Term Paper on "Ebay - Study Case the Internet Auction"

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Ebay - STUDY CASE

The internet auction has been expanding rapidly over the last years. It was directly influence by of internet shopping phenomenon, which came as a consequence of time scarcity in the modern society.

Ebay is the market leader and it enjoyed a great success lately. However, there is the concern that it may not be able to maintain a sustainable market growth, because its reach is limited to internet users. According to InternetWorldStat's numbers (2005), the number of internet users was estimated to 600 million users and the number of Ebay's registered users (Q4, 2005) was around 135 million. That implies that almost 22% of the internet users accessed Ebay. Hypothetically speaking, the company can increase its registered users' number up to the internet users' number. The measures adopted so far have been shown to have efficiency in increasing this number. Nevertheless, there is a need to diversify these methods and attract the rest of internet user that hasn't access the auction, so far.

Company overview

Ebay was initiated in 1995 by Pierre Omydiar in San Jose, California, and grew rapidly to take its largest competitors: amazon.com and Yahoo. The product offered by the company is an online marketplace where buyers meet. The products sold in the marketplace fall in more than 27000 categories, ranging from collectable items to toys and music and the daily number of items reaches around 12 million pieces.

In 1996, the company undertook its first step in third-party licensing deals, by signing a contract with Electronic Travel Auction meant to enable the website to sell traveling product, especi

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ally plane tickets.

In 1997 the company changed its initial name from Echo Bay Technology Group to Ebay. The former was Omydar's consulting firm.

The mission according to the company's statement is: "is to provide a global trading platform where practically anyone can trade practically anything." million individuals visit the website daily, which implies that for this company reputation is crucial. Ebay is a place where people matter and where social responsibility is a priority. Thus, through its virtual environment, it reduces the barriers of normal trade that people from underdeveloped countries are forced to face. Moreover, the website is environmental friendly; a green place where buyers and sellers meet.

The online market doesn't charge users to enter; it has a listing fee for the seller (between 30 cents and $3.3) and a buying fee (between 1.25% and 5% of the sold item value). To enter the auction, individuals have to make a bid that is superior to the minimum bid chosen by the seller and to gain; they have to make a bid that is superior to all other bids made for the product. After an individual wins the auction, the seller contacts him/her to establish the payment and delivery methods.

The variable costs incurred by Ebay are mainly very small, whereas the advertising costs are quite high. The revenues are high and growing fast and the profits, despite growing fast are considerably small due to marketing expenses. The most spectacular growth was encountered by the stock price; the IPO grew from $9 in September 1998 to $150 in November 1999.

Competition

There are three types of competitors: online auction places - the largest being Amazon.com and Yahoo!; the classical auction houses - the largest being Sotheby's and Christie's and; and finally the auction search engines such as Auction Watch.com and Bidder's Edge.

From the first type of competitors, Yahoo has a lot less users and Amazon.com has users for a different type of products. From the second type of competitors, the classical auction houses transact goods of a considerably higher value and the marketplace is smaller. From the last type of competitors, the threat is very small, because they search in every site and they get lost in too much information.

Internet auction industry overview

The internet auctions have several advantages compared to the classical ones.

Firstly, internet auction offer time efficiency. Individuals can bid for various products in the same time without having to go to a certain place.

Secondly, the marketplace has a considerable size, which implies that price reflects the market demand with high accuracy and there is virtually no chance for irrational buyers to influence the market (price or quantity).

Thirdly, the buyers' diversity is unique for this type of market place, given that buyers come from all over the world and they are all one click away from the desired products.

And last, but not least the online auction take place in real time, provide an enormous number of bids and because of that they are very reliable for auction theory research.

The market for internet auction

In 1995, on the internet auction market, there were two online auction houses. Ten years later, in 2005 the Chinese internet auction market was worth over $3 billion, while the European one alone was worth over $110 billion.

In Q4 2005, the U.S. market place had $526 million net revenues, whereas the international markets totaled a $473 millions, showing a growth rate superior to 35%.

The internet auction market is growing fast and is being influenced by the internet usage growth, which was over 200% since 2000 until present.

A forces analysis

1. Entrants - Potential entrants in the market are players from emerging markets where Ebay doesn't have a presence and players with a specialized or regional content, focused on software solutions.

2. Buyers - the buyers are many and have little influence over the market. At 2005 yeare-end there were 135 million registered users in the system. The same system may lose confidence to its buyers because rival companies, the threat is not big because there is permanently a large pool of fresh buyers.

To gain more buyers, Ebay may choose to expand to new markets, to increase customer experience and meet their requirements more accurately and to maintain them; communities sharing the same interests are formed.

3. Substitutes - Firms to provide advertising content and with local touch and firms that offer alternative mobile payment methods. For the moment, these latter are not a high threat due to the extended time frame necessary to ratification process.

4. Suppliers - the sellers are many and just as buyers they have reduced power over the system. It is important for the company to maintain the content of the site as accessible as possible to keep buyers and sellers to perform their transactions in the system.

5. Rivalry - the two rivals Yahoo! And Amazon.com are not a big threat. Yahoo is currently using Ebay and Amazon.com is not competing on the same market segments. Rivalry to be taken under consideration is made of aggressive competitors that for the moment didn't have such a success.

Ebay's strategy

Until 2003, the company's strategy so far has been heavily focused on product development.

Source: Dynamics of Strategy - London Business School 2003

The product development was made in two directions: site improvement and services improvement. The site improvement included: improved search, listing and bidding and the services improvement included: seller accreditation and evaluation, and payment authorization. The product enhanced its capability to be able to penetrate new markets, such as: autos, business to business equipment purchasing and real estate.

The product development involved adopting innovative solutions (mainly software) based on customer experience, or better said customer input. Ebay's intention was to change its system according to the auction players' request to have the best environment adaptability possible.

The following developments are among the most popular:

Turbo Lister - it is a software tool that can be downloaded from Ebay's website for free meant to enable users to increase the number of listings.

Ebay Express - this is a new Ebay website, launched in April 2006, whose purpose is to function like a shopping site for buyers with U.S. address. Buyers have a shopping cart, for which they have multiple product choices. The British alternative was launched six months later in October 2006 (Ebay Express UK).

Ebay Stores - those are selling platforms that allow users (seller) to establish their brands on Ebay and gain access to a 200 million shoppers database worldwide. The virtual shop subscription ranges from $15.95, for a basic store to $499.95 for an anchor store and the required timeline to establish it is of just a few minutes. The application offers the same users tools to improve efficiency, such as: newsletters, listing fees and search engine keyword management.

Ebay Blogs and Ebay Community Wiki - this tool was created to build strong communities around the company. These products include: Chat rooms, reviews and guides, discussion boards and an answer center.

Later, the company's strategy was focused on improving the auction system in such a manner that would increase customer confidence and increased the number of transactions. Innovating on the technical side was one of the directions in which the company marched; expanding to other markets was another.

On the price side, Ebay didn't make any increase. The goal followed… READ MORE

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Course Textbooks

Digman, L.A., Strategic Management: Competing in the Global Information Age. 8th Ed. Mason, OH: Thomson Custom Publishing, 2006.

Digman, L.A., Strategic Management: Cases for the Global Information Age. 7th Ed. Mason, OH: Thomson Custom Publishing, 2003.

Learning by the Case Method

What is the Case Method?

The bulk of this course*****”in fact, Lessons 6 through 13*****”is case analysis by you, the student. This section will help to familiarize you with the case method of instruction.

Cases are typically records of actual business situations, rather than problems solely formulated for students to solve. The organization, its history, and current situation are typically described, and it is left to you to analyze what course of action the organization should pursue. Rather than handing problems to you on a platter and asking you to solve them (perhaps using a specified technique), you are put in the position of the managers who must develop alternatives and propose specific actions for the firm.

The responsibility for analyzing, recommending, and convincing others is yours alone. In some cases, there may be no "problem," as such; the issue may be one of sustaining success into the future. There may be no single "right" answer to the case situation; in fact, there may be several plausible alternatives, each with pros and cons. In case analysis, you usually need to be able to support your analysis and recommendations against the critical questioning of your instructor and the rest of the class.

In summary, the case method is a learning approach that recognizes that people are most likely to retain and use what they learn through guided discovery*****”by doing. Case analysis requires you to take risks, make judgments in uncertain situations, and to propose and select from multiple possible options, none of which may be "right" or "wrong." Memorization is of little use in case analysis, as is true in real-world, on-the-job settings. The case method allows students with real expertise and understanding, as well as judgment, to excel.

How do I Analyze a Case?

In analyzing a case, an orderly, step-by-step approach is usually helpful. It is important to gain an appreciation of the overall situation initially, then learn what specific information is contained in the case. Therefore, it is suggested that the case be skimmed first to gain this overall perspective. While or after doing so, jot down the key points and issues that come to mind, as well as your first impression of the problems, issues, and opportunities facing the company. Then read the case in detail, adding to and modifying your initial thoughts.

Remember that not everything in the case is vitally important, nor is all the important information necessarily included. The case represents someone's (e.g., management's) description of the company and its situation*****”it is up to you to probe deeper, sort and sift things out, and acquire additional information. It is your responsibility to analyze and recommend alternatives and approaches to management. The following guidelines may be helpful to you in your task.

Define the situation. What are the challenges, problems, potential problems, opportunities, and potential opportunities facing the company? Typically, the case will contain various symptoms you will have to notice and connect in order to make a diagnosis. To identify the symptoms, try to isolate the major issues facing the company and their causes. Keep in mind that there are likely to be sub and secondary issues, as well as related and perhaps extraneous issues

described in the case. Your task is to assign priorities to the issues, focusing on the critical few.

Assemble and analyze the important facts (gleaned from the case) that bear on the situation.

Specify important information that is needed but not included in the case. Determine whether or not it is available elsewhere. If it is available, acquire it.

Make assumptions. For important information that is not available from the case or elsewhere, make logical assumptions as to what the information might show. State these assumptions.

Draw conclusions based on your analysis, information, and assumptions.

Determine alternatives and their likely outcomes. What are the major alternative actions open to the company, and what is likely to happen if each is adopted? Evaluate each.

Make recommendations. Based on your analysis, what do you recommend to management and why? Be prepared to defend your recommendations under critical questioning by your instructor and the class (the types of questions that might be posed by the company's management and other stakeholders).

Prepare an implementation plan. How should your recommendation be implemented, by whom, in what sequence (short-term versus long-term actions), and the like. Identify where the resources will come from.

Prepare contingency plans. What do you recommend if your suggestions do not work as anticipated, or if certain external or internal conditions change?

It is recommended that you use the above sequence as a guide, but remember that your presentation of the case must contain the following four sections:

Background. Describe the pertinent history of the organization, including its mission, goals and objectives, and strategies. Include only those points that affect the current situation, possible alternatives, or future performance of the company.

Situation Analysis. Describe the external environment of the organization, including general and competitive trends, issues, and forces; sum up with a list of current and future threats and opportunities facing the organization. Describe the internal condition of the company: What resources can it marshal, what are the distinctive competencies and competitive advantages, and what is the state of the firm's financial condition and other health? Sum up with a list of strengths and weaknesses. What are the industry's critical success factors?

Alternatives and Recommendations. Propose and analyze options for the company. Evaluate the pros and cons of each. Choose one of the alternatives (options) or a combination of options as your recommendation. Discuss and defend your recommendations.

Implementation. Present your implementation plan (how the recommendation will be implemented, by whom, in what sequence, etc.), including your contingency (what if) analysis.

Your written case an*****s should typically be in the range of eight to twelve double-spaced typewritten pages. Make clear and liberal use of headings, sub-heads, and bold type to make it easier for the readers to locate the key points of your analysis.

Please analyze Digman (cases): Case #6 using the format prescribed in the section titled Learning by the Case Method found under the Unit 2 Introduction. Be sure to include the following: background, situation analysis, alternatives, recommendations, and an implementation plan, and identify each clearly. This assignment should be 8 double-spaced typewritten pages in length. Make clear and liberal use of headings, sub-heads, and bold type to make it easier for the readers to locate the key points of your analysis.

Emailing Instructions: You will need to complete your project in a word processing program and save it to a file for your own reference if possible. You will need to save your project in Rich Text Format (rtf)

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