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Ebay: Facing The Global Challenge

Essay by   •  March 26, 2011  •  1,109 Words (5 Pages)  •  2,002 Views

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Executive Summary:

The e-commerce industry has become a major player in the global retail environment. E-Bay's large operating history has allowed the company to build a social capital of internet buyers and sellers that has now become its competitive advantage. However, intense competition in e-commerce has lead major players to lead expansion efforts in foreign markets where growing economies exist and the number of internet users is abundant. As a facilitator of online buyer-seller transactions, the only obstacle the company needs to overcome is quickly introducing its presence in new foreign markets where growth opportunities have been identified.

Industry Analysis:

The online auction industry is currently in the growth stage of its life cycle. The low prices and convenience of an at-home search and buy environment offered will continue to drive high demand in international e-commerce even after 2009. International e-commerce will account for more than twice the amount of all internet transactions than the United States (See Exhibit A).

Aside from the opportunities that exist in international e-commerce, the low barriers to entry will continue to attract new competitors to launch online retail sites at minimal costs and in a short amount of time using commercially available software, and offline retailers to develop online sites as well. As the industry is relatively new, competitors will need to concentrate on many factors such as the ability to attract buyers, volume of transactions and selection of goods, sustainable trust, and ability to keep fees and commissions low. The power of suppliers in the online auction industry will force competitors to reduce selling costs in order to keep a large supplier base and attract new sellers by offering higher profits per sale.

For example, underdeveloped infrastructures and the lack of technological innovation in countries such as China, India, Brazil, and Russia make it difficult for online retailers to penetrate opportunities that exist from capitalizing on new internet users and buyers in these countries. However, their large population levels relative to the number of internet users show low internet penetration levels (See Exhibit B). Such countries are considered potential for future growth in e-commerce as their infrastructure develops with technological innovation.

Competitor Analysis:

Many of eBay's current and potential competitors will not be able to attract the number of registered users' equivalent to or beyond eBay (See Exhibit D) because they do not have longer operating histories and greater brand recognition that has been attained by eBay's network economies from its first-to-market advantage.

On the other hand, the strategic partnerships formed by eBay's competitors in foreign markets pose a serious threat in its future ability to expand in new countries and increase share in growing markets such as China. Yahoo's strategic alliance with Alibaba's TaoBao has captured 58% of the Chinese online auction market. EBay's EachNet has attained roughly 35% of that market. Amazon strategic alliances with other brick-and-click retailers will allow it to continue bringing more value to the customer in terms of convenience, selection, and availability, which in turn will continue its competitive pressure on eBay.

In terms of services offered, Yahoo auctions and Amazon both offer fixed-price sales that do not distinguish eBay from the competition. In fact, eBay's fixed-price trading is expected to account for 46% (See Exhibit E) of eBay's gross merchandise sales by 2009 as buyers and sellers seek to facilitate quicker turnover and receipt of desirable products at cheaper prices relative to online competitors. These additional liabilities that are incurred by other online retailers will have to be obligations passed down to the consumer that will reduce their overall value and make eBay more price competitive.

Financial Analysis:

EBay has continued to grow its profit margins as well as total assets, demonstrating its overall success and growth as a company (See Exhibit F). The growing increase in liabilities is mainly due to the company's continued investment in the areas of international expansion. Compared



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