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eCommerce: Situation Analysis of eBay

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I. Executive Summary
eBay Inc. is an American multinational internet person-to-person corporation that manages eBay.com which an online auction and a shopping website. It was founded by Pierre Omidyar in September1995. eBay’s major competitors are Amazon.com, Yahoo Auctions, and uBid. We, the case analysts, analyzed what are the situations of the company internally and externally. We used Competitive Profile Matrix, SWOT Analysis, and we compared eBay.com to Amazon.com (closest competitor) using their financial ratios . We recommended three alternative solutions to cope up the problems that eBay Inc. facing. We recommended three alternative solutions that can help to solve the problems facing by eBay Inc. __________________________________. However, we choose ____________________

II. Situation Analysis
A. Environment
Economic conditions and trends
Market size is expected to be $1 billion in 2005 from only $665 million users in 2002; this population growth denotes an increase of potential customers for online auctions and retailing in general. In addition, Forrester Research forecasted e-Commerce revenues to be $6.79 trillion in 2004 from only $170 billion in 1999, a 4000% increase. This exponential improvement signifies an economic boom for online businesses. Cultural and social values and trends

The changing lifestyles of people suggest an increasing need for the convenience offered by online auctions and retailing. People are now too busy to have time to go out and shop. Knowing the power of the internet, they turn to their computers instead when they are looking for something they want or need. Political and legal issues

Fraudulent actions from auction users pose as a threat towards eBay’s accountability. Auctions intended to scam bidders may be posted and remain active until detected and deleted by the administration.

Summary of environmental opportunities and threats
* Increasing users of the internet
* Market development in new and emerging markets
* Changing lifestyles of people.
* Market penetration in current markets
* Improving foreign markets especially in Asia

* Success greatly attracts competition
* Attacks by illegal practices may happen
* Credit card charges can’t be controlled by eBay
* Transportation and courier systems could be poor.
* The risk for future taxation

Implications for Strategy Development
Based on the determined threats and opportunities, eBay can use the following strategies: market development, market penetration, and acquisitions and alliances. Market Development in new and emerging markets in Asia, Latin America, and Eastern Europe can be targeted to maximize potential revenue. Since eBay is online, the company is more than capable of reaching such markets. eBay can use Market Penetration to enhance the features and functionality of their website and expand value added services. Moreover, eBay is financially capable, the firm can use Acquisitions and Alliances on other companies (e.g. Paypal, Skype, search engines, online payment systems, etc.) that could provide leverage to their existing services. To further decrease cost, alliances can be made with the same, provided that both companies benefit. B. Industry

Classification and definition of industry
eBay Inc. manages eBay.com is an online auction. An online auction is a process of buying and selling of goods by offering them up for bid, taking bids, and then selling the item to the highest bidder which held over on the Internet. Online auctions worked the same ways as traditional auctions, the only difference is the process occurred over the internet rather than at a specific location. There are three basic categories of online auctions: business-to-business, business-to-customer, and person-to-person. eBay.com is a person-to-person auction. Analysis of existing competitors

In the CPM, eBay has the highest score followed by Amazon Auctions, and Yahoo Auctions. uBid has the lowest score. We ranked each factor based on the information in the case study. The scale ranged from 1-4, with 1- major weakness, 2- minor weakness, 3- minor strength, and 4- major strength. Four key factors were on top: quantity of buyers and sellers, customer service, brand name, and global distribution. eBay strengths are convenience, customer service, brand name, global distribution, and quantity of buyers & sellers. While its weaknesses are after speed of transaction and error rate. This analysis shows that eBay is ahead of all the others. However, Amazon.com is the closest competitor of eBay.com. COMPETITIVE PROFILE MATRIX

Analysis of potential new entrants
eBay Inc. is a very profitable company so it attracts new potential competitors looking to achieve profits. Using online auction or online retailing is more less expensive and hassle-more free for both buyers and sellers than the traditional ways. So, it really attracts new firms and retailers to move into e-commerce. It may attract new entrants however, the threat of new entrants is very low. It would be impossible for a new entrants to reach the status that eBay.com already maintains and gains. eBay.com buys and sells almost anything new or used variety of goods and services worldwide. eBay Inc. has been in the internet marketplace since 1995; it would be very difficult for a new entrant in the industry to raise enough capital to even compete with eBay.com. Moreover, It would also be very difficult for a new entrant to gain economies of scale associated as the other existing competitors in the industry already have done. Even though, It is easy nowadays to start-up your own e-business as technology advances but for new entrants to compete on the same level of eBay.com would be an unattainable. Analysis of substitute products

The threat of substitute products is high. With the exception of technology, there are quite a lot of alternatives to eBay’s products and services offered. Traditional auctions and retailing can substitute to online auctions and retailing. Not all people are using the internet as a means of their business transactions because some of them are more comfortable in traditional ways. Although, eBay offers various new and used goods, there are still many companies had both physical and online stores act as a substitute for eBay.com. eBay.com’s products and services can be purchased all over on the internet; they are just spread out among different websites like Amazon.com, Yahoo Auction and uBid. There are also companies had websites wherein, you can directly search their offered products and services which are more reliable such as Wal-Mart, Kmart, Target, Sears, JCPenney, and Office Depot. There are some people who are more comfortable to shop or purchase in physical stores. Although, people are more technology-oriented, there some still using the traditional retailing and auctions. eBay’s offerings can be substituted so easily, but the physical stores and websites of other companies may not offer the same quality of customer service and convenience to its customers at eBay.com has done. Analysis of suppliers

Online sellers were categorized into three groups: casual, hobbyist & collectors, and power & corporate sellers. First, casual sellers used eBay as a substitute for a classified ad listing or a garage sale to dispose of items they no longer wanted and some of them used eBay to raise money for some new project. Next, hobbyist and collector sellers were typically dealt in a limited category of goods and looked eBay as a way to sell the selected item in their collection to others who might want them. They also used a range of traditional and online outlets to reach their target market. Lastly, power and corporate sellers were small to medium-sized businesses that favored eBay as a primary distribution channel for their goods and often sold tens of thousands of money’s worth of goods every month on eBay. They were responsible for 80% of eBay’s total business. The bargaining power of suppliers is a threat. A threat not just to eBay Inc. but in the entire industry. Suppliers or sellers have a higher power given that eBay.com cannot compete with them because eBay.com doesn’t run any production plants. Then, eBay.com really value their suppliers or seller but received no special treatments and this is applicable to all even small or large. Analysis of buyers

Online auction buyers were categorized into three groups: bargain hunters, hobbyist and collector buyers, and professional buyers. First, bargain hunter’s main objective was to find a great deal. They were thought to make up only 8 % of active online users but 52% of eBay visitors. Next, hobbyist and collector buyers used auctions to search for specific goods that had a high value to them personally. They were very particular with both price and quality. Lastly, professional buyers were looking for a way to help contain costs and seeking unique items to supplement their inventory. The only difference of professional buyers was their affiliation with commercial enterprises. So, for eBay Inc. their buyers are very important for them because they are the reasons for their success. The bargaining power of buyers is a threat. eBay.com’s customers have the choice of buying the products and services they desire on the hundreds of thousands of other retail websites on the internet. If eBay.com does not offer low or satisfactory prices then the customer will search on the internet until they find that low and satisfactory price. The best thing about eBay.com that they provided excellent customer service tactics so the customers are satisfied and does not make purchases elsewhere online. Summary of industry opportunities and threats

* People tend to be more brand loyal when it comes to online shopping
* Rapid growth in internet use
* Expand more internationally
* Large base of suppliers and customers throughout the world
* Long-term industry growth
* Potential new markets like in Asia
* Technological development
* Fast growing market
* Market development

* Rapid growth of major competitors particularly Amazon.com
* Increasing number of online stores
* Bargaining power of buyers and suppliers
* Substitute products
* eBay’s success attracts more competitors
* Some people prefer the traditional auctions and retailing Implication for strategy development

With the rapid growth of major competitors (e.g. Amazon.com) and increasing number of online stores, rapid growth in internet use and potential new markets, eBay can use Market Development strategy to reach the potential market through new users and in order for them to maintain their global growth initiative, and reinforce marketing. Moreover, Market development in a new and emerging markets like China and India is a huge opportunity. eBay should take the opportunity that people, nowadays, are more dependent in searching or buying things on the internet. Moreover, through the use of this strategy, eBay can get large of suppliers and customers worldwide. eBay is still in the growing phase so they should focus more on technological development since they are using the internet. C. Organization

Objectives and constraints
* To reach the objective of $3billion in annual revenues by the year-end 2005
* A gross margin target above 80%
* Target operating margin of 30-35 percent.
* To provide a global trading platform where practically anyone can trade practically anything.
* To hire someone who has an excellent quality in a given position

* Analysts were concerned about whether eBay could sustain its phenomenal growth.
* Higher compensation for competitive and knowledgeable employees with high position in the organization.
* High maintenance for a dominant player in the auction market Financial condition

The net cash used in investing activities in 2004 primarily the purchase of property and equipment, and acquisitions. Purchases of property and equipment in 2004 related mainly to purchases of computer equipment and software to support our site operations, customer support and international expansion. In Cash expended for acquisitions, net of cash acquired, totaled approximately $1.0 billion in 2004. In cash acquisitions included the acquisition of mobile.de, Baazee.com, and Marktplaats.nl, as well as an additional ownership interest in Internet Auction Co. In the analysis of financial statements, its current ratio is 2.7 that shows liquidity position is stronger than other companies in the same industry and this is a sign of no possible trouble. The profitability ratios of eBay show that its return on total assets and return on common equity is 10% and 11% respectively eBay’s 10% return is not good. It is obviously better to have a much higher return on assets because eventually, management’s decision is to use a great deal of debt. Stakeholders expect more to earn a return on their money because of 11% above than the major competitor. | eBay.com| Amazon.com|

Liquidity Ratio ( Current )| 2.7| 1.58|
Profitability Ratio| | |
Return of Assets (ROA)| 0.10| 0.18|
Return of Equity (ROE)| 0.11| -2.59|
Lastly, one of the risks that may affect the good financial of eBay is the exposure to fluctuations in currency exchange rates. Net revenues outside the United States accounted for approximately 42% of net revenues in 2004. Because the company conducts a significant and growing portion of business outside the United States but report results in U.S. dollars. If the U.S. dollar weakens against foreign currencies, as it did in 2004, the translation of these foreign-currency-denominated transactions will result in increased net revenues, operating expenses, and net income. Management philosophy

Specific elements of eBay’s business model that the company particularly recognized as key to its success. * The fact that it was the largest online trading forum, with a critical mass of buyers, sellers, and items listed for sale. * It’s compelling and entertaining trading environment, which had strong values, established rules, and procedures that facilitated communication and trade between buyers and sellers. * Established trust and safety programs such as SafeHarbor. This program provided guidelines for trading, aided in resolving disputes, and warned and suspended (both temporarily and permanently) users who violated eBay’s rules. * Cost-effective, convenient trading.

* Strong community affinity.
* An intuitive user interface that was easy to understand, arranged by topics, and fully automated. Organizational culture
Many of us know very well about eBay company, a world famous auction company in the world, founded by Pierre Omidyar. The firm establishes connectivity not only in external but also internal. Organization constantly maintains the good flow of reputation they had as a dominant player in the auction market. Moreover, they also value everyone especially their potential employees who had a big contribution to the organization by giving a satisfactory compensation that would cost them productive in the organization.

As a dominant player in the auction market, they preferred English language as their primary language because aided them to communicate well internationally. They believe that giving a faster, reliable, and easy for person to person transaction would lead their users successful in trading and also it would go through for the company success too. Summary of the firms strengths and weaknesses

* Well known online auction company in the world
* Publicly traded
* Partnership with international companies
* Over 250 alliances
* Zero inventory held by the company

* Weak promotional and marketing activities
* eBay does not pay dividends on their stock
* Some customer feel the website is cluttered

Implications for strategy development
In distribution system, actually is great because they give a certain rules to be followed in order to have a fair trade. Moreover, they provide a trust and safety programs such as SafeHarbor. This program provided guidelines for trading, aided in resolving disputes, and warned and suspended (both temporarily and permanently) users who violated eBay’s rules. So it seems sounds great to be with eBay’s users for beginning an initiative for earning money for exchange object to other users for a real deal and it creates connectivity on it. D. Marketing Strategy

Objectives and constraints
Market Penetration
* To broaden the range of products offered by developing new product categories. * To offer a more local flavor to eBay’s offerings by launching over 60 regional sites. * To complement the new offerings by offering or introducing new eBay stores. * To allow large sellers to more efficiently sell their products through an agreement with Accenture. Constraints:

* Not all categories that are newly created by eBay will be patronized or entertained by customers.

Horizontal Diversification
* EBay considered developing a loyal vivacious trading community to be a cornerstone of its business model. * Created EBay University to help recognize that many new users might not get the most out of their eBay experience and hoping to introduce new entrepreneurs to the community. * EBay launched the digital opportunity program for seniors to train and bring in 1 million seniors by 2005. * To foster a sense of community among eBay users.

* To provide a guideline for trade and information to help resolve user disputes, and respond to reports of misuse of the eBay service by launching Safeharbor. Constraints:
* The feedback forum was not always sufficient to ensure honesty and integrity among traders. * Fraudulent activities represented a significant danger to eBay’s future.

Product Development
* To add services by offering a variety of pre and post trade services to enhance the user experience and provide an end to end trading experience. * To facilitate a person to person credit card payments by acquiring Paypal and other companies. * To offer credit card payments scam less and integrated part of the trading experience. Constraints:

* PayPal was only available to users in 38 countries considering that eBay serves more than the given number countries,

Market Development
* To seek growth opportunities in international markets in an effort to create a global trading community. * To further expand its global reach by acquiring Germany’s largest online person to person trading site. * To establish an Asian presence by forming a joint venture with NEC to launch eBay Japan. Constraints:

* Increase in the number of competitors’ local and international online retail stores.

Analysis of sales, profits, and market share
The predicted 3 billion annual revenue of eBay’s top management reaches its stated goals a year early. By expanding eBay to international operations, it really helps the contribution of profit especially by lowering taxes in 2004 compared to prior years. However, the maintenance of its success doesn’t guarantee to manage the profitability in near future because of intense competition as the market leader. Though it is adequately differentiated from their competitors and possesses roughly 70% of the online auction market share, competitors may adopt more aggressive pricing policies and may offer services for free that unable eBay to compete fairly. Analysis of target market(s)

Basically, eBay’s target market is any participants in online auctions. eBay serves participants who either prefer to be a seller or a buyer. These participants could be bargain hunters, hobbyist/collector buyers, professional buyers, casual sellers, hobbyist/collector sellers and corporate and power sellers. The bargain hunters’ objective is to find a great deal. Hobbyist and collector buyers used auctions to search for specific goods that had a high value to them personally. Professional buyers like bargain hunters are looking for a way to help contain costs and also seek unique items to supplement their inventory. Casual sellers use eBay for classified ad listing or a garage sale to dispose items they no longer wanted. Hobbyist and collector sellers on the other hand dealt in a limited category of goods and looked to eBay as a way to sell selected items in their collections to others who might want them. And lastly, power and corporate sellers who favored eBay as a primary distribution channel for their goods and often sold tens of thousands of dollars’ worth of goods every month on the site. Analysis of marketing mix variables

eBay is a person to person trading community and is initially conceived as an online auction site. An online auction is a service in which auction users or participants sell or bid for products or services via the Internet. Virtual auctions facilitate online activities between buyers and sellers in different locations or geographical areas. The service offered can either be in business to business, business to consumer or person to person auctions. The products being sold from their website are personally owned by the sellers registered in eBay and not directly from eBay. Promotion

eBay markets through the internet, which is an indirect selling to give a better service for eBay’s customers, they acquired a number of companies in order to have a smooth running business transaction between eBay and its clients and as well as eBay’s sellers and buyers. Price

Their price range depends on what products the seller actually sells. But there are fees to be paid such as charging sellers for listing their goods and services and a commission on all sales. Place

The actual place where the bidding is done is on the internet. Sellers and buyers go to www.ebay.com. All the marketing is done online, on their website. People
EBay exists and became successful because of Pierre Omidyar. Also, with the help of Margaret Whitman, eBay has become as successful for the past years and until today. However, eBay will not be eBay if it wasn’t for their employees working for a better eBay. Process

EBay acquired several companies to better serve their customers such as Paypal, Accenture and etc. Not only that, they launched several programs such as the application program interface and developer program to allow other companies use eBay’s commerce engine and technology to build new sites. They also went and had a market developed in different countries such as Germany and Japan. They also created a feedback forum where customers can express their feelings and thoughts about eBay. Not only that, but they also created eBay university that travelled around the world to hold seminars. Summary of marketing strategy’s strength and weaknesses

* eBay expanded its company when they acquired a number of companies. * They developed new successful product categories where ten of those had gross merchandise sales of over $1 billion. * eBay had market development in places all over the world. * Added services to create customer value to enhance the user experience and provide an end to end trading experience by offering a pre and post trade services. Constraints:

* Acquisition can be risky because many things can go wrong with even a well-laid plan to grow by acquiring: Cultures may clash, key employees may leave, synergies may fail to emerge, assets may be less valuable than perceived, and costs may skyrocket rather than fall. * Market development increases the number of competitors. * The acquisitions of eBay to other companies are limited only to some of the countries they are catering. Implications for strategy development

eBay should go for market penetration to increase the market share of their products or services in present markets through greater marketing efforts. Such as their acquisition of PayPal, they should make it available in all countries and not only to some, seeing their capabilities. In that way, they didn’t only help themselves, but PayPal could also benefit from it. And since the feedback forum was not always sufficient to ensure honesty and integrity among traders, they could conduct online surveys to know what the customers think of eBay’s services. eBay has been acquiring organizations. Though acquiring is a good way to expand, acquisitions have risks. Just like acquiring an organization in Germany, cultures may clash. And their relationship may have difficulties and may end up with a lawsuit. eBay should also help their customers increase their fraud awareness. One way is by putting up guidelines and tips on their website so that customers will be aware of things they should and should not do.

E. Problems Found in Situation Analysis
Statement of primary problem
eBay’s growth had been great and it created high expectations among investors or sellers. As years passed, the market conditions of eBay became slow. Because of this, eBay must attract new customers or markets to continue its current growth without stretching itself too thin. eBay has sustained a competitive advantages in the online auction market, but now it must transfer this success to additional expansion in the international markets. Even with the strengthening competition, analysts estimated that eBay controlled approximately 85% of the consumer-to-consumer online auction market and 64% of total online auction revenue share. Evidence of problem:

In the year 2003, the average conversion rate (the number of auctions that were completed successfully) was approximately 51%, a rate that held steady over the last two years. And, this is threatened by supply imbalances. Effect of problem:

If the slow conditions of eBay continue, sellers will find another website where they can sell or bid their products. This possibility of losing some of their sellers will be a big advantage for their competitors. Statement of secondary problem:

eBay’s growth had been outstanding. This impressive track record, coupled with the progress they had made in reaching their stated goals had created high expectations among investors. These lofty expectations began to cause some concern as eBay’s domestic core market of online auction sales began to show some warning signals. Analysts were also concerned with how much more penetration ebay could achieve. Too many sellers as compare to buyers. Evidence of problem:

eBay was facing increasing dissatisfaction by some of its largest corporate sellers. Some corporate sellers were experiencing significant difficulty with selling a large volume of goods, on the site while maintaining a sufficient profit margin. eBay didn’t have enough buyer demand to absorb significant quantities of a single good. Effect of problem:

In many categories, as the number of sellers grew, supply was beginning to outstrip demand. Many large sellers such as Motorola and Circuit City abandon selling on eBay and to search for additional sales outlets. III. Strategic Alternatives for Solving Problems

Description of strategic alternative 1
eBay Inc. can develop a market in new and emerging markets like Asia ( e.g. countries like China and India), Latin America, and Eastern Europe to maximize potential revenue. The emergence of new markets creates a good opportunity to capture a larger market share in the industry, and easier for eBay to introduce new products. Customers in an emerging markets are becoming richer and have more leisure time than previous generations. eBay uses the internet to reach their markets. eBay should take the advantage that people, nowadays, are more dependent in searching or buying things on the internet. Benefits of alternative 1

* Maintain global growth initiative
* Reinforce marketing
* Can get large base of suppliers and customers
* Increase market share
* New geographic markets
Cost of alternative 1
* Too much cost to gain new new customer
* Development failure may happen
Description of strategic alternative 2
eBay is financially capable, the firm can acquire other companies (e.g. Paypal, Skype, search engines, online banking, etc.) that could provide leverage to their existing services. To further decrease cost, alliances can be made with the same, provided that both companies benefit. The purpose of this strategy is to allow the company to develop new markets and enter lines of business that can be a great help to maintain their market growth. Benefits of alternative 2

* Expand the organization’s operations by adding markets, products, services or stages of production of the existing business
* Maintain global growth initiative
* Efficiency gains
* Control markets by guaranteeing sales and distribution
* Take advantage of existing expertise
Cost of alternative 2
* May result in slowing growth in its core business
* Additional management costs
* Diversification through acquisition may result in failure
* May result in negative synergies

eBay Inc. can capitalize on Market Penetration to enhance the features and functionality of their website and expand value added services. This will help them to grow more where focuses on selling existing products into existing markets. Since eBay has a great financial condition. They can conduct pricing strategies, online advertising, sales promotions and discount rates.

* Maintain or increase market share of current products
* Secure dominance of growth markets
* Restructure a mature market by driving out competitors
* Increase usage by existing customers
* Can induce a cycle of price matches by competing organizations that may result in lower industry-wide revenues
* Lack of results
* Saturated market

IV. Selection of Strategic Alternative and Implementation Statement of the selected strategy
The recommended strategies are ACA 1: Market Development and ACA2: Diversification ( Concentric and Conglomerate Strategies). We recommend ACA 1 because it will create a good opportunity to capture a larger market share in the industry. Through this, they can expand more globally, maintain the global growth initiative, reinforce marketing and can get large base of sellers and buyers. We also recommend ACA 2 because it could provide leverage to their existing services. It allows eBay to develop new markets and enter line of business that can be a great advantage to maintain as a leading online auction in the industry.

Justification for selection of strategy
Based on their financial condition, the strategies recommended will not have an effect on their finances. These strategies are proven that will help them to increase or to maintain their global growth in the industry. Addition to that, they can have a larger market share than to their competitors especially Amazon.com witch trying to get ahead of eBay.com. Since the bargaining power of suppliers a buyer are high, they can use these strategies to get a large base of potential suppliers and potential buyers. Description of implementation of strategy

In market development, eBay can develop a market in new and emerging markets like Asia (particularly China and India), Latin America, and Eastern Europe. These markets are becoming richer and most of the people are in internet use. But before that, eBay should conduct market research to gather data on suppliers and customers, and potential suppliers and customers for decisions making. In expanding internationally, eBay should know the cultural attitude about e-commerce. There are some people do not prefer online shopping. Entering into a new market, eBay should comply with the local laws and regulations in exports and in selling. eBay should consider technological development like in speed of transactions, selling new applications or programs, creating standards for the industry and hire online expertise to attract more potential suppliers and customers.

eBay should put securities to ensure that no fraudulent activities can happen during the process. In diversification strategy, eBay can acquire or can have alliances with other companies like PayPal. eBay and PayPal have a unique opportunity to monetize merchant services and platform offerings by incorporating PayPal payment services and the eBay marketplace offerings. eBay should also comply with its rules and regulations so that misunderstandings will not occur. eBay can acquire other online stores like Shopping.com, a price comparison service that allows individuals to see different price lists for specific products. This is a great advantage for eBay to attract more potential buyers since eBay is not the only one in e-commerce.

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