eBay 2001: Increasing External Revenues

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Table of Contents

Introduction
Structuring an Internal Environment Analysis
Analysis of Resources and Capabilities
Conducting an Industry Analysis
SWOT Analysis
New Business Strategies
New Strategies and their Implement-ability

Introduction

This case is about a company, namely eBay, which has made a niche in the e -business industry and gone on to become one of the most successful and profitable firms in online auctions. The company’s most important stakeholders include its owners, employees, customers, suppliers, the government and the community at large. eBay operates on the principles of e-commerce where the internet is the main channel.

Suppliers can also offer their physical goods to customers for purchase. No movement by both parties is required. eBay has been able to cement its survival in the industry and ensure continued growth in sales and earnings. This is because of its strategies and its insistence on excellence, efficiency, differentiation of its goods. To a lesser extent, it is also because of effective measures put in place to deal with the challenges facing the business world.

This case explains the intricacies of the company’s internal and external environments. It gives the description of the company, its mission and objectives. It also looks into the challenges it faces in its quest for growth and expansion. It gives both quantitative and factual data in its analysis.

The ‘now’ of this case study is 2001. The international team has to come up with strategies that will increase the revenues coming from outside the United States from one hundred and fourteen million US dollars reported in 2001 to over eight hundred million US dollars projected in 2005.

Structuring an Internal Environment Analysis

eBay’s mission is to ‘make impossible commerce possible and to make inefficient commerce efficient. Its vision is to grow and expand its venture to cross border trade without incurring excessive costs in its expansion. Its objectives oscillate round its vision, which is, coming up with strategies that ensure growth without causing negative impacts on the company.

Excellence, efficiency, quality, customer and employee satisfaction and image form the pillar of the company’s values. It has a centralized leadership structure where only top management can make important decisions and there has to be consultations before any decision is implemented. It has a decentralized leadership structure also.

The case study shows that top managers normally appoint directors who are in charge of specific goods or product line, rather than there being only one manager overlooking all the transactions that are being made. Its beliefs are mainly customer satisfaction, efficiency, excellence and quality. eBay has its own distinct way of doing things in that, customers are given a lot of leeway. Customers choose what to list and the length of time the goods are to be listed.

They also have the liberty to upload photos and once the good is sold, they are the ones to pack, insure, and ship the goods to the buyers. eBay uses a hands-off philosophy and only seeks to ensure improved user experience, the process of listing items and uploading them is simple, feedback and rating are simple but valuable, and auction bidding and notification are interesting and efficient.

Analysis of Resources and Capabilities

Strategy Diamond

eBay’s arenas include its product categories (which are mainly collector items and items that are more suited for hobbies) and its distribution channel that is wholly the internet as all the transactions is made online. It also includes its market segment, which largely consists of collectors and hobbyists in terms of the type of goods offered, and its geographic areas.

This encompasses the United States and other countries outside United States for example Europe, its core technologies, which is mainly the internet, and its value creation strategies, which are mostly handled by the customers. Its vehicle was mainly the increased number of listings it experienced after it was founded. eBay differentiated its products in that it mainly dealt with collectors’ items rather than practical items.

The economic logic was that since it enabled people to enjoy their hobbies while still in the comfort of their homes, there would be increased listings and therefore increased earnings for the company. Its staging was that it continued to report growing profits annually. This company was launched in 1995 and in no time spread nationally in the United States. In 1999, it went international entering the UK, Australian and German markets. In 2000, it made a debut in Japan, France and Canada

eBay’s Resources and Capabilities (VRINE Analysis)

eBay possesses certain vital resources that ensure that it retains its competitive advantage amongst its competitors. Following, is a detailed explanation of how each of these resources contribute to eBay’s competitive advantage.

One of these resources is its reputation, eBay has created a good reputation for itself everywhere that it is available, this contributes to competitive advantage in that, it ensures customer loyalty and repeat purchases such that if there were to be a new entrant, the effects would be minimal. A large customer base is also another important resource.

This simply means that eBay enjoys the largest number of listings such that it takes advantage of the critical mass approach, such that even if there were to be new entrants in the market, it would not lose its customer. eBay also enjoys financial strength; this can be attributed to the growth in its earnings over the years. This capability gives it a competitive advantage in that it provides room for growth in the face of the ever-increasing competition. This is not a resource that many companies can enjoy.

eBay also enjoys network dominance with respect to online auction over other providers like Amazon and yahoo; this gives it the competitive advantage that works against its competitors. Another resource that eBay can boast of is its capacity to grow. This can largely be attributed to the way that it operates.

Due to its hands-off philosophy, where its customers are the ones who handled most of the value added services, eBay can be able to grow without any significant increases in its costs. All these resources are important, but the ones that slightly contribute more are its financial strength, network dominance, and the large customer base.

Value Chain Activities

The primary activities carried out by eBay include the listing of items by users and registration of users, which make up the input activities. It also includes uploading of pictures and bidding by buyers which make up the transformational activities and the completion of the sale leading to packaging, insuring and shipping of the goods to the buyers, which make up the output activities.

The support activities of eBay include complaints handling, training of employees, technological development and human resource management. Complaints handling can be done more effectively by creating a specific department that deals with customer complaints.

Performance Evaluation

The different stakeholders use different yards to measure the performance of the company. The owners use profitability of the company to gauge its performance, employees use the amount of wages that they earn, customers use the prices of the goods, the government considers the tax compliance of the company and suppliers look at whether the company makes timely payments.

Strategic Issues

The strategic issues here include; the uncertainty of customer loyalty, unsatisfactory user experience, shortcomings in the searches by buyers and inefficiencies in the listing and user registration process.

Conclusion of Internal Analysis

The internal environment of eBay can be said to be healthy. From the case, it is clear that clear and distinct measures have been put in place. The mission, objectives, values, beliefs, and the type of products have been clearly defined. Its leadership structure is also definite.

Structuring an External Environment Analysis

eBay is in the e-commerce industry and its geographical market was first made up of the United State but it later expanded to other countries outside the United states. Its major competitors are yahoo, Amazon and other e-commerce businesses that have adopted its model especially in countries where it has not yet ventured. In this section, we will use France as our case study.

Analysis of General/Macro-environment

There are various external forces that may have an effect on this industry. In the next 3-5 years, it is highly unlikely that political forces will have any effect on eBay, particularly because eBay largely depends on the internet, which is never affected by political crisis. Economic forces may have an effect in that if there is a boom, purchases are likely to increase therefore increasing eBay’s revenues, and on the other hand, a recession would mean decreased purchases and revenues.

Technological factors will most likely have an effect due to the rapid technological advancements. Social factors may lead to increased use of the internet due to peer pressure hence influencing the industry positively. Ecological factors cannot affect the industry as they cannot affect the internet. Legal factors, depending on the circumstances may have an effect on the industry as a new law could be introduced that affects the industry.

Conducting an Industry Analysis

Porters 5 Force Model

Porter’s model gives five forces that affect the industry structure. Using the France market, I will explain each of these forces. The first one was the degree of rivalry, which refers to aggressive competitors. France had the fourth largest earnings in terms of e-commerce in the world and so eBay had to try to venture into that market.

However, I bazar, which was a similar company, had developed a model similar to that of eBay. It offered it to the market before eBay. Therefore, eBay faced strong competition because ibazar had long gained market dominance. Degree of rivalry deals with how your competitor will respond to the strategies you implement. Ibazar therefore offered free listings, lower transaction fees and heavy TV advertising so as to deal with the competition from eBay.

The second force was the power of suppliers, who had the power to influence the industry for example by charging very high prices for their products. The third force was the power of the buyers who had the ability to control the industry for example by substituting the goods offered for other goods; they could also lose their confidence in their goods

The fourth force was the threat of substitute goods, for example in the France market, unlike eBay, Ibazar offered practical goods, that is, anything and everything, this posed a threat to eBay in that their customers could easily find substitute goods in Ibazar that were much cheaper as they only offered collector items.

The fifth force was the threat of new entrants. Given the high earnings attributed to e-commerce in France, it was only natural that new entrants would be attracted to the market, leading to decreased profits in the industry and consequently to eBay.

In my opinion, in 2001, the industry was very attractive in France given that there were only two key players. However, it would be expected that in 3-5 years, that market would have become less attractive due to entry of new players, which would dilute the profits. Power of suppliers will decrease while power of buyers will increase. In addition, the threat of substitution will increase.

SWOT Analysis

Still using the French market, some of the strengths that eBay possessed were; financial strength, quality of their goods and the fact that the collectors and hobbyists did not like Ibazar and never made repeat purchases. Its weaknesses on the other hand were its lack of market dominance, listings and a large customer base.

Despite these, there were opportunities given the fact that as mentioned above France reported the fourth highest earnings in the industry. This then leads us to the threats that would naturally arise; since Ibazar offered practical goods, and did not really emphasize on quality, users would end up having poor experiences, which would put the industry in jeopardy. In addition, if users got used to listing without fees, the industry’s future would also be in danger.

New Business Strategies

Strengthening of its Mission and Vision

eBay’s mission being its most important resource, it should seek to strengthen it more and ensure that it is followed to the latter

Generic Strategies of the Company

eBay follows a strategy that mainly focuses on differentiation from other companies in the industry. This strategy is referred to as focused differentiation whereby unlike its competitors, it limits the types of products that can be sold preferring to deal with collectors’ items. In my opinion, since they have the capacity to expand without incurring excessive costs, they should diversify and offer practical goods while still ensuring that they observe the quality of the goods. This would serve to increase their customer base and even their earnings.

Market Position

Currently, eBay is a market leader despite the competition that it faces from the likes of yahoo, Amazon and the rest. It should therefore seek to pursue stabilization to ensure that it remains in the same position. Another key area that it should concentrate on is growth. This can be achieved through the expansion of the global trade plan so as to take advantage of the opportunities that new markets present.

Strategic Alternatives

Given the facts of the France market study, eBay had two options either to sit back and wait for I bazar’s downfall or to acquire I bazar. Each of these options had its disadvantages; in the first option, it was impossible to predict how long it would take before Ibazar collapsed and there was the risk that its downfall could affect the whole market.

The second option posed the threat of lack of funds or Ibazar asking for a very high price due to misguided reasons and also Ibazar was partly owned by yahoo and wanadoo. In my opinion, the company should acquire Ibazar, as that would be a full proof plan as long as the sale went through.

It would ensure that the competition was completely eliminated and it does not require a long period for if to be done. If this option were chosen the competitor would react by asking for a higher price due to misguided reasons, or they might refuse to sell under the impression that they would make it big soon.

New Strategies and their Implement-ability

Concerning the company’s strategic diamond, new strategies can be introduced in its arenas; increasing its geographical areas through the global trade plan and diversifying the products that it offers.

Its value added activities can remain the same but they could always be made more efficient. Its vehicle should remain the same, the only difference being that it should now incorporate more customers other than collectors and hobbyists. Its differentiators, staging and economic logic should remain the same. In my opinion, these new strategies can be implemented as long as there are stringent measures that are put in place to control their implementation.

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