Analysis of eBay's Business Model

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TABLE OF CONTENTS
PAGE
Introduction of eBay.com
3-8
The key elements of a business model
9-14
Reference of the key elements of a

Business model
15
Analysis of the eBay.com based on the

Key elements of a business model
1. Value Proposition
16-19
2. Revenue Model
20-23
3. Competitive Environment
23-27
4. Competitive Advantage
28-29
Recommendation
1. Strategy 1
29-30
2. Strategy 2
31-32
3. Strategy 3
33-34
Summary
35
References
36
INTRODUCTION OF EBAY.COM
eBay Inc. is an American multinational internet consumer-to-consumer corporation,
headquartered in San Jose ,California . It was founded in 1995, and became a notable success
story of the dot-com bubble; it is now a multi-billion dollar business with operations localized
in over thirty countries. The company manages eBay.com, an online auction and shopping
website in which people and businesses buy and sell a broad variety of goods and services
worldwide. In addition to its auction-style sellings, the website has since expanded to include
"Buy It Now" standard shopping; shopping by UPC, ISBN, or other kind of SKU
(via Half.com); online classified advertisements (via Kijiji or eBay Classifieds ); online event
ticket trading (via StubHub ); online money transfers (via PayPal ) and other services. (eBay,
Inc., San Jose, CA) The major auction service on the Web. eBay popularized the concept of
buying and selling online, and both individuals and commercial enterprises list items for sale.
There is no charge to browse the site or make bids and purchases, but there is a fee to list
items. If an item is purchased, the seller pays eBay an additional fee. Millions of items are
offered, and billions of dollars worth of merchandise is sold every year through this service.
Launched in 1995, eBay has made numerous acquisitions over the years, including the PayPal
payment service in 2002 and the Skype voice over IP (VoIP) service in 2005. The company
recorded revenues of $7,672.3 million during the financial year ended December 2007 (FY07),
an increase of 28.5% over FY06. The operating profit of the company was $613.2 million during
FY2007, a decrease of 56.9% compared to FY06. The net profit was $348.3 million in FY07, a
decrease of 69.1% over FY06.
Key Fact
Head Office
eBay Inc.
eBay
2145 Hamilton Avenue
San Jose
California 95125
Phone
Fax
Web Address
Revenue/Turnover
Financial Year End
Employees
NASDAQ Ticker
USA
1 408 376 7400
1 408 369 4855
http://www.ebay.com
$ 7,672.3
December
15,500
EBAY
EBAY MISSION
To build the worlds most efficient and abundant marketplace in which anyone, anywhere, can
buy or sell practically anything
EBAY VISSION
eBay inc. pioneers communities built on commerce, sustained by trust, and inspired by
opportunity. eBay brings together millions of people every day on a local, national and
international basis through an array of websites that focus on commerce, payments and
communities.
THE HISTORY OF EBAY
1995 The online auction website was founded as AuctionWeb in San Jose, California, on
September 3, 1995, by French-born Iranian computer programmer Pierre Omidyar.
1996 eBay hires its first employee. In November 1996, eBay entered into its first third-party
licensing deal, with a company called Electronic Travel Auction to use SmartMarket Technology
to sell plane tickets and other travel products.
1997 January 1997 the site hosted 2,000,000 auctions, compared with 250,000 during the
whole of the previous year. The company officially changed the name of its service from
AuctionWeb to eBay in September 1997 when it received $6.7m from venture capital firm
Benchmark Capital.
1998 March 1998 the company has 30 employees, half a million users and revenues of $4.7m
in the United States. eBay went floated on the stock exchange on September 21, 1998 making its
founders billionaires. eBay's target share price of $18 but the price went to $53.50 on the first
day of trading.
2002 In February 2002, the company purchased IBazar, a similar European auction web site
founded in 1995 and then bought PayPal on October 14, 2002.
2008 In early 2008, the company had expanded worldwide, had hundreds of millions of
registered users, more than 15,000 employees and revenues of almost $7.7bn. In late 2009, eBay
sold Skype for $2.75bn, but retained a 30pc stake.
2010 July 2010, eBay was sued for $3.8bn by XPRT Ventures for allegedly stealing
information shared in confidence by the inventors on XPRT's own patents. In December this year
eBay outlines plans to buy a German online shopping club called brand4friends for 150m. The
deal is subject to competition inquiries in 2011.
2014 eBay would spinoff PayPal into a separate publicly traded company, which is taking steps
that were first demanded nine months ago by activist hedge fund magnate Carl Icahn. The move
will break eBay almost in half, separating it from PayPal, which eBay purchased 12 years ago
and built into a giant that generates almost half of the companys revenue.
2015 eBays current chief executive, John Donahoe, will step down from that role.
CORPORATE AFFAIRS
Board of Directors
As of November 2014, the board of directors was as follows:
Devin Wening, new eBay CEO and President since 2015
Fred D. Anderson, former managing director of Elevation Partners, director of eBay

since July 2003
Edward W. barnholt, former president and CEO of Agilent Technologies, director of

eBay since April 2005
Scott Cook, founder of Intuit, director of eBay since June 1998
John Donahoe, ebays former president and CEO since March 2008, former director
of eBay since 2008
David Dorman, non-executive chairman of Motorola, director of eBay since June

2014
William Clay Ford, Jr, executive chairman of Ford Motor Company, director od eBay
since July 2005
Kathleen C. Mitic, founder and CEO of Sithch Inc, director of ebay since September
2011
David M. Moffett, former CEO of Freddie Mac, director of eBay since july 2007.
Pierre Omidyar, director and chairman of eBay, since its incorporation in May 1996
Richard T.Schlosberg, former president and CEO of the David and Lucile Packard
Foundation, director of eBay since March 2004
Thomas J.Tierney, co-founder of the Bridgespan Group, director of eBay since March
2003
LOGO
In September 2012, eBay introduced their new logo set in Univers. This new logo was installed
onto the main website on October 10, 2012.
1995 - 2012
Form 2012 - present
FINANCIAL
eBay currently has set itself into a position of strong financial success and growth in the key
areas of its business. Sales have increased due to the strengths of past acquisitions and low costs
have returned high profits back into free cash flow. Cash is being held and used to advance
success in fast-growing businesses in order to receive quick returns for stockholders. Cash is
currently listed at $3.8 billion and with borrowing power increase by $1B to about $2Billion,
they are in a strong position to continue their advancement in key acquisitions. Another strong
financial factor to consider for eBay is that it has permitted leverage of 3x EBITDA, up from
their past permitted leverage of 2x, allowing for the use of more debt in their cost of capital
structure. The stock market seeing eBay as a strong company has been important when they are
adding capital and their current market capitalization is $15.70B. Through the use of this capital
being raised through the sale of its own stock eBay has built two strong forces to finance their
growth, debt and equity.
PHYSICAL
eBay works out of facilities throughout the U.S. and also located in 25 different countries. These
are used for executive and administrative offices, data centers, product development offices and
customer service offices. The development of new properties is important to acquire in the eBay
strategy. One of the property acquisitions included a new data center in South Jordan, Utah to be
opened which will create about 50 jobs. The employees in this location are proposed to receive
50% more than the county median wage. The development of facilities in locations such as this
one, which will improve its community, has made tax credits available from the government,
including $27.3M for this project. The human capital currently held across all eBay locations is
vast and increasing with its growth. As of December 31, 2007, eBay Inc. and its subsidiaries
employed approximately 15,500 people, approximately 9,500 of whom were located in the U.S
THE KEY ELEMENTS OF A BUSINESS MODEL

A business model describes the rationale of how an organization captures, creates and delivers
value. Such a model has to be intuitive and cover all matters of interest, i.e. encompass the
necessary and sufficient conditions of company operation. The concept should be simple,
complete and relevant, without oversimplifying the complexities of how enterprises actually
function. A business model is extremely important to ensure a business is set up properly and has
the ability to run smoothly. The business model is the main component of a business plan and
this is necessary when looking for investors from both individuals and banks. A business model
is a set of planned activities (sometimes referred to as business processes) designed to result in a
profit in a marketplace. The business model is at the center of the business plan. A business plan
is a document that describes a firms business model. An e-commerce business model aims to use
and leverage the unique qualities of the Internet and the World Wide Web
There are 8 components which make up Business Model but will be explain 6 of them:
1) Value Proposition
Value proposition is at the very heart of its business model. A value proposition defines
how a companys product or service fulfills the needs of customers. To develop and/or
analyze a value proposition, you need to answer the following key questions: Why will
customers choose to do business with your firm instead of another company? What will
your firm provide that other firms do not and cannot? From the consumer point of view,
successful ecommerce value propositions include: personalization and customization of
product offerings, reduction of product search costs, reduction of price discovery costs,
and facilitation of transactions by managing product delivery.
FreshDirect, for instance, primarily is offering customers the freshest perishable food in
New York, direct from the growers and manufacturers, at the lowest prices, delivered to
their homes at night. Although local supermarkets can offer fresh food also, customers
need to spend an hour or two shopping at those stores every week. Convenience and time
saving are very important elements in FreshDirects value proposition to customers.
Before Amazon.com existed, most customers personally traveled to book retailers to
place an order. In some cases, the desired book might not be available and the customer
would have to wait several days or weeks, and then return to the bookstore to pick it up.
Amazon makes it possible for book lovers to shop for virtually any book in print from the
comfort of their home or office, 24 hours a day, and to know immediately whether a book
is in stock. Amazons primary value propositions are unparalleled selection and
convenience. In many cases, companies develop their value proposition based on current
market conditions or trends. Consumers increasing emphasis on fresh perishable foods
as opposed to frozen or canned goodsis a trend FreshDirects founders took note of,
just as Starbucks founders saw the growing interest in and demand for coffee bars
nationwide. Both companies watched the market and then developed their value
proposition to meet what they perceived to be consumers demand for certain products
and services.
2) Revenue Model
A firms revenue model describes how the firm will earn revenue, generate profits, and
produce a superior return on invested capital. We use the terms revenue model and
financial model interchangeably. The function of business organizations is both to
generate profits and to produce returns on invested capital that exceed alternative
investments. Profits alone are not sufficient to make a company successful. In order to
be considered successful, a firm must produce returns greater than alternative
investments. Firms that fail this test go out of existence. Retailers, for example, sell a
product, such as a personal computer, to a customer who pays for the computer using
cash or a credit card. This produces revenue. The merchant typically charges more for the
computer than it pays out in operating expenses, producing a profit. But in order to go
into business, the computer merchant had to invest capitaleither by borrowing or by
dipping into personal savings. The profits from the business constitute the return on
invested capital, and these returns must be greater than the merchant could obtain
elsewhere, say, by investing in real estate or just putting the money into a savings
account.
Although there are many different e-commerce revenue models that have been
developed, most companies rely on one, or some combination, of the following major
revenue models: the advertising model, the subscription model, the transaction fee model,
the sales model, and the affiliate model.
Advertising Revenue Model
a Web site that offers its users content, services, and/or products also
provides a forum for advertisements and receives fees from advertisers.
Those Web sites that are able to attract the greatest viewership or that have
a highly specialized, differentiated viewership and are able to retain user
attention (stickiness) are able to charge higher advertising rates.
Yahoo.com, for instance, derives a significant amount of its revenue from
selling advertising such as banner ads. This model, originally one of the
primary revenue models for the Web, has fallen somewhat into disfavor,
although advertising remains a primary source for Web-based revenue.
Subscription Revenue Model
Web site that offers its users content or services charges a subscription fee
for access to some or all of its offerings. For instance, Consumer Reports
Online provides access to its content only to subscribers, who have a
choice of paying a $4.95 monthly subscription fee or a $24.00 annual fee.
Experience with the subscription revenue model indicates that to
successfully overcome the disinclination of users to pay for content on the
Web, the content offered must be perceived as a high-value-added,
premium offering that is not readily available elsewhere nor easily
replicated. Yahoo, for instance, has broadened its business model to
include a monthly $9.95 subscription to Yahoo Platinum, which gives
viewers access to CNN, NASCAR racing, ABC News, and other video
feeds.
Transaction Fee Revenue Model

A company receives a fee for enabling or executing a transaction. For
example, eBay.com created an online auction marketplace and receives a
small transaction fee from a seller if the seller is successful in selling the
item. E-Trade.com, an online stockbroker, receives transaction fees each
time it executes a stock transaction on behalf of a customer.
Sales Revenue Model
Companies derive revenue by selling goods, information, or services to
customers. Companies such as Amazon.com (which sells books, music,
and other products), LLBean.com, and Gap.com, all have sales revenue
models.
Affiliate Revenue Model
Sites that steer business to an affiliate receive a referral fee or
percentage of the revenue from any resulting sales. For example,
MyPoints.com makes money by connecting companies with potential
customers by offering special deals to its members. When they take
advantage of an offer and make a purchase, members earn points they
can redeem for freebies, and MyPoints.com receives a fee. Community
feedback sites such as Epinions.com receive much of their revenue from
steering potential customers to Web sites where they make a purchase.
3) Market Opportunity
Market opportunity refers to the companys intended marketspace (i.e., an area of actual or
potential commercial value) and the overall potential financial opportunities available to the firm
in that marketspace. The market opportunity is usually divided into smaller market niches. The
realistic market opportunity is defined by the revenue potential in each of the market niches
where you hope to compete. For instance, lets assume you are analyzing a software training
company that creates software-learning systems for sale to corporations over the Internet. The
overall size of the software training market for all market segments is approximately $70 billion.
The overall market can be broken down, however, into two major market segments: instructorled training products, which comprise about 70% of the market ($49 billion in revenue), and
computer-based training, which accounts for 30% ($21 billion). Within each of those major
market segments there are further market niches, such as the Fortune 500 computer-based
training market, and the small business computerbased training market. Because the firm is a
startup firm, it cannot compete effectively in the large business, computer-based training market
(about $15 billion). Large brandname training firms dominate this niche. The startup firms real
market opportunity is to sell to the thousands of small business firms who spend about $6 billion
on computer-based software training and who desperately need a cost-effective training solution.
This is the size of the firms realistic market opportunity
4) Market Strategy
Market strategy is the plan you put together that details exactly how you intend to enter a new
market and attract new customers. Part of FreshDirects strategy, for instance, was to develop
close supply chain partnerships with growers and manufacturers so it purchases goods at lower
prices directly from the source. This helps FreshDirect lower its prices for consumers. By
partnering with suppliers that could benefit from FreshDirects access to consumers, FreshDirect
is attempting to extend its competitive advantages. Other companies, such as Yahoo.com, have
used a different marketing strategy. They invest heavily in advertising to get the word out about
their site. Simply introducing someone to a new site can be all that is needed to encourage them
to use it. AOL, in contrast, uses sampling of millions of free CD ROMs to attract new users.
AOL encloses CDs with free trial offers in magazines and newspapers across the country. By
distributing a huge volume of samples, AOL hoped that at least a small percentage would opt to
try the software and decide to become new subscribers. This strategy has proven to be very
successful for AOL, and today they have over 30 million subscribers worldwide.
5) Organizational Development
Organizational development that describes how the company will organize the work that needs to
be accomplished. Typically, work is divided into functional departments, such as production,
shipping, marketing, customer support, and finance. Jobs within these functional areas are
defined, and then recruitment begins for specific job titles and responsibilities. Typically, in the
beginning, generalists who can perform multiple tasks are hired. As the company grows,
recruiting becomes more specialized. For instance, at the outset, a business may have one
marketing manager. But after two or three years of steady growth, that one marketing position
may be broken down into seven separate jobs done by seven individuals. For instance, eBay.com
founder Pierre Omidyar started an online auction site to help his girlfriend trade Pez dispensers
with other collectors, but within a few months the volume of business had far exceeded what he
alone could handle. So he began hiring people with more business experience to help out. Soon
the company had many employees, departments, and managers who were responsible for
overseeing the various aspects of the organization.
6) Management Team
The management team responsible for making the model work. A strong management team gives
a model instant credibility to outside investors, immediate market-specific knowledge, and
experience in implementing business plans. A strong management team may not be able to
salvage a weak business model, but they should be able to change the model and redefine the
business as it becomes necessary. Eventually, most companies get to the point of having several
senior executives or managers. How skilled managers are, however, can be a source of
competitive advantage or disadvantage. The challenge is to find people who have both the
experience and the ability to apply that experience to new situations. To be able to identify good
managers for a business startup, first consider the kinds of experiences that would be helpful to a
manager joining your company.
References
1) Afuah, A. 2004. Business Models: A Strategic Management Approach. New York:
McGraw-Hill/Irwin, pp. 67-69
2) Wagner, E. 2013. 5 Business Model Components Every Entrepreneur Needs [online].
Available from: http://www.forbes.com/sites/ericwagner/2013/05/23/5-key-businessmodel-components/ [Accesses 20 October 2014]
3) Baden-Fuller, Charles; Mary S. Morgan (2010). "Business Models as Models".Long
Rang Planning 43 (2/3): 156171.
4) George,G and Bock AJ. 2011. The business model in practice and its implications for
entrepreneurship research. Entrepreneurship Theory and Practice, 35(1): 83-111
5) Business Model Generation, Alexander Osterwalder, Yves Pigneur, Alan Smith, and 470
practitioners from 45 countries, self-published, 2010
6) Hummel, E., G. Slowinski, S. Matthews, and E. Gilmont. 2010. Business models for
collaborative research. Research Technology Management 53 (6) 51-54.
7) Unpacking Sourcing Business Models: 21st Century Solutions for Sourcing Services, The
University of Tennessee, 2014
8) Pedersen, Kristian Bonde; Svarre, Kristoffer Rose; Slepniov, Dmitrij; Lindgren,
Peter. "Global Business Model a step into a liquid business model"
9) Chen, T. F. 2009. Building a platform of Business Model 2.0 to creating real business
value with Web 2.0 for web information services industry. International Journal of
Electronic Business Management 7 (3) 168-180.
10) Do Some Business Models Perform Better than Others?, Malone et al., May 2006
ANALYSIS OF THE EBAY.COM BASED ON THE KEY ELEMENTS OF A

BUSINESS MODEL
VALUE PROPOSITION
eBay has been able to grow and thrive by offering a lot of value to both buyers and
sellers. Some of the values both parties take advantage of, while others appeal to one side
more than the other.
Buyer
Buyers have known for a long time that eBay is an established name in the online
marketplace. They have grown to trust the marketplace system that eBay has created.
eBay has also sought to keep customer satisfaction high by creating and offering a range
of community features such as customer support boards. Additionally, through the "Daily
Deal" and "Fashion Vault" programs most buyers have come to appreciate the value that
they can find on eBay. Shopping online is, for many people, much more convenient than
traditional forms of shopping. With the ability to compare many different products
between many different sellers all without getting out of a chair the convenience and
selection factors of eBay are very hard for a single website or brick-and-mortar store to
match.
Seller
Sellers know that by listing with eBay they will reach a vast and global online audience.
For example at the end of 2010, eBay had approximately 94.5 million active user
accounts. A user is considered active if they have bid on, bought, or listed an item in the
last 12 months. It is also possible for sellers to reach audiences that are interested in outof-season, end-of-life, used, or vintage items through the marketplace. In fact the fastest
growth rates in growth merchandise and sold items have been in the fixed-price format
for items that are not in-season. eBay also prides itself on its ability to process buyer
payments efficiently and economically. Buyers might take this feature for granted but any
sellers that have attempted to run their own online stores see this as a strong value.
For success in the value proposition, eBay need to be considering for important factors:
Factor 1: Marketplaces Value Proposition
eBay creates a global platform that provides individuals and businesses of all types and sizes
with access to broad market. eBay has aggregated a significant number of buyers, sellers and
items listed for sale, which in turn has resulted in a vibrant online commerce environment. The
buyers enjoy an extensive selection of goods and services. Key components of our community
philosophy are maintaining honest and open marketplaces and treating individual users with
respect. eBay maintain the satisfaction and loyalty of our buyers and sellers by offering a variety
of community and support features, such as announcement and bulletin boards, customer support
boards and personal pages, as well as other topical and category-specific information exchanges.
Generally, eBay believe Marketplaces platforms are more effective, relative to most available
alternatives, at addressing markets of scarce new goods, new items that are no longer in-season,
end-of-life products and used and vintage items. Highest growth rates in gross merchandise
volume (GMV) and sold items in recent periods have been in our fixed-price listing format,
primarily for new items that are no longer in-season. eBay define GMV as the total value of all
successfully closed items between users on eBay Marketplaces trading platforms during the
period, regardless of whether the buyer and seller actually consummated the transaction
(excluding Rent.com, Shopping.com and eBays classified websites). By offer our buyers
additional ways to get access to reduced-price products, including through our Daily Deal
program where we offer multiple highly discounted deals from sellers every day.
We seek to attract buyers and sellers to our community by offering:
Buyers
Sellers
Trust
1) Access to broad global market
Value
2) Efficient marketing and distribution
Selection
3) Opportunity increase sales
Convenience
Factor 2: Customer Value Proposition

A customer value proposition is a business or marketing statement that describes why
a customer should buy a product or use a service. It is specifically targeted towards
potential customers rather than other constituent groups such as employees, partners or suppliers.
A strong customer value proposition eBay need to consider factors as below:
1. Free shipping (flat rate couriers)
-
Free shipping can help set apart from competitors. Try adding it into product prices
and see if it increases conversions; it might be surprised from the lift even if product
prices stay static.
2. Reviews
-
eBay provides number of positive reviews, no. of negative reviews and no. of neutral
reviews along with this the one can also view the comments.
3. eBay guarantee
-
They claim to put safeguard in place in case the eBay purchase experience goes
wrong to make sure that the customer gets the item they wanted or the money be
refunded including shipping.
4. Paisa Pay
-
Paisa Pay is an eBay payment processing service. It is a fast, easy and secure way to
accept credit, debit card and online bank transfer payments from buyers. This service
eliminates the delay and hassle of conventional cheque/ demand draft payments.
5. eBay Feed
-
Customized feed for individual customer. Some key features of eBay feed include:
What you want is what you see : Users can create their own home page on
eBay, based on interests, trends and brands, which matches and fuels their
passion.
Discover Possibilities: eBay Feed is intuitive. Users get a practically
infinite range of products in categories, which matter to them the most
Reflecting Personality: Everyone has a distinct personality and eBay Feed
populates products which define them, inspire them and hence give them
an opportunity to discover themselves.
Its social: The eBay Feed gives an opportunity to expose your inspirations
and showcase who you are on social platforms.
Time Savers: The eBay Feed saves your time as it showcases each users
unique requirement on one customized home page.
6. Fast Delivery
-
Consumer appreciates for the product to be delivered promptly; it makes them come
back for another purchase. Many wouldnt mind paying a little extra for this service.
7. Quality Assurance and Trust

-
Since the customer is ordering online they cannot touch and feel the product, it is
important that they get quality assurance and trust factor in terms of value for money
and service.
REVENUE MODEL
eBay is the world's largest auction online marketplace - where practically anyone can sell
and bit for practically anything at any time. Millions of collectibles, appliances,
computers, furniture, equipment, vehicles, and other miscellaneous items are listed,
bought, and sold daily. eBay does not actually sell goods that it owns itself. It merely
facilitates the process of listing and displaying goods, bidding on items, and paying for
them. It acts as a marketplace for individuals and businesses that use the site to auction
off goods and services. eBay generates revenue from a number of fees such as:
Insertion fees - charged for any item that is listed on eBay, the fees is
nonrefundable
Promotional fees charged for extra listed option that attract attention for an item
Final value fees a commission at the end of the auction that is charged to seller.
Transaction fees from Paypal an online paying services system for users to buy
items online more conveniently as well as
advertising fees.
So how does eBay make all of this revenue exactly?

1. Enterprise
The final revenue stream was eBay Enterprise, which is eBay's company that
specializes in helping brick and mortar retailers create online shopping sites for their
brands. It also provides its clients with services that include help with marketing
solutions, as well as consumer engagement, customer care, payment processing,
fulfillment, fraud detection, and technology integration services.
This sector brought in $238 million, or 6% of eBay's total revenue.
2. Marketplaces
The second biggest moneymaker for eBay is its marketplaces, or where people like
you and I go to buy things. And, like it does with PayPal, eBay makes its money from
the section on transaction fees, which apply to sellers. The company lets users list
their first 50 items every month for free. Beyond that, eBay charges a set amount,
depending on what the item is. For fixed price Books, DVDs & Movies, Music, and
Video Games listings, it is 5 cents. For auction-style and fixed price listings in all
other categories, it is 30 cents. In addition, eBay takes 10% of the total amount of the
sale for every listing, though its maximum fee is $250.Users also have the option to
pay more for certain services. For example, they can spend an extra 35 cents for
larger pictures on auction-style listings or 50 cents to put extra descriptive
information. Prices for these fees depend on the style of listing (either auction or price
fixed) and the duration of the listing (from three days to a month).Now, these fees
may seem fairly insignificant, but eBay had 124 million active marketplace users in
the third quarter, and all of this added up to give the company a total of $2 billion, or
51% of revenue.
3. Paypal
Over a third of eBay's revenue comes from fees generated by PayPal. In the third
quarter of last year, eBay reported $3.9 billion in revenue. $1.6 billion, or 41%, of
that came from PayPal. The money that eBay makes through PayPal comes through
transaction fees from sellers and people who use it to transfer money. Here is how
those fees break down.
Sellers: For the most part, PayPal takes a 2.9% transaction fee on the total sale
amount, plus a $0.30 fee per transaction. Fees can go as low as 2.2% for
discounted rates, or as high as 3.9% on international sales. When using a
PayPal Here card, the company takes 2.7% for every swipe, or 3.5%, plus
$0.15, for every time a card number is typed in
Transfer fees: while sending money inside the United States is free from a
person's PayPal balance or bank account, there is a fee of 2.9%, plus $0.30,
per transaction for sending from a debit or credit card. When sending money
outside of the United States, the fees range from 0.5% to 2%, depending on
the destination, when they are funded with a bank account or PayPal balance.
There is a 3.4% to 3.9% fee for users who pay with a credit or debit card.
Considering that eBay purchased PayPal for the price of $1.5 billion, and it made more than in
just the last quarter alone, it's looking like a pretty wise acquisition right about now.
COMPETITIVE ENVIRONMENT
A.
Dominant Economic Traits

1.
Market Size The market for Internet-based businesses is fairly large and
growing. In 2003, business-to-consumer e-commerce accounted for
about $222.7 billion in total revenues worldwide, and business-tobusiness e-commerce was said to account for about $1.4 trillion. Online
auction total revenues for 2003 are estimated to have been nearly $25
billion. Furthermore, it is estimated that about 60% of U.S. households
owned a PC and nearly 70% of the U.S. population had access to the
Internet (through work or home computers). Future growth of this
market is expected to be strengthened, and possibly accelerated, by the
availability of cheaper personal computers, as well as the hopeful
deregulation of telecommunications throughout Europe and Asia (this
should lower the average cost of Internet access in those areas).
2.
Scope of Competitive Rivalry Because of the international existence of the

Internet, online retailers and online auction sites can compete
internationally; however, there are certain considerations (currencies,
delivery channels, languages) that force rivals to compete at the national
level.
3.
Rivals There are a number of online auction sites that operate within the
online retail industry. These sites serve as marketplaces for buyers and
sellers (be they businesses or consumers) to purchase a variety of goods
and services. They can range from a more specialized product offering
(e.g. SkyAuction.com and travel) to a broader spectrum of goods and
services (e.g. eBay, Yahoo Auctions, uBid).
4.
Customers Revenues from online auction sites can come from both sellers
and buyers. Sellers are commonly charged a fee for listing their
goods/services and occasionally a commission from all

transactions. These sites can also generate revenue from selling their
own merchandise (or other sellers) directly to buyers. The number of
customers worldwide with the potential to access online auction
websites is estimated to reach nearly 800 million by the end of 2004.
5.
Vertical Integration Some Internet-based companies do vertically integrate

certain aspects of the value chain. Some companies, such as eBay and
Priceline.com, are active in developing their own software to manage the
operations and transactions of their respective websites. eBays recent
acquisition of PayPal, Inc. presents an example of integrating a method
of payment with its core auctioneering services. Yahoo provides the
services of an ISP to connect customers to the Internet, a search engine
to navigate the Internet, and content pages to act as destinations for
consumers (to shop, communicate, be informed, or be entertained).
6.
Ease of Entry The barriers to entry for new entrants into the online retail
industry can be fairly low. Since many of the traditional value chain
activities required for business can be outsourced and necessary software
can be easily purchased (as opposed to high cost software R&D), the
initial capital investment of a new entrant can be quite low. The largest
barrier for new entrants would be the possible costs associated with
overcoming existing brands with high-traffic websites.
7.
Technology and Innovation The development of technology, both

hardware and software, is fairly fast-paced in the online retail
industry. Today, advances in computer and Internet technologies are
making it easier and more affordable for both consumers and businesses
to shop and supply online retailers. Technology is also allowing
companies to streamline their supply-chains and better protect the
valuable information accumulated from their websites.
8.
Product Differentiation Online retailers and auction sites are primarily

differentiated by their clientele and product offerings. Some sites
concentrate on business-to-business transactions while others focus more
on business-to-consumer or consumer-to-consumer transactions. Still

others wish to participate in all of these transactions. With regard to
product offerings, a number of sites may specialize in a specific category
of items while others try and provide a marketplace for various products.
9.
Industry Profitability Profitability for online retail or online auctioneering

is moderate. It has the potential to be a very lucrative enterprise since it
requires less capital investment and offers a more global reach than
traditional brick-and-mortar equivalents. Also, there is a network
effect with regard to online auction sites, where a large number of
buyers of products will result in more sellers, who in turn attract more
buyers. However, profitability is limited by its low barriers of entry
(which result in more competition), as well as the need for companies to
focus many resources towards developing and maintaining a
recognizable brand identity.
B.
Competitive Forces
1.
Rivalry among Competitors Moderate. Rivals in the online retail and

online auctioneering segments of the Internet economy essentially
compete in attracting the attention of potential customers. This has
forced companies to compete based on inventory management, extra
offered services and fees, quality of technical support, functionality of
the website, and a sense of community among customers (both buyers
and sellers). Rivalry among competitors is further strengthened by the
low costs for customers to switch brands, as well as the direct
competition between rivals with broader product offerings (Yahoo
Auctions, eBay). Competition among companies has been moderated by
the rapid expanding nature of the Internet economy (which causes rivals
to compete for new customer demand rather than stealing away
anothers customers) and differentiation among rivals concentrations
(many online retail and auction outlets are specialized in certain product
categories and target a specific niche customer segment).
2.
Potential New Entrants Moderate. New entrants may be attracted by the

low capital and labor requirements that exist for online retailers and
auctioneers. Also, little government regulation and the wide-spread
availability of necessary software and hardware both contribute to fairly
low barriers of entry. However, the importance of brand recognition
does moderate this competitive factor. Well-established brands can be
significant in generating online traffic, as well as attracting and retaining
customers. For new entrants, the process of developing and establishing
a recognizable brand can be slow and costly.
3.
Substitute Products Moderate to Strong. Online auctioneers, such as eBay,

find themselves competing against numerous substitute outlets. Brickand-mortar auction houses and liquidators allow participants to sell and
bid on various goods and services. Flea markets, garage sales, classified
advertisements, and collectibles shows also offer some of the
characteristics of online auctions: variable pricing, direct exchange
between buyers and sellers, and hard-to-find items/collectibles. Brickand-mortar retailers, import/export companies, and catalog/mail order
companies all provide other non-Internet-based options for
customers. Online, large retail sites (Wal-Mart) and specialty retailers
(Dell, Footlocker) can provide similar convenience and brand
recognition. The large number of substitute outlets gives customers
more options, thus strengthening the impact of substitutes as a
competitive force.
4.
Supplier Bargaining Power Weak to Moderate. The suppliers to online

auction sites are, in effect, the clients who sell products through those
sites. It is widely believed that more sellers to a site will attract more
buyers. Casual sellers and hobbyist/collector sellers are considered to
make up the majority of suppliers to online auctions and are
characterized as large in number and unorganized. However, it should
be noted that these sellers are slowly organizing into groups (e.g. the
Online Sellers Association) and could become more influential over
time. Power and corporate sellers are smaller in number; however, their
participation is increasing in both volume and frequency.
5.
Buyer Bargaining Power Weak to Moderate. The buyers of online auction

sites are, in effect, those users who bid on the sellers products through
the site. It is also widely believed that more buyer traffic at a site will
attract more sellers to participate. Bargain buyers and hobbyist/collector
buyers are considered to make up the majority of buyers to online
auctions and, like their seller equivalents, are characterized as large in
number and unorganized. Professional buyers, much like
power/corporate sellers, are smaller in number but are increasing in their
participation.
COMPETITIVE ADVANTAGE
eBay competes in the online auction industry using broad differentiation strategy. By
choosing this strategy eBay determined that the best way to achieve a sustainable
competitive advantage over its rivals was to differentiation their service. The way in
which eBay has set their online auction site apart from its competitors has lead customers
to prefer their site over other online auctioneers and retailers.
eBays Broad Differentiation Strategy
eBay has created a one-stop-shopping experience that is appealing to large corporations,
independent entrepreneurs, and individual buyers and sellers. They have created value
through many facets of their business that appeal to their customer and differentiate them
from the competition. The main ways that eBay differentiates themselves is through:
1. Variety of products offered
When customers visit eBay they can search for virtually any product. eBay
boasts a category variety not matched by any competitor with over 27,000.
2. The eBay Community
eBay wants their customers to feel like they are part of a community. This
community feel gives customers the sense that they are branch of something and
cared about. By showing the customers that their feedback, opinions, and
feelings are important eBay has gained tremendous ground with their customers.
3. The eBay Website
The eBay has created an auction and retail website that is unique and interesting.
This creative site sets them apart from their competitors. The site is set up with
many facets that reach a broad span of visiting buyer and sellers. This site is also
entertaining and easy to use making it very appealing for online shopping and
trading.
4. The eBay Brand Name

eBay was creator of the online auction industry. When customers think of online
buying the immediately think of eBay. This has given them a competitive
advantage that sets them apart from other online auctions.
5. eBays Global Reach
The global reach of eBay is not achieved by any other online auction site. For
large corporation international selling and buying is done every day. Even for an
individual buyer or seller, having the option of searching throughout 150
countries with a span of 94.9 million users is very appealing.
RECOMMENDATION (3 SUGGESTIONS) TO IMPROVE THE COMPETITIVE

ADVANTAGES OF EBAY
STRATEGIC RECOMMENDATION AND IMPLEMENTATION STRATEGY 1
Strategic Recommendation for eBay Preserving Their Core Business
Weakness: Focusing on secondary market of business
Recommendation: Following their original success in the Auction industry
Problems
To compete in the fixed price marketplace, eBay passed a series of policies and site
changes that favored power seller at the expense smaller sellers. As casual sellers
abandoned the site, buyers have migrated elsewhere in search of the hard-to-find product
upon which eBay built its business. eBays traffic was down 5.2% last month over the
previous year. The more eBay has tried to be a retailer, the more its customer have
gravitated to sites offering better overall shopping experiences with lower total prices,
better customer service, and predictable deliveries; not to mention the avoidance of the
risk of fraud. The percentage of eBays visitor who shopped at Amazon visitors crossshopping of eBay has remained unchanged at 58%, suggesting eBays fixed-price
strategy has failed to attract significant numbers of new shoppers to the site. By focusing
so much on fixed-priced items sold by large sellers, eBay has blurred the distinction
between it and the litany of shopping comparison sites and tools on the web (such as
shopping.com which eBay also owns). In so doing, eBay has traded away much of the
brand equity that once set it apart from the rest of the online retailing universe. With its
greater emphasis on fixed-priced goods, its not surprising that eBay has seen a steady
increase in the number of shoppers making Buy-It-Now purchases over the past year.
In February, 11% of eBays visitors, or 7.8 million customers, made a Buy-it-Now
purchase (up 20% from the previous year). However gains in fixed-priced activity have
been eclipsed by declines in eBays traditional auction business. The percentage of
eBays traffic that made a bid on an auction-style listing dropped from 13.5% in February
2008 to 12.2% last month. In total, 1.5 million fewer shoppers placed a bid on eBay last
month than did last February.
Solutions
eBays challenges are multi-faceted and it remains to be seen whether by simply
returning to its roots as an auction site it can win back buyers and sellers who have long
since given up on using the site. Online retailing has evolved significantly since eBay
was founded over a decade ago. Savvy consumers have learned how and where to find
deals online, but value intangibles beyond price when making their purchase decisions.
Consumers expect a level of service that in some respects is beyond eBays ability to
control in its role as middleman. Given that, eBay would be better served looking beyond
product strategy and focusing instead on improving the shopping experience for buyers
and sellers as its constant tinkering seems to be doing more harm than good.

Strategic Recommendation for eBay Skype
Weakness: Acquiring unrelated businesses which become a distraction to the core
business
Recommendation: Decide a strategy which will best benefit eBays financials, while
also removing Skype from the companys profile
Problems
eBay has recently taken on the purchase of VoIP provider Skype to add to their company
portfolio. The cost of the acquisition to eBay was $ 2.6 billion. This purchase has been
heavily criticized since its decision, but still very much supported by the management at
eBay. It has seen growth in revenues and also customers since its acquisition, along with
becoming one of the largest long distance phone companies. The issue which arises from
this business is the concern of its success into the future and also its relevance to eBays
core business.
Solutions
The economy will play a large role in the timing and success in handling a move with this
business. The two potential strategies to follow would be most successful in a time of
expansion, when more money is available to be invested. A spin-off of Skype through an
IPO is the first strategy to consider given its recent success. This would allow eBay to
receive some return on its original investment while allowing Skype to be ran under its
own ownership. Although, the issue with this strategy is two-fold. First, the markets are
currently not successful in IPOs because of the riskiness and also the lack of additional
funds by investors. This has placed nearly all IPOs on hold for the near future. The
expectation is that this will be the case until at least 2010, with the possibility that it may
take longer, when market become more successful and investors will be looking for
investments to take with this sort of risk. The issue of this eBay comes with the need of
extra cash flow to handle new strategies and growth. Also, it will be important to them to.
A more successful approach for eBay to take would be the strategy of making Skype look
very attractive for a straight buyout. This is situation which could happen quickly as there
are some companies, especially in the technology sector, which have stable business with
enough cash to handle a purchase of this size. Another reason for a company to choose a
take over this business would be to set themselves up for high growth, in faster pace than
the economy. This will happen due to having additional fee cash flow from the sale which
would be used in other areas of its business. This will become available more rapidly then
other strategies which could take time waiting to implement. Skype is currently a profit
making business and would need to market its financial highlight to suit a buyer. This
business is nearing $600 million in revenue and is still showing sign of growth in the
industry. With the right buyer, Skype has potential to reach new heights by partnering
with another successful product. There are companies which have shown interest in the
purchase of Skype and this includes the original founders. With many suitors interested in
the company, eBay can build a sort of bidding war in order to receive a return their
investment. The current valuation of the Skype company has come to equal about $2
billion, while the purchase price in 2005 was $2.6 billion. It has also been mentioned that
it could receive between $5-$6 billion from a larger company interested in increasing the
technology in one of their previously existing products. The recent success of the
company leads us to suggest purchase of this company by Apple, Google or Verizon
Wireless. There companies are the big three which should be considered and contacted
for the sale of this company. They all have free cash flow and other strong financial
which could support this type of purchase and most importantly, pre-existing products
which could adapt the new technology they obtain to be more successful in their industry.

Strategic Recommendation for eBay Chinese Expansion
Weakness: Weak expansion result in China
Recommendation: Boost efforts to become a key player in the Chinese Market
Problems
One of the challenges eBay face in China is that country difficulty to adapt readily to the
Paypal system eBays uses. In much parts of China, for example, such electronic payment
systems remain a mystery, and many eBay deals are sealed only with face to face cash
payments. For instance, Chinese Unionpay holds credit card monopoly in China, which
makes it hard for Paypal to expand its service in China. Other concerns facing eBay in
China is that people feel insecure with making payments online. However, in 2005 Yahoo
agreed to buy a 40% stake in eBay main competitor in that country, Alibaba.com, for $1
billion. The expertise of the two giants can easily cause more trouble for eBay and unless
eBay act quickly to counter this, eBay can once gain be out competed like it did in a
similar way in Japan.
Solutions
Further strengthen the partnership with China pay: The fact that many people in China
do not have Visa, MasterCard or other western payment systems in a huge hinder for any
future success in China. By further strengthening its partnerships with China Pay, eBay
can make payment from its customers easier, which in the long run leads to a broader
market share.
Hire a Country Manager: Today, Korea is eBays third largest international market. But
when Jay Lee was installed as Country Manager there in May 2002, he inherited a
catastrophe. The business was bleeding cash. A Korean himself, Lee understood that in
Asia theres a stigma against buying used goods. He moved the business from unrelated
areas like real estate listings and insurance to auction off newer items like digital
electronics, computers and fashion. Today, eBay Korea is on track to produce $ 1billion
in annual online sales. Because of his success in Korea, eBays head management put him
in charge of its expansion in China as well, which believe is wrong move. eBay thinks
this is a country-by-country-race, and putting someone charge who had success in Korea
doesnt necessary mean he is going to be successful in China likewise. By hiring a local
manager that has the experienced and reputation would be the best move for any future
success in the region. Lee understood the Korean market, because hes Korean. eBay
need to find someone who similar to Lee, but has the expertise in the Chinese market
instead. That way eBay can gain on all the advantages the Chinese market has to offer.
Conduct Research: eBay need to put more effort into researching that market. It needs to
conduct more market researches and find out what the needs of those customers are. This
can be done through survey, interviews and tests. This will give eBay valuable
information on what is lacking and what it needs to do. Once its result of the information
is clear it needs to implement those strategy in areas they are weak. Change agent
programs that are working should be kept and those which are not should be abounded.
Increase Advertisement: After all the plans above have been implemented, eBay should
increase its effort to advertise its service to its customers. Letting people know the benefit
of shopping on eBay and eliminating its customers doubt and insecurity of shopping
online. Good and beneficial services along with strong marketing are well known
ingredients in any corporate success.
SUMMARY
eBay provides online market places for the sale of goods and services as well as other
online commerce or ecommerce, platforms and online payment solutions to a diverse
community of individuals and businesses. The company operates its business through
three segments: Marketplaces, Payments and Enterprise. In June 2013, eBay renamed the
GSI segment as Enterprise. eBay was founded by Pierre M. Omidyar in September 1995
and is headquartered in San Jose, CA. The Business Model of eBay is an online personto-person trading community on the Internet, using the World Wide Web. Buyers and
sellers are brought together in a manner where sellers are permitted to list items for sale
and buyers to bid on items of interest, also both sellers and buyers are able to browse
through all listed items. The items are arranged by topics, where each type of auction has
its own category. eBay value proposition is measured by seeing the companys common
goal, creation of a marketplace where sellers and buyers can trade freely. eBay generates
revenues from the transactions and payments it successfully enables. In addition, eBay
also generates revenues through marketing services, classifieds, and advertising.
eBay business simply [has] not kept pace with the changing competitive environment nor
kept pace with our customers needs. eBay was one of the few major Internet companies
impervious to the dotcom bust. It had been born with a business model so efficient that it
had been instantly and consistently profitable. . The strongest competitive advantage of
eBay is strategy that cannot be imitated by other companies such as Amazon and Alibaba.
Competitive advantage can also be viewed as any activity that creates superior value
above its rivals. A prime example of an upstart gaining an early competitive advantage by
being first-to-market with a new business model is eBay the world's largest online
auction site, with more than 22 million registered users and roughly 8,000 product
categories. The recommendation of eBay will able to cover up the transformative cost by
selling Skype. Skype is not directly related to the auction business. To ensure future long
term growth of eBay, the company would have to enter the Chinese auction market.
Chinese will take over America with the largest number of the Web surfers as early 2010.
After two or three years of change, eBay will position in Global markets.
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"eBay Inc. Financial Statement Results". US Securities and Exchange Commission.

RetrievedFebruary 11, 2014.
Michael Galpin. "Eclipse at eBay, Part 1: Tailoring Eclipse to the eBay architecture".
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11,2008.
"Ebay.com Site Info". Alexa Internet. RetrievedAugust 14, 2015.
"Global Trade: 1. Finding International Items On eBay". ebay.com. Retrieved April

21, 2011. With sites in over 30 countries, eBay is the best place to find interesting and
exotic items at discount prices from sellers around the World
Suciu, Peter (April 18, 2008). "Skype and PayPal A Different Set of Rules". All
Business. Retrieved April 23,2008.
"August 10, 2007, 10:38 am BST post to eBay announcement board by eBay's staff".
.ebay.com. August 10, 2007. Retrieved February 25, 2010.
"Announcement posted in a section on eBay called Changes in 2008". Web.archive.org.

February 15, 2008. Archived from the original on February 15, 2008.
Retrieved November 1, 2011.
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Competition and Consumer Commission. May 13, 2005. Retrieved October 21, 2012.
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ASSIGNMENT E-COMMERCE SEPTEMBER 2015

BACHELOR OF BUSINESS ADMINISTRATION WITH HONOURS

IDENTITY CARD NO.

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The key elements of a business model

Reference of the key elements of a

Analysis of the eBay.com based on the

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Devin Wening, new eBay CEO and President since 2015

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Fred D. Anderson, former managing director of Elevation Partners, director of eBay

Edward W. barnholt, former president and CEO of Agilent Technologies, director of

Scott Cook, founder of Intuit, director of eBay since June 1998

David Dorman, non-executive chairman of Motorola, director of eBay since June

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Form 2012 - present

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THE KEY ELEMENTS OF A BUSINESS MODEL

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Transaction Fee Revenue Model

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ANALYSIS OF THE EBAY.COM BASED ON THE KEY ELEMENTS OF A

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1) Access to broad global market

2) Efficient marketing and distribution

3) Opportunity increase sales

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Factor 2: Customer Value Proposition

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7. Quality Assurance and Trust

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So how does eBay make all of this revenue exactly?

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Dominant Economic Traits

Scope of Competitive Rivalry Because of the international existence of the

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goods/services and occasionally a commission from all

Vertical Integration Some Internet-based companies do vertically integrate

Technology and Innovation The development of technology, both

Product Differentiation Online retailers and auction sites are primarily

ASSIGNMENT E-COMMERCE SEPTEMBER 2015

on business-to-consumer or consumer-to-consumer transactions. Still

Industry Profitability Profitability for online retail or online auctioneering

Rivalry among Competitors Moderate. Rivals in the online retail and

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Potential New Entrants Moderate. New entrants may be attracted by the

Substitute Products Moderate to Strong. Online auctioneers, such as eBay,

Supplier Bargaining Power Weak to Moderate. The suppliers to online

ASSIGNMENT E-COMMERCE SEPTEMBER 2015

Buyer Bargaining Power Weak to Moderate. The buyers of online auction

ASSIGNMENT E-COMMERCE SEPTEMBER 2015