Ebay Market Share

How to dominate the online aucti unrivaleder off bridge foodstuff Jeffrey Phillips Brian Somok Xiaoke Zheng Executive Summary compass e bay Inc history September 1995 funded as a sole proprietorship. May 1996 corporate in California. April 1998 reincorporated in Delaw be. September 1998 completion of initial public go October 2002 acquired PayPal overlap Online Auction E actually day, 24 hours a day, 7 days a week, 365 days a year, millions of people from only(a) told over the adult maleity go shopping at online auctioneereers. This is non an exaggeration e verbalize, with a 76% sh argon of the auction position food commercialize, reports 42. million users and a egress cypher of 100% per Year Porters Five Forces Analysis contest Rivalry is very intense. hayseed had to give up Japan and Australia online auction grades in 2003 because of commencement margin in this food marketplace even if hayseed make great investment in these shakeinal localises i n the first placehand. Number of firms Online auction firms www. eBay. com, www. overstock. com, www. ubid. com, www. yahoo. com, www. amazon. com, www. CQ out(p). com, www. bidville. com, etc. The banging number of firms in this market reflects the intense controversy among those sites. Margin profit is simplificationd to a relatively commencement level. Bay could lock in survive because of its surmount of economy and well-grounded write up. However, eBays growth in 2004 was overmuch littler than in 2003. Sh arholders put much constrict on eBay, and eBay had to readjust its pricing on varied services on the short run in order to satisfy peoples short term expectation. However, he is risking his massive term tax and reputation. frozen represents essenti every(prenominal)y, distinguish lives on online auction market argon rather low purchasing programming technology patents, web, administration, address, noticeing, staff, and daily operations. Product specialisat ion divergentiation depends on how the work is performed. There is not withal much difference among different online auction companies in web treat efficiency and raptus efficiency, merely eBay is much convenient than others, receivable to their lengthy expertise in the market. eBay differentiated itself by integ military rank PayPal constitutement schema, which is ren knowledgeed for its security, cheap rate and profits utility. eBay offers a cheap transaction recompense rate, as well. It has greatest number of users by far, which offers excellent ne twainrk utility. amazon used to be a substitute crossing provider.However, since 1999 amazon added auction module in its business. eBay likewise encroached on Amazons break by adopting fixed impairment functions like misdirect it now clit and purchasing www. half. com. eBay and Amazon obtain been less different and in that respectfore arguing has ontogenyd a little. However, on that point is still an obvious gap in the midst of them in terms of business model and softwargon development. Amazon strengthened its reputation with senior high-end users. It has a friendly and succinct transaction interface, which offers superior product mix. Amazon is utilizing Porters judge dodging and has not agitated this for years.On the other hand, eBay is a large community of downhearted emptors and sellers who deal with single- accompaniment minutes at negotiable prices. It has a created cost advantage by scale of economy. close to goods traded on eBay are used, and eBays inventory transposes more sparkly than Amazons. eBay is actually taking Porters cost strategy. Different business models result in different financial performance. eBay generated $441 million net income in 2003 on $2. 17 billion revenue compared with Amazons much littler $35 million profit on far more revenue $5. 3 billion. eBay has a more liquid and efficacious financial structure.Besides, these two companies are bot h valued by their own net profit/community. Most customers dont understudy amidst auction and fixed price retail very often partly because they are rooted in the community culture of either intercommunicate. They dont withstand incentives to change their current method of transaction if it is satisfactory. Different business models and different interlockings are plenteous to place these two companies in different niches without in addition much rivalry. Barriers of New Entrants New dispatchers seize all(prenominal) opportunity to boom their market share. eBay still has a dominant market share of online auction.His reputation is a sweeping force in maintaining his good performance. However, eBay has to be on the lookout in every marketing decision. His mistakes pass on be taken advantage by these red-hot-fashi mavind comers. For example, www. bidville. com , an online auction site, of late undergo a dramatic accession in new particle registration after eBay annou nced they would swot up their listing angles for sellers. eBay to a faultk a prompt response by resuming the listing fee back to the original level. eBay didnt win some(prenominal)thing in this price alteration and readjustment, but eroded his reputation.Essentially in this online auction market, whoever has the most reveal recognition, wins the game. Right now, Bidvilles loss in name recognition puts Bidville out as a realizable alternative to eBays market length temporarily. eBay should think intimately more to maintain his name recognition on the long run. Patents eBay does not hold any fall upon patented technology. A new newcomer could easily emulate eBays interface. High cost of entry eBays most in effect(p) barriers are its large network and credible reputation. It is rather difficult for a new crank to stool a new network starting with no users. We can affirm this by how new air ticketing companies grow. ) The whole instruction to start a network from a rea sonable size is to derive an online auction market from an existing online website companionship which already has a network, just as yahoo and Amazon did. A new entrant must in addition launch creditability and capability to customers and payment providers (credit gondola elevator motor add-in, PayPal, eWallet, etc. ). New entrants must prove their guarantees of efficient and safe transactions, to both purchasers and sellers. Why would buyers and sellers bother to switch from a sullen existing online auction site to a new cardinal?Incentives to switch include discounts, coupons, accumulative reimbursement like frequent miles, co-occurrences from other services an entrant or their coope paygrade fellowship offers, and higher-quality service in terms of timely and processed shipping. All of these are trivial but not necessarily effective sales methods. Effectiveness depends on a comprehensive sales strategy which is motifd on keen insight of business dynamics and human group dynamics. It is hard for a new entrant to find an experienced strategist, and even if it does, there is still no guarantee to gain market share.This market is basically first-mover dominant. Furthermore, it is un in all likelihood for payment companies like credit card companies or other electronic payment providers to support a new entrant, because profitability is unclear. The revenue for thriving new entrants leave behind be low at the bloodline and stable on the long run. However, expenses will be completely high at the beginning. A new company seldom survives within a short term unless it has a very disinterested percentage of leverage or a large amount of ship capital, and leverage is only available for public companies.Therefore, a new entrant can credibly only be an existing company that operates in other markets. It should either be sufficiently self-funded or wee a very strong, persuasive income verbalisement and business plan to prove liquidity and gain le verage. Since the net bubble, venture capitalists are very cautious in investing in IT companies, especially Business-to-Customers or Business-to-Business ecommerce companies. (Check the performance of eBay du large number and after internet bubbles. ) Essentially, the scale of economy is very obvious in the online auction market.The value of an online network is proportional to the number of users squared. The scale of economy will naturally lead to a monopoly. A new entrant should either endorse a contrivance interruption governing body or employ a third-party payment platform company that already integrates fraud prevention system in its service. Brand loyalty First of all, eBay has been operating in this market since the beginning of e-commerce. A lot of e-commerce companies have failed since the internet bubble. eBay has successfully survived because of the thingumabob and simplicity of its service. It has gained popularity and built loyalty among customers.It has a secu re identity system, and every user has a record of past transactions. eBay has a sound rating system for every buyer and seller to establish credibility amongst the users. eBays user accounts work like passports of their personal credit and reliability. Most customers of eBay are long-term users therefore, they will not attempt fraud in their transactions. If they do, their rating suffers. All customers tend to devote all(prenominal) other because transactions are transparent to the 3rd party supervisor, eBay. eBay has successfully turned their online auction site into a community which has a cohesive culture.Photos of items to be sold greatly enhance the community value and establish amiability and trust betwixt sellers and buyers. (eBays success has influenced Amazon to adopt a similar indemnity in its online transactions recently. ) New entrants are competing against a community as well as a company. It is rather difficult to build a new culture and a new community. There fo rce be some other specialized auction niches available, but eBay offers nearly any product available. For example, eBay has online auctions for cars. However, since cars are large purchases, people tend to be cautious in purchasing them.They must inspect the cars in person, and the buyers and sellers tend to run-in in person. Online auctions dont have the appearance _or_ semblance conducive to the secondhand car market. As one would expect, eBay doesnt have much revenue from car transactions, and any other online car auction websites are not likely to generate high revenues. Such specialized auction markets have timid viability. In the example of a car transaction, there are two types of creditability involved. One is buyers trust of eBay Will eBay protect the buyers privacy? The other is buyers trust of sellers Will sellers defraud the buyers or exaggerate the quality of their cars?Shipping is likewise a major cost in this transaction. Most buyers obviously favour in-person t ransactions. There is little market space for online auction providers. In fact, there are free online bulletin boards that provide used car sale information. They make it difficult for paid online car auctions to exist at all. Mostly, the viability of such specialized auction markets is doubtful. Therefore, there is limited chance for new entrants. Substitute Products The most important merit of fixed-price online retail is that a buyer does not have to wait for an auction to end. It is appealing to shoppers who prefer sincere sales.They value their time more than the teensy price change. It is basically a tradeoff between time and price. Since online auction and fixed online retail marking people with different personalities, these two products essentially dont encroach with each other. eBay expanded its market by adding fixed-price features to its online transactions, such as purchase It Now. Half. com is a fixed price online retail web site which is owned by eBay. This show s that eBay is flexible in its business model. On the other hand, Amazon, a traditional online fixed-price retail web site, launched its auction feature in 1999.Here, fixed-price retail acts somewhat like a complement. However, it is a complement only when a company is involved in both types of sales. It is especially right for the companys network utility. eBay expanded its community (network) by adding fixed price retail feature, as Amazon did by adding auctions. Both of them successfully combined these two functions together, which merged these two markets into one, and gave customers greater convenience by allowing them to decide which way to purchase goods impromptu. However, there is less differentiation between eBay and Amazon.Traditional retail is more prevalent when the buyer must decide the product in person or shipping is difficult or expensive. eBay has had to build a strong creditability by making sure all the descriptions of online items to be sold are precise, compl ete and correct. Without this reliability, customers would switch to traditional retail stores. For those goods which are hard to price without observation, eBay cannot supplant traditional retail. This is particularly genuine for specialized items such as cars, jewelries, and plastic surgeries, all of which have too many details to be taken care of online.Online transactions seem impossible for these goods. The switching cost from online auction to traditional retail or fixed-price online is essentially high. For fixed-price online, sellers have to pay the storage fee for Amazons storage plant. For traditional retail, sellers have to pay for the storage fee and shelf rental fee. These extra fees, which are switching costs, are fair to middling to reprove single item sellers, who are main customer category of eBay, to switch. vendee Power Customers price sensitivity Online auctions dont manoeuvre sellers for storage of their goods. Fixed-price sites might charge sellers for s torage.Traditional retailers incur overhead costs. Sellers have incentives to sell via online auction. On the other hand, online auctions mainly deal with loose new products or secondhand products. Most buyers of such products are well-known(prenominal) with eBay, so sellers are more prone to sell via online auction. Buyer negotiate power is weakened. Customers negotiating power As I study above, eBay is a large network of small buyers and sellers who mainly deal with single-item sales. A seller generally sells one item to one buyer on eBay, so eBay has high prices and high margins when providing services for many buyers and sellers.Online auction site, recently experienced a dramatic increase in new member registration after eBay announced they would raise their listing fees for sellers. eBay took a prompt response by resuming the listing fee back to the original level. eBay didnt win anything in this price adjustment and readjustment, but eroded his reputation. Essentially in this online auction market, whoever has the most name recognition, wins the game. Right now, Bidvilles disadvantage in name recognition puts Bidville out as a possible alternative to eBays market space temporarily. Bay should think approximately more to maintain his name recognition on the long run. Patents eBay does not hold any key patented technology. A new entrant could easily emulate eBays interface. Buyer Power Customers price sensitivity Online auctions dont charge sellers for storage of their goods. Fixed-price sites might charge sellers for storage. Traditional retailers incur overhead costs. Sellers have incentives to sell via online auction. On the other hand, online auctions mainly deal with unpackaged new products or secondhand products. Most buyers of such products are familiar with eBay, so sellers re more prone to sell via online auction. Buyer bargaining power is weakened. Customers negotiating power As I analyzed above, eBay is a large network of small buyers and sellers who mainly deal with single-item sales. A seller generally sells one item to one buyer on eBay, so eBay has high prices and high margins when providing services for many buyers and sellers. Supplier Power Suppliers to eBay offer technology patent, licit support for intellectual property, and fraud prevention systems. eBay has great pressure to prevent fraud, since its reputation is at stake. Buyers and sellers care close to very much about their security.Online auction fraud in 2004 made up 16% of all consumer complaints last year, and 48% in the subset of internet-related complaints, topping the list. eBay has 0. 01% fraud rate of all transactions, but these isolated incidents receive wide media coverage, which discourages many potential customers. eBay is still improving its fraud prevention system. The fraud prevention system is launched by Microsoft Inc. and Visa International Inc. As this system is necessary to eBay, it has little leverage to negotiate a bump price. Many online retail systems need fraud prevention system, but there is only one supplier in the market.It has great bargaining power. Complements PayPal, as an online payment solution, is a good complement of eBays online auction business. PayPal is a neutral intermediary based on the financial infrastructure of bank accounts and credit cards, supported by a branded fraud prevention system. Transactions on PayPal are of low risk to both sellers and buyers. PayPal accepts money from the buyer in one of the ternary ways. Charging the buyers credit card Debiting the buyers compriseing account Charging from the buyers PayPal account. The buyer can always send study to his/her PayPal account.Then PayPal will email the seller about the payment made by the buyer. The seller will receive money in one of the three ways. The seller might have his own PayPal account. The payment will directly transfer to his/her account. The seller might receive a check from PayPal. PayPal directly deposit s the payment into the sellers checking account. Buyers care about security. Buyers credit card numbers are only shown to PayPal. That is safer than online payment directly by credit card. Buyers also care about the cost. For transactions between PayPal customers, theres no transaction fee.PayPal makes money on the float when customers money sits in their account, PayPal is assembling interest on it. Customers generally dont care about the interest that PayPal collects on their deposits. Customers also care about ease of use. PayPal is one of the simplest services for online transactions. All a buyer has to do is to provide his/her name, netmail address, credit card information, and billing address. For business accounts on PayPal, merchants are supercharged a 2. 2% discount rate + 30 cents on the transaction. It is better than the rate charged by merchant banks for accepting credit cards, in most cases. eBay Micro StrategiesIncrease brand recognition Expand the auction market b y introducing PayPal to more online auction markets Credit card companies charge more for Internet-enabled merchant accounts (the accounts the merchants need to accept credit card payments on the Internet), because of the high cost to main security. Therefore, credit cards become too expensive for smaller purchases. PayPal might negotiate with credit card companies for smaller fees for their subscribers. They can meet to share the market in the following way Merchant accounts on PayPal will be charged less by credit companies than those on other online payment platforms.Therefore it can increase the number of small purchases on eBay auction. Nowadays, credit cards are the primary winding means of purchasing air tickets and recording frequent flier miles. eBay should put down the air ticketing markets. It definitely can offer the same service with PayPal. PayPal should cooperate with more skyways and online ticketing websites. If they can integrate PayPal into ticket sales websit es, eBay will have a huge potential market in air ticketing and also increase its network utility. eBay should acquire a greater online auction market share by educating online customers that PayPal is the online currency.Yahoos wallet failed in the online marketplace. It was not easy to establish their own online payment platform, partly because the online payment innovation goes against Yahoos traditional business model. PayPal should make use of its belligerent advantage and offer Yahoo and other websites its specialized solutions. Perfect its proprietary fraud prevention system, which is essential to its success. eBay should let its customers, cooperative online transaction sites, online airline ticketing sites, and credit card companies all feel that transactions through eBay will lower their costs and be more valuable. Bay should cooperate with shipping companies, and make its online transactions more lucrative eBay should work with Phish Report network and other anti-phish ing organizations more efficiently in order to prevent impostor online auction sites taking its market share and damaging the whole markets reputation eBay should work with software developers to improve the security, efficiency, and adaptability of its database. eBay should convince customers that there is no intentional bidding up behavior involved in its online auction practice Develop real name feature for customers. attribute some restrictions on new sellers in expensive merchandise transaction or large volume sale until they have a good track record. Expand to international market, decrease national boundary barriers in terms of payment (credit card/PayPal) and shipping. Cooperate with local equivalent companies or localize by itself. Mediate between buyers and seller at security C get into. Respect both sides privacy. Solve conflicts in conservative way. Dont take risk of eBays reputation. eBay Today eBay is the worlds first off online marketplace.Through reliable customer service, efficient information exchange, and by utilizing the in vogue(p) technology, eBay has created an auction-based market community of an efficiency unheard of prior to the internet revolution. militant Advantage eBay has used its first-mover advantage to establish itself as the most reliable and, more importantly, largest auction house on or off the internet. In 2003 alone, more than 30 million people exchanged over $20 billion. Due to the size and diversity of its user base, eBay is able to offer a wider selection of merchandise than any online retailer.This is made feasible by the realistic nature of eBays market sellers can market obscure items to a global market as easily as and more tattily than they could put an ad in their local paper. Famous for matching buyers and sellers across the world with the most extreme items, eBay has developed incalculable value in its brand name. eBay has become a household word synonymous with an discriminating online marketplace. eBay comes to the mind of any buyer looking for that rare or rarely-cheap item any seller hoping to get rid of practically anything knows a buyer is lurking somewhere on eBay.The site has become an easily identifiable rally point akin to a popular dance club on a global scale everyone whos anyone is thereand everyone else too. eBays macro Strategy eBay seeks to maintain a high level of consumer patronage by capitalizing on its unique positioning as an internet marketplace. Globalization. Since eBay is a practical(prenominal) marketplace, eBay can establish language localized sites in other countries that have access eBays full auction database. Since the seller handles the shipping details, each seller may determine the extent to which they enter the global market. Bay has already expanded into 150 countries around the world. International transactions select little additional bookkeeping cost while their benefit to the consumer is big every buyer and seller has access to the largest market possible. Communication By allowing buyers and sellers to meet and communicate online, eBay is able to minimize the costs of remote market research and individual exchanges of information across states and borders. This interplay is essential to mutually well-meaning transactions on which eBay is based.To encourage fair transactions eBay provides an efficient feedback system to allow buyers and sellers to benefit from collective experience, giving customers a strong societal incentive to honor each transaction. Integration Through its acquisition of PayPal eBay gained not only market share, but also vertical integration key to its long-term success. By embracing the payment method most commonly used on its site rather than forcing an unpopular one on its user base, eBay has not only retained the existing PayPal user base but expanded to those consumers previously unsure of which method to use.In 2003 there were 40 million PayPal accountsalmost twice as many as the previou s yearand these customers transferred $12 billion across 38 countries. diversification In addition to normal auction bidding, eBay now offers a Buy-it-Now option. Sellers set fixed maximum prices at which the auction will close before it begins. This attracts auction-wary consumers from other e-commerce sites outside of the strict auction market and effectively competes with amazon. com and froogle. com for fixed-price transactions.By allowing independent sellers to maintain storefronts online, eBay seeks to extend its position to include an even wider direct of transactions, thus not only broadening its appeal but securing ties to more conservative consumer bases. The Future of eBay Industry Trends What originally began as a small industry of auctions for collectibles has mushroomed into a behemoth encompassing individual sellers, small businesses, and large retailers. The e-commerce industry is constantly growing, and many businesses rely on the reputation of eBay or one of thei r competitors to sell their products.As the market grows, a wider demographic ordain of consumers will be purchasing an increasing number of products online. For example, teenagers are the point consumers of very recent products such as cell phone ring tones and games, many of which are available exclusively online. As such varied consumer groups are emerging in the online market, there is more room for differentiation perhaps some niches are being created. Therefore, the barriers to entry will decrease as the market expands. Competitive Trends eBay has a solid foothold as the canonical online auction site.They have a niche as an marvelous community with an extremely high success rate of matching buyers and sellers. eBay is expansive by its availability of single, used, and/or rare items, and for its floating prices. They are adequately differentiated from their competitors, and they possess most 70% of the online auction market share. However, over cod to the relatively low s witching costs and entry barriers inherent in a web market, eBay must confront to be rather vindicatory of their position, against current competition and potential new entrants. Current CompetitorsAmazon and Yahoo Auctions are the main competitors of eBay. Ubid. com has 14% of the market share, but they have a different niche than eBay by appealing to business-to-consumer transaction. Amazon may frame a threat to eBays utter dominance they are consistently bringing retailers into e-commerce. However, this comes with a great burden. Whereas eBay has virtually no overhead, Amazon postulate to store and move vast quantities of inventory. Currently, Amazons revenues are advantageously greater than eBays (about twice as much), but their costs are so high that eBays annual profits are roughly ten times Amazons.Alternatively, Amazon might choose to expand its auction operations, trying to nudge eBay from its niche. Amazon would have to establish a network, a community, on the scale o f eBays in order to take exception them directly. Although this could be time consuming and costly to implement, focusing on transactions in which they are merely the broker and bear no cost could greatly increase their long-term profits. Yahoo poses little threat to eBay. art object they theoretically have potential for growth similar to Amazon, they lack Amazons reputation.They also lack the cost-free transactions in which eBay luxuriates. New Entrants Online auctioning doesnt have high costs of entry, especially the way eBay operates All a new entrant needs is merchant software there is no need for warehouses or expensive machinery. However, many companies have tried to enter this lucrative market and have failed. New entry is difficult because eBay has an frightful community, which gives tremendous network value to both buyers and sellers. Any entrant would have to build up a network from scratch. Conceivably, if a new company entered a niche market, e. g. uctions of teenage clothing and cell phone accessories, they could survive, but such a market would likely be too small to gain any measurable market share. Alternately, a website that already has a large community would be able to enter more easily. For example, Craigs List has a network of millions of users, who rely on it for matching them up with people who can fulfill their specific needs. It would be simple enough to add an auction section to the site, and take advantage of this existing network to compete with eBay. Froogle, a new service from Google, may forever change the way online shopping is done.While it currently is a beta version, it looks to be a promising engine for online shoppers to quickly search nearly all online stores for the products they desire. While Froogle isnt an entrant to the online auction market (yet), it is certainly the beginning of a powerful new substitute service. Froogle may be very dangerous to eBay for many reasons. Google already has a huge network of search-u sers and advertisers. If vendors (especially specialized vendors, as many on eBay are) can set up their own online stores and be found for free on Froogle, they have less of a reason to pay eBay for its high access. Bay certainly still has a lot going for it, (security and reputation) but may soon find its network challenged by Froogle users. eBays Response eBay recently started Business. eBay, a new business-to-business online auction that spans all sectors, from mining to farming. eBay is aware that they may need to accommodate bigger retailers in order to grow, and to challenge Amazons growth in this direction. If Amazon decides to challenge eBays community appeal, then eBay must break this attempt any way they can. A simple method would be to start a price war. Bays costs are so negligible compared to Amazons that Amazon could not peradventure survive a price war. EBay could almost give away auctions to sellers, whereas this descriptor of competition would bankrupt Amazon. If a new entrant emerges, eBays beaver bet is to rely on the value of their community. Even a company trying to enter into a niche market would have a difficult time building a network large enough to attract eBay customers. In the rare case of an established community site entering into online auctioning, eBay should engage in a price war if they cogitate this sites community is comparable to theirs. Bay is famous for their extreme efficiency, and any entrant would likely be somewhat inefficient due to their inexperience. eBays best response to Froogle is to assert their security and reputation to their users If you buy from eBay, you know you will have a safe and fraud-free transaction, especially if you pay with PayPal. On the other hand, if someone buys from an online shop found on Froogle, he has no idea how reliable the vendor is, or if his credit card information will be safe.If buyers are reluctant to engage in potentially insecure transactions outside of eBay, buyers and se llers alike will continue to complete their transactions through eBay. Summary eBay virtually monopolizes the online auction market, due to their large network value, extremely low costs, reputation for security, and efficient operations. When confronted with competition, eBay either relies on its community niche, or buys out the competition (i. e. Half. com and PayPal). They have created a market where entry is very difficult, and competitors are relatively powerless, particularly stipulation the threat of a price war.These advantages should ensure eBays continued subordination of online auctions in the future. However, they should court larger retailers, as Amazon has, to expedite their growth. eBay is likely to stay the leading online auctioneer for quite some time, as long as they remain adaptable to the ever-dynamic online market. eBay has proven to be a successful chameleon in the past, making lucrative acquisitions and modifying its business model, depending on the state of the online market. As long as eBay continues to aggressively maintain its community and reputation of security, it will dominate the online auction market.References 1. Crockett, Roger O. No Plastic? No Problem. BusinessWeek online. . October 23, 2000. 2. eBay 2003 yearly Report. . 3. Hof, Rob. Meet eBays Auctioneer-in-Chief. BusinessWeek online. . May 29, 2003. 4. Hof, Robert D. The eBay Economy. BusinessWeek online. . August 25, 2005. 5. Lewis, Marilyn. eBay and Amazon. webservicespipeline. . December 22, 2004. 6. Perez, Juan Carlos. Online auction providers apportion with fraud. Computerworld. . Februrary 17, 2005. 7. Roberts, Paul. Microsoft, eBay, Visa form Phish Report Network. Computerworld. . February 14, 2005