Pacific Lutheran University




Strategic Analysis &
Recommendation:
eBay
Restructuring Process to Retain and Grow Core Bu...
Table of Contents
CHAPTER                                                                                                 ...
Executive Summary
The following analysis has been completed after substantial research has been analyzed by our
team of co...
External Industry Analysis

PEST
Political

Taxes

The internet has always been a tax free zone. With the recession pummel...
Eco-Friendly

Most businesses in Catalog & Mail Order industries are doing business online. Their models are
based on the ...
expand as the U.S. population continues to increase its Internet use to purchase products.
According to the U.S. Census Bu...
Figure 1: Global Internet & Catalog Retail Industry Value: $ billion, 2004-2008

Social

Virtual Community

A virtual comm...
each other that stem from their interest in brands and products, resulting in a brand community
that serves as an importan...
Porter’s Five Forces Analysis
Power of Suppliers

Every person who has something to sell can be a potential supplier in th...
manufacturers. So, there are millions of suppliers linked to these sites. Yahoo shopping relays on
businesses to list comp...
channel”, such as online catalogs and online auctions can be set up with relative ease. The
physical assets needed to set ...
Retail Federation (EBay Ink, 2008), which shows their commitment to customers in an industry
which traditionally is solely...
Industry Life Cycle
Online retail spending declined 3% in the fourth quarter of 2008 from the year-earlier period,
accordi...
Internal Industry Analysis

Industry Key Success Factors
Expertise in Technology

The shift toward e-commerce has created ...
models. Knowledge transfer is facilitated by deliberate investments in such programs as formal
best-practice sharing; cent...
satellite TV operators, broadcast and cable networks, cinema owners, newspaper and magazine
publishers, and Internet porta...
Industry Value Chain
Included below is a chart of the main functions within the industry in which they provide
services to...
companies in the industry are still not fully internet based; they are still using print catalogs and
mail them to custome...
businesses to list competitive prices on its site (Kelkoo price comparison). So, the price and the
safety of transactions ...
catching company name which both relates to the industry the company is in and the type of
products/services they offer.

...
Technology Development

Within this industry, technology has played an important role in the way in which the companies
fu...
Industry Outlook
According to Reuters the growth of e-commerce in the US is expected to slow down to 11% in
2009 as consum...
eBay – Strategic Profile
Overview

eBay is an online company that provides online marketplaces for the sale of goods and s...
Financial

eBay currently has set itself into a position of strong financial success and growth in the key
areas of its bu...
Technology becomes an important factor when considering an e-commerce based company.
eBay has incorporated a large amount ...
Days Sales                                      22.6           21.9         20.8          19.6
Shareholder's Return
P/E Ra...
Because of its innovation system, eBay Inc. became the first internet company to be awarded the
National Medal of Technolo...
bidding on or listing items for sale. Another innovation which was created with reputation is the
Verified Rights Owner Pr...
Core Competencies




                    29
Company Value Chain
Primary Activities

Raw Materials

Being a technological e-commerce based company eBay originates from...
•   eBay Countdown, which helps eBay users bid and buy from anywhere on the Internet

   •   eBay Sales Reports and eBay S...
use of Bill Me Later, enabling online U.S. merchants to offer, and U.S. consumers to obtain,
credit for the transaction at...
eBay’s activities within procurement involve creating systems for suppliers to be successful in
their use of the marketpla...
SWOT Analysis

Strengths                                          Weaknesses

Brand Name                                  ...
Low-Cost Product – Low cost provides significant barriers to entry if that company is the only
low cost product among many...
International Expansion – Because of the increasing growth in buyers globally, there are many
opportunities in globalizati...
Yahoo! – Strategic Profile
Overview

Yahoo! (Yahoo) is an internet and media communications company, offering internet ser...
from more than 500 million unique users every month. However, Yahoo!'s prominence is being
challenged as competition heats...
reputation for committing to empowering its users and employees through programs, products,
and services that inspire peop...
ROE                                       24.21%         8.48%       7.06%        4.08%
Operating Profit Margin           ...
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  1. 1. Pacific Lutheran University Strategic Analysis & Recommendation: eBay Restructuring Process to Retain and Grow Core Business Kevin Dickson, Siavash Nourozi , Hung Li 5/14/2009
  2. 2. Table of Contents CHAPTER PAGE Executive Summary......................................................................................................2 External Industry Analysis......................................................................................... 3 PEST Analysis................................................................................................................3 Five Forces......................................................................................................................9 Industry Life Cycle.......................................................................................................12 Internal Industry Analysis.........................................................................................13 Key Success Factors......................................................................................................13 Industry Value Chain....................................................................................................16 Industry Forecast...........................................................................................................21 eBay Strategic Profile...................................................................................................22 • Resources and Capabilities...............................................................................22 • Financial Ratios.................................................................................................24 • Core Competencies...........................................................................................28 • Value Chain.......................................................................................................29 • SWOT Analysis................................................................................................33 Yahoo Strategic Profile.................................................................................................36 • Resources and Capabilities...............................................................................37 • Financial Ratios.................................................................................................38 • Value Chain.......................................................................................................39 • Core Competencies...........................................................................................45 • SWOT Analysis................................................................................................47 Amazon Strategic Profile..............................................................................................52 • Resources and Capabilities...............................................................................53 • Core Competencies...........................................................................................54 • Value Chain.......................................................................................................56 • SWOT Analysis................................................................................................58 • Financial Ratios.................................................................................................60 Strategic Recommendation and Implementation.....................................................61 • Strategy 1..........................................................................................................61 • Strategy 2..........................................................................................................63 • Strategy 3..........................................................................................................65 • Synergy.............................................................................................................67 Timeline........................................................................................................................68 Economic Value Added..............................................................................................70 Financial Forecasts.....................................................................................................72 References....................................................................................................................74 2
  3. 3. Executive Summary The following analysis has been completed after substantial research has been analyzed by our team of consultants in order to understand the eBay company and its surrounding factors. This includes an industry analysis to understand the general type of business where eBay places its self and how they fit into the industry as a whole. Following the industry analysis will come an internal analysis of the company and also its top competitors. With this information it is possible to gauge the eBay company in regards to those in which they are competing to reach a broad understanding of what needs to be completed internally to become a more successful company. With this previously stated information obtained we will be able to apply our team’s recommendations and strategies to solve to issues which are currently being seen in eBay. The final step in our company research and analysis will come from forecast of the eBay financials to understand where they currently sit and where they are and should be valued. An external industry analysis has taken place through a PEST analysis, studying how Porter’s Five Forces fit into this company, and understanding where the industry currently sits in terms of its life cycle. Our completion of these topics on the Catalog and Mail Order Houses industry has returned results which can be further used in our in-depth study internally of the eBay company. The internal industry analysis has been completed in order to understand the eBay company and its competitors. This has been completed through the study of the industry value chain, key success factors for the companies in this industry, an industry forecast and also details for eBay and two of its main competitors, Yahoo! and Amazon. The steps in the process of studying each of these companies individually provides us information on, in what areas the business of eBay could be improved or retained in order to beat their competitors in this market. These details can be used further as we move on into our strategic recommendation to increase the performance of the company. Our consulting services have provided in-depth recommendations on what would benefit eBay and also how these can be implemented within their company. The main focus of bettering the company’s success will be on retaining and growing their core business. This will allow their managers to focus on the business in which they have the greatest expertise and also to offer a diversified product. This section includes detailed steps on how each strategy should be used with the company. Also included is a timeline of when each of these strategies should occur, in order to maximize the benefits of our recommendations. Finally, our research analysis involves financial forecasts for the company, including but not limited to the actual worth of the company rather than where their company stands currently. The previously mentioned topics will be discussed in detail here within, in order to conclude our analysis for the successful organizational change to occur at eBay. 3
  4. 4. External Industry Analysis PEST Political Taxes The internet has always been a tax free zone. With the recession pummeling states' budgets, their governments increasingly want to fill the gaps by collecting taxes on Internet sales, which are growing even as the economy shudders. And that is sparking conflict with industries that do business online only and have enjoyed being able to offer sales-tax free shopping. The amount of money at stake nationwide is unclear; online sales were expected to make up about 8 percent of all retail sales in 2008 and total $204 billion, according to Forrester Research. This is up from $175 billion in 2007. Based on that 2008 figure, Forrester analyst Sucharita Mulpuru says her rough estimate is that if Web retailers had to collect taxes on all sales to consumers, it could generate $3 billion in new revenue for governments. It's uncertain how much more could come as well from unpaid sales taxes on Internet transactions between businesses. But even with both kinds of taxes available, state budgets would need more help. The Center on Budget and Policy Priorities estimates that the states' budget gaps in the current fiscal year will total $89 billion. (Never a right time to tax Internet, 2007.) The Internet has provided a powerful economic boost to our nation, and has become an important everyday tool for millions of Americans. By keeping Internet access tax-free and affordable, Congress can encourage Internet use for distance learning, telemedicine, commerce and other important services. Levels of Government Influence It is the federal government that passes and enforces legislation concerning the entire country. Actions by the federal government affect a large number of firms and are consistent across state boundaries. Environmental analysis, however, should not overlook actions by both state and local governments. Local governments used to have the potential to affect business practices significantly. Some local governments may be willing to provide incentives to attract business to the area. Some may build industrial parks, service roads, and provide low-interest bonds to encourage a desirable business to move into the community. However, the potential of local governments don’t affect the Catalog & Mail Order Houses Industry as much as other industries. Most businesses in Catalog & Mail Order Houses Industry have shifted the business online; therefore federal government has more direct influence to Catalog & Mail Order Houses Industry. 4
  5. 5. Eco-Friendly Most businesses in Catalog & Mail Order industries are doing business online. Their models are based on the efficiencies of the internet, empowering people to do more with less, to shop without driving to the mall, to pay without a paper check, and to connect and communicate without special equipment and without travel. Researchers have compared the energy use and carbon dioxide emissions associated with delivering a flash drive from a manufacturer to a home via the traditional retail channel and via ecommerce channel. In one scenario tested, the researchers found that buying from internet reduced environmental impact with 35% less energy consumption and carbon dioxide emissions than that produced in the traditional retail shopping model. (Clark, 2009.) The largest contributors to energy consumption and carbon dioxide emissions were from customer transport for traditional retail, and packaging and 'last mile' delivery to customer homes for ecommerce. Approximately 65% percent of total emissions generated by the traditional retail model stemmed from customer transport to and from retail stores. (Clark, 2009.) This business model fits nicely with current America’s Green policy. State and local governments and a handful of advocacy groups are releasing green-collar jobs. Venture capitalists are making significant investments in the companies that will develop the technologies behind the green economy. (America's Green Policy Vacuum, 2008) Economic The economic situation of this industry has been strong over the last decade as it has seen large increases in growth due to a successful economy and providing a product which the economy desires. The industry has generated approximately $68.1 billion in revenues, up significantly from just $19.3 billion in 1990. From 1990 to 1996, mail order sales grew at a rate of more than 9.9 percent per year, about 1.7 times the average growth of general merchandise, apparel, and furniture store sales. Recently the use of technological aspects in this industry has provided a service to consumers which has even more increased their economical position. As of 1999, an estimated 90 percent of catalog sellers who were members of the Direct Marketing Association were online in some way, and 60 percent of them were selling over the Internet. Catalog retailers' Internet sales represented a high growth area in the late 1990s, with some major companies reporting the doubling and tripling of online sales growth annually. Although, with these strong numbers it is not sufficient to believe that this industry is always successful. As with other sales based industries, this industry has been susceptible to economic downturns. This includes the recession of 2001 and also the current recession of 2007. The catalog industry had a rough start to the twenty-first century after a decade of exceptional growth. According to Catalog Age's, "Benchmark Report on Critical Issues & Trends" survey, 24 percent of the survey's respondents reported missing profit goals by more than 10 percent for 2001. Additionally, 29 percent missed the mark by 1 to 10 percent, meaning well over 50 percent of the industry did not make their profitability goals. Whereas downtrends in 2001 can be blamed on the aftermath of the terrorist attacks that had devastating effects on the fourth quarter, the industry did not rebound completely in 2002, and sales once again fell off in the fourth quarter of 2002. Despite the difficulties caused by a recessionary economy, the catalog and e-commerce sectors are expected to continue to 5
  6. 6. expand as the U.S. population continues to increase its Internet use to purchase products. According to the U.S. Census Bureau in 2000, the latest statistics available, electronic shopping and catalog houses accounted for 19.1 percent of all retail activity in the United States, with sales valued at $21.4 billion. Currently the global internet and catalog retail industry grew by 7.7% in 2008 to reach a value of $699.9 billion. Catalog retail sales proved the most lucrative for the global internet and catalog retail industry in 2008, generating total revenues of $374.7 billion, equivalent to 53.5% of the industry's overall value. In comparison, Internet retail generated revenues of $325.2 billion in 2008, equating to the remaining 46.5% of the industry's aggregate revenues. This industry has seen strong economic growth throughout its life and is expected to continue to see this into the future. The use of the internet as a tool for this industry has stimulated growth in the past and this is supposed to help the industry grow in the future. This provides a situation for the right company to be able to take advantage of this high growth sector. The below graph details the expected growth over the next five years, going out to 2013 and it can be seen that this industry is expected to see almost double digit growth moving into the future. 6
  7. 7. Figure 1: Global Internet & Catalog Retail Industry Value: $ billion, 2004-2008 Social Virtual Community A virtual community refers to a network of people with shared interests communicating with each other electronically. Using bulletin boards, chat rooms, e-mail lists, blogs, and virtual spaces, the Internet provides creative ways for different forms of real or imagined communities to exist. A virtual community can offer resources and social opportunities for a wide audience because it transcends geographical and spatial boundaries. Today, virtual community members self-select into the electronic social networks for on-demand information and resources. In addition, members join virtual communities for social support, share stories, exchange ideas, and conduct commerce. Through electronic communication and interaction, members develop bonds and authentic personal relationships. Catalog & Mail Order industry organizes and supports many virtual communities; the industry would create a specific consumption-related activity and encourage people to share their enthusiasm for and knowledge of the activity. Consumption activities or products are used to identify members of virtual communities with each other in a symbolic and meaningful way. Devoted or loyal users of a product/brand form an environment within the virtual community where consumption of the product/brand is socially reinforced and encouraged. From the industries’ standpoint, virtual communities offer a tremendous opportunity for companies to understand their customers and foster a sense of loyalty to the product or brand, thereby improving profitability and brand value. Virtual communities of this nature can provide benefits for both companies and consumers. First, for the company, useful information traditionally acquired from communication between the consumer and the business can be derived from the dialogue among consumers. Marketers are able to analyze how their brands are perceived and whether they meet consumer expectations. Second, consumers form bonds with 7
  8. 8. each other that stem from their interest in brands and products, resulting in a brand community that serves as an important word-of-mouth marketing tool. Members become influential in changing and shaping other members’ consumer decisions. And finally, the consumer community becomes a rich resource for solving product related problems and a breeding ground for creative ideas leading to new product or service opportunities. Rising Educational Levels Rising educational levels also have an impact in Catalog & Mail Order industry. Higher educational levels allow people to earn higher incomes than would have been possible otherwise. The increase in income has created opportunities to purchase additional goods and services, and to raise the overall standard of living of a large segment of the population. The educational level has also led to increased use of technology. These people are using the internet more regularly, which has led them to use cell phones to check emails and current news. Because of the increasing usage of internet, the Catalog & Mail Order Industry has shifted much of its operations to the internet. By moving much of their business operations online, many firms have experienced growth in this area. Norms and Values Norms (standard accepted forms of behavior) and values (attitudes toward right and wrong), differ across time and between geographical areas. Lifestyles differ as well among different ethnic groups. As an example, the application in the United States of Japanese-influenced approaches to management has caused firms to reevaluate the concept of quality. Customers have also come to expect increasing quality in products. Many firms have found it necessary to reexamine production and marketing strategies to respond to changes in consumer expectations. Population Changes Changes in population demographics have many potential consequences for organizations. As the total population changes, the demand for products and services also changes. For instance, the decline in the birthrate and improvement in health care have contributed to an increase in the average age of the population in the United States. Many firms that traditionally marketed their products toward youth are developing product lines that appeal to an older market. Clothing from Levi Strauss & Co. was traditionally popular among young adults. While its popularity in this market has waned, the firm has been able to develop a strong following in the adult market with its Dockers label. Other firms are developing strategies that will allow them to capitalize on the aging population. Firms in the health-care industry and firms providing funeral services are expected to do well given the increasing age of the U.S. population. They are projected as a growth segment of U.S. industry simply because of the population demographics. 8
  9. 9. Porter’s Five Forces Analysis Power of Suppliers Every person who has something to sell can be a potential supplier in the mail order industry, so the suppliers are countless. The mail order industry doesn’t have chain of traditional manufacturers, but instead provides services that bring buyers and sellers together. So, there is not an imminent threat from suppliers, because most of the time anyone can become one. EBay and other online auctioneers also have several thousands of online store suppliers, who use their site to reach out to new customers. In order for an online store to successful on eBay it must, first of all, establish a brand and make sure their brand becomes well known. Things customers look at when choosing a product to buy from a store online is the price, feedback number, and brand name. As internet become more available to people in the United States and the rest of the world. This gives firms using the online catalog business a chance to obtain new customers and reach out to people they couldn’t before. Firms in the online auction industry are constantly looking for ways to market their services and make it easiest to use. Distinction is the key in the mail order catalog industry, because of the countless suppliers on these sites. In order to be successful sellers need to be distinct in price, reputation and quality. Because there are so many sellers in this industry, the competition is very strict and sellers will not just stratify consumers by just offering products. The distance between competitors is also vanishing. The online catalog business has also increased the intensity of competition by allowing new competitors into the market. Due to the enormous number of people visiting these sites on regular bases, not only individuals or small businesses have discovered, but also companies like Dell has discovered auctions sites as a great opportunity for expanding their business. The industry has enabled opportunities for businesses by locating on one point numerous customers from local, national and international markets and allowing them to enjoy the benefits. Suppliers have also found they can increase margins by using these sites to bypass intermediaries. We can fairly say that this industry is fairly diversified, in terms where they get their products. Some of the “players” in this industry have their own warehouses and inventory set ups. Ebay for example have a strategic partnership with IBM, which uses ebay to sell their newest products and offer services using competitive auctions and fixed-priced storefronts. Amazon relies on its own warehouses to supply its customers, and it has managed to do it in the most cost saving way. The advantage this industry has over other traditional retailers is that their warehouses and inventory can be located in strategic locations around the, from which they can distribute their product from (skipping the cost of a middle man). Others in this industry relay on its seller and buyers to make the market (eBay). Bills of materials in Ebay can be identified as small businesses selling used cars, books, music, and cloths etc. They can be private sellers who want to get rid of their old car or used book. So, Ebay is not dependent on its suppliers, but its sellers and buyers who operate on its site. Sellers in turn relay on their suppliers to provide them with the materials they need in order to produce their products. Ubid.com relays on its suppliers to auction off refurbished products from 9
  10. 10. manufacturers. So, there are millions of suppliers linked to these sites. Yahoo shopping relays on businesses to list competitive prices on its site (Kelkoo price comparison). So, the price and the safety of transactions is key when a consumer decides to buy a product. Overall this industry is highly dependent on the economic condition that lies ahead. The winner is the one who can think outside the box and offer products at lowest price with the maximum return. The innovative and the consumer aware in this industry are “Kings”. The only leader we can identify in this industry being heavily dependent on materials is Amazon.com. They are dependent on wholesalers to get their products.... who in turn are dependent from their suppliers to get their raw materials in order for them to make the final product. Power of Buyers One of the main advantages the industry has are its millions of buyers that view there company’s goods each day. Each item listed on these sites can be seen by customers all around the world. The advantage it gives its customer is the million of items that is can be listed in a short amount of time. They operate 24 hours a day, and that gives the buyer the option to buy anything they want at anytime. The buyers can come from Asia, Europe, America and other parts of the world. The buyers can be small businesses, ordinary people and big corporations. They make the buying experience pleasant for the buyers because of their highly developed feedback system and rating features. One can easily study the item they are going to buy before making a purchase. The buyers can sell and buy items which have made these sites even more popular. You can easily compare prices between many items and make your purchase based on your preference. Buyers can easily communicate with their sellers and rate them. Buyers are given the option to study the background of a particular seller. The buyer can even save a lot of money, because many items end below market price of their value. There is also a large assortment of the items listed on the site. We can identify these two challenges that the industry has to cope with in the near future. We think the biggest advantage these companies have is the countless items they are able to offer at such low prices. Threat of New Entrants There are some factors which occur in the industries of internet auctions and catalog & mail order houses that have to do with new entrants. It is necessary to consider the two types of businesses which make up these industries and how they function. The boom of e-commerce has had an effect on these industries and has made much advancement in the way these businesses are run. These industries have also had a history of being suitable to new entrants because of the minimum capital needed to operate. The e-commerce sector is an area which has changed the way businesses construct their strategies in order to hold their market position. In a brick and mortar organization, companies have the use of infrastructure to keep new entrants out of their industry. This is the case in the industries eBay is in, with companies of a traditional set-up. With property, plant and equipment (supplies) necessary to run the company, the cost of a new entrant beginning business is high. The organization of the industry in this way works to keep power in the hands of the current companies in the market. The advancement of the e-commerce sector of business has had a great influence on the way the traditional business model works. The ability of new companies entering a market, and in our case the industry’s eBay fits itself, is increased by the limited tools needed to start business. Access to the internet is universal and because of such an online “trade 10
  11. 11. channel”, such as online catalogs and online auctions can be set up with relative ease. The physical assets needed to set up these businesses are small and are commercially available. The other factor to consider in the catalog and mail order houses industry is in addition to the capital needed, which has been previously stated, and is the amount of inventory needed on hand. This industry requires a minimum amount of inventory in control at any given time. This occurs because the companies are able to have the products shipped at the time of sale from the retailer to either the customer or briefly to the company to ship on. The catalog and mail order houses industry, along with the internet auctions industry have advanced from its traditional brick and mortar business strategy to technological based services. Because of such, and the tradition of these industries being one susceptible to new entrants because of low inventory levels, it has become easy for new companies to enter the industry. Threat of Substitutions Buyers and sellers are strong supporters of the companies in these industries and to them switching costs on an emotional and financial level exists. On the emotional side, buyers and suppliers must take their trust they have applied to the companies in which they feel comfortable, and “switch” it to another company which they have not been exposed. In order for a substitute product to succeed it must enter the market with a product which is differentiated from the rest. In order to gain some of the market share from the leaders in this industry these substitutes must introduce a product at a lower price, of more value or something extraordinary in order to force loyal customers to leave their trusted company and accept the new substitutable product. The businesses making up these industries have worked to counteract the threat of substitutions through the use of differentiated products which cannot be easily copied by its competitors. This includes offering products of value to its buyers and sellers. Products of value in these industries mean having the most up-to-date technological systems applied to their business in order to create the most user friendly interface, adding additional tools for use beyond the traditional marketplace and offering a price which cannot be competed with by any direct competitors. Rivalry Rivalry in the e-commerce sector has always been an area of competition since its boom began in the late 1990’s and will continue as the increase in internet usage continues on. The e-commerce industry is expected to see double digit growth rates over the next five years (Shopall, 2008), and this increase will continue to attract more and more businesses hoping to take advantage of the profits. This intense rivalry which has been seen and will continue to be seen by eBay and its competitors means it is necessary to determine exactly what the customers want and what should be done to win the market share. Customers using the internet as a shopping tool are in the market to receive the lowest costs possible for a product while sacrificing personal customer service and the benefit of seeing a product “hands-on”. It is important to understand this trend among internet users in order to cater to their wants and needs. eBay has begun a system of customer satisfaction in order to give its customers a feeling that they are cared about which they would receive in most brick-and-mortar stores. eBay is ranked in the top 20 for customer service for retail companies by the National 11
  12. 12. Retail Federation (EBay Ink, 2008), which shows their commitment to customers in an industry which traditionally is solely focused on price slashing. When rivalry exists within an industry its necessary to take other firms actions into consideration to determine if it will effect market share and if their strategy is a technique which should be adopted. An example of this approach taken by EBay is their inclusion of the ‘Buy it now’ option to make purchases. This update was included in order to spread their service into the market share held by more traditional internet stores, with a regular click and buy option at a set price. This gives them a variety of services which allows them to build a returning customer base because of the functionality available with the use of their site. eBay is in a position to continuously improve their product to reach customers with numerous wants and to give them the best experience possible. The use of an online community created through the EBay website and easily accessible through the front page gives customers and suppliers an opportunity to share their desires and suggestions for improvements. By continuously monitoring these community boards eBay is able to obtain necessary information to improve their company and remain in the top of their market by implementing certain requirements from those surrounding them. This also allows them to introduce these improvements before their competitors are able to because of the relationship they have built with those fueling the profits of the company. While rivalry is very much existent and intense in the industry which EBay exists, they are building a system to match customer’s wants and needs more effectively than their competitors. 12
  13. 13. Industry Life Cycle Online retail spending declined 3% in the fourth quarter of 2008 from the year-earlier period, according to comScore, which said that was the first recorded quarter of negative growth since it began tracking e-commerce spending in 2001. (U.S. E-Commerce Down 3% in Q408, Up 6% for Year). Nonetheless, for the full year (2008) retail e-commerce grew 6%, to $130.1 billion—a substantially lower growth rate than in previous years, however. The fourth quarter rounded out what was a particularly challenging year for online retailers. The reduced growth rate is caused by the financial market meltdown that began in the fall, and dramatically reduced consumers’ discretionary spending power, resulting in the first quarter of negative growth (U.S. E- Commerce Down 3% in Q408, Up 6% for Year). A review of quarterly retail e-commerce growth rates depicts the slowdown in the US retail economy during the past two years: Throughout much of 2007, quarterly growth rates remained in the vicinity of 20%. However, beginning with Q1 2008 the growth rates began to de-accelerate, culminating in a 3-percent decline in the final quarter of 2008. 13
  14. 14. Internal Industry Analysis Industry Key Success Factors Expertise in Technology The shift toward e-commerce has created some new potential areas of success for the Catalog & Mail Order Industry. E-commerce is a logical next step in the evolution of Catalog & Mail Order Houses Industry. E-commerce consists of the buying and selling of products or services over electronic systems such as the Internet and other computer networks. The amount of trade conducted electronically has grown extraordinarily with widespread Internet usage. The historical focus of Mail Order is mainly placing an order for the desired products with the merchant through a telephone call or mail. As e-commerce continues to develop, companies will have to shift their focus to include e-commerce in their compound pipelines. E-commerce also offers a much higher growth rate than any other trading method. A wide variety of commerce is conducted in this way, spurring and drawing on innovations in electronic funds transfer, supply chain management, Internet marketing, online transaction processing, electronic data interchange (EDI), inventory management systems, and automated data collection systems. The appeal of e-commerce is obvious; much higher potential returns on investment due to economically efficient marketplace. Rivalry in the e-commerce sector has also been an area of competition since its boom began in the late 1990’s and will continue as the increase in internet usage continues on. In order to stay competitive, companies in Catalog & Mail Order Houses Industry have to innovate and adapt new internet services. The benefits of technology adoption are the keys to their market penetration, central to competitive differentiation, and vital to their supply chain and distribution strategies. Services Multi-focused Model The services shared in multi-focused companies typically include business functions like finance, purchasing, information technology, human resources, and executive training. The scale advantages they provide are straightforward and include pooled purchasing, preferred access to credit, and other cost-related benefits. Economies of experience are more difficult to realize but can also be more valuable. Here, the successful companies in the industry have used knowledge gained in one service model to strengthen the performance of the others. To a limited extent, this kind of knowledge transfer occurs informally; this has always been the hope and promise of diversified companies. The important difference in successful multi-focused firms is that they formalize the process, designing very explicit ways of leveraging experience across service 14
  15. 15. models. Knowledge transfer is facilitated by deliberate investments in such programs as formal best-practice sharing; centralized, dynamic employee training; and the rotation of managers among models. This industry shows that the best means of sustaining growth is to employ the multi-focused model, yet it is also evident that this model requires concentrated effort to defend. Leaders of individual service models constantly assert that dedicated, rather than shared, resources would do more to strengthen their own businesses. Operations managers, meanwhile, raise a chorus of complaint that shared services require more- vigilant control "below the line" if they are to deliver the necessary economies of scope and experience. Given the perpetual assault on the model, it may not be surprising that another common characteristic of successful multi focused firms is directive (even autocratic) leadership. This leadership style accommodates different personalities, but it always relies on senior managers who are able and willing to exert strong influence on subordinates. They must be, in order to balance the competitive autonomy of individual service models with the collective value of shared services. Without strong, centralized leadership, revenue-generating line managers typically overrule shared-services managers, particularly in moments of strategic distress. Indeed, companies often stack the deck by placing stronger leaders in the service models than in the shared services, effectively undermining the performance of the system. Marketing Consumer Reviews On-line consumer reviews, functioning both as informants and as recommenders, are important in making purchase decisions and for product sales. Their persuasive impact depends on both their quality and their quantity. The industry shows three major findings: (1) the quality of on- line reviews has a positive effect on consumers’ purchasing intention, (2) purchasing intention increases as the number of reviews increases, and (3) low-involvement consumers are affected by the quantity rather than the quality of reviews, but high-involvement consumers are affected by review quantity mainly when the review quality is high. These findings have implications for on-line sellers in terms of how to manage on-line consumer reviews. Mail Order Industry consumers cannot touch or smell products, as would be possible in traditional retail outlets, so their purchase judgments must be based on the product information presented on the Web site. On-line sellers seek to overcome this limitation by giving consumers the opportunity to share product evaluations on-line. This consumer-created information is helpful in making purchase decisions because it provides indirect experiences of products. Gaining a large subscriber base Content owners and distributors are competing not only to attract new customers, but also to build loyalty and retention rates among existing customers. Today's mandate for "reinvention" means the future depends not only on incremental improvements, but on quantum-leap breakthroughs as well. Subscription-based operators are constantly developing strategies to maintain and grow ARPU (Average Revenue Per User) through customer retention, process improvement, and product innovation. In the wider sphere, across the E&M landscape cable and 15
  16. 16. satellite TV operators, broadcast and cable networks, cinema owners, newspaper and magazine publishers, and Internet portals are struggling to enhance their customer care and management operations. Companies in the industry are always seeking to derive value from the entire customer management value chain, from database interrogation to inform and drive marketing and cost-reduction strategies, to development of powerful people and systems strategies which can deliver the highest level of customer service. Standard and Custom Catalogs On-target award options is the way to engage emotions. The catalog's design might catch the participant's attention, but it's the merchandise that keeps it. The first thing to consider when selecting merchandise is that there are two types of catalogs: standard and custom. The merchandise in the standard is usually chosen by the catalog supplier, not the incentive planner. Standard catalogs work well with a diverse audiences. With the custom catalog, the incentive planner and supplier work together to find merchandise for very specific target audiences. Amazon.com, for example, uses recommendation to personalize the online store for each customer. The store radically changes based on customer interests, showing programming titles to a software engineer and baby toys to a new mother. The bottom line is tailoring the merchandise. 16
  17. 17. Industry Value Chain Included below is a chart of the main functions within the industry in which they provide services to their customers. These are high level descriptions of steps which occur and are relevant to the industry as a whole whether it be the traditional type of Catalog and Mail Order Company and also the newly formed technological based businesses. Primary Activities Raw materials The main materials that are critical towards the success of the Catalog & Mail Order Houses Industry are their networking related equipments, software used on the websites, catalog printing and electricity. Most of the companies in the industry are shifting, or have shifted, their business online. Doing business online requires servers for outside users to access services and products. In addition, these servers are dependent on Dell, IBM, Sun Microsystems, etc, to manufacture. These servers also require huge electricity to operate, so the companies have to form contracts with local electricity providers. Backup generators are also necessary for the servers, in case there is a blackout, backup generators would kick in and provide powers to the main servers. Companies also have to create contracts with network providers to connect all there servers to the World Wide Web. In order to remain successful and competitive within the industry, companies need to obtain the most technological advanced software to build their websites. Users are expecting secure, reliable and fast access when they use the websites. However, some 17
  18. 18. companies in the industry are still not fully internet based; they are still using print catalogs and mail them to customers. And this requires partnering with paper suppliers. Inbound Logistics Every person who has something to sell can be a potential supplier in the mail order industry, so the suppliers are countless. The mail order industry doesn’t have chain of traditional manufacturers, but instead provides services that bring buyers and sellers together. So, there is not an imminent threat from suppliers, because most of the time anyone can become one. EBay and other online auctioneers also have several thousands of online store suppliers, who use their site to reach out to new customers. In order for an online store to successful on eBay it must, first of all, establish a brand and make sure their brand becomes well known. Things customers look at when choosing a product to buy from a store online is the price, feedback number, and brand name. As internet become more available to people in the United States and the rest of the world. This gives firms using the online catalog business a chance to obtain new customers and reach out to people they couldn’t before. Firms in the online auction industry are constantly looking for ways to market their services and make it easiest to use. Distinction is the key in the mail order catalog industry, because of the countless suppliers on these sites. In order to be successful sellers need to be distinct in price, reputation and quality. Because there are so many sellers in this industry, the competition is very strict and sellers will not just stratify consumers by just offering products. The distance between competitors is also vanishing. The online catalog business has also increased the intensity of competition by allowing new competitors into the market. Due to the enormous number of people visiting these sites on regular bases, not only individuals or small businesses have discovered, but also companies like Dell has discovered auctions sites as a great opportunity for expanding their business. The industry has enabled opportunities for businesses by locating on one point numerous customers from local, national and international markets and allowing them to enjoy the benefits. Suppliers have also found they can increase margins by using these sites to bypass intermediaries. We can fairly say that this industry is fairly diversified, in terms where they get their products. Some of the “players” in this industry have their own warehouses and inventory set ups. EBay for example has a strategic partnership with IBM, which uses eBay to sell their newest products and offer services using competitive auctions and fixed-priced storefronts. Amazon relies on its own warehouses to supply its customers, and it has managed to do it in the most cost saving way. The advantage this industry has over other traditional retailers is that their warehouses and inventory can be located in strategic locations around the world, from which they can distribute their product from (skipping the cost of a middle man). Others in this industry rely on its sellers and buyers to make the market (eBay). Bills of materials in eBay can be identified as small businesses selling used cars, books, music, and cloths etc. They can be private sellers who want to get rid of their old car or used book. So, eBay is not dependent on its suppliers, but its sellers and buyers who operate on its site. Sellers in turn rely on their suppliers to provide them with the materials they need in order to produce their products. Ubid.com relies on its suppliers to auction off refurbished products from manufacturers. So, there are millions of suppliers linked to these sites. Yahoo shopping relies on 18
  19. 19. businesses to list competitive prices on its site (Kelkoo price comparison). So, the price and the safety of transactions is key when a consumer decides to buy a product. Overall this industry is highly dependent on the economic condition that lies ahead. The winner is the one who can think outside the box and offer products at lowest price with the maximum return. The innovative and the consumer aware in this industry are “Kings”. The only leader we can identify in this industry being heavily dependent on materials is Amazon.com. They are dependent on wholesalers to get their products, who in turn are dependent from their suppliers to get their raw materials in order for them to make the final product. Operations The catalog and mail order industry is focused on the development of marketplaces in order to bring their suppliers and buyers together in a single platform. The traditional businesses in this industry compete with hard-copy catalogs which display and list the each suppliers good to be viewed and purchased by buyers. Currently, newly formed electronic functions of catalogs have entered the market and include television, telephone and e-commerce. Revenues are generated through the sale of retail goods via mail order, television and catalog channels. Hard-copy catalogs are produced by taking the goods received by the supplier and listing this in one catalog with a combination of goods from other suppliers. The construction of these catalogs means assembling various components together to make a whole, working product. This allows information to be available to distribute to buyers through sales and marketing. Recently the growth of electronic forms of catalogs has cut costs and added competition into the industry. Their operations and activities focus on developing marketplace platforms for products to exist, which have the capability of being shopped by buyers. These companies go through the process of collecting supplier’s goods, much the same way as hard-copy catalogs do, and place them into virtual marketplaces. This includes using various tools to sell the products, such as fixed-price listings, auctions, trading and various other methods which will transfer the product from the supplier to the buyer. Marketing and Sales After the operations have been completed in developing product marketplaces it is necessary to effective distribute and market the catalog. An investment is needed in the presentation of the catalog in order to attract buyers through highlighting the products. This is also very important in this industry as customers are able to control how and when they decide to shop because this industry is constantly open for shopping. By distributing a quality, eye-catching product the catalog company is more likely able to attract buyers. General advertising is also being completed by these companies and has seen its advances with the introduction of the internet. Also important to consider in the marketing and sales of the catalog industry is the brand image created around the product. Those who work on marketing their brand name and spreading this to customers are seen to have the best success in this industry. When customers receive quality service, which will be discussed later, they relate the catalogs image and name to a company they will remember and wish to do business with in the future. This is aided through the creation of a 19
  20. 20. catching company name which both relates to the industry the company is in and the type of products/services they offer. Outbound Logistics There are two aspects pertaining towards outbound logistics in Catalog & Mail Order Houses Industry. First, companies would have to distribute catalogs either over by the internet or print. If it is distributed by the internet, the search engine plays the main role for customers to locate the product. Keyword is used in a search query initiated by a user or when specific content is being viewed by a user on the website. Companies also would distribute print catalogs to the customers. Second aspect would be delivering purchased products to the buyers. Catalog & Mail Order Houses Industry depend on suppliers to finalizing the purchases to the buyers. After-Sales Services Although the suppliers in this industry are not the companies producing and distributing the catalogs, they still take a great deal of pride in taking care of their customers. Most commonly in this industry the catalog and mail order house is the face of the product and service, so in turn they will be first responsible for customer satisfaction. As with traditional retail companies they develop return policies, which are negotiated earlier with the suppliers, and dedicated customer service/support communications to handle any problem which may arise. In following this process a company participating in this industry can build a name for themselves in reliability, trust and reputation, all of which are very important to customers. This value given to the customer will create return customers, who will also advertise through word-of-mouth to those surrounding them. By finishing the value chain in this manner will leave the customer with the best possible image of your company, rather than ruining their experience. This is a goal commonly shared by both the suppliers to the catalogs and the catalogs themselves in order to create a shared vision for customer satisfaction. Secondary Activities Firm Infrastructure Specification applies to the industry in a variety ways. These include government relations, company policies, financial regulations and environmental policies. While meeting these rules and regulations, the companies of this industry must also focus on scanning the external environment for potential business opportunities. Human Resources Management Companies in Catalog & Mail Order Houses Industry have to effectively hire, train, and manage new employees. The employees needed cover wide range of skill sets to meet product demands such as marketing, finance, engineering and others. If their new hires perform poorly, if they are unsuccessful in hiring, training, managing, and integrating these new employees, or if they are not successful in retaining their existing employees, their business may be harmed. To manage the expected growth of their operations and personnel, they will need to improve their transaction processing, operational and financial systems, procedures and controls. 20
  21. 21. Technology Development Within this industry, technology has played an important role in the way in which the companies function and the future of the industry. The internet has played an important role in allowing new entrants to enter the market while also making a cost cutting business which is meets the wants and needs of today’s customers. Procurement Procurement for Catalog & Mail Order Houses Industry is the section of companies that oversees the purchasing of the materials that are necessary for the company to operate. These include purchase networking related equipments from their manufactures, conducting contracts with its local electricity suppliers, forming agreements with Internet Service Providers, printing companies and delivery companies. 21
  22. 22. Industry Outlook According to Reuters the growth of e-commerce in the US is expected to slow down to 11% in 2009 as consumers will reduce their spending due to the global economic recession. The growth is projected to slip from 13% in 2008 and 18% in 2007. Moreover, present economic situation and weak consumer confidence due to decline in discretionary income and increasing unemployment will keep the consumers away from the online retail business in 2009. The country is expected to see online expenditures of US$ 156 billion this year, higher than the US$ 141 billion recorded last year. Narrowing our research of the industry eBay is in Yahoo finance. The estimate shows that the industry will grow only with 0.2% this year and 13.8% next year. The industry is expected to grow an average of 11.98% per annum the next 5 years. Furthering our research of sector of that industry, it shows that the sector will contract with -2.6% this year and grow 18.3% next year. For next 5 years the sector is expected to grow with 11.19% per annum. This concludes our research that the industry is still growing, and there are plenty of opportunities for EBay to expand its business and operations. 22
  23. 23. eBay – Strategic Profile Overview eBay is an online company that provides online marketplaces for the sale of goods and services. It also provides commerce, platforms, online payments services and online communications offerings to individuals and businesses.The company primarily operates in the US. It is headquartered in San Jose, California and employs 15,500 people. The company recorded revenues of $7,672.3 million during the financial year ended December 2007 (FY07), an increase of 28.5% over FY06. The operating profit of the company was $613.2 million during FY2007, a decrease of 56.9% compared to FY06. The net profit was $348.3 million in FY07, a decrease of 69.1% over FY06. Key Facts Head Office eBay Inc. eBay 2145 Hamilton Avenue San Jose California 95125 USA Phone 1 408 376 7400 Fax 1 408 369 4855 Web Address http://www.ebay.com Revenue / turnover (USD 7,672.3 Mn) Financial Year End December Employees 15,500 NASDAQ Ticker EBAY Resources 23
  24. 24. Financial eBay currently has set itself into a position of strong financial success and growth in the key areas of its business. Sales have increased due to the strengths of past acquisitions and low costs have returned high profits back into free cash flow. Cash is being held and used to advance success in fast-growing businesses in order to receive quick returns for stockholders. Cash is currently listed at $3.8 billion and with borrowing power increase by $1B to about $2B, they are in a strong position to continue their advancement in key acquisitions. Another strong financial factor to consider for eBay is that it has permitted leverage of 3x EBITDA, up from their past permitted leverage of 2x, allowing for the use of more debt in their cost of capital structure. The stock market seeing eBay as a strong company has been important when they are adding capital and their current market capitalization is $15.70B. Through the use of this capital being raised through the sale of its own stock eBay has built two strong forces to finance their growth, debt and equity. Organizational The executive team has been built in order to provide management among a variety of business areas which are especially specific to eBay. These include senior managers of human resources, platform technology, general counsel, corporate communications, marketplaces, finance, and PayPal. These managers report to the CEO and then to the board of directors, who are actively involved with the company and include former CEO Meg Whitman. Within the organization eBay has made many advances to aid in their growth. Three operating segments have been designed within the company to handle the commonly used marketplaces, along with the additions of payments and communications. Marketplaces are made up through the use of eBay auction listings, fixed price listings, as well as the additions of their other online platforms, Half.com, Rent.com, Shopping.com and StubHub. The payments segment is made up of PayPal, and communications consists of the acquired Skype VoIP. Physical eBay works out of facilities throughout the U.S. and also located in 25 different countries. These are used for executive and administrative offices, data centers, product development offices and customer service offices. The development of new properties is important to acquire in the eBay strategy. One of the property acquisitions included a new data center in South Jordan, Utah to be opened which will create about 50 jobs. The employees in this location are proposed to receive 50% more than the county median wage. The development of facilities in locations such as this one, which will improve its community has made tax credits available from the government, including $27.3M for this project. The human capital currently held across all eBay locations is vast and increasing with its growth. As of December 31, 2007, eBay Inc. and its subsidiaries employed approximately 15,500 people, approximately 9,500 of whom were located in the U.S. Technological 24
  25. 25. Technology becomes an important factor when considering an e-commerce based company. eBay has incorporated a large amount of technology into their company in order to make everything run efficiently. Starting from the original auction-board coding put into place to initial start the company, many resources have become available for the use by eBay. These include advanced software tools and services to support their core online platform, eBay.com and also its adjacent platforms including Half.com, Rent.com, Shopping.com and StubHub. Currently Sun Technologies is providing software and programming to support eBay in its database management. Also used are the improvements to the eBay.com homepage, the site’s search functionality, the ease with which sellers can list items, visual search, and the expansion of our customer support infrastructure. eBay has filed for patents on their implemented technology and so far have received 8, protecting them against competitor infringement. Recently a suit was settled with the tech firm MercExchange which will give eBay control of three disputed patents, including the Buy It Now service. This chart provides financial ratios for eBay going back to 2005. All data used is year end, and with such we can determine how eBay has done over time. As can be seen in the above financials there are several areas which we must focus our attention. Comparison of Competition, 2005-2008 2005 2006 2007 2008 Profitability ROA 10.96% 8.9% 2.41% 11.11% ROE 12.77% 10.74% 3.08% 14.92% Operating Profit Margin 31.7% 23.8% 8% 23.25% Net Profit Margin 23.8% 18.86% 4.54% 20.04% Liquidity Current Ratio 2.144 1.97 2.3 1.7 Quick Ratio 1.80 1.59 1.87 1.6 Leverage Debt/Assets 0.139 - - .064 Debt/Equity 0 0 0 0 Interest Coverage 272.7 Activity Fixed Asset Turnover 6.0 6.6 7.2 7.4 Receivables Turnover 16.153 16.7 17.6 18.7 Total Asset Turnover 0.460 .47 .53 .55 25
  26. 26. Days Sales 22.6 21.9 20.8 19.6 Shareholder's Return P/E Ratio - - - 12.80 Dividend Payout Ratio 0 0 0 0 The ROE for 2008 is currently outperforming all time periods going back to 2005. This is an impressive feat given the current economic situation and displays eBay’s goal of working for its shareholders. This will be beneficial for the company, as the market will see it as an owner focused company and should stimulate more investor interest. The other area of success for the company financially is its liquidity ratios. By holding low amounts of debt and liabilities, these statistics look very good for the health of the company. These ratios have stayed consistent over time, proven the financial strength of eBay. Although there are strong financials to show for this company, there are also areas which show faults and need improvements. To start, operating profit margin has decreased on average since 2005. This shows a decrease in net profit relative to the amount spent on operating expenses. This will need to be improved in order for the company to be as successful as it should be financially. The other area of concern deals with the financial ratios for days sales. This number has decreased by 15% since 2005 and this is a result of less sales happening on a daily basis for the company. Slowed sales comes to equal less efficient performance for the company and also a need for a growth strategy to be implemented. Human Resources eBay currently holds a veteran management team under the control of the newly appointed CEO John Donahue. Donahue’s predecessor was the well known Meg Whitman who had many successes after her arrival at eBay in its infant stages. Whitman took the company public and through many successful years she was able to create an effective executive work force which was made to last. The employees at eBay are extremely well taken care of, and this is an area of pride for the company. Fortune has listed eBay as the 83rd best company to work for in its 2009 100 Best Companies to Work For edition, and in 2008 it was ranked 68th. Innovation Outside of the use of acquisitions in order to support growth for eBay, innovation is constantly being created. This is done through the hiring and use of software and computer engineers in order to develop new coding and software systems. Recently introduced is the “Best Match” searching tool, using algorithm in order to sort top searches and also the eBay to Go tool which allows the embedding of item listings into other internet websites. Having the capacity to innovate is also used in modifying the payment process to enhance speed, reliability and customer satisfaction. 26
  27. 27. Because of its innovation system, eBay Inc. became the first internet company to be awarded the National Medal of Technology and Innovation. Reputation The eBay name has become a household reference when thinking of e-commerce catalogers. This is due to the reliability, reputation with suppliers, and forming of efficient, supportive and mutually beneficial interactions/relationships which have been focused on from the beginning of the company’s formation. eBay’s purpose is to create, maintain and expand the functionality, safety, ease-of-use and reliability of our online commerce platforms while supporting the growth and success of our community of users. In turn this leads to their goal of building new communities around the world with commerce, trust and opportunity. These all have been focused on in the eBay business model and are also felt and well-known by those with knowledge of the company. Capabilities The vast amount of resources held within the eBay company throughout each different area allows them to create capabilities for the company. This is done by packaging the necessary resources together and using them in a way to give value to those surrounding them. Through the systems which have been created and acquired, along with the technological advances, eBay has created a wide array of websites to bring millions of buyers and sellers into a number of marketplaces on a global level. This makes them the world's largest online marketplace with 84 million active users worldwide. The marketplaces are able to support more than a hundred million items on any given day through the addition of physical assets to technology and organizational systems. By developing an immense combination of facilities, eBay has the resources to handle large amounts of data and IT support. In addition to the strong marketplace division at eBay, payments and communications make up its success. PayPal and Skype as organizational resources gives eBay the capability to develop communication between users as well as making payments secure, easy and quick to send and receive payments online. These tools increase the amount of business eBay can do and the number of customers it attracts. Innovation and technology has been used in order to create marketplace platforms which seek to bring buyers and sellers together through fully automated and easy-to-use online websites that are available 24 hours a day, seven days a week, from any place in the world at any time. Working as an online company has allowed eBay to save costs which are normally held by brick- and-mortar businesses. This has given them the capability of offering buyers and sellers lower fees than traditional intermediaries. A large component of the success eBay has received is through its reputational resources. By keeping a good name with its customers, they continue to return and recommend others. eBay has taken the route of combing technology, innovation and reputation to create a system to match users wants and needs. The SafeHarbor program was implemented in order to provide guidelines for trading and user dispute resolution. The staff investigates users’ complaints of possible misuse of marketplace platforms and takes appropriate action, up to suspending users from 27
  28. 28. bidding on or listing items for sale. Another innovation which was created with reputation is the Verified Rights Owner Program. This Program lets intellectual property rights owners request the removal of listings that offer items or contain materials that infringe on their rights. This helps to protect community members from purchasing items that may be counterfeit or otherwise unauthorized. More generally, technology, innovation and reputation have built personalized, accurate and timely support services to the community of users. Buyers and sellers can contact eBay through a variety of means, including email, online text chat and also by telephone. Resources are focused on improving accessibility, increasing capacity, expanding category- specific support, extending online self-help features and improving systems and processes in order to provide efficient and effective support. 28
  29. 29. Core Competencies 29
  30. 30. Company Value Chain Primary Activities Raw Materials Being a technological e-commerce based company eBay originates from computer coding and software to develop its company’s requirements. In addition to these technologies, electricity is necessary to support all functions within the development stages of the product. Inbound Logistics eBay consists of technological system development to support their services. These technological systems began through the use of simple coding and have since required the development and enhancement of computer systems. The requirements have included the use of data management systems to handle the large amount of data which is used in the creation and support of eBay marketplaces. Servers are needed to store this data and also back-up servers to be used in the instance of system crashes. Also needed is obtaining database software through a third party vendor, Sun Microsystems. The collection of these logistics provides a backbone for the operations that will be completed in the final product. Operations Continuing on with the development of inbound logistics, eBay is able to offer their final product to customers. The products offered by suppliers in the eBay marketplace are brought together in an online type of catalog for buyers to view and purchase. This marketplace platform is developed and enhanced through the use of the following features of value it offers its customers: • Turbo Lister, eBay Blackthorne, ProStores, Selling Manager and Selling Manager Pro, each of which helps to automate the selling process • Picture Services, which enables sellers to include pictures in their listings • Shipping Calculator, which makes it easier for buyers and sellers to calculate shipping costs • Shipping Labels, which allows sellers to print certain postage and UPS labels • Shipment Tracking, which enables sellers to track their shipped packages • eBay Toolbar, which helps eBay users stay connected with eBay wherever they are on the Internet • eBay Desktop, which helps eBay users stay connected with eBay from their desktop computer 30
  31. 31. • eBay Countdown, which helps eBay users bid and buy from anywhere on the Internet • eBay Sales Reports and eBay Sales Reports Plus, which provide sales and fee information to sellers • eBay Marketplace Research, which enables sellers to analyze sales in categories across the site • Reviews and Guides, which assists shoppers in making more informed choices • eBay Neighborhoods, which assists users in connecting around items in which they have a mutual interest • eBay To Go, which allows users to embed item listings in their own Internet websites • Best of eBay, where eBay users can vote for their favorite items • PayPal, which facilitates the online exchange of funds • Skype, which enables VoIP communications between buyers and sellers • Bill Me Later, which allows for transaction-based credit to be lent to buyers • Adjacent Marketplaces businesses, Half.com, Rent.com, and Shopping.com eBay operates its marketplace platforms with two types of structures to offer its customers. These include auction-style listings and fixed-price listings. Auctions are the traditional offering of eBay and are administered through IT coding and software in a similar, but modified way a normal auction is held, but electronically. The other type of listing structure is through a fixed price format. This allows buyers and sellers to complete the transaction process in a timely manner rather than waiting for the auction period to expire. The Half.com subsidiary of eBay also provides a fixed-price, person-to-person online platform that allows customers to buy and sell new and previously owned books, movies, music and games at discounted prices. These listing are all brought together onto one platform within the eBay.com marketplace. Outbound Logistics The end of operations brings in the outbound logistics of the company. In eBay’s case this represents finalization of bringing together suppliers and buyers and the processing of payments. During the outbound logistics phase, suppliers and buyers enter into an order contract which commits each other into the purchase. eBay facilitates this action through administering the communication between each party. Handling payments from buyers involves the use of eBay owned PayPal, to transfer money directly from buyer to seller, while making payment for usage back to eBay. PayPal enables individuals and businesses to securely, easily and quickly send and receive payments online in approximately 190 markets worldwide. The other aspect of payments which eBay owns is the 31
  32. 32. use of Bill Me Later, enabling online U.S. merchants to offer, and U.S. consumers to obtain, credit for the transaction at point of sale. These economic tools have given eBay a financial network to support global, real-time payments. Marketing and Sales Market and sales directly completed by eBay is on a broad level in order to obtain both new buyers and suppliers. They also offer their customers a way to market and sell their own products through the use of their marketplace. They directly market and sell their product through the use of product differentiation, such as online auctions, and the use of promotions. These occur through marketing campaigns in the U.S. and pricing promotions within the website to drive traffic and continue the growth in the amount of products listed and purchased. Providing products and services for the use of customers also promotes the eBay name, in an indirect manner. Marketing in this way adds into advertising which is ultimately received by the company, and aids in the sale of products within the marketplace. Customer Service and Retention In order to remain successful and hold market share in the catalog and mail order business, customer service and retention is a key function of eBay’s business. This is facilitated through the use of feedback forums and the use of several features added onto the platform to gain trust and loyalty of the customers. The feedback forum encourages users to provide feedback ratings and comments on other users with whom they trade. It requires feedback to be related to specific transactions and provides an easy tool for users to match specific transactions with the user names of their trading partners. This information is recorded in a profile that includes a feedback rating for the user, with feedback sorted according to whether the feedback has been provided over the past month, six months or twelve months. Users who develop positive reputations have color-coded star symbols displayed next to their user names to indicate the number of positive feedback ratings they have received. As a customer-focused company, eBay no longer allow sellers to leave negative feedback for buyers, but do give them the tools designed to avoid negative feedback. The other areas of value for customers are the creation of trust and safety features integrated to the platform. These include the Safe Harbor Program and Verified Rights Owner Program, Customer Support and Value-Added Tools and Services, as well as Loyalty Programs, such as PowerSeller, top buyer and coupons and buyer rewards. These features are designed to make users more comfortable dealing with unknown trading partners and completing commercial transactions on the internet which can be a stressful idea. Supporting Activities Procurement 32
  33. 33. eBay’s activities within procurement involve creating systems for suppliers to be successful in their use of the marketplace platform. They complete activities in order to consume the inputs needed for the company’s products. In this case computer servers, database systems and IT software is combined to create a strong online marketplace. Technological Engineering is a strong focus at eBay in order to strengthen its innovation and technological development. In the e-commerce industry this focus in necessary in order to keep the advantage on new entrants attempting to enter the market and also those which already exist. Research and development totaled $736M for the 2008 year and this applies to new product design, product upgrades and services additions to the website. Human Resource Management eBay currently holds a veteran management team under the control of the newly appointed CEO John Donahue. Donahue’s predecessor was the well known Meg Whitman who had many successes after her arrival at eBay in its infant stages. Whitman took the company public and through many successful years she was able to create an effective executive work force which was made to last. The employees at eBay are extremely well taken care of, and this is an area of pride for the company. Fortune has listed eBay as the 83rd best company to work for in its 2009 100 Best Companies to Work For edition, and in 2008 it was ranked 68th. With out a large force of human capital eBay would not be able to function. The focus on employee satisfaction and attitudes is important to achieve the success of the company. This takes place throughout the company and even in the hardest times. Recently eBay was forced to layoff employees due to the economic circumstances and paid out handsome severance packages to those who were forced to leave. Firm Infrastructure eBay, being an online company has also advanced their infrastructure online as well. Financially, all reports are easily accessible through the company website along with media on quarterly statements and company updates, available for all to access. These display the structure which has been applied both financially and executively in order to support their company goals and vision. This business is also susceptible to government relations dealing with issues of the law and eBay has a strategy to deal with these government relationships. Finally, an important detail in today’s markets includes the development and promotion of environmentally sustainable actions. eBay sees this as a need to give back to their communities through various community wide and broad activities to support environmental friendliness. 33
  34. 34. SWOT Analysis Strengths Weaknesses Brand Name Non-Business Related Acquisitions Economies of Scale Moving away from auctions being the primary Internet Sales business Open Seller Platform Mature Market Low-Cost Provider Paypal Market Leading Low Debt Opportunities Threats International Expansion Amazon.com NetBook Computers E-commerce Tax Department Store Failures Litigation Economy Strengths Brand name - Strong brand name helps to increase margins by charging premium prices for goods, because customers perceive a higher standard of quality from companies with strong brands. The strong brand name eBay has obtained has increased the number of customers they draw into their business because of the common name they have throughout consumers. Economies of scale - eBay has economies due to its large supply of buyers and sellers. Having a large number of active users as they do, they are able to protect themselves from new entrants to the industry. This retains their market share and provides them with a strong foundation for successful business. Internet Sales – Internet sales are increasing at a fast pace. This has come to benefit eBay and the industry as a whole because of the recent advancement to using technological based systems to run the businesses. The continued growth of the internet and also its expected growth into the future greatly supports eBay’s business and success. Open Seller Platform - The ability to allow businesses to sell their products on a website enhances liquidity for such products, gives better options to users and allows the platform provider to increase the number of goods they have for sale, which increases their revenue and margins. When buyers can get new or used products from one place, the customer relationships between the buy and the preferred platform will increase. 34
  35. 35. Low-Cost Product – Low cost provides significant barriers to entry if that company is the only low cost product among many other higher cost products. Also, companies that save businesses money will also benefit when businesses have to cut cost over time, either through greater efficiency or cheaper goods. eBay is able to have low costs in an industry which requires somewhat of a technological investment, which allows it to have high margins. Paypal/Non-Cash Society - The growing use of credit cards and debit cards are increasing the trend towards a cash-less society. Card companies and those that process card transactions should benefit from the shift away from using cash. The growing use of these forms of payment will allow Paypal to generate substantial growth to the eBay company. Market Leading - Market leading position brings many benefits to those companies. Generally, they possess good brand names, economies of scale, higher margins, revenues and other significant benefits, such as the ability to raise debt at lower cost. They generally have a more stable business than their competitors and are more likely to acquire other businesses as opportunities come about. Low Debt – Without long term liabilities facing the company, eBay is able to avoid constant interest payments which cut into cash flows each period. This lowers the risk of the company because without debt taken out, there is no default risk of the company. Free cash flows can then be used to finance growth of the company and on innovation, rather than making payments to bondholders. Weaknesses Non-Business Related Acquisitions - The acquisition of Skype did not add value for eBay's customers. Non-essential acquisition can distract a company and dilute the management expertise and financial results. It would be a significant weakness for eBay to continue making non-essential acquisitions. Moving away from auctions being the primary business – Through various business related moves, eBay has faced weaknesses in their company distracting their focus away from their core business of auctions. This has placed management in a situation to run the eBay company with a strategy different then what had been put in place in the past and also what has been successful for them. The last part of the weakness which effects the company is getting outside the range of management’s expertise. Mature Market - Mature markets result in slower growth of revenue and lower margins as companies begin to compete on price and service versus the past driver of value, growth. Competitors usually have to differentiate themselves in the customer's eye to maintain value. Some become lost cost suppliers, high quality suppliers of products, or niche suppliers of services. If companies are able to create a natural monopoly (economies of scale, buyer power, etc.) then mature markets can turn into cash cows, where the main company needs very little investment to produce very large amounts of free cash flow. eBay must handle their situation as a mature company by introducing new strategies to enhance their business. Opportunities 35
  36. 36. International Expansion – Because of the increasing growth in buyers globally, there are many opportunities in globalization for growth. The type of business eBay is in has the potential to be successful in other markets if they can fix some of the problems with their services that other locations expect. NetBook Computers - Low cost notebook computers are gaining in popularity. They run on the Linux platform, which undermines Microsoft’s Windows operating software system. Department Store Failures - Slowdown in department store's popularity may cause long-term growth problems. This also affects all merchandisers who want to sell their clothing through department stores. Threats Amazon.com - Increased competition is a threat to Ebay's business, but Amazon.com provides an acute threat to eBay, through their advancement into used goods and auction style online commerce. E-commerce Tax - Potential tax on e-commerce transactions will decrease the demand for goods online. This will affect the prices of services which need to be charged in order to make up for the increase in costs for the company, suppliers and buyers. Litigation - Litigation risk might not be priced into the beta. The potential of litigation risk increases the uncertainty for companies, which lowers the value of a company. Until the risk is gone, a company tends to trade based on any news concerning the litigation potential. Economy - A global slowdown or recession will hurt all companies, but mostly those whose products sell in economies that experience the worst declines. Commodity prices will also decline, because economies slow down and the current resource supply is static; therefore, oversupply ensues. A global slowdown also affects advertising/service companies, which are typically very cyclical industries. 36
  37. 37. Yahoo! – Strategic Profile Overview Yahoo! (Yahoo) is an internet and media communications company, offering internet services such as search and email. The company provides a range of services to individuals, including search, yellow pages, shopping, information, entertainment and communication. Its major websites include Yahoo! Mail, Yahoo! Jobs, Yahoo! Search, Yahoo! Answers, Yahoo! Videos and Flickr, among others. The company primarily operates in the US. It is headquartered in Sunnyvale, California and employs 14,300 people. The company recorded revenues of $6,969.3 million during the financial year ended December 2007 (FY2007), an increase of 8.5% over 2006. The increase in its revenue was due to growth in fee paying users and Page Views in 2007 over the previous year. The operating profit of the company was $695.4 million in FY2007, a decrease of 26.1% over 2006. Its net profit was $660 million in FY2007, a decrease of 12.2% over 2006. Key Facts Head Office Yahoo! Inc. 701 First Avenue Sunnyvale California 94089 USA Phone 1 408 349 3300 Fax 1 408 349 3301 Web Address http://www.yahoo.com Revenue / turnover 6,969.3 (USD Mn) Financial Year End December Employees 14,300 NASDAQ National YHOO Market Ticker Company Background Yahoo! Inc. (Nasdaq: YHOO) is an American global Internet services company that operates the Yahoo! Internet portal. It provides a range of products and content, from email and search to media streaming and downloads. It is the most popular Internet site based on traffic, with visits 37
  38. 38. from more than 500 million unique users every month. However, Yahoo!'s prominence is being challenged as competition heats up in the Internet services sector. Resources Identification Tangible Tangibles for Yahoo! Inc. consist of financial, organizational, physical, and technological resources that are necessary for the overall success of the company. The financial resources for Yahoo are their borrowing capacity and their ability to generate funds. In 2008, Yahoo has $0 in debt and they generated total revenue of $ 7,208,500. Yahoo has never borrowed any money; however Microsoft is willing to spend $44 billion to acquire Yahoo! Inc. The organizational resources for Yahoo consist of the reporting structure and the formal planning, controlling, and coordinating systems. A couple of the things that are considered organizational resources are the computer systems that coordinate all the searching functions and storing data, and also all of the systems that go into preventing data failure and organizing search patterns. The physical resources for Yahoo are their servers across the countries, the power generators in case of blackout, and networking equipments which they operate out of. The technological resources for Yahoo are such things as patents, trademarks, copyrights, and trade secrets that they might hold. For example, Yahoo! is a trademarked name. In addition, their trade secrets would be their search engine. Intangible Intangibles for Yahoo! Inc. consist of human, innovation, and reputation resources. Human resources are the knowledge, trust, managerial capabilities, and organizational routines that are necessary for Yahoo! to be successful. HR management is vital towards ensuring that Yahoo has knowledgeable and trustworthy employees that deliver a consistent and pleasant experience for all of their users. Yahoo! prides itself on its superior customer service and this is a major part of their human resources. Innovation resources for Yahoo! are the many ideas, scientific capabilities and their ability to innovate. The Internet Information Providers industry is consistently changing and in order to remain competitive Yahoo! must consistently come up with ideas and innovations to adjust to the changing market. A few things that can be categorized as innovation resources are such things as having the idea to create browser based applications. Or the innovation that Yahoo has just initiated with social network applications which connects people with causes through their products and services. Reputation resources for Yahoo! are their reputations with their customers and their suppliers, their brand name, and the perceptions surrounding their service delivery, reliability, and efficiency. Yahoo has built a solid brand name over the years. And they have established a 38
  39. 39. reputation for committing to empowering its users and employees through programs, products, and services that inspire people to make a positive impact on their communities. Capabilities identification Distribution Yahoo does not distribute any physical products and only offers services for the U.S. market. Their service includes Yahoo Shopping and Yahoo Auto; both of them provide search results of what products users want to buy. Yahoo provides search results and these results link to the manufacturer or retailer of the product. Technological Advances The company uses the search engine technology known as robots, spiders or crawlers. A robot is a piece of software that automatically follows hyperlinks from one document to the next around the Web. When a robot discovers a new site, it sends information back to its main site to be indexed. Because Web documents are one of the least static forms of publishing (i.e., they change a lot), robots also update previously catalogued sites. How quickly and comprehensively they carry out these tasks varies from one search engine to the next. EBay’s search engine is far less sophisticated than Yahoo, using a simple unranked keyword system that allows sellers to describe their products with any number of keywords that may not even be related to the product. Manufacturing Yahoo does not manufacturer any physical products, it’s a service based business. Organizational Culture Yahoo’s culture is to have fun at work and to be as creative as you can. As such, they make sure that the work environment caters to their every need. From video games throughout to catered lunch programs, Yahoo!’s internal culture is one of the company’s top priorities. On top of that, Yahoo! also lets full-time employees in the U.S. become part of an incentive-based stock option plan. Rewards are given out based on reaching targeted goals and obtaining advertising contracts. But, more importantly, it places part ownership in the hands of employees, something which founders of Yahoo have been essential to their success. Employees are also able to deduct 15 percent of their earnings to purchase company stock. That stock price is further discounted to 85 percent of the going market value. The company wants to encourage their employees to be as interactive as the product they work so hard to create. Financial Comparison of Competition, 2005-2008 2005 2006 2007 2008 Profitability ROA 18.95% 6.73% 5.56% 3.27% 39
  40. 40. ROE 24.21% 8.48% 7.06% 4.08% Operating Profit Margin 21.1% 14.6% 10.0% .2% Net Profit Market 36.07% 11.69% 9.47% 5.89% Liquidity Current Ratio 2.86 2.54 1.41 2.78 Quick Ratio 2.73 2.40 1.33 2.65 Leverage Debt/Assets .21 .20 .22 .18 Debt/Equity .09 .08 0 .01 Interest Coverage - - - - Activity Fixed Asset Turnover 8.6 7.1 5.7 5.0 Receivables Turnover 8.8 7.8 7.0 6.8 Total Asset Turnover 0.53 .58 .59 .56 Days Sales 41.7 46.9 52.0 53.6 Shareholder's Return P/E Ratio - - - 54.1 Dividend Payout Ratio 0 0 0 0 Company Value Chain Primary activities Inbound Logistics Yahoo! generates revenue by providing marketing services to businesses across the majority of its properties. Yahoo provides multiple websites for small businesses and users to submit advertisements. They can customize how they want these advertisements be displayed. For larger businesses, there would be meetings with the representatives of each company, in order to discuss the best method to get their advertisements out to potential customers. Operations Advertisers can display graphical advertisements on the pages that are viewed by their users across the Yahoo! Properties and on its affiliates’ websites. Yahoo! works with their advertisers 40

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