Lumbini ICT College Gaindakot-2, Nawalparasi

Nepal

Case Study of E-Commerce

On

Submitted by :

Nischal Khatiwada

Puspa Adhikari

Department of Bachelor in

Computer Science and Information Technology

(Bsc CSIT)

of

Lumbini ICT College

4th February 2017

i

Acknowledgement

We would like to express our deepest appreciation to all those who provided us the possibility

to complete this report. In performing our case study, we had to take the help and guideline of

some respected persons, who deserve our greatest gratitude. The completion of this assignment

gives us much Pleasure. We would like to show our gratitude to Mr.Sujan Adhikari for giving

us a good guideline for assignment throughout numerous consultations. We would also like to

expand our deepest gratitude to all those who have directly and indirectly guided us in writing

this

Many people, especially our classmates and team members itself, have made valuable

comment suggestions on this report which gave us an inspiration to improve our assignment.

We thank all the people for their help directly and indirectly to complete our case study.

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List of figures

Fig 1: eBay logo

Fig 2: eBay business process

Fig 3: Reselling

Fig 4: Dropshipping

Fig 5: Retail Arbitrage

Fig 6: Liquidation

Fig 7: wholesailing

Fig 8: Deep Niche

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Abstract

E-commerce plays the vital role for the government, private sector organization as well as the

consumers which address the convenient and effective process. Therefore, we performed the

case study using one of the most popular e commerce site “eBay”. This study investigates how

this website is performing its operation and how it is supporting the e-commerce. This study

entails the ease of use of the website for performing commercial activities to the consumers

and its advantages and disadvantages to the consumer, organization as well as government.

The main aim of this case study is to analyze how these e-commerce website works and how

it is supporting the e-commerce development. The objectives of this case study are to

understand how it enables the business to get their potential customers worldwide, how its sells

its goods and services to the local and remote customers.

Here, we also analyzed how eBay perform this e-commerce i.e its business process and how it

is supporting its users to perform business or commercial activities electronically. We also

investigate the various business model like reselling, whole selling. We also studied the

mission of eBay to make it more efficient in the e-commerce technology. We then analyzed its

future plans and strategy to enhance its working and services.

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Table of Contents

Acknowledgement ................................................................................................ i

List of figures ....................................................................................................... ii

Abstract ............................................................................................................... iii

Table of Contents ................................................................................................ iv

Introduction ........................................................................................................... 1

Body ...................................................................................................................... 2

Background ....................................................................................................... 2

Company Overview .......................................................................................... 3

Objectives ......................................................................................................... 4

Strategy ............................................................................................................. 4

Pros and Cons of eBay ...................................................................................... 5

eBay Process ..................................................................................................... 6

Business model ................................................................................................. 7

Corporate Strategies in eBay ..............................................................................14

eBay Supply Chain Management .......................................................................17

eBay Supply Chain Management System – Features .....................................17

E-Seller Hub – What Does It Do? ..................................................................18

The EBay Effect ..................................................................................................19

Risk factors and competition ..............................................................................22

Risk factors .....................................................................................................22

Competition.....................................................................................................23

Risk mitigating strategy ......................................................................................24

Discussion and implications ...............................................................................25

Suggestions for future .........................................................................................27

Conclusion ..........................................................................................................28

Reference ............................................................................................................29

1

Introduction

E-commerce plays the vital role for the government, private sector organization as well as the

consumers which address the convenient and effective process. E-commerce helps to increase

the market shares, sales revenue, ease access at any time, achieve the branding goals and more

importantly supports the international marketplace which is very important in the modern

technological era.

Here, we investigated on the popular e-commerce site eBay. eBay launched in 1995, is one of

the most successful and popular online auction and shopping websites, providing marketplaces

for sellers and buyers to list, sell, bid and buy products and services. With hundred thousands

of the United States citizens make their living by buying and selling on eBay, and with more

than 56 million active users, in 2009, acquired many companies, e.g. PayPal, Skype,

shopping.com, wishes to stay as a leader in online distribution channels. eBay asserts "trust"

between buyers and sellers as the key to the success of the marketplace.

"The world's Online Marketplace" statement declares the company's position in the global

marketplace

The main purpose of this research was to verify a successful ecommerce business model, from

a strategic perspective. eBay Inc., hence, selected to fulfil the research requirements, i.e. an

accessible database, adequate research works, and most importantly distinctive business

model.

The reason behind this investigation or research is to understand the business process of eBay

in e-commerce world and identify the various business model supported to enhance the e-

commerce activities between the consumers by eBay

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Body

Background

eBay is the World’s Online Marketplace founded in 1995, eBay created a powerful platform

for the sale of goods and services by a passionate community of individuals and businesses.

On any given day, there are millions of items across thousands of categories for sale on eBay,

as well as on Half.com, eBay’s site dedicated to fixed price trading. About 147 million people

now use eBay. An estimated 430,000 people in the United States make all or most of their

living by selling on eBay. eBay enables trade on a local, national and international basis with

customized sites in markets around the world.

eBay’s online payment service, called PayPal, enables transactions nearly anywhere in the

world. eBay proclaims “trust” between buyers and sellers as the key to the success of the

marketplace. eBay is the “The world’s Online Marketplace”, which is its positioning

statement, and it means many things about the company’s identity.

The company market capitalization had surpassed that of even Amazon.com, making it the

“world’s most valuable Internet retailer”. Pierre Omidyar, founder, is focused to achieve

excellence in strategic management for improving the company’s strategy, sustaining the

company’s growth and business performance, and potentially expanding from online auctions

into general “retailing”, and to become “the world’s largest online mall”. This research paper

intends to study the click and click business model of eBay, whose competitive advantage

lies in its pure play strategy, a breakthrough from the traditional brick and mortar model,

which leads to sustainable growth and a competitive edge over the other retailers.

Fig1: eBay logo

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Company Overview

People come to the eBay marketplace to buy and sell items across multiple categories,

including antiques and art, books, business & industrial, cars & other vehicles, clothing &

accessories, coins, collectibles, crafts, dolls& bears, electronics & computers, home

furnishings, jewelry & watches, movies & DVDs, music, musical instruments, pottery &

glass, real estate, sporting goods & memorabilia, stamps, tickets, toys & hobbies and travel.

Members from mall over the world buy and sell on eBay.

Currently, eBay has local sites that serve Australia, Austria, Belgium, Canada, France,

Germany, Ireland, Italy, Korea, the Netherlands, New Zealand, Singapore, Spain, Sweden,

Switzerland, Taiwan and the United Kingdom. In addition, eBay has a presence in Latin

America and China through its investments in MercadoLibre.com and EachNet, respectively.

eBay offers a wide variety of features and services that enable members to buy and sell on

the site quickly and conveniently. Buyers have the option to purchase items in auction-style

format or items can be purchased at fixed price through a feature called Buy-It-Now. In

addition, items at fixed price are also available Half.com, an eBay company. eBay is

dedicated to its community of members, and has numerous services which enhance the

trading experience. Their marketplace services include:

online payments by PayPal

wide array of Buyer and Seller tools

Preferred Solution Provider programs

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Objectives

As a for profit company, eBay's objectives are :

to develop the work ethic and culture of eBay as a fun, open and trusting environment

and to keep the organization focused on the big picture objectives and key priorities.

to build e-loyalty, for long-term profitable relationships, these set of core values

encourages open and honest communication between its members.

is to augment its revenue from the eBay marketplaces

attracting new users and increase the number of customers, so called acquisition.

to active more users to bid by imposing alluring regulations, such as lowering fees for

listings items and offering proper incentives and discounts for their customers.

to mount up the gross merchandise volume and value of transactions which are conducted

by every single active user.

Strategy

The overall eBay aims are to increase the gross merchandise volume and net revenues from

the eBay marketplace. More detailed objectives are defined to achieve these aims, with

strategies focusing on:

Acquisition – increasing the number of newly registered users on the eBay marketplace.

Activation – increasing the number of registered users that become active bidders, buyers

or sellers on the eBay marketplace.

Activity – increasing the volume and value of transactions that are conducted by each

active user on the eBay marketplace.

The focus on each of these three areas will vary according to strategic priorities in particular

local markets. eBay marketplace growth was driven by defining approaches to improve

performance in these areas.

First, category growth was achieved by increasing the number and size of categories

within the marketplace, for example Antiques, Art, Books, and Business and Industrial.

Second, formats for interaction. eBay Stores was developed to enable sellers with a wider

range of products to showcase their products in a more traditional retail format including

the traditional ‘Buy-It-Now’ fixed-price format.

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Pros and Cons of eBay

Pros

Ease of use :- EBay's easy-to-use selling, listing and inventory tools make it easy to

sell your products on the site -- and do it quickly.

Immediate access to millions of potential customers :- On eBay, which has over 149

million active buyers located around the world, you have "built-in traffic and customers

-- [and often get] above average conversion rates," says James Applegath, who sells on

both eBay and his own site, Defunkd, a vintage t-shirt collective.

Global reach :- "As a global seller, we appreciate how [easy it is to] set up [shop] on

global eBay sites and reach international markets," says Jimmy Vosika , founder &

CEO, ShopJimmy.com, which sells TV parts and lamps, TV stands, tech tools and

electronics accessories.

Cons

Fees can add up :- Fees on eBay can vary, depending on what you sell and how you

sell it. That said, sellers typically pay 10 percent of the sale price, with a maximum fee

of $250 -- though advanced listing upgrade fees add more to the cost.

You may not get paid :- "‘Joy' bidders, aka nonpaying bidders/buyers, are a huge

problem as many listing formats don't require a payment to make a purchase," says

Applegath.

Favors buyers over sellers :- "Over the years, eBay has made it increasingly difficult

for sellers by tipping the scales of empowerment heavily in favor of buyers," he adds,

citing eBay's new 180-day return policy and buyers' ability to leave negative feedback,

even if the seller is not at fault.

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eBay Process

The business model popularized by eBay is simple. It is a consumer to consumer sales

platform, where buyers and sellers are connected via the internet. Potential sellers are charged

a small fee for to list items that they want to sell. These can then be viewed for free by

potential buyers. Buyers can then place a bid on the item that they choose, again at no cost.

Once bidding closes, the highest bid purchases the item much like any traditional auction.

Items are listed in categories, making it easy to locate any items of interest. Though the

experience is largely free for buyers, sellers are asked to pay two fees.

1. An insertion fee, which is charged when an item is listed and is based on the opening bid

amount set by the seller.

2. A final value fee, which is charged when the auction is completed. This can be anything

between 1.25 and 5 percent of the final sale price.

There may also be an additional listing fee, which eBay charges for additional features such

as highlighted listing, featured items or other methods which bring the seller’s listing into a

more prominent and featured position. This helps increase visibility and the number of

bidders.

Once the bids reach the preset minimum price, the website will send the seller a notification

and the buyer and seller can complete the transaction. eBay does not have any involvement

in this final transaction and at no point does the company have physical possession of any

listed items or any payments to be made.

Fig 2: eBay business process

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Business model

1. Reselling

The most basic bread-and-butter eBay business model is pure-play online reselling. It works

like this:

a) Find one or more suppliers (such as manufacturers or wholesalers) and buy products

from them by the hundreds or even thousands at a discounted rate.

b) Resell the items on eBay at a higher per-unit price than you paid.

c) Negotiate lower prices with your suppliers as you become more successful so you can

turn higher profits from each sale.

This model can require a significant upfront investment, and you run the risk of losing money

on unsold inventory. However, once you start selling an item consistently, it becomes a

reliable source of revenue.

Fig 3: Reselling

2. Dropshipping

Find a supplier who offers dropshipping services and settle on a price per item. (No

buying in bulk here.)

List dropshipping-eligible items on eBay.

When somebody buys through one of your eBay listings, you collect the money from

the buyer, buy the item from your supplier, and tell them to ship it to your buyer rather

than to you.

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You have no risk of losing money on inventory and don’t have to deal with any of the

hassles of shipping or storage. The entire business is managed from your computer, with

maybe the occasional telephone call thrown in.

The biggest downside: high competition. Plenty of other people use this business model

already, and you can bet they’ve dropped their prices as low as they can for a lot of products.

You may have a tough time finding something you can dropship at a worthwhile price.

Fig 4: Dropshipping

3. Retail Arbitrage

The business model is simple:

Find something being sold at an outrageously low price. This might be because the seller

doesn’t understand the value of the item, just wants to get rid of it, or couldn’t market

to save their life and therefore can’t get anyone to pay them the item’s value.

Create a fantastic listing for it on eBay and sell the item at a profit.

This system can work out magnificently for talented bargain hunters, especially when

dealing with big-ticket items like used vehicles and consumer electronics.

The downsides are the high levels of risk and the need to constantly be on the hunt for new

things to sell. Some people also can’t manage it because they feel bad paying much less

than an item’s value and then turning around and selling it for a profit.

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Fig 5: Retail Arbitrage

4. Liquidation/Surplus

Liquidation works quite similarly to retail arbitrage. Let’s get straight to the steps:

When retailers or organizations can’t sell / find a use for some of their stock (think last

season’s fashions or surplus military equipment), you buy it at a fraction of its value to

free up their storage space.

You identify the items that are worth trying to resell and list them on eBay.

This is as risky and labor-intensive as arbitrage, but on a bigger scale.

You may need to spend hours or days sorting each lot, taking photos of the many unique

items, and creating listings for each of them. You’ll also have an extremely hard time

finding a reliable supply of new goods. Unless you can work out a special deal (such as

being the liquidator for a fashion retailer that clears out its inventory every few months),

you’ll always be on the hunt for more.

Yet this can be one of the most profitable eBay business models. Anyone with the

knowledge and instinct to turn one man’s trash into another man’s treasure has good odds

of making a killing this way.

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Fig 6: Liquidation

5. Wholesailing

Wholesaling is sometimes referred to as lot sales or bulk sales. This eBay business model

focuses on selling products in bulk instead of individually, and the products are usually sold

to other eBay business owners

To succeed on eBay we shouldn’t be retailer, we can also be wholeseller

Quite a few retailers source their items on eBay itself, taking advantage of the extensive

buyer protection to avoid the risks involved in buying through sites like Alibaba. The

margins may be a bit tighter, but for many sellers the security is worth it.

As a wholesaler, you’d supply retailers through eBay. The business model goes like this:

You find manufacturers willing to sell in extremely large quantities for extremely low

prices.

You break the items up into lots, perhaps as small as four items or perhaps as large as 1,000,

and sell them to both retailers and consumers for very low prices.

This system saves you a lot of picking and packing and dealing with buyers. However, it

does have its disadvantages.

The biggest problem is the enormous upfront expense. You might have to pay $10,000 per

shipment to get a competitive price from a manufacturer. This also means that you’ll have

tons of inventory at risk at all times.

In addition, many manufacturers won’t work with you unless you have an established and

proven business.

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These disadvantages make it a poor choice for the beginning eBay seller. But for

experienced businesspeople, it can prove highly profitable.

Fig 7: wholesailing

6. Deep Niche

Going “deep niche” means finding a small market of extremely dedicated buyers and

catering to their refined tastes. You can only succeed here if you have an extremely deep

knowledge of the subject, but it’s a great way to turn your hobby or previous work

experience into a profitable business.

Here’s how it works:

Find something very specific you know a lot about; don’t think “comic books” or

“fishing” so much as “Deadpool collectibles” or “hand-tied flies for smallmouth bass

fishing in the northeastern US.”

See if a market exists for related items on eBay and whether there’s enough demand for

you to work your way in.

Source these specialty products or even create them yourself (if legal) and sell them on

eBay.

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Prove to your customers that you know what great customer service means and make

sure that the items you sell are of the highest quality. Odds are, virtually all your

customers read the same forums or niche publications, and one bad review could sink

your whole business.

You can’t fake your way into this business model. You have to know the audience inside

and out because you’re part of it yourself; a lifelong turkey hunter, a hardcore tabletop

gamer, a collector who could easily open a museum.

Even for those who are part of the deep niche, this model does have risks. Supplies could

become too scarce even for a serious collector to continue finding enough for a business,

the fandom could die out, etc. Both the supply and the demand could easily fall through.

But, as long as you can make it last, you can make a very good living here. Your buyers can

become fiercely loyal, and few other sellers will have the knowledge needed to compete.

You may therefore have a steady stream of profit and zero competition for the lifetime of

your business.

Fig 8: Deep Niche

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7. Yard Sales

Buying quality, unique or rare products at yard sales and flea markets is a common next

step for many eBay beginners. If you live in a large town, you may be able to find items

that are free for the pick up, and there may be regular estate sales or auctions advertised

in the newspaper. Visiting these sales can be fun, and finding excellent deals or rare items

is exciting. In the beginning you may pay more for an item than you can auction it for on

eBay, but with time and specialization you will learn how to spot the best deals or haggle

sellers down on prices.

8. Consignment

The eBay consignment business model brings products to you instead of you having to go

out and hunt for them. With this business model, you advertise locally for quality products

that people want to sell. They bring the items to you and you decide whether they will sell

well on eBay. If you determine they have potential, then you work out a consignment

agreement with the seller. The consignment agreement states that you will pay them a

percentage of the auction price if and when the item sells. You take the photos, create the

auction listing, and handle the payments and delivery, so your portion of the selling price

needs to be high enough to cover those services.

9. eBay Stores

eBay Stores allows you to set up an online store that sells products at a set price, instead

of allowing people to bid in auction format. This business model is preferred by many

eBay entrepreneurs because they can determine how much profit each product they sell

will make. Many eBayers combine eBay store sales with auction sales because many

buyers prefer the thrill of "winning" an auction.

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Corporate Strategies in eBay

The whole foundation of eBay, lies on the idea that practically anything that can be bought and

sold can be facilitated through this Internet retailer, and this auction platform provider was

implementing the concept of e-commerce even more forcefully.

"We help people trade practically anything on earth and conduct commerce through the

Internet on a global basis" is certainly eBay's business model .This model was so effective and

efficient in conducting transactions that more and more people preferred to trade online, so

that they can enjoy the comfort at home or work-places and still buy things online just by the

click of the mouse.

Today eBay users can bid anything from office equipments to real estate to cars. It is

surprisingly true that "eBay has prevailed, but others have failed". The company's consistent

focus on two long-term goals that is "becoming the world's largest consumer to consumer

online auction house and building out each of the five core strategies" lead to the success of

eBay. An analysis into these strategies reveal that eBay has applied sound strategic

management as adopted from Porter and other Management experts .Its whole business

revolves around creating an environment where everyone can come and transact without any

second thought of being cheated or misguided in any form.

The first strategy is creating an insurmountable customer base, that is

(1) Establishing a larger user base

To attract new users, eBay established relationships with more than 60 websites, including

America online which gave eBay the largest access to the largest user base on the internet

and prevented AOL from entering the auction arena, bay also added dealer to person trading

and addresses the fast growing and fragmented small business market by creating a feature

called business exchange, where businesses could buy or sell new, used or refurbished

business merchandise and professional tools in their local market.

The second strategy is:

(2) eBay concentrated on local and international trading

EBay has local sites in 53 U.S markets they deliver distinct regional flavors and give users

the convenience of shopping locally for difficult –to ship items such as automobiles or

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antique furniture. The company also built a truly global presence with users in more than

150 nations.

The third strategy is:

(3) Creating a strong brand

For eBay's first few years it did not spend a single penny on marketing, relying instead on

viral marketing and its ability to piggyback on competitors ceaseless (and expensive) efforts

to retain market recognition. The company's brand building shifted though with the arrival

of new top professionals.

The fourth strategy is:

(4) Broadening the trading platform

By 1999, eBay's fourth year, a host of competitors had entered the online auction market,

while eBay had the first entry advantage, not all of its competitors were small startups, some

including yahoo and Amazon were internet significant players with extensive, established

user bases.

eBay's response was to extend its core business into other attractive niches, the company

introduced higher priced product categories, a move that would increase its profit margin

dramatically while requiring minimal infrastructure and operating expenditures. The only

caveat was that the company needed to develop a new skill set-to overcome this obstacle

eBay made several acquisitions, starting with auction house Butterfield and Butterfield, the

marriage of offline and online auction houses revolutionized the way that fine antiques and

collectibles were bought and sold, allowing users to place real-time bids for items on offline

auction house floors.

The fifth strategy is:

(5) Maintaining a strong community affinity

The company believes that fostering direct interaction between buyers and sellers with

similar interest had enabled it to create loyal, active community of users, as noted earlier

this emphasis on community building has been present since eBay's founding.

(6) Continually enhancing site features and functionality

Because eBay's strategy is to be as hands-off as possible when it comes to transactions, the

company has to provide a reliable and straight forward way for users to manage the process

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on their own, buying and selling on eBay are made easy for users to manage the process on

their own. Sellers need do little more than write a compelling description of the item up for

auction, provide a suitable photograph, and decide how many days the auction will last. To

enhance the payment component of the customer experience, an admitted difficulty for mast

buyers and sellers, bay acquired a company called Billpoint, whose online bill payment

service facilitates credit card payment between buyers and sellers.

Today, the eBay community includes more than a hundred million registered members from

around the world. People spend more time on eBay than any other online site, making it the

most popular shopping destination on the Internet

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eBay Supply Chain Management

eBay is the world’s most famous online marketplace having around 100 million buyers. If you

are selling on eBay, you must be aware that the most critical part is that it works with fixed

price listings and auctions both.

Another challenge you must be facing while selling on eBay is “Supply Chain Management”.

When it comes to supply chain management, eBay sellers need to be alert 24/7 and accurate

too. If you are working manually on all your supply chain processes, then you may face

problems in achieving your desired business goals.

E-Seller Hub, helps in integrating your online store with eBay and handle entire order

management, inventory management and supply chain management processes.

eBay Supply Chain Management System – Features

List even thousands of your products on eBay with a click of a button. Save your time,

sell more and earn more.

Automatically updates the inventory on eBay and other marketplaces as soon as a product

is sold. It is not at all possible to keep a watch on all the marketplaces 24/7 manually and

update the stock on real-time basis. E-Seller Hub is a boon for online retailers.

E-Seller Hub relists a product of zero quantity so the buyers are not able to buy it. If a

product gets sold by mistake, you have to cancel that order and due to that the customer

gets highly dissatisfied. A dissatisfied customer can be very dangerous for your online

retail business.

E-Seller Hub integrates your online retail business with different payment gateways, so

that your customer gets the facility of paying as per their convenience.

Integrate your online business with different shipping companies, so that you can give the

facility to your customer of choosing the shipping method.

Get complete reports about your best selling products and low selling products so that you

can take profitable decisions for future.

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E-Seller Hub – What Does It Do?

E-Seller Hub is a customized eBay supply chain management system which can –

Manage all your orders on real-time basis

Updates inventory on all the sales channels

Manages suppliers

Sends alert mails whenever any item goes out of stock

Generates reports and insights

Manages shipping of the orders received

Informs your customers about the tracking information as soon as a product is dispatched

24/7 support to your customers

E-Seller Hub also integrates with other marketplaces, online stores and shipping companies to

assure that your orders are delivered to your customers within committed time frame without

any blunders.

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The EBay Effect

Data Galore

eBay brings in yearly revenue upwards of $18 billion and employs more than 33,500 people

globally. It is, without question, “e-normous”. In its beginning stages, eBay was actually

known as an online auction site. But it’s evolved since that perception was established, back

at the height of the Internet boom.

Now, most people recognize the brand as a place you can buy virtually anything, including

a $400,000 plane. In fact, 80 percent of items sold are new products. It’s clear that eBay has

capitalized big time on its e-commerce strategy. And how it did so is pretty fascinating.

More stats, first:

Each day, eBay generates 50 terabytes of new behavioral/transactional data

Every five minutes, a car or truck is bought via the mobile app in the U.S.

Every 12 seconds, a women’s handbag is bought via the mobile app in the U.S.

There have been 260 million downloads of eBay’s mobile app

Armed with what seems like almost too much data, eBay was tasked with understanding

said data to gain individualized insights about its customers and their buying habits,

characteristics, likes and preferences.

Though data was available, eBay was challenged to break down their data, dispersed by

business units and across the data warehouse. It wasn’t long before a team of data scientists

was introduced to focus strictly on customer data. Soon, it became clear that these data

scientists were spending a lot of time just trying to find data, understand it and clean it

before any actionable insights could be had. Mending this divide between IT’s capabilities

and marketing’s goals (to use data and analytics to optimize every interaction with every

customer) was in need of refinement.

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Customer DNA

Enter “Customer DNA,”a single customer repository enabled by Teradata’s Enterprise Data

Warehouse, the central system that collects all data. This allows for ultra-segmenting and

targeting based on high value, medium value and low-value information.

Now, insights to drive business decisions and set strategy were able to be had. For example,

eBay discovered that auction users—i.e. users who opted to “Bid” instead of “Buy It

Now”—are more loyal than non-auction users.

It became clear that by cross-checking previously disparate data sets, new insights would

follow. Results thus far have been staggering. Insights and models built from Customer

DNA resulted in incremental sales in the first half of 2014.

“Customer DNA is becoming the backbone for eBay.” – Patrick Hildebrand, Director,

eBay ß Text box

With enhanced data-driven marketing capabilities, eBay focused primarily on making its

email marketing super-individualized and relevant. For example, “Daily Deals” were set up

for select users—new deals based on search history sent every day. Pre-Customer DNA,

these daily deals weren’t relevant or personalized. Now, reminders on “hot items” are sent

to users, updating them on items they’re watching and the available inventory.

Emails tell recipients things like, “127 people watched this hot item in the last week. Only

8 left in stock!” They proved to be effective in generating more conversions than a

traditional sale with no deadline to buy.

“Trending items” show which keywords are being searched the most, so if a customer has

a high propensity in the category, they’ll get an email about the trending topic. First-time

buyers also receive an email encouraging them to get involved in more than buying—selling

(eBay has found that sellers are their most engaged customers).

eBay's Revenue model

The vast majority of eBay’s revenue is for the listing and commission on completed sales.

For PayPal purchases an additional commission fee is charged.

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Margin on each transaction is phenomenal since once the infrastructure is built, incremental

costs on each transaction are tiny – all eBay is doing is transmitting bits and bytes between

buyers and sellers.

Advertising and other non-transaction net revenues represent a relatively small proportion

of total net revenues and the strategy is that this should remain the case. Marketing services

and other revenues accounted for an additional $2 Billion in 2012. Another part of the

business, Skype Internet telephony, was acquired in 2005 by eBay and sold to an investor

group in November 2009 with a 30% share retained by eBay.

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Risk factors and competition Risk factors

Fraud is a significant risk factor for eBay. BBC (2005) reported that around 1 in 10,000

transactions within the UK were fraudulent; 0.0001% is a small percentage, but scaling this up

across the number of transactions, this is a significant volume.

To counter this, eBay has developed 'Trust and Safety Programs’ which are particularly

important to reassure customers since online services are prone to fraud.

For example, the eBay feedback forum can help establish credentials of sellers and buyers.

Every registered user has a feedback profile that may contain compliments, criticisms and/or

other comments by users who have conducted business with that user. The Feedback Forum

requires feedback to be related to specific transactions and Top Seller status was introduced in

2010 to increase trust in the service.

There is also a Safe Harbor data protection method and a standard purchase protection system.

The fees model that eBay uses is often changed and this can cause problems with users, but

the impact is calculated that it does not affect overall sales. In their 2012 SEC filing eBay note:

'We regularly announce changes to our Marketplaces business intended to drive more sales and

improve seller efficiency and buyer experiences and trust. Some of the changes that we have

announced to date have been controversial with, and led to dissatisfaction among, our sellers,

and additional changes that we announce in the future may also be negatively received by some

of our sellers. This may not only impact the supply of items listed on our websites, but because

many sellers also buy from our sites, it may adversely impact demand as well'.

In common with other global platforms like Amazon, Facebook and Google, eBay note the

potential threat of the shift to tablet and smartphone platforms noting that one risk factor is:

'Our ability to manage the rapid shift from online commerce and payments to mobile and multi-

channel commerce and payments'.

There is also the common risk factors for online pure-plays of retaining an active user base,

attracting new users, and encouraging existing users to list items for sale, especially when

consumer spending is weak.

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Competition

Although there are now few direct competitors of online auction services in many countries,

there are many indirect competitors. SEC (2012) describes competing channels as including

online and offline retailers, distributors, liquidators, import and export companies, auctioneers,

catalogue and mail order companies, classifieds, directories, search engines, products of search

engines, virtually all online and offline commerce participants and online and offline shopping

channels and networks. In their SEC filing, eBay states that the principal competitive

factors for the Marketplaces business include the following:

ability to attract, retain and engage buyers and sellers;

volume of transactions and price and selection of goods;

trust in the seller and the transaction;

customer service; and brand recognition.

Although eBay is one of the largest e-Commerce businesses, these factors also need to be

actively managed by the smallest online e-retailer.

For their online and mobile competition, they describe additional competitive

factors including:

community cohesion, interaction and size;

website or mobile application ease-of-use and accessibility;

system reliability;

reliability of delivery and payment;

level of service fees; and

quality of search tools.

Before the advent of online auctions, competitors in the collectables space included antique

shops, car boot sales and charity shops. Anecdotal evidence suggests that all of these are now

suffering. Some have taken the attitude of ‘if you can’t beat them, join them’. Many smaller

traders who have previously run antique or car boot sales are now eBayers. Even charities

such as Oxfam now have an eBay service where they sell high-value items contributed by

donors. Other retailers such as Vodafone have used eBay as a means to distribute certain

products within their range.

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Risk mitigating strategy

The eBay business model relies heavily on the trust buyers and sellers put in each other.

Unfortunately, this trust is not always justified and there are instances of mishaps. To try to

mitigate these risks, the following steps can be taken by both buyers and sellers:

1. Confirm Your PayPal Address

This small step takes very little time but ensures that your PayPal shipping address matches

your credit card address. This makes eBay safer since if someone manages to access your

PayPal information, any items bought can only be shipped to you. In addition, sellers will

prefer to sell to you if you have a verified account.

2. Check Supplier Reputation

Especially in expensive purchases, it is a good idea to check the supplier’s reputation and

reviews.

3. Research Products

Some products are easy to copy and counterfeits may be sold in place of the original. Ensure

that you are aware of any required documentation or authenticity guarantees. Designer

clothes, accessories and sports memorabilia are particularly likely to be in this category.

4. Always use PayPal

PayPal is an added level of security. If the sellers does not ship the item then PayPal will

return your payment

5. Use Delivery Confirmation

As a seller, always try to use delivery confirmation to ensure that the item has reached the

buyer.

6. Read all the Information Provided

Despite long descriptions, make sure you read all specifics and are aware of shipping and

return policies. Long descriptions may have hidden details of product quality etc that could

save you the trouble of returning the item.

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Discussion and implications

Rapid growth in internet distribution, especially the use of online auctions to sell goods,

suggests that this area needs extensive and systematic investigation. At the same time, a

literature review indicates that online auction selling has not been studied to the extent that

other areas of the internet have been investigated. Indeed, most of the information regarding

online auction sellers has been presented in the popular business press. Little empirical

research appears in the academic literature. This investigation attempts to understand the

characteristics, attitudes, and strategies of online auction sellers and should help future theory

building by providing researchers with a foundation for hypothesis development. The

exploratory research results presented here suggest several new areas of investigation. Firstly,

online auction sellers must be further analysed and classified with respect to various business

characteristics. The evidence from this study indicates that widespread diversity exists among

auction sellers in terms of key variables such as product categories sold, product type, sales

revenue, etc. Because the modest sample size in this study may pose some limitations, studies

with larger samples should be conducted to verify further the nature and extent of the diversity

in online auction seller characteristics. In particular, the differences among the auction sellers

in terms of total sales revenue and internet auction sales percentage indicate that further

classifications based on auction seller size may be necessary. Whether or not auction sellers

vary in terms of product category sold should also be a subject of future research. For example,

how do consumer electronics sellers differ from antique sellers with respect to various business

practices (e.g. inventory levels or use of alternative distribution channels)? Are internet

auctions better suited to some product categories than others?

Secondly, internet auction sales clearly represent a distinct and important distribution channel

for internet marketers, with over 71% of the sellers in this study reporting that auctions account

for over half of their annual sales volume. This finding indicates that auction selling represents

a primary, and sometimes exclusive, distribution channel for eBay sellers. Businesses that are

not using online auctions may be limiting their growth by ignoring this market and the potential

revenue that accompanies it.

It also raises the interesting question of why companies would not use online auctions. Perhaps

this distribution outlet is avoided because it is perceived primarily as a niche strategy or too

limited in terms of potential revenue. Alternatively, some companies may view auction selling

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as too complex or costly in terms of implementation, or too much in conflict with existing

distribution policies. In either case, a logical next research step would be to investigate

businesses that no longer use online auctions or have never tried them. Certainly auction firms

such as eBay would be interested in learning why some sellers avoid this arena. Could it be

possible that some businesses perceive internet auction selling to be primarily a discount-

pricing model? If this were the case, internet marketers trying to maintain high levels of brand

equity and/or profit margins would avoid internet auction sales. This research suggests

otherwise, however. Clearly some online auction sellers are using eBay to differentiate

themselves in the marketplace and are concerned with strategic marketing variables beyond

price.

Given the unique characteristics of online auctions, the use of traditional competitive strategies

such as cost leadership and differentiation suggests that this new distribution venue could be

simply a variation on an existing theme. That is, despite the technological advances of the

internet and the resulting growth of new industries, a company’s marketplace success may still

be a function of its ability to sustain a distinct competitive advantage – whether that advantage

is based on cost or some other factor. Confirmatory research is needed to explore this concept

further. The findings related to the underlying attitudes of auction sellers also indicate that

traditional marketing strategies can be utilized in an online auction arena. That is, internet

distribution appears to adequately support at least two opposing marketing strategies – cost

leadership and differentiation. Yet there is nothing to suggest that other competitive strategies

would not be feasible. For example, an imitation or ‘me too’ strategy might be equally effective

in the online auction arena, especially if sufficient promotional dollars are invested to attract

customers to the auction site and build website awareness and interest. Moreover, a focus

strategy would clearly be possible on internet auctions as well. As suggested by Porter,

choosing a narrow segment in an industry and tailoring a strategy to serve that segment can

lead to marketplace success.

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Suggestions for future

The following three steps will be important for eBay Inc. in the near future:

Continue to improve data collection and server utilization measurement procedures.

Project Linnaeus will reconcile historic records of server ownership while the capacity

team institutes transparent and fair procedures to measure infrastructure utilization going

forward. This will uncover further efficiency potential by both empowering product

developers to utilize their dedicated resources more effectively and holding them

accountable for those decisions.

Utilize cultural transition to add efficient infrastructure utilization to software/product

design goals. Although the C-suite supports the effort to integrate infrastructure, hardware,

and software design, this support should continue to be communicated to the business unit

teams in order to realize the value of these efforts.

Incorporate infrastructure productivity measurements into incentive/cost structure to

further behavioral change. eBay Inc. is working to complete development of the show-back

in order to transition it to a full charge-back (i.e. internal transfer price for infrastructure

services charged to each business unit). The advent of the show-back will give insight into

the inefficiencies of infrastructure consumption by leader, team and individuals,

subsequently motivating them to drive more efficiency. Aspects of DSE could also be

incorporated into individual and/or business unit level KPIs so that performance, or

productivity, is tied explicitly to efficiency (Democratization of DSE).

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Conclusion

eBay came out of nowhere to become a behemoth in e-Commerce. With an attractive and

differentiated business model that eliminates the need for a sales force and inventory, eBay

focused its efforts on its Acquisition, Activation, and Activity strategy, striving to reach its

global vision of becoming a global trading platform where practically anyone anywhere can

trade practically anything anytime. Whether it can do so depends on whether it can conquer

language barriers, government regulations, internet access, and cultural differences. It already

has its foot in the global door. Automatic update and adjust your stock level accurately as well

as efficiently handle supply chain management. Having clear picture of your stock levels,

shipping information and product tracking abilities can definitely lead to ultimate success of

your online retail business.

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