brand has grown tremendously over the decade or so since its conception" (eBay, 2010, Marketing Teacher).

According to the most recent letter to its shareholders and its 4th quarter and 2009 financial reports, eBay's expanded use of PayPal, the most common method of payment for eBay transactions, has significantly improved the company's ability to command revenue. Overall, the tone of the communications eBay has made to its investors is resoundingly positive: "We delivered a strong fourth quarter with double-digit revenue growth driven by exceptional performance at PayPal and turnaround progress and momentum in our core eBay business…PayPal significantly expanded its presence globally and, for the first time, processed more than $20 billion in total payment volume in a quarter. Gross merchandise volume and sold items, accelerated for the third consecutive quarter. We are starting 2010 with significant progress against our three-year growth strategies for PayPal and eBay and a clear focus on our priorities going forward" (eBay Inc. reports 4th Quarter, p.2). The company almost sounds as if it surprised itself to the degree it exceeded its expectations in a recessionary year.

Although 2008-2009 was a devastating period, economically, for the United States, other sectors of the world economy bounced back far more quickly. The international nature of eBay is yet another strength: "Marketplaces business unit, which consists of eBay, Shopping.com, StubHub, Kijiji and other e-commerce sites, recorded $1.5 billion in revenue for the quarter, a 15% year-over-year increase…Marketplaces continued to benefit from growth in its international business, which accounted for approximately 60% of Marketplaces revenue for the fourth quarter" (eBay Inc. reports 4th Quarter, p.2).

To protect itself against the threat of competition, eBay has also diversified itself: "On November 19, 2009, eBay Inc. completed the sale of the majority of Skype to an investor group" (eBay Inc. reports 4th Quarter, p.2). "Acquisitions provide new business strategy opportunities. eBay has agreed to buy online telephone company Skype Technologies in a deal reported to be worth $2.6 billion. Skype's software lets PC users talk to each other for free and make cut-price calls to mobiles and landlines. eBay has been buying up firms -- including payment system PayPal -- in an effort to increase the number of services it offers to consumers and keep its profits growing" (eBay, 2010, Marketing Teacher).

However, eBay also admits that its future does pose some challenges: the tightening credit market could make selling more difficult. Consumers are less willing to spend as credit card interest rates increase, particularly if they feel the items are frivolous and not strictly necessary, as is the case of most items on eBay, versus bargain sites like Overstock.com. Rapid shifts in the foreign currency exchange markets could impact eBay's international sales by making goods and services more expensive, due to an unfavorable exchange rate between buyer and seller. Finally, there is also the fear that eBay has 'maxed out,' as it must continue to grow to remain profitable, and other, smaller and more specialized markets may threaten its success (Annual report: 1A Risk Factors, p.13).

Risk factors eBay must continue to diversify its range of products to ensure that its growth forms a protective 'cushion' for the company, should the ability to… READ MORE

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