eBay became the world's leading auction platform by leveraging its first mover advantage. It offered an innovative online marketplace model with minimal costs and operational risks. eBay gained users' trust through feedback mechanisms and acquired PayPal to facilitate online payments. It expanded services like "Go Local" and "Buy It Now" to deepen customer relationships. While eBay successfully expanded globally through acquisitions and localized sites, it faced limitations in markets like Japan and China where competitors offered better adapted business models. Network effects were crucial to eBay's growth, as the value of the platform increases with more users, attracting even more participants in a reinforcing cycle.

1. JACOBS UNIVERSITY BREMEN
Going, Going, Gone! –
Consumer Auctions
EXECUTIVE SUMMARY
Mendelson, H. 2006, "Going, Going, Gone! – Consumer Auctions", Graduate School of Business, Stanford
University
Mariya Arnaudova
10/31/2010
Fall 2010- Organizational Design for Networks: Prof. Lattemann

2. Table of Contents
1. Summary of Case .................................................................................................................................. 2
A) Overview ........................................................................................................................................... 2
B) Background ....................................................................................................................................... 2
C) Further Growth ................................................................................................................................. 2
D) Competition and Going Global.......................................................................................................... 2
2. Answers to Questions ........................................................................................................................... 2
A) How did eBay become the world’s leading auction platform? What was the role of the first
mover advantage? .................................................................................................................................... 2
B) Ebay offers auction platforms worldwide. Are there any limits? ..................................................... 3
C) Google’s success is based on the realization of network effects. How can a company realize
network effects and why is it important? ................................................................................................. 3
Bibliography .................................................................................................................................................. 4
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3. 1. Summary of Case
A) Overview:
With more than 90 million active users globally, eBay is the world's largest online marketplace, where
practically anyone can buy and sell practically anything. Founded in 1995, eBay connects a diverse
community of individual buyers and sellers, as well as small businesses. For 2009 the total worth of
goods sold on eBay was $60 billion (eBay Inc. Overview, 2010). According to eBay Inc. annual report for
2009 their total net revenues are $8,727,362 with 2% increase from the previous year (eBay, 2009, p.2).
B) Background:
The idea of eBay’s founder Pierre Omidyar was to create a fair and efficient market on the Internet in the
form of an auction (Mendelson, 2006, p.7). Being profitable from its very beginning, eBay had the task to
provide flawless service to users through trustable community of sellers and buyers and impeccable
information technology. First, the rating scheme based on transaction-related feedback ensured open and
honest communication between all members. eBay also offered escrow services which distributed the
money to the seller only after the buyer has accepted the shipment. Later on, eBay acquired PayPal
which was easier to use for online payments and had a rather large network. Second, the management of
user information, billing, bidding, category search, user notification and real-time transaction support
required a robust infrastructure. Consequently, eBay’s database was stored on 400 disks, each with 50-
100 gigabytes of data, mirrored in real time for disaster recovery (Mendelson, 2006, p.11). However, 22-
hour outage in 1999 urged eBay to reinvestigate their information technology and redesign it into a new
three-tiered architecture.
C) Further Growth:
eBay introduced number of additional initiatives like “Go Local”, “Buy-It-Now” and “eBay Stores”. The
launch of “Go Local” in 1999 had the goal to encourage the sale of items that were too bulky or expensive
to ship or items of local interest (Mendelson, 2006, p.13). In 2000 eBay introduced the “Buy-It-Now”
format which allowed buyers to get the items right away at a price set by the seller without waiting for the
auction to close. Later in 2001, eBay created the “eBay Stores” which provided sellers a merchandising
showcase and ability to build their own brands as well as selling though fixed price or auction formats.
D) Competition and Going Global:
After the dot-com burst, eBay’s success resulted in consolidation: among uBid, Egghead.com, Yahoo!
and Amazon.com Auctions, eBay had 64.3% revenue share of leading auction sites in the US for May
2001 (Mendelson, 2006, p.27).
eBay started penetrating international markets in 1999 with the acquirement of Alando.de in Germany
and the launch of sites in the UK and Australia. Among their tactics arsenal was: building user community
through internal efforts (e.g. UK, Hong Kong), leveraging an existing platform to expand to a new same-
language market (e.g. Canada, Ireland, Switzerland), acquiring a company already in the local trading
market(e.g. Germany, South Korea, Taiwan, India) or partnering with strong local companies (e.g.
Australia, Japan, China) (Mendelson, 2006, p. 32).
2. Answers to Questions:
A) How did eBay become the world’s leading auction platform? What was
the role of the first mover advantage?
Similar to most other industries, in e-commerce, first movers’ sustainability of advantages is determined
by the immutability of the resources and configuration on which it depends. (Mellahi, Johnson, 2000,
p.445). There are very few strategies that will provide sustainable competitive advantage which for many
firms is based on more on how well the Internet intermediaries leverage their first-mover advantage and
then create a foundation for long-term gains. (Chircu, Kaufmann , 2001, p.44). This is the case with eBay.
eBay’s business model was profitable since the very beginning, as it offered an auction platform for
sellers and buyers without involving any inventory, stocks or distribution. Therefore eBay’s operation
costs and business risks are minimal. Furthermore, eBay continuously expanded its product categories
way beyond only collectibles. Currently, almost any item may be sold on their platform.
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4. Another success factor is users’ trust. eBay’s feedback mechanism encourages buyers to provide
detailed rating of sellers’ performance based on experienced-transaction-relation (Resnick, 2006, p.85).
Consequently, by viewing seller’s previous ratings, prospective buyers can make better decisions whether
to do the transaction or not. A logical upgrade of users’ trust was also PayPal’s acquisition which not only
solved the problem with trust in payments but also increases eBays income directly since only 44% of
PayPal payments are associated with eBay (eBay, 2009, p.11).
Furthermore, eBay leveraged their first-mover advantage with diversification of the services they offer: the
introduction of “Go Local”, “eBay Stores” and “Buy-It-Now” allowed users to choose from a wider service
palette according to their specific needs. Thus eBay continued to deepen their customer orientation.
B) eBay offers auction platforms worldwide. Are there any limits?
eBay established itself on the European market through a series of acquisitions, own sites development
and common languages leveraging. After the acquisition of the German Alando.de, eBay launched its
Austrian site as an offshoot. The strategy aimed at quick and efficient entry to international markets at
minimal technology investment. Another major event was the acquisition of the French iBazar which gave
eBay a dominant pan-European presence (Mendelson, 2006, p.22). Similar were the stories in South
America, Australia and New Zealand.
However, eBay’s Asian experience proved that there are certain limits to their plans of expansion. Their
first main hurdle was Japan where Yahoo! has already established itself as a first mover. eBay charged
fees which were not charged by Yahoo! and used payment methods which were unpopular in Japan. The
result was that eBay suspended its operations from Japan after two years of operation (2000-2002).
However, eBay’s strategy in Korea encompassed the acquisition of already established auction site with a
large community and many listings. The difference was that eBay did not integrate the Korean site and
allowed it to keep its local brand and platform (Mendelson, 2006, p.23).
The next step of eBay was the formation of a strategic alliance with EachNet, leading online trading
community in China which was later on acquired, co-branded and integrated by eBay’s common IT
platform. Although EachNet lead initially in registered users, their main competitor Taobao.com grew
quickly, reaching 57% GMV share compared with Each Net’s 28% in the first quarter of 2006 (Mendelson,
2006, p.24). The differences between the two approaches were that the Taobao.com uses were free of
charge for three years and the site allowed its users to directly communicate with each other, encouraged
instant messaging and also introduced a service similar to PayPal called AliPay. As a response, eBay
offered EachNet free of charge, waived final value fees on all transactions, and eliminated subscription
and listing fees.
eBay’s worldwide auction platforms obviously have their limits. Some of them are cultural differences (e.g.
payment methods in Japan), inability to “beat” established first mover on the market with better service
(e.g. Yahoo! in Japan) and inability to notice specific market needs due to previous successful
international penetration strategies (e.g. China). eBay’s one-size-fit-all formula of success on different
markets had its flaws especially on the Asian market.
C) Google’s success is based on the realization of network effects. How can
a company realize network effects and why is it important?
Network effects are much stronger in the digital economy; marketing programs must take advantage of
the network effects in order to build critical mass of installed customer base (Lee, 2001, p.350). The value
of the market place to a new user is proportional to the number of other users in the market.
Consequently, critical mass of installed customer base is extremely crucial for eBay. Moreover, the
increasing number of users, both sellers and buyers, regulates the market prices, approaching the perfect
market idea. As the number of buyers grow, prices of bids on items increase. Thus, it becomes much
more profitable for sellers to sell on eBay. But as their number increases, prices fall. Eventually, as the
number of users on eBay grows, the prices better reflect the supply-demand curves. This very much
corresponds to the General Equilibrium neoclassical enonomic theory.
All major internet players like Google, Facebook and eBay take advantage of the network effects as they
provide a standardized platform for exchange of information, goods or services. If nobody used them,
there will be no sense in their existence. Therefore they should continue providing users with custom-
made solutions in order to detain the networks functioning.
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5. Bibliography
eBay Inc. Overview. (2010). Retrieved October 31, 2010, from eBay Inc.: http://www.ebayinc.com/who
Alina N. Chircu, Robert J. Kaufmann . (2001). Digital intermediation in electronic commerce: the eBay
model. In B. H. Stuart Barnes, E-commerce and v-business: business models for global success
(pp. 45-66). Oxford: Butterworth-Heinemann.
eBay. (2009). Annual Report 2009. eBay Inc.
Kamel Mellahi, Michael Johnson. (2000). Does it pay to be a first mover in e.commerce? The case of
Amazon.com. Management Decision, 445 - 452.
Lee, C.-S. (2001). An analytical framework for evaluating e-commerce business models and strategies.
Internet Research, 349 - 359.
Madelson, H. (2006, June). Going, Going, Gone! - Consumer Auctions. Graduate School of Business,
Stanford University, pp. 1-33.
Resnick, P. (2006). The value of reputation on eBay: A controlled experiment. Experimental Economics,
79-101.
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