1. EBay‘s business model and drivers of revenue stream/profitability
Ans With more than 100 million active users globally, eBay is the world's largest online
marketplace, "where practically anyone can buy and sell practically anything.Their collective
impact on ecommerce is enormous: In 2011, the total value of goods sold on eBay was $68.6
billion — more than $2,100 every second.
The Business Model of eBay is an online person-to-person trading community on the Internet,
using the World Wide Web. Buyers and sellers are brought together in a manner where sellers
are permitted to list items for sale and buyers to bid on items of interest, also both sellers and
buyers are able to browse through all listed items. The items are arranged by topics, where each
type of auction has its own category.
eBay has both streamlined and globalized traditional person-to-person trading, which has
traditionally been conducted through such forms as garage sales, collectibles shows, flea markets
and more, with their web interface. This enables easy searching for buyers and enables the sellers
to immediately list an item for sale within minutes of registering.
eBay automatically notifies the buyer and seller via e-mail at the end of the auction if a bid
exceeds the seller's minimum price, and the seller and buyer finish the transaction independently
of eBay. The binding contract of the auction is between the winning bidder and the seller only.
Ebay’s Business Model:
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E-bay operated three primary business segments- Marketplaces, Payments, and communications.
At it‘s core, eBay offered a marketplace that connects buyer and seller. The company had
localized websites in 24 countries, as well as partnership and investments in an additional 15
markets. The company‘s stated goal was to pioneer communities around the world built on
commerce, sustained by trust and inspired by opportunities.
Expanding into fixed price sales:
It grew beyond its core auction and introduced fixed price trading with acquisition of retail site
Half.com and the addition of a ―Buy it Now‖ feature.eBay launched eBay stores which allow
sellers( including large retailers) to offer goods through fixed price storefronts on the company‘s
Improving the Buyer seller experience:
Launch the feedback forum- a rating system that allowed buyer and sellers to grade each
transaction and offer a brief comment on the experience. The company focused on offering more
efficient and effective payment method. It offer the ―Best Match‖ search for buyer and seller.
Drivers of revenue stream/profitability:
PayPal Will Continue To Drive eBay’s Growth
They expect PayPal users to grow as eBay continues to integrate Paypal into its adjacent
Marketplaces platforms such as ‗Shopping.com‘ and ‗Rent.com‘. Increasing penetration
of PayPal on third-party merchant platforms will also help. PayPal led from the front in
2012, with revenues growing by roughly 25%. This revenue growth was accompanied by
a similar growth in Total Payment Volume (TPV), which further jumped 21% in the first
quarter of 2013 (year-over-year). They believe that eBay‘s simultaneous efforts to expand
its global and offline presence will continue to fuel PayPal‘s growth in the near term.
Marketplaces Gaining Popularity & Focus On Improving Conversion Rate
Conversion rate is a key focus area for eBay as it seeks to increase the success of sellers
in converting listed items to sold items. The company has implemented a number of
features to increase the conversion rate. Its revamped website interface makes it easier to
browse through the selection, and the integration with its mobile platform will be
valuable. Marketplaces business continued to grow at a healthy pace in Q1 2013, and the
company attributed the strong performance to continued site improvements such as
streamlined registration and checkout.
In 1999 ebay offered more than two million items for auction.
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It operated on the three primary business segments – Marketplaces, Payments, and
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It consisted of website operations, payment processing and customer support which
helped ebay to scale its operations rapidly into other markets outside the U.S.
It also launched a pure auction marketplace and the launch of ebay store.
2 .Amazon‘s business model and drivers of revenue stream/profitability
Ans AMAZON’S BUSINESS MODEL:
Amazon is one of those organizations being run by the elements of the investment community
for the benefits of the consumers.
AMAZON uses the internet to get maximum leverage out of its fixed assets , and once it
achieves enough volume of sales, the sum total of profits from all those sales exceed its fixed
cost base, and it turns a profit.
The platform of Amazon is very profitable. When other people sell products on Amazon
marketplace, the gross margin is huge.
Amazon has boundless ambition, it wants to play in the global retail market.
Thus it has decided to continue to invest to arm itself for a much larger scale of business. But the
investments are huge as the capital required in such a business is pretty high in order to make the
business grow which has to ship millions of packages to customers all over the world.
Amazon has always tried to focus on to be the Earth‘s most customer-centric company.
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The three primary customer sets they serve are:
In 1997 the company had focused on lower prices across all the product range but from 1998 to
2000 they extended product lines and ranges as they were facing stiff competition. Amazon
stared investing aggressively in its supply chains and distribution. It spent heavily on
infrastructure and fulfilling costs as well.
ENHANCING THE CUSTOMER CONVENIENCE:
The review system worked well for Amazon. It allowed users to post and read product reviews.
This review system was a boon.
EXPANDING INTO A PLATFORM:
Amazon started expanding beyond its retail model into a platform for e-commerce.the auction
business launched by it was another turning point.
It also launched zShops which was an online supermall that offered small and medium size
merchants the ability to operate the store fronts within Amazon‘s site for monthly fees and per
sale commissions. Furthermore new innovations towards providing service continued making it
reach to more and more customers and clients.
Customer centric company focusing on 3 sets of primary customer sets: consumers,
sellers and developers.
Heavy investments on supply chains and distribution network
Billions of capital expenditures on distribution and warehouse facilities as well as into
customer services centres.
Investment in technology, infrastructure and expansion of product categories and new
Free shipping policy on orders of $99 or more.
Launch of PRIME program: unlimited two day shipping for an annual fee.
Launch of the auction business in 1999.
Launch of zShops: online supermall
Adopting the ―Single Store Strategy‖ in 2000.
Launch of FBA (fulfillment by Amazon) : allowing third parties to use the storage and
vast distribution of Amazon.It was the services and the new innovations brought in by
Amazon that helped it to grow globally and financially.
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3. Compare eBay and Amazon business models and areas of interaction
eBay operated in three primary business segments- market places, payments and
At it core eBay offers a market place that connects buyers and sellers. It is an online
person to person trading community on the internet using the world wide web.
Buyers and sellers are brought together in a manner where sellers are permitted to list
items for sale and buyers to bid on items of interest, also both sellers and buyers are able
to browse all listed items.
eBay automatically notifies the buyers and sellers via email at the end if a bid exceeds the
sellers minimum price and the sellers and buyer finish the transaction independently of
eBay grew beyond its core auction business in 2000 and introduced ‗fixed price‘ trading
with acquisition of retail site i.e half dotcom and the addition of a ‗buy it now‘ feature in
its tradition business.
eBay launched eBay stores in 2001 which allow the sellers including large retailers such
as Home Deport to offer goods through fixed price store fronts on the company‘
Key services for buyers and sellers-
o Feedback forum- Encourage users to provide feedback rating and comments on
other users with whom they trade.
o Safe Harbor Programme: It provides guidelines for trading and investigates users
complains of possible misuse of eBay platform and take appropriate actions
o Verified Rights Owner Programme ( VeRO) : This programme help to protect
community members from purchasing items that may be counterfeit or
o Customer Support: Buyers and sellers get the opportunity to contact with the
company through various means including email , online text chat and telephone
o Pay Pal : It facilitates online exchange of funds.
Amazon followed the retail model. It was launched online in 1995 as Earth‘ Biggest
In 1998 the company entered the music and video business extending the retail
capabilities it had developed for books.
The company‘ stated goal was to be Earth‘ mot customer centric company .
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Hence offering low price across their entire product range.
Amazon rapidly launched new product line and features and to support that
aggressively invested in in its supply chain and distribution network which
improve the co‘s capability.
Amazon spent heavily on Technology and content which included its technology
infrastructure and expansion of product categories and fulfillment cost.
Enhancing customer convenience
Amazon allowed users to post and read product reviews. They launched a
favourite customer feature which resulted to be a boon for the company and
helped in increasing sales.
Expanding into a Platform
In 1999, Amazon took its first step toward expanding beyond its retail model into
a platform for e commerce.
AREA OF INTERACTION
Amazon launched its auction business which was similar in many respect in eBay
offering but also guranteed purchases up to $ 250 in the event of fraud.
Like eBay Amazon also launched stores known as zShops, but with certain
modifications, i.e online supermall that offered small and medium sized
merchants the ability to operate storefronts within Amazon site for a monthly fee
and per sale commissioners unlike eBay who charges fees for simply listing and
commissions provided only in case of completed transactions.
Amazon visitors would see zshops label across the top of the page that would take
them to a directory organized by product and merchants could pay extra to have
their names and logos featured more prominently.
4 .Amazon moved to a retail and platform business model. How did Amazon overcome the
barriers to entry in the third-party seller market?
Ans At first, for Amazon customers were defined as ―buyers‖, but since the introductionof its
marketplace initiative, third party sellers were equally important customers. This change of
perspective is reflected in Amazon‘s ―single storestrategy‖. Under this concept, Amazon presents
its own merchandise alongside its partner merchants‘ offerings on the same product detail page
abolishing the previously existing store frontiers.
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Amazon shifted its business scope to be an ―e-commerce platform‖, fulfilling B2C and hosting
C2C and B2B transactions. When Amazon expanded its product range, it used the reputation
transfer method by which companies strive to transfer previously acquired reputation from one
branch to another.
Moreover, Amazon provides structures to third-parties in the field of auctions and zShops that
engender institution-based trust: By means of institutional mechanisms such as feedback
features, escrow services, and credit card guarantees, Amazon achieved to build a trustworthy
marketplace and to encourage online transactions.
Due to their time advantage, pioneers in EC (e-Commerce) can realize significant FMAs by
setting standards, and protecting innovations by patents and copyrights.Amazon has pioneered
proprietary technologies for its web site management, search, customer interaction,
recommendation, transaction processingand fulfillment services and systems. Amazon patented
its 1-Click technology, as well as its Bid-Click auction bidding process, 195 and in 2000 was
also granted a patent on its Amazon Associates Program and on its book
recommendation service Book Matcher, which generates automatic recommendations based on
customer purchases. Amazon licenses components of its EC platform to third party sellers and
hosts third-party sellers‘ websites providing its shopping technology.
Amazon realized a FMA (First Mover Advantage) with the concept of syndicated selling through
its Associates and Syndicated Stores programs. The members of the Associates Network,
including Internet companies such as AOL.com, Yahoo, Netscape, Excite and the AltaVista
Search Service, recommend Amazon products to their own visitors and earn a referral fee and a
commission in case of completed purchases. Amazon participates in cooperative advertising
arrangements with some of its vendors, and with other third parties.
Using primarily their own proprietary technologies, as well as technology licensed from third
parties, they have implemented numerous features and functionality that simplify and improve
the customer shopping experience, enable third parties to sell on Amazon‘s platform, and
facilitate their fulfillment and customer service operations. Their current strategy is to focus its
development efforts on continuous innovation by creating and enhancing the specialized,
proprietary software that is unique to their business, and to license or acquire commercially-
developed technology for other applications where available and appropriate. Amazon
continually invest in several areas of technology, including their seller platform; A9.com, Their
wholly-owned subsidiary focused on search technology on www.A9.com and other Amazon
sites; web services; and digital initiatives.‘
Another form of partnership referred is the Amazon Marketplace which enables Amazon
customers and other retailers to sell their new and used books and other goods alongside the
regular retail listings.
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A similar partnership approach is the Amazon ‗Merchants@‘ program which enables third party
merchants (typically larger than those who sell via the Amazon Marketplace) to sell their
products via Amazon. Amazon earn fees either through fixed fees or sales commissions per-unit.
This arrangement can help customers who get a wider choice of products from a range of
suppliers with the convenience of purchasing them through a single checkout process
5) What should eBay‘s future strategy be ? And why?
Ans: Talking about the future strategies of eBay the two major options for
countering competition form Amazon was:
1) Maintaining existing business model – EBay has shown records of sustaining their large
ecosystem of users time and again. The company should opt to improve and fine-tune the
foundation of its core auctions and fixed price business rather than undertake a risky, and
a potential costly transformation. In addition, eBay could incentivize seller activity by
lowering listings on final values fees, which could expand product selection and attract
more buyers to their site.
2) Expand its business model – Ebay could also expand its core marketplace platform. For
example, to attract buyers, thecompany could shift its focus away from the PC onto
mobile devices with an emphasis on local inventory.
Other measure that can be done:
In essence, eBay is looking to partner with physical retailers to generate more sales
online or by driving more foot traffic to their stores. That‘s in steep contrast to Amazon,
which has increasingly focused on driving more and more spending online. It also has
focused on the digital distribution of content, such as books, music and video, and is
placing a huge bet on hardware, like the upcoming Kindle Fire, hoping to rival Apple‘s
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Ebay will be launching its new technology platform aimed at developers, names
X.commerce. The nonconsumer-focused platform will enable developers to use the tools
to build applications for retailers who are looking to have a larger presence on social
networks, online and on mobile phones. The X.commerce division will draw from many
of eBay‘s existing technologies, including PayPal, but will also tie together several other
acquisitions, including Milo, which has created an online database of offline inventory in
physical stores; Red Laser, which is a barcode scanning technology; and Magento, which
assists in the creation of online storefronts.
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