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Ebay Inc. Situation Analysis

Ebay Inc. Situation Analysis

The online shopping has become more and more popular, The high portion of merchant business have been open their business to online, consumers buying over internet is growing rapidly in recent years. Customer demand is broad based and evolving, the target market is large. There are 3 types of online shopping: Business to business., Business to person , Person to person.

People prefer to shopping online because its convenience, people can process their purchase with an PC at any their convenience time. Online shopping offers people abundant information of products and service. With online shopping, people have optimum opportunity to sequential research information about price, product…they can easily contact with sellers for more information on products or compare the price, company, product … to the similar online shops. The shopping online people will be limited on social interaction and their purchase decision will not be interfered or influenced by salesman.

The first time shoppers and those shoppers with less online shopping experience may be reluctant to purchase online because of high risks perception such as credit card security concerns, privacy concerns, lack of website credibility, inability to judge quality … The shoppers who have a satisfactory initial purchase will increase of repeated online purchase. The sellers who decide to place their product again on the website if they have successful in first time selling. The brand awareness of big shopping online websites is high. In general, the online shopper will purchase with loyalty and with a perception of different benefit and confidence which each brand name provide.

The majority online shoppers may include companies, or people who are educated and in age range from 18-65 years old with an almost equal number of men and woman.

The companies, who are in online B2B shopping, have particular goal- directed when they going to search information online. The decision of those purchase are made at home.

The supplier ‘s decision to place their product online s also made from home, after consideration about web traffic, cost of placement, payment security….

The people who decide go to online to shop only when they have specific purchase in mind. They may made decision to purchase products/ or service online at home because they have good experience with it, or they can suddenly made online purchase decision when they research information about the product on the website. Nevertheless, there are online shoppers who shop for fun, such as they may shop in auction site, or engage their hobby type of interest or enjoy bargains online.

While there are so many website provide online shopping service, and they all provide abundant information, the online buyers may easily switch their online purchase to other online shopping websites where they perceive that the website can offers more benefits such as convenience, information, and reduce buyer’s risk such as product quality, credit card information …The suppliers also easily to switch placing their products on website where they believe it will provide more customers and low cost.

The eBay has determined to expand business model for more products categories and increase more web traffic for both buyer and seller in order to broaden its customer based.

eBay was the most largest person-to-person trading community on the internet. From inception through beginning of 1999, more than 186 million bids had been made on the over 50 million items for sales. In Quarter 2,1999 revenue of gross merchandise sales is $622 million, with register users is nearly 6 millions people. Auction listed is growth from 289,000 items in 1996 to 29.4 Million in quarter 2 , 1999.

Growth is expected to be at 35%/year over the next five years , with gross merchandise sales of $2.6 billion at eBay in 2000, it estimates that the gross merchandise sales will be nearly 4 billion in 2004.

EBay ‘s market share in consumer-to-consumer auction is estimated 70%-80% of the market, with growth of 10% assumption, the estimation of auction listed items is nearly 47 Million in 2004, and market share will be increase up to 85-90% of the total market in the next five year.

As a whole, the internet population is younger and better educated that the general population. Most of online shoppers are in developed countries where the payment by credit cards is popular, and high security in credit card information, and privacy information. The online shoppers have difference purpose and hobby when they decide to make a purchase through internet.

Based on the structure of the market, the customer preference, it is best to analyze this market on a segmented basis

In the online auction business, the barriers to entry are low, and current and new competitors can launch new sites at a low cost by using commercially available software. eBay directly competes with all other exits competitors, the closest competitors were Amazon, Auction Universe, Yahoo, Excite’s Classified2000. In 1998 eBay estimated that its share of the person-to person auction market was 89%, Onsale Exchange and Excite auction each had less than estimated 2% of the market, with other smaller players having a combined 7%. However, recently, Yahoo and Amazon have entered to Person-to-person business and become the most dangerous eBay’s competitors.

Some of competitors, for example Amazon and Yahoo, have famous brand name, long operation history and large customer base. They also have strong financial resources and the same technology and have ability to do the same marketing strategy as eBay do.

Most competitors haves adopted advertising and promotion program which focus on lower fees and commission, promoting safety and security, provide more features for shopper’s convenience. Specially, Amazon recently extended its business to Business-to- Consumer auction, but they are going to force sellers and buyers to use their payment system.

Although the competitors have similar technology and software for their customer, they have not really successful because their auction business is too new to the market and they still have not get the scale of bidders and sellers.

Online auction were one of the fastest growing business model on the Web. The market size of online auction is around 29% of all e-commerce. There are literally hundreds of companies who were jumping into the online auction space, and became eBay ‘s competitors. While eBay ran on a consumer –to consumer model, other sites ran on a business- to –consumer basis.

However, so far, there is no any particular law for Internet to protect customer from the risks such as privacy information, quality of product, security credit card and email spam… That may make customer loose their trust on Internet and the online shopping in the future. There is evidence that the customer trust is the most concerned issue for e-commerce website. That is special true for consumer-to-consumer online auction where there is high percentage of the risk of fraud.

By using auction online, people from around the world, rather than location within a reasonable driving distance, could bid on the items. Online auction create a virtual community between sellers and buyers that allows the market to determine the value of goods. The online auction, which can provide more economic benefit, convenience and entertainment value to customer are still experiencing phenomenal growth.

Known as a young and dynamic business, shopping online are still in heavy customer demand, with the number of people purchasing online continuing to raise each day, the e-commerce is growing rapidly. There are so many competitors who enter the market and provide more offers to customer for shopping online. Except some dot.com companies who are lose, most of big companies are still gain their profit. eBay and its competitor are trying to maximum their brand awareness in the mass market. It shows that eBay and its competitor are in the growth stage of ecommerce product.

Compare with other industry, ecommerce have potential to reduce operating cost and overhead cost.. It estimates that the total cost (including tax) represents 85% of revenue ( 15% net income) and assume that the sales and marketing cost represent between 50-70% of the total cost, the cost of revenue (purchase ISP bandwidth, personnel cost…) is from 10-15%, overhead cost represent from 5-10% and the web maintenance and product development present 5-10% of the total cost. Due to technology is rapidly developed and almost of cost are for marketing and sales, we can conclude that most of the cost of doing business is a variable cost.

eBay has good website design and good software which can support over 300 million pay views per average day and provide several tools to support for its users . EBay has arguably become the most sophisticate website in the world.

eBay have good management team which includes experience and high technology skills programmers.

Furthermore, eBay can take the first move advantage in the market, eBay have longest year of experience in person-to-person auction, and the eBay’s community with millions registers is the most advantage to attract more buyers and sellers.

eBay earn about $130 Million to $200 Million in revenue every year, with gross profit earn from $80 million to $150 million each year. It assumes that the marketing and sales expense spent about 50% of gross profit, with the value from $40 million to $60 Million a year.

It can be referred that eBay have enough financial resources for its chosen effective marketing program.

Because of the characteristic of online business ,it only requires small sales force and no distribution channel are needed. By establishing the relationship with several websites, specially a close relationship with AOL, eBay attract its users and directly sell its service from the internet website

The trend of development of technology can provide eBay and its competitor a great opportunity to improve their service to customer, increase new revenue and lower customer service cost. There is still huge demand for online shopping and this demand currently is rapidly evolving because of its convenience and low cost for both sellers and buyers. Moreover, eBay was the pioneer in online person-to-person trading , so it can take the advantage of first moving firm in the market.

Beside of opportunity, eBay and its competitor also have to face with so many problems. The online business is much depended on technology, if system failures, company may loss a lot of time and money and its reputation. The rapid technology change also may cause problem to eBay if they cannot adapt it before competitors. The growth of online shopping is not consistent, it makes company difficult to predict future and build its strategy. Customers are still not completely trust on online shopping because of frauds, privacy disclose, un- security credit card information, email spam…., The developing of fraudulent or deceptive activities could damage company’s reputation, and diminish the value of its brand name or may be threatening lawsuit which could be costly for eBay and its competitors. The new government ‘s regulation on internet also may be harm to eBay and its competitors business.

The above problems may happen to either eBay or its competitor .On balance, the Opportunity is “somewhat favorable “ to eBay. It has a lot of experience in the person-to person business, it has millions number of registers and products, and it could take first in market advantages.

III Evaluation of Alternative Marketing Program

Alternative 1 :With potential market demand in online person-to-person business, eBay should develop a marketing program to maintenance and extend the person-to-person business market size and market share

Alternative 2: In order to compete with Amazon and expand its business, eBay will launch its product to new business segment business –to- consumer online business.

Objectives defined for alternative 1

1.1 Increase web traffic and registered users for person-to –person business to 25 million in 2004, increase product categories to over 3000. Continuing to strengthen brand name.

1.2 The number of items listed for sales and successful bids to be match with the increase of revenue. The Gross Merchandise Sales will be estimated at 600 million in Q2,99 and expected to be increased at 35% per year. The revenue estimated in 2000 is 200 millions and also expected to be increased at 35% per year.

It will be necessary to spend a significant amount of sales and marketing. In order to be critical to achieving widespread acceptance to eBay’s service, the marketing spending should be around 50% –60% of net revenue. Assume the marketing budget to strengthen the brand name and increase audience for eBay is about 714 million that included 75 million marketing alliance with AOL for the next five years.

Year Revenue Cost of revenue Sales& marketing Product develop-ment General admin. Exp. Profit/ Loss

(20% of revenue) Value % of revenue (15% of revenue)

2000 200 40 100 50% 10 30.00 20

2001 270 54 122 45% 10 40.50 44

2002 365 73 146 40% 10 54.68 81

2003 492 98 148 30% 10 73.81 162

2004 664 133 199 30% 10 99.65 223

TOTAL 1,991 398 714 195% 50 298.63 530

To strengthen eBay brand name and increase brand awareness by increasing customer support and site operation, increasing ISP bandwidth, continuous developing and upgrading technology and information process system, developing the payment system which can allow to accept variety payment method, adding new product categories in to the website to increase account numbers.

To extend eBay domain name to more country level and develop the website to large populous countries where there are huge potential of person-to- person business such as India and China and Russia

Beside of the marketing alliance program with AOL, eBay will continue to advertising to other crowed traffic site and search engine such as ICQ, Google, MSN, Digital Cities… the advertising feature will be developed to others local countries in local language such as China and India in order to reach the potential customers there.

Develop an image of eBay as a safety and economic website to shop and sell products.

Create more forums and chat room and free email service for all users that can help increase the brand awareness and increase eBay community

Create a promotion program that can offer a small amount rewards for people who can reach a numbers of successful bids, or discount for sellers who place a lot of items on the web.

The advertising budget should take about 90% of total marketing budget.

Keep price reasonable to compete with competitors.

Objectives defined for alternative 2.

1.1 Take the advantage of huge buyer’s community, launch to new market segment of business-to-consumer online business. The business seller segment, with more products to place, also gives eBay an opportunity to increase their buyers. To do that eBay will purchase some more business-to-consumer website and develop website for eBay’s new market segment, and conduct a heavy marketing strategy.

1.2 The gross of sales will be estimated to increase at 30% per year, the revenue which is estimated at $200 million in 2000 ,may reach to $571 million in 2004. The growth may be low at 25% in the first two year, and last three year, the growth will be expect at 40% per year.

The marketing program of launch to new market segment required a significant budget amount. Beside the marketing program to maintain market size of person-to-person online business, company should pay a lump sum for acquirement and merging expenses, develop website and promote to the new segment.

Marketing expenses for maintain market size is estimate about 50-60% of revenue which include maintaining market size of person-to –person online business and promote the new market segment of business- to – person online business. The expenses for acquirement and merging and developing website estimates at $ 70 million

Year Revenue Cost of revenue Sales& marketing Product develop-ment General admin. Exp. Profit/ Loss

(20% of revenue) Value % of revenue (15% of revenue)

2000 200 40 120 60% 20 30.00 (10)

2001 250 50 125 50% 20 37.50 18

2002 325 65 130 40% 10 48.75 71

2003 455 91 159 35% 10 68.25 127

2004 637 127 223 35% 10 95.55 181

TOTAL 1,867 373 757 220% 70 280.05 386

Adding more hardware and software which can provide more support tools for business to open their shop on the website, and develop payment system that can allow user to access easily.

Redesign website for business-to-consumer online shopping, avoiding customer ‘s confusing about individual item listing and business listing

Adding new product category for business and individual seller to extend their listing time and buyers can easier find out the product which they want to buy

Extend eBay domain level in order to popular website, and enhance alliance program with others potential websites in which eBay will pay commission to the web owners when customer list item for selling in eBay from that website.

• Advertising on media website and search engines and create more banners ads and pop up ads in business directory. To emphasize the eBay’s strength with huge community of buyers, and that ‘s big opportunity for other sellers who are business organization and retailers to place their products.

• Promotional email to inform buyers about new business segment. With huge numbers of registered users, eBay will easy to do that with newsletter program, and it cost eBay not so much for this promotion program.

• eBay still enhance the close relationship with AOL and ICQ , Digital City for more web traffic from buyers, offer more incentive to business sellers to enhance them increasing their listed items on eBay ,and build up an incentive plan for buyers and sellers who can introduce more registered members to eBay community. That plan will offer extra bonus scores equivalent with some small commission on sales of the new customers who are introduced by that exited members

• The advertising budget should be at least 60% of total marketing budget.

• Offer competitive price, or free insert price to attract business sellers to place their items on the web.

The first alternative of maintenance and strengthen eBay ‘s exited person-to-person online business can provide eBay higher profits in the next five years. Conducting this alternative, eBay can take more advantage than its competitors because eBay have long experience in this area and the potential development of person-to-person online business is expected to be very huge in the next decade. The online auction person-to-person is still rapidly growth and consumer still prefer eBay auction more than other offer from competitor. By apply appropriate marketing mix and continuously improving their service, eBay will attract more buyer to register on the website. There is sequences that the more buyers buy on the website, the more seller come to register and vice verse.

The second alternative of launching to business-to-consumer online business provides eBay a potential of huge market demand of business sellers, who want to promote their products to consumers. A business seller can have more products to sell than an individual, that can enhance more buyers to visit the website and place their bid. However, this alternative provides eBay less profit than the first one, and due to low entrance, the online business sellers on eBay have to compete with so many business sellers who can open their own website to promote their product with lower cost.

In conclusion, eBay will take the first option of expanding and strengthening their person-to-person online business. eBay will continue survey the market, and apply eBay appropriate strategy during the development of product, and eBay will research and study to develop their website to other market segment in the future.


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