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Final project on eBay
 

Final project on eBay

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    Final project on eBay Final project on eBay Document Transcript

    • eBay: An Examination of a Business Model without Boundaries Christopher Chavez and Daniel Lindquist The History Back in 1995, the internet was still a fledging network of hardcore computer users who used the medium as a way to communicate with one another. The World Wide Web had just come into existence, and while more users were connecting every day, it was still a relatively small operation. There were, however, a number of aspiring entrepreneurs who saw the potential that the internet had for creating a business. One of them, a Silicon Valley businessman named Pierre Omidyar, had become frustrated with the system of buying and selling stock. In trying to buy a stock during its IPO, he found that the stock price jumped 50% before his order was able to go through. He wondered why some people should be allowed to get one price for the stock and others would have to pay another. This didn’t seem fair to Omidyar, so he decided to start an online auction, where buyers could determine the price of an item based on the amount of interest there was in it. This, he figured, would be about as close to a free market system as possible. Already a millionaire from when Microsoft bought out one of his previous employers, eShop, Omidyar set to work getting his auction site up and running. He called it AuctionWeb and decided to use his web consulting sole proprietorship, Echo Bay Technology Group, to host it. Since EchoBay.com was already taken, he chose to use the next best option: eBay.com. Omidyar advertised by posting in newsgroups and other places where netizens then dwelled. When AuctionWeb first went live on Labor Day of 1995 it attracted a whopping zero visitors. Over the next few days, though, people started coming to the site and, as word of mouth spread, the site started to become popular. By the end of 1995, thousands of items had been listed for sale and the site was attracting quite a number of visitors. In those days, the level of trust between users was quite high and the few disputes that arose were often mediated by Omidyar himself. It wasn’t long, however, before AuctionWeb outgrew its small roots and needed to move on to bigger things. By 1998, Omidyar had partnered with a number of other individuals and eBay had shifted to become a more corporate entity. They hired Meg Whitman, a Harvard
    • Business School graduate, to become the new CEO of the company. She quickly set to work streamlining eBay and determining a new company strategy of connecting people, not selling things. eBay then moved away from selling collectibles and into more big ticket items as a way to increase their return on each sale. On September 24, 1998 eBay held an initial public offering, going on to become the most successful e-business in history. The Business Model Originally, Omidyar planned for eBay to be a free service that would let users get together and buy and sell from one another. Once the site began getting popular, though, Omidyar’s ISP started charging him as a business for all the bandwidth his site was using. Omidyar decided that he would set up a model whereby buyers would not have to pay anything and sellers would not have to pay anything to list, but that they would have to pay a certain percentage of the final sales price. People started paying as soon as Omidyar set up this model and soon he was making more than the amount his ISP was charging him monthly. This meant that Omidyar had set up the first profitable e- business, one that had turned a profit within its first month of operation. Nowadays, eBay’s business model remains true to its roots but adds a few more features. In addition to the percentage of the final sales price, there is a small listing fee that sellers have to pay when listing an item based on the opening bid price set on the item. There are also fees for special listing options that help to promote the item. All in all, these methods prove successful because eBay has few expenses. eBay merely acts as a meeting place for the buyer and seller and all the real costs associated are the responsibilities of the users. What makes eBay unique from other businesses is its nature of no boundaries. With the internet, any person from anywhere in the world can easily find items being sold by any other person anywhere in the world. There are no geographical boundaries limiting them. At the same time, that item can go for any price that the buyer is willing to pay, so there are no financial limitations either. Truly, eBay presents an unequivocal amount of freedom to its users.
    • The Success eBay has come a long way from its humble beginnings. It is now an internationally recognized and respected online e-business. On any given day eBay has millions of items listed across thousands of categories. One can literally find almost anything being offered for sale. By working on an international scale eBay can find more buyers for its sellers and more potential opportunities for its buyers. Customized sites in each different location make it much easier for natives of each region to use eBay. The buyers and sellers are responsible for their transactions and eBay never owns the items that are listed. This is a clever method to avoid a large part of the liability and because Omidyar got tired of trying to handle mediations and complaints. Feedback was implemented to go along with each individual account so that buyers and sellers could keep track of someone’s history of transactions and how well they went. Forums were also created where routes for mediation and resolution were discussed and users were able to help each other. eBay has largely become not just a business but an Internet community. As mentioned before, eBay charges its sellers fees to earn money. There is a general initial listing fee that ranges from $.30 to $3.30 based on the original posting price as seen in Table A. For some bigger ticket items like property and automobiles the charges are greater and can be found on the site at http://pages.ebay.com/help/sell/fees.html. A seller can then opt to add additional upgrades to the posting for added showiness in hopes of luring more potential buyers. Among other things, a seller can add pictures or posting highlighting or choose to make it a feature item. The price range for these features can range from $0.05 to $99.95 depending on what exactly is desired. Once again the price is often higher for larger ticket items. Once the item has been sold a final value fee is to be paid. This fee is based on a percentage of the final selling price of the listed item as seen in Table B. Individually each listing does not net eBay a large amount of revenue; however, when one considers the volume of business that is being conducted, it is easy to understand that eBay is financially successful. In its third financial quarter of 2003 eBay reported consolidated net revenues of $530.9 million, up 84% year over year. Its consolidated net income was reported as
    • $103.3 million. Compare this to its reports from its second financial quarter of the year. At that time, eBay reported consolidated net revenues of $509.3 million and a consolidated net income of $109.7 million. As one can see, it is doing quite well financially. The number of users that eBay is attracting is also exceptional. In the second quarter, 34.1 million out of 75.3 million were considered active users, meaning they had bought, bid, or listed in the last twelve months. The increase is over 50% in both areas from the same quarter of the previous year. In the third quarter 37.4 million out of 85.5 million users were considered active. The numbers continue to grow. The value of goods traded through eBay is astonishing. In the second quarter of 2003 this number is $5.6 billion worth of value going through eBay; this grew to $5.8 billion in the third quarter. The sheer number of listings, with 265 million in the third quarter alone, makes it easy to see how a little profit on each can go a long way. It becomes quite clear that eBay is dependent on volume for its success. The International Scene As a result of being an online marketplace, eBay has the ability to go international and around the world with its unique business style. There are currently eBay sites or site affiliates for 22 different nations including the US. The list can be seen below in Table C. While the international sites do not have the same amount of business going through them, they are still doing quite well. In the third quarter of 2003 eBay reported $256.1 million made in the US compared to $154.7 million made internationally; however, the growth rate for the international business is 105% for year to year compared to the domestic 41% growth year to year. eBay continues to grow and grow. The international sites are customized in the native language of the region and also have different layouts to reflect the different cultures that will be using the sites. Many of the sites and affiliates in other nations have been taken over by eBay, as have many sites domestically. With its massive financial strength eBay has a strong hold over the competition, leaving the few competitors it has struggling to catch up.
    • Appendix Starting Price, Opening Value or Insertion Fee Reserve Price $0.01 - $9.99 $0.30 $10.00 - $24.99 $0.55 $25.00 - $49.99 $1.10 $50.00 - $199.99 $2.20 $200.00 and up $3.30 Table A – Initial listing fees for general items Closing Final Value Fee Value $0 - $25 5.25% of the closing value $25 - $1,000 5.25% of the initial $25 ($1.31), plus 2.75% of the remaining closing value balance ($25.01 to $1,000) Over $1,000 5.25% of the initial $25 ($1.31), plus 2.75% of the initial $25 - $1000 ($26.81), plus 1.50% of the remaining closing value balance ($1000.01 - closing value) Table B – Final value fees for general items Global Sites Argentina Korea Australia Mexico Austria Netherlands Belgium New Zealand Brazil Singapore Canada Spain China Sweden France Switzerland Germany Taiwan Ireland United Kingdom Italy Table C – eBay international sites
    • References Cohen, Adam. The Perfect Store: Inside eBay. USA: Little Brown and Company. 2002. eBay: A Concise Analysis. < http://www.cs.brandeis.edu/~magnus/ief248a/eBay/index.html>. eBay Company Overview. < http://pages.ebay.com/community/aboutebay/overview/index.html>. eBay. <http://www.ebay.com>.