EBay Company Analysis

Introduction

eBay Inc. is the company that manages an internet auction and manages the ebay.com shopping website. Various selling strategies which are applied for trading help owners of the site and citizens sell various goods within a short time, as the key principle of business performance is based on a set-time auction format. At the moment, the company is a leader in the sphere of online trading and owns up to 19% of this market.

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The secrets of success are closely associated with the strategy, implemented by the company, and the online origin of business performance. These are the lack of geographical borders and the accessibility to the web page from any point of the planet. Lack of language barriers is another factor, which promotes the success of the company. This auction acts 24/7. Buyers are attracted by the widest ever range of goods and the opportunity to purchase them at reduced prices. Here they can find rare collectibles which are almost unavailable for off-line purchases. Sellers are attracted by the widest purchasing audience ever, and the low prices of product positioning.

Present Mission and Future Vision of the Organisation

eBay is an American company that offers the services of internet auctions and other e-commerce businesses. The key aim and mission of the company are to understand the vision of the company, it is necessary to check the words by John Donahoe, eBay’s newly appointed president, “We will continue to stay focused on connecting consumers on our various e-commerce platforms, maintaining financial discipline, and capitalizing on new opportunities for grows” (Thompson, Strickland, and Gamble, 2009, p. 277).

The company aims to improve the online purchase. The company is busy with the task to make it easier for people to buy and sell different products online. Having a powerful competitor, Amazon.com., eBay will think about the strength that may not be easily imitated. Furthermore, the opportunity to be closer to the customers via newly bought Skype system.

The company’s share is 17% for now (the fall from 19% is observed) being second after the Amazon.com. Still, the tendency to improvement is observed. The e-commerce values total up to $ 170 bln yearly, and the annual growth is assessed at 19%. Additionally, the sphere of on-line auctions is growing enormously, so the aim o the companies is to control this growth, and keep all the growing rates for avoiding the appearing of illegal and dangerous lots. The tools of measuring the success of eBay company are closely associated with considering the Company Feedback System that is created. The revenue in 2009 fiscal year increased up to $ 8,727 billion. The amount of users is estimated as 700 million. The new area coverage is not required at the moment, as the development of on-line auctions requires the increase of vertical structure of the company

Financial Review

Revenues

In 2007 revenues of the comp-any were $7,672,329. The revenue in 2000 was $431,424, 5-6% of the present sum. In 2008 the revenues totalled $ 7,7 billion while in 2009 it is estimated at $ 8,7 billion. This growth is explained by the development of on-line auction market, and the increase of the audience range of the company. However the share revenue 8% decreased. As it is stated by Bunnell (2009, p, 34): “Revenue fell 8 percent, to $2.02 billion. Analysts had expected $1.94 billion. Revenue from eBay’s marketplaces segment — which includes eBay itself and sites like StubHub — fell almost 18 percent, to $1.22 billion.”

Expenses

Total operating expenses comprised $ 5,296,177 in 2007. In 2008 the operating expense was $ 4,273,510. 2009 – $ 4,790,834. The analysis of the fall tendency is based on the world financial crisis 2008, as people stopped purchasing items and things which are associated with hobbies and interests. Thus, the operating costs had to be decreases, and R&D expenses had to be shortened, as well as Selling General and Administrative expenses.

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Earnings

Having considered the revenues and operating expenses, it may be predicted that the general earning of the company are about $2,376,152

The earnings of the company in 2008 totalled $1.36 billion, ($1.02 per share). It is essentially lower in comparison with the earnings of $367 million, or 29 cents per share in 2007. In 2009 revenue grew 16% to $2.37 billion. These changes are associated with the planned market restructuring, aimed at stimulating the growth of the sphere in general.

Assets

The total assets of the company are about $18,690,178 thousand, if to consider 2010 (EBay, 2010). Assets of the year 2009 are $ 18,408,320 thousand. 2008 – $ 18,204,129 thousand. Thus, the current ratio increased in 2010, and totals 11.9%. This is explained by the implementation of the innovative marketing strategies aimed at increasing the audience of the online auction. Additionally, the current ratio indicators are affected by the decrease of current liabilities.

Liabilities

The total company’s liabilities are $3,587,011of the stock of record on 2010 (EBay, 2010). Liabilities of the year 2009 totalled $ 3,641,968 and the rates of year 2008 – $ 3,546,462. The changes in liability rates are non-essential, however, some of the points, which form total liability rate were subjected to changes. Thus the changes in income tax payable are closely associated with the changes in sales volumes and the changes of the amounts of active users. Additionally, the funds payable 26% increased.

Dominant Economic Features

  • Market size. The company’s market size is about 2 billion Internet users. The marketplace of the sphere in 2009 was estimated in $15,862,131.
  • Scope of competitive rivalry. The competency between companies is featured by precise division of the goods sold, as every company has its own specification.
  • Market growth rate. In 2000, registered users comprised 48 million people, while now it is up to 1200 million.
  • Stage of life cycle. Growth, however it is not as rapid as expected because of the slow restoration of the previous financial indicators.
  • Number of companies in the industry. This amount is about, 15, however, the key competitors of eBay are Amazon and Yahoo.
  • Degree of vertical integration. Most players of this market are integrated partially. Thus, companies possess warehouses for merchandise storage, the other do not need storages, as the sellers and buyers of the goods are the users of the services.
  • Ease of entry/exit. The market is easy to enter, thus due to extremely competitive environment it is hardly possible to remain there and function properly.
  • Technology/innovation. It is impossible to lead the Internet business without innovative technologies and eBay successfully uses them.
  • Product characteristics. The companies are engaged in the sphere of auctions and merchandise sales (eBay motors, closing & accessories, consumer electronics, jewellery, sports, computers and others) (Thompson, Strickland and Gamble C-288)
  • Scale economies. Process and marketing automatisation, centric management, self healing network, software improvement.
  • Learning and experience effects. The learning and experience effect is positive.
  • Capacity utilisation. $556,393 million is the gross merchandise sales and 22,441.3 million auctions, stock of record on 2007
  • Industry profitability. On the high level, still is developing. (Black, 2005)

Competition and Competitive Forces

In accordance with Porter’s “five forces” model, the rivalry may be estimated from the perspective of price, quality and/or other attributes, which entail possible barriers of entering for the market of online auctions, and the reaction of new players on this market.

The rivalry principles, which are implemented in the business strategy of eBay company are closely associated with the principles of fair competition. Thus, the company aims to provide high quality services and customer oriented performance. Originally, the competitors in the sphere of on-line auction are less reliable, or offer less opportunities in comparison with e-bay. In fact, Amazon is the only serious competitor, which is able to provide high quality services. The other auctions are yahoo, uBid, flea markets and class.acls. additionally to the reliability of the services, eBay has an opportunity to offer the lowest lot positioning prices and fees in comparison with Yahoo and Amazon auctions (Bunnell and Luecke, 2009).

As for the matters of creating the new competitive elements on the market, it should be emphasized that the chances are low because of the fact that the e-commerce industry is extremely competitive and the leaders of the sphere have already been identified. The barriers of entering the market of on-line live auctions are closely associated with the restrictedness of the audience. On the one hand, everyone is free to use these services; however, the amount of collectors is essentially low, while the others prefer purchasing new goods and equipments, which are sold on eBay.

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Competitive Pressure from Substitute Products

Middle level of pressure is observed from the side of price and quality factors, and high level of substitution possibility defines the development of the sphere in general. The pressure from the side of potential new entrants of the market is close to zero, as the new entrants are not able to offer innovative services.

Competitive pressure from supplier bargaining power & supplier-seller collaboration

Originally, this factor presupposes the existence of great number of suppliers, as the business itself depends on the supply and courier companies, engaged in shipping the purchased goods. Independently on the quality of the services provided by the company, the quality of shipping services is one of the key factors for the successful operation on the market. The tendencies for market development and the development of shipping services are also numerous, which offers the companies the extended set of tools for further development of shipping services, thus, improving the quality of business performance and customer care strategy. (Lull, 2008)

Competitive pressure from buyer bargaining power & seller-buyer collaboration. In fact, this sector is large enough for making at least approximate forecasts and analyses. The amount of users is constantly growing (in the company and in the sphere in general), and, in accordance with business researches, the aim of the company is to keep the growth under control, as the appearing of uncontrolled market may cause the turnover of illegal goods, which in its turn will drop shadow on the entire market of online auctions. (Dholakia, Fritz, et.al. 2008). The pressure of the bargaining power is generally defined by the amount of users of the on-line auction system. In fact, the bargaining power is granted for users, who do not have this power initially, and get it by registering in the system

Competitive Structure and Business Environment Changes

Originally, these factors should be outlined in a table with enlisting the key change factors and reasons of

Step 1:
What are the major underlying causes of change in the industry?
Step 2:
Assess the impact of these changes will have on the industry.
The change of the competitors actions The segmentation and company marketing plans will be ruined
The increase of the industry globalization Small companies will have nothing to do in the business. The necessity for increase of new competing companies.
Appearance of innovative products The reduction of the demand on the old products its non-competitive price.
Marketing innovations The reduction of the demand on the previous products. The possibility of pricing change (marketing innovations are usually cheaper)
Increase of the Internet capabilities and innovation changes The lowering of the prices on the –products, better services and quality.

Strategic Group Maps

Strategic Group Maps
Figure 1. Strategic Group Maps
Strategic Group Maps
Figure 2. Strategic Group Maps
Strategic Group Maps
Figure 3.Strategic Group Maps

The link between them is defined only by the amount of common users. Thus, some people may use several auctions, and be the customers of flea market. This is the only junction. As for the largest rival, it should be stated that the flea market is the least controlled, and thus, it has the largest competitive advantage.

Strategic Moves Analysis

Competitor Competitive scope Strategic intent Market share objective Competitive position Strategic posture Competitive strategy
Amazon. com 220 countries, 35 million users “Offer Earth’s Biggest Selection… for customers” (Thompson, Strickland and Gamble C-292) 6% High level Strong Broad selection products, low prices and convenience.
Overstock. com About 783.000 products Books, music, movies and games products Automobile marketplace Only in the USA Developing Provide customers with qualitative goods of low price
uBid.com Rather small. eBay is more powerful. To be “most recognized and trusted business-consumer marketplace” (C-292) To dent auction market Considers eBay the direct competitor Sales reduce Wants to compete with eBay on the basis of auction market share

Key Factors for Competitive Success

Technology-related KSF’s

The use of innovative technologies allows reduce the costs and as a result a product price. EBay involves different innovative methods in the management and promotional fields as well as the delivering and in the sector of communication with customers. These technologies are mainly associated with IT technologies, aimed at improving the processing of the accounting information , quicker registration of the users, and more comfortable use of the services by both sides: sellers and buyers.

Manufacturing-related KSF’s

This presupposes the rapid evolution of production line. From the perspective of manufacturing principles, the method of cost production is regarded as the most effective.

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Distribution-related KSF’s

Wide net of distribution allows deliver the goods quicker and with less costs. Moreover, the strong sales capabilities and the opportunity o avoid retail networks is the KSF for the reliable distribution strategy.

Marketing-related KSF’s

Customers directed strategy, common brand name usage, different promotional strategies directed to attract customers’ attention.

Prospects for Above-Average Profitability

The industry’s growth potential in general is assessed from the position of e-commerce, however, on-line auction is the related sphere, which has its own tendencies for development. The growth is rapid as the opportunities are huge. The globalization just adds to the success. The adequate profitability that currently exists will become the stronger force for competition. However, considering he aspects of prevailing driving forces in industry profitability, it should be emphasized that the market is highly dependable on the aspects of popularity of the goods, which neither eBay nor any other company is not able to advertise.

The company’s competitive position in the industry tend to grow, however, the analysis of the financial indicators for the last three years revealed the varying position of the company on the market. Nevertheless, it was able to keep the leading position, as the other companies were subjected to the same market fluctuations.

The company’s potential to capitalise is one of the hugest in the industry. eBay’s potential to capitalise may remove weaker rivals from the industry via pricing politics.

In spite of the fact that eBay has been staying too long on the internet market, it will not be able to influence the factors that make on-line auctions unattractive in full measure. The potential influence is not full as it is impossible to make the auction of pre-used goods more popular then purchasing new goods.

Additionally, there are great many of factors that add to uncertainly in future. Thus, the degree of risk is high. The competitors may change the strategy and this will influence eBay greatly. The severity of problems confronting the industry as a whole are counteracted by the possibility of the greater globalization, innovative achievements in marketing and technology may easily become the threats for the industry as a whole.

Strategy Working Factors

In fact, the key working factor is the increase of revenues, and operating costs as a result. The company’s sales grow fast and the company wins its previous positions (before the lowering of sales in 2006). This factor is resulted by the customer care strategy, which presupposes the retaining of the existing customers, and attracting new users.

As for the profit margins and financial ratios, it should be emphasized that the financial indicators associated with growth and development had tended to grow by 2007, however, the later processes caused the decline of financial ratios and margins. Thus, the long-term investments of the company comprise about $1,977,567, that comparing to the revenue is a huge sum.

From the perspective of service oriented performance, the factor, that promotes the further successful development of the company is the opportunity to increase the quality of the provided services. Moreover, there is a potential for further improvement of motivation and morale indicators within the team.

The company’s reputation within customers, as a working factor of the implemented strategic principles, is positive, and most of the consumers are satisfied with the services provided. The company is regarded as a leader in having the best prices, in short times from order to delivery and getting newly developed products to market quickly.

SWOT Analysis

Strengths Weaknesses
E Bay is leading online auction brand, it is customers directed and tries to diversify the products frequently
Largest online trading forum
Sense of community
Recognizable Brand Name
Over 250 Alliances
Partnerships with international companies
Global reach
eBay University
Entertaining site
Over 27,000 different categories
Publicly Traded
Zero inventory held by company
No need for the traditional sales force
The control of illegal auctions is rather weak
The payment strategy is not perfect
Shipping costs
The content of the products in not checked appropriately
Inability to measure illegal activity on site
Inability to penetrate some foreign markets
Lack of in depth descriptions of products
Technology malfunctions
Opportunities Threats
The creation of Buy It Now bottom that allows purchase the product at once without waiting for the end of the auction
The company wants to uses Skype as the new method for increasing the trust of the customers and become closer to them

The possibility for products diversifying

Changing lifestyles of people
Acquisition of Yahoo.com
Continued international expansion
Increasing use of the internet
Expand community services

Working globally, the local competitors may provide threat
Scammers that can easily influence payment performance
The absence of seamless integration

Thieves
Increasing number of online auction sites
Rapid growth of Amazon.com
Increasing number of online stores
1/3 of internet users already registered on eBay

eBay has many opportunities that are available to them in the future. Just like any company though they do have threats that may pose a problem for them. Some of the main strengths of their company include the variety of products offered, their customer service, and a tremendous global reach. Although they do not have very many weaknesses eBay should still work on keeping illegal activity to a minimum on their site. Also, they should look at Amazon.com to help provide better product descriptions for their customers (Black, 2005). eBay must continue to look for opportunities to expand their company in the future. The changing lifestyles of people can be an opportunity for eBay to penetrate the market even further and broaden their customer base. Also, eBay should look at other online auction sites for possible acquisitions or partnerships. eBay must continue to expand internationally to keep the number one spot in this market. Threats to eBay’s reign include the continual growth of Amazon.com and also thievery within their own site. eBay should keep a close eye on threats to their company and do what they can to make them opportunities for change (Lull, 2008).

Prices and Costs

The analysis of this perspective requires the analysis of the value chain key activities, and then identification of the key components of these activities. Then comparing of these components with the performance by other companies will be required:

The key activities in the value chain The costs of performing each activity Benchmark the firm’s activity costs with the activity costs of rival companies
Supply chain management Costs directed to supply and analysis All the companies are equal
Sales and marketing Advertising campaigns Different degree of vertical integration and strategies
Promotion Different advertising actions Different strategies
Delivery Transportation costs Difference in operational practices
Quality control Refund politics The image of the company is significant
Pricing Lower prices for the products that are not in demand The company’s segment and market share influences this key activity

Competitive Position

Key success factors EBay Amazon.com uBid.com Overstock.com Other companies
Quality/product performance 8 9 7 8 6
Reputation/image 10 9 6 7 5
Marketing/advertizing 9 8 6 6 4
Customer/service 9 9 7 7 6
Unweighted overall strength rating 36 35 26 28 21

These rates are given on the basis of online survey.

Strategic Issues

Pricing policy is regarded as flexible, as users are offered cooperation on various bases with different conditions of goods placement and bidding.

Mission of the company is to provide a global platform where all the goods sold were available for everyone who wishes to buy them. Vision of the company is based on the statement “Bringing the world together”

Generic Strategies to the Case Study Organisation

A low-cost producer strategy is effective as being the leading company on the Internet, eBay may afford reduce the prices on some products. A broad differentiation strategy is not very effective as the Internet is full of similar products and the chance of appearance of the interchangeable products is high.

From the perspectives of best-cost provider strategy eBay can easily beat close rivals on cost still providing the customers with products of high quality. A focused strategy based on lower cost is the essence of the concentration on a narrow segment is not a good variant for eBay. The company is oriented on a big segment and should not narrow it.

A focused strategy based on differentiation provides the offering of unique services.

Appropriate strategy

The ‘performance’ test – a good strategy boosts company performance. In fact, there are two ways of performance improvement exist: (i) increase of profitability rates and (ii) improvement of the company’s competitive strength and long-term market position. This is the most appropriate generic strategy for the eBay.

Things to consider for the implementation of this strategy

Financial objectives

To reduce the price of the services by means of reducing the expenses on the transportation and delivery. Improve financial performance. Thus, the growth margins should be between 35 and 40%.

Strategic objectives entail the necessity to Increase market share and annual revenues. These should be comparable to the growth margins – close to 40%

Additionally, the number of users should be increased up to 1.9 billion by 2012.

Conclusion

The company’s current strategy is aimed at restoring the financial indicators of the previous years (previous to 2008), thus, the stability is observed. As for the SWOT opportunities, it should be emphasized that the company has enough opportunities and strength in order to avoid the hazardous consequences of threats and weaknesses.

The prices and costs are highly competitive, which allows company to place high positions in competitive group analyses. Originally, these positions are essentially higher in comparison with the positions by competitors.

The company just needs to expand the audience, however, it is the task of expanding the entire industry. The market of flea markets is enormous, thus, the company should target them. This may be provided by implementing the off-line trade practices.

Reference List

  1. Black, G. S. 2005. Is eBay for Everyone? an Assessment of Consumer Demographics. SAM Advanced Management Journal, 70(1), 50
  2. Bunnell, D., & Luecke, R. A. 2009. The E-Bay Phenomenon: Business Secrets behind the World’s Hottest Internet Company. New York: Wiley.
  3. Dholakia, N., Fritz, W., Dholakia, R. R., & Mundorf, N. (Eds.). 2008. Global E-Commerce and Online Marketing: Watching the Evolution. Westport, CT: Quorum Books.
  4. EBay. 2010 eBay Inc. Reports Strong First Quarter 2010 Results, 2010.
  5. Lull, C. 2008. Ebay, Selective Colleges and Universities Announce Online Shopping Agreement. Journal of College Admission, (167), 3.
  6. Thompson, Arthur A. Strickland, A., J. and Gamble, John E. 2009 Crafting and executing strategy: The quest for competitive advantage: Concepts and cases. New York: McGraw-Hill/Irwin.
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