Ebay

I. eBay's Vision:

eBay was founded in the San Jose living room of Pierre Omidyar back in September 1995. The basic vision Omidyar had when he founded what became eBay was to create a person to person trading community based on democratic market principles; these principles allowed for a free flow of information, communication and ultimately transaction on tens of millions of items through the internet. Along with the help of Meg Whitman, a skilled branding manager, and a senior staff from such heavily branded companies as PepsiCo and Disney, they established a strong mission for the company- that eBay be a company that is in the business of connecting people, not selling them things. This founding vision set the course for eBay's explosive growth from 1996-2003, making it the world's online marketplace for the sale of goods and services by a diverse community of individuals and businesses.

II. eBay's Business Model

Since its inception in 1995, eBay has become the market leader and innovator in the online auction industry and its brand has accordingly become synonymous with e-commerce. Rapid growth and being the first to market served eBay's competitive strategy of differentiation well; there was really nothing like it out there: unique service, broad range of products and global reach. In addition, their target audience was quite diverse-on the buyer side you had everyone from hobbyists and collectors to the bargain hunters; on the seller side you had antique dealers, casual sellers, mom-and-pop businesses selling unique items and finally large well-known corporations liquidating their inventory. Buyers and sellers are brought together in a manner where sellers are permitted to list items for sale, buyers to bid on items of interest and all eBay users to browse through listed items in a fully automated way. The items are arranged by topics, where each type of auction has its own category.

In terms of its core compentencies, eBay has both streamlined and globalized traditional person-to-person trading in the national and international arena, which had typically been conducted through such forms as garage sales, collectibles shows, flea markets and more, with their web interface. Their web design facilitates easy exploration for buyers and enables the sellers to immediately list an item for sale within minutes of registering.

eBay considers the national and international auction operations as two out of their three profit centers. The third profit center is their payment operations, such as their PayPal business; although not considered a core competency, the payment business has grown considerably with eBay's acquisition of PayPal in 2002. I will discuss the profit center figures in more detail under the financials section.

III. Industry Analysis:

Background

In terms of the online auction industry, eBay's main competitors have been both the traditional offline auctions, as well as online auction sites. Both the off- and online companies are fragmented and regional in nature, representing a difficult and expensive way to connect buyers and sellers, and typically offer a narrow group of goods to the consumer. More recently, eBay has ventured into the competitive ring of traditional retailing on the web with their fixed price offerings such as Half.com, competing against other internet retailing powerhouses like Amazon.com. However, eBay is now up against other multi-distribution retailers-those brick and mortar retailers, such as WalMart and Target, who also sell items from their websites.

Internet usage in general grew dramatically in the 1990s. With the internet came online retailing. The U.S. and Western Europe account for a majority of the internet users along with the customers in online retailing. However, internet usage is reaching a saturation point in the U.S. and Western Europe. Yet, this is a factor of the stage of development these countries are in; for developing nations high growth in internet usage is still expected but even that is predicted to slow to no more than 20% annually in the future. These developing nations are also seen as high growth for the online retailing industry which is forecast to reach $229.9 billion in 2008. In terms of the online auction industry, it is forecasted to be about 25% of online retailing or approximately $57.5 billion.

In terms of any internet industry, including the online auction industry specifically, technology is vital. Continual innovation is necessary to maintain a competitive advantage. For online auction sites, technology advancements in terms of security, ease of transaction, and communication is a necessity for survival.

The online auction industry is dominated by eBay, holding a 93.6% market share at the end of the third quarter of 2003. Amazon is the next in line with a meager 1.1% market share. The remaining competition is very regional in nature which could pose an issue to eBay in looking for expansion opportunities.

Porter's five forces

Entry/Exit Barriers: The competitive environment of the online auction industry is dominated by eBay, and has oligopolistic tendencies. However, the market can be entered and exited fairly quickly and easily. Little capital expenditure is required for start up. New companies can set up auctions at will on their own websites with little hassle and only the software development costs. However, a new entrant into the online auction industry is faced with the dilemma of attracting members.

Buyers: Buyers are a heterogeneous group comprised of both private individuals and businesses. These customers of eBay have little bargaining power; only the auction site controls who is on and who is not on its site, yet it is the buyers and sellers who decide and arrange on payment as well as distribution. eBay strives to create flawless software for easy item listing for its sellers. A typical eBay customer pays eBay twice for each transaction, once when the item is listed, and again when the item is sold and the final price is set. For the most part, customers are pleased with this service for a number of reasons depending on the size of the customer-it allows businesses to clear out old inventory, and to sell items without having to spend money on shelf space or storage, while it allows the average person to make some money while at the same time 'cleaning out their closets'. Because the eBay bidder network is so large, eBay sellers know that their items get more exposure, which usually equates