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    hoteck/Internet/Internet/Ebay.doc hoteck/Internet/Internet/Ebay.doc Document Transcript

    • Stock Overview: Headquarters: San Jose Employees: 3,300 Top executives: Meg Whitman, CEO; Brian Swette, COO; Rajiv Dutta, CFO Standing proudly amidst hundreds of dot-bombs, eBay is the symbol of the dotcoms that made it. With 37.6 million customers and over 100 million products on their site on any given day, and with a track record of full profitability, all shown in its high-flying stock, eBay has enjoyed tremendous and continuing success. However, with equally ambitious goals for growth in the next four years – to sales of $35bn and revenues of $3bn by 2005 – eBay faces a series of intense challenges. Failure to reach its own sky-high growth targets threatens to undermine its optimistically high stock value. And with competitors such as Yahoo and Amazon all too ready to snap up dissatisfied customers, eBay must continue its traditionally excellent responsiveness to customer concerns.
    • Without any doubt eBay is a darling of the post-apocalyptic dotcom market. None of its competitors come close to its user base, and thus to its liquidity; it has large operating margins and tremendous growth prospects worldwide. With over $1bn in cash reserves, and a strong forecasted cash flow, it has ample resources to buy entry to new markets. It has shown an impressive ability to respond to customer concerns – CEO Meg Whitman claims that 80% of the company’s innovations have come from listening to customers, often through online discussion boards, which register over 100,000 messages per week. This emphasis on the eBay “Community” of buyers and sellers has yielded a fraud rate of only .01%, and has allowed the company to rapidly respond to new markets. For example, when executives noticed cars being sold on the site, eBay Motors was created – now the largest car dealer in the country. Even technical problems, once one of the greatest obstacles to eBay’s scalability, seem to have been solved; eBay now boasts one of the most robust IT systems in the dotcom world, capable of 800,000 transactions/minute. To continue this stellar record, eBay’s CEO sees a new market model by 2005. Whitman wants eBay to garner 1/3 of its business abroad, 1/3 from US auctions and the final third from US fixed-price sales. This is an extraordinarily ambitious target, requiring international sales growth of 70% annually. Currently
    • international sales account for only 16% of overall sales, and despite eBay’s claims of market leadership in 17 of 18 countries in which it operates (the notable exception is Japan, where Yahoo! Japan has firmly captured the online auction market), it is barely breaking even on operations overseas. Ebay’s expansion abroad has been both through acquisitions (notably in Europe, with recent purchases of iBazar and Alando) and from scratch (in the UK and Japan for example). While some hiccups have come from merging websites too rapidly (alienating some customers in Germany, for example, with the rapid absorption of Alando), eBay clearly has the funding and executive willpower to fuel overseas growth through acquisitions. The company is widely reported to be on the prowl for future acquisitions, not only with its cash reserve but also with its valuable stock, $1 bn of which can be used by September 2003, under a shelf registration agreement. The challenge then is to smoothly integrate these acquisitions, to engage new customers in the eBay “Community,” and to move from volume to profit targets. In addition to its challenges overseas, eBay faces the enormous task of maintaining responsiveness to customers who now number in the tens of millions. The eBay Community is arguably the company’s greatest asset, and maintaining the satisfaction of its millions of small sellers and buyers is now one of the company’s greatest challenges.
    • Through thousands of daily customer comments, and through active mining of eBay’s massive data warehouse, management has built an impressive record of responding to and forecasting customers’ desires. Executives like to compare the site to a democracy, with occasional problems and customer rebellions (notably with eBay’s recent attempts to install its own payment system), but ultimately satisfying and hyper-responsive to feedback. The question is now whether eBay’s attempts to grow will change this. Several recent moves have angered the millions of small sellers who give the eBay community its force and liquidity. Complaints include an increasing emphasis on fixed-price sales, a dictatorial attempt to introduce eBay’s own payment system, and a policy of attracting large corporate sellers. Ebay responds that these additions, by drawing more people to the site, will only further improve liquidity. So far, the Community has been loyal, despite lower listing prices elsewhere (eBay currently charges from $.5-$3.30 to list a product, depending on listing price and category, and a further 1.25-5% of final price if sold). Customers have several good reasons to be loyal – in purely practical terms, competitors cannot match the extraordinary scope and liquidity of eBay’s market. In addition, sellers often depend on thousands of positive ratings to win new buyers’ trust – ratings which cannot be transferred to a competing site. Ebay thus possesses formidable advantages, but formidable competitors are on their way -- Yahoo,
    • AOL, Microsoft and Amazon, to name a few, are all trying to create competing “global trading platforms.” Ebay’s ambitions go beyond improvements to its own website – it has recently begun licensing its technology to allow companies to run eBay auctions on their own sites. Ultimately, management appears to be transforming its “global trading platform” into a general e- commerce platform to be sold or licensed. Perhaps in preparation for this, eBay has encouraged software firms to build applications around its technology. Ebay has also moved to create seller storefronts on its own site, in an attempt to stop sellers from using eBay auctions to drive customers to their own sites. This service, introduced free of charge in July 2001, has gained 30,000 merchants, who now must pay a “rent” of $9.95 per month. To appeal to more buyers, eBay has made a significant move into fixed-price sales, beginning with its July 2000 purchase of Half.com. Currently fixed-price sales account for 16% of gross merchandise sales. This strategy ties in with an increasing emphasis on corporate sellers, who have recently been the fastest-growing segment of the site. In short, with 80% of the person-to-person online auction market, and with 15% of online commerce in the US, eBay now faces the challenge of continuing its stellar growth. With an increasingly
    • colossal and multi-national site, with small sellers now competing with giant corporations, eBay must maintain a vibrant and satisfied customer. In the past three years alone, the company has gone from 300 to 16,000 categories. Now with nearly 40 million customers, speaking a multitude of languages, posting tens of thousands of comments daily, the company must not lose its individual focus. Many small users already feel abandoned by the company’s emphasis on large retailers, and competitors are developing rapidly. To succeed, eBay must re-affirm its commitment to its core Community, and must establish that commitment in the minds of millions of new customers around the world. SOURCES 1) The Australian Financial Review, “Buy and Buy, It Could Be Ebay’s Turn.” 1/10/02. Wingfield, Nick. 2) BusinessWeek, “eBay -- for Hard Times.” 12/31/01. Marcial, Gene G. 3) “Shoppers Are Beating a Path to the Web,” BusinessWeek. 12/24/01. Brown, Jeanette; Green, Heather; Zellner, Wendy. 4) “The Brawn Behind EBay's Always-On Auctions,” Information Week, 12/10/01. Garvey, Martin J. 5) “The People's Company,” Business Week. 12/3/01. Hof, Robert D. 6) ”IBM and Ebay Form Alliance,” Computing. 9/13/01.
    • 7) “Ebay ponders next move after rout in Japan,” Financial Times. 1/11/02. Abrahams, Paul; Barker, Thorold. 8) “Ebay, the flea market that spanned the globe,” Financial Times, 1/11/02. Abrahams, Paul; Barker, Thorold. 9)“Success depends on rapid growth abroad,” Financial Times, 1/11/02. Barker, Thorold. 10) “Company wins from listening to clients,” Financial Times, 1/11/02. Abrahams, Paul; Barker, Thorold. 11) “EBay taking agressive steps to expand beyond online auctions,” The San Francisco Chronicle, 12/16/01. Kopytoff, Verne. 12) Morningstar.com 13) Ebay.com