Documente Academic
Documente Profesional
Documente Cultură
By, R. Ahilan
Student Number: 09-9053
MN5206MarketingManagement DepartmentofComputerScience UniversityofMoratuwa SriLanka 4thNov2009
1. Introduction
Being the pioneer of the online auction industry, the eBays objective is to enable the community commerce via auctions. This industry began its extraordinary market boom in the late nineties. The eBay has been the company that has paved the way for this ever growing industry. The company has been formed for love and affection of the founder Peirre Omdiyar toward his (now) wife. Because of she wanted to find people with Pez dispensers to trade, Omidiyar developed a program that would allow her to trade items with other collector. He had no idea the potential that the industry held for him and many other hopeful online auctioneers when he started this for his wife.
eBay went public in September 1998 at $18 a share. By the end of February 1999, the stock was trading at $282 per share. The company market capitalization had surpassed that of even Amazon.com, making it the worlds most valuable Internet retailer. The product is Online Auction: Every day, 24 hours a day, 7 days a week, 365 days a year, millions of people from all over the world go shopping at online auctions.
The given case has the background of the eBay and its external market place with the statistics of their business performance till the year 1999. It has no analysis or evaluation of the organization and its market place. No recommendation to eBay given in the case to confront the challenges from Amazon.
The purpose of this document is to continue the case eBay, Inc with the analysis of macro environment, evaluation of business performance, analysis of the business model and recommendation to challenge the Amazon, of eBay.
Key Economic Characteristics and Conditions: The economic characteristics and conditions attracts to the firms looking for the entry into this market place (See Exhibit 2). Since the originating point of the market in 1995,
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the market size and the growth rate have been increasing in speed. Because of the fact the scope of the market place is global, that is it is a large market, it is favorable for the new entries. Still there are plenty of rooms for the new competitors, because of industry is still in the growth process. There is also high profitability for firms in the online auction industry. The Competitive Forces: The industrys competitive forces have been determined by examining the Porters Five Forces model (See Exhibit 2). In the industry in light, the rivalry is moderate but not too rigorous. In the analysis it has been found that, the low switching costs made the rivalry stronger with the fact that the industry is growing in the global markets weaken rivalry. Concerning the strongest forces, threat of substitutes and the potential of new entrants, the auction industry has the potential for high profits making. It attracts the new firms to enter. And also the substitutes are readily available with attractive prices. Furthermore, these are available in numerous distribution channels including the other auction sites, online stores such as WalMart. The Driving Forces: It has been identified the below as the driving forces that determine the online auction industry: 1) Growing Use of Internet: In early nineties internet was being an education tool, where it was used mainly for the academic careers. In late nineties it became a fashion. Having email accounts and being registered in famous sites like yahoo gave respects to the people. Hence more people are becoming the users of the internet, especially, in Asia and Europe. It is accessible than ever before. Since
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this is creating new customers and suppliers, it has been considered as major driving force for this industry. 2) Increasing Globalization: The industry has begun to boom in America. The success of this industry has made some of the largest contenders branch out into the global community. eBay started to do joint venture programs to dominate in the foreign market ( e.g., eBay and AOL program, eBay and Skytel program). Amazon.com one of the eBays main competitors also has begun to branch out in the global market. But Yahoo.com is not interested in the global expansion, will expected to turn to failure. 3) Market Innovation: This is to spark interest in buyers to buy or sellers to sell using the online auction services. The competitors in the market are looking for ways to market their services and make it to be in a user friendly environment to attract the users. eBay is constantly adding new aspects to build customer loyalty and build a sense of community around their business. The Strategic Group Maps: The strategic group map shows where the main competitors lie with the eBay, in the industry (See Exhibit 3). The differentiating characteristics those have been taken for this determination are Degree of Service Offered and Daily Successful Auctions. The former differentiates the companies with their quality of the service in the industry and the later do the same with the daily success stories led to their profits. eBay pride themselves in leading their customers through the buying and selling process from beginning to end and beyond. Amazon.Com also offer the high degree of services as eBay but other companies are not as in depth with their services and keep to a no frill
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state of mind. Yahoo.com is next to eBay in Daily Successful Auctions but it is acceptable because of their free of charge service offerings. Analysis of Competition: Based on the strategic group maps, it has been identified that Amazon and Yahoo auctions are the main competitors of eBay. A S.W.O.T analysis has been done for these competitors (See Exhibit 4), according to that it has been identified that, eBay is the dominant firm in the online industry followed by Amazon.com. Amazon.com has the best strategy to take them into the future. Other firms in the industry hold a much smaller market share compared to eBay and Amazon. Yahoo auction has also had many problems gaining ground in the industry. They were not successful in most of their global ventures and also changing fees for customers cut their membership in half. The Overall Attractiveness: The online industry is an attractive industry because of its below features: Large Market Size- Global Fast growing in the market Market is still not fully saturated More opportunities are there Good profitability Competitors: Not too many large competitors
Hence, if a firm can develop a business plan which makes them diverse, customer oriented, and unique, the potential of success is possible.
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The eBay has its own streamlined and globalized traditional person-to-person trading with their web interface. The buyers are being facilitated by easy exploration and sellers are being enabled to immediately list an item for sale within a minute of registering. The business model has been shown in the UML use case diagram in exhibit 6.
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(+)Attractively priced Substitutes products with attractive services (+)Low switching costs to others services and products (+)Products and services are readily available
SUBSTITUTE PRODUCTS-HIGH
SUPPLIER POWERLOW
(-) Very low Seller switching costs (-)Good substitutes exist
(-) Rapidly growing buyer demands globally (+) The cost offered for brands switching is very low (+) eBay and Amazon both have powerful strategies with good business model, while the other firms are trying to catch up. (+)Rivals are located globally
RIVALRY-MODERATE
BUYER POWERMODERATE
(-) There is no standard products for buyers (+)Low switching costs (+)Sellers are available globally (-)Small quantity of purchases
(+)Very low entry barriers (+)Market is attractive (+)Profit earnings for new firms are attractive (+) No economies of scale (+)Buyer demand is - 10 high. -
No-frills
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WEAKNESSES Free shipping policy 1.1% web traffic to auction sites Expanding globally pushed them out of number one spot
THREATS EBays success in the global market New entrants to the online auction industry
The degree of service is being offered by the Amazon.com is up to the standard. Since they have the best strategy like eBay, have the opportunity for continues growth and improvement. Also, they have begun to expand into global markets. Global expansion will be crucial to the future of online auction sites.
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Yahoo.com- Auctions STRENGTHS Best known brand name Service for free of charge Numerous alliances to generate traffic Investment in technology to improve sites overall aesthetic feel Offering of extra services to users such as the Premium Sellers Program OPPORTUNITIES Joint ventures Diversification of products offered WEAKNESSES Known for anonymous email domain- Issue with trust and safety Failure in many foreign markets Decreased use after change in list fee requirements Little advertising and marketing
THREATS Globalization of online auction industry EBays commitment to building a sense of community to keep customers
Yahoo.com Auction is week in the online auction industry. The brand is well known for its email, search engine and other news sites, but still it is know for anonymous email domain. Yahoo must create a distinctive feature which makes them stand out from the larger competitors if it wants to survive in this industry
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Negative Weaknesses No verification of products being auctioned- Need search engine for the verification-Proposed No modern trends and technology used at the max level No new ventures No insurance for the product delivery, buyers have to depend on sellers. No interaction of eBay after the closer of auction Accommodate changing customer expectations, web application problems, and corporate seller difficulties
No geographical boundaries
Very good brand building Very good business model
Variety of products auctioned JV with AOL High availability- Accessible any time any where User friendly environment Preventive measures taken on trading certain items sold has established a trust on eBay Anti-fraud measures - establish a strong brand name for eBay
Opportunities Increased market penetration Chance to broad the trading platform into new and emerging markets Market development in many countries outside the US Acquisitions made and alliances formed, has given eBay to venture into new strategic paths.
Threats Need of high tech staffs to compete- More salary Threats from substitutes Industry going into mature phase eBay has not been welcomed by the culture of certain counties Ex. Japan Attack by illegal practices. Ex. Distributed Denial of Service attacks on eBay web pages
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V a lid a tio n
S e lle r
S e ll
C o n firm P o s tin g
A g re e to th e te rm s o f S a le
C h e c k R a tin g
B uyer
E n te r B id
A g rre to T e rm s o f S a le
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