e-bay spot case analysis

8/14/2019 E-bay Spot Case Analysis

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eBay Case Study

21st May, 2008

Presented By:

Rohit Jain

Vishal Sharma

Lei Huang


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eBays vision is to help people

everywhere connect, discoverand interact with each other

through commerce


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eBay Inc. Business Segments


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eBay Inc. Timeline

eBay Core Values

2. People are basically good.

3. Everyone has something to contribute.

4. An open environment brings out best in people.

1995 2008

1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008

1995

Auction Web founded by

Pierre Omidyar

1997

Auction Web to eBay

1998

Meg Joined Company

Went PublicCrossed one million mark

1999

Launched in Australia

2001

Auction for America

2002

Acquired Paypal

2004-2005

Classified business

Skype

Shopping.com

2008

Paypal Compulsory in

Australia


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eBay Inc. Revenue Model

e-Bay Revenue Model

There are two kinds of transaction fees. When an item is listed on eBay, a non refundable insertion fee is charged

based on opening bid on the item. It ranges from AU$.30 to AU$3.50depending upon on initial starting price.

Once the auction is completed, a final value is charged this fee is ranges

from AU$1.25% to AU$5.25%.

Paypal Revenue Model

PayPal performs payment processing for online vendors, auction sites, andother corporate users, for which it charges a fee which ranges from

US$1.9% to US$2.9%. They also charge a currency conversion fee of 2.5%for non US dollar payments.


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eBay Interesting Facts

eBay engineers have to add about 10 terabytes of new storage everyweek to cover new transactions.

One of the weirdest item sold on eBay is a chewing gum spat out byBritney Spears which went for 270.

222 million of registered eBay users at end of year 2007, greater than thepopulation of Brazil.

A piece of jewellery sells every 6 minutes on eBay India.

A toy is sold every 10 seconds on eBay Australia and DVD every 10 sec.

More than 20 million number of items on the site at any given time, morethan 300 times the number of stock-keeping units in a typical Wal-Mart.


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Key Success Factors

Brilliant Business Model

Outstanding Management Team

Strong Established Network of Buyers andSellers

Excellent Marketing Model

Strong FinancesBrand Name


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Business Model

Uses internet to reach potentiallyanywhere in the world.

Create a global marketplace and chargefees for facilitating the transactions.Worlds total product output in 2006 was worth U.S.$59 trillion. If

these were transacted in a single marketplace, owned by a singleperson charging .1% fees per transaction.

Total fees = $59*.001 trillion = $59 billion for a single year.

Lesson 1: Think Big, there would always be ways toachieve your dreams.


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Strengths of Business Model

Many-to-Many against One-to-Many.Lesson 2: Involve more people to your cause, it would help.

No inventories or transportation costs.Lesson 3:Innovate at each business process, it would

provide you distinctive edge for future.

Easy to expandLesson 4: Evolution is the rule, Successful are those whoprepare to accommodate for that.


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Management team

In 1998 Meg Whitman was brought in fromHasbro.

She created an experienced management team

of senior staff members from companies such asPepsiCo and Disney.

Lesson 5: Bring in the right people at right place before they areneeded, so that they are ready to perform when they are actually

needed.(important business guideline for succeeding businesses,

touching million $ revenue mark.fromDrucker. P.)


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Great insights of that Management Team

eBay is a company that's in the business of connectingpeople, not selling them things.

Its hard to sell people than to welcome them to an interesting community. Lesson 6: Give choices rather than responsibilities.

Focus on increasing ASP (Average Sale Price). In 2003 up to Quarter2(in June) Sun had sold equipment worth of

$16Million on eBay. (from: http://www.sun.com/2004-0127/feature/)

Lesson 7: Size matters, if you cannot get more pies, chose the big

pie. Acquisitions: Can not beat PayPal,

Lets buy it !! Lesson 8: Money makes the mare go.


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Present Management team

John Donahoe,President and CEO, eBay Inc.Prior to eBay, he spent 20 years at Bain & company worldwide consultingfirm at Boston. He had risen to be CEO of the company.

Beth Axelford,Senior Vice President, Human Resources, eBay Inc.was previously chief talent officer at Wire and Plastics Prodcuts (WPP Group),one of the world's leading communications services groups, also principal withMcKinsey & Company

Rajiv Dutta,Executive Vice President, eBay Inc.; President eBay Marketplaceswas President of PayPal overseeing a period of rapid growth and expansion

Bob Swan,Senior Vice President, Finance and Chief Financial Officer, eBay Incwas vice president of finance at General Electrics and CFO of GE Lighting in1999 and CFO and executive vice president at Electronic Data SystemsCorporation (EDS) prior to joining eBay.


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Success Continues: Established Network

Company enjoys large share ofconsumers: Market, Mind and Heart.- Adistinctive Edge


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Global Active Users

1%2%4%7%10%14%% growth

83.983.283.083.382.981.8(in Millions)

Q1 08Q4 07Q3 07Q2 07Q1 07Q4 06

1) For Marketplaces:

2) For PayPal

17%16%16%16%18%20%% growth

60.257.354.852.851.349.4(in Millions)

Q1 08Q4 07Q3 07Q2 07Q1 07Q4 06

3) For Skype

17%16%16%16%18%20%% growth

60.257.354.852.851.349.4(in Millions)

Q1 08Q4 07Q3 07Q2 07Q1 07Q4 06


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Network Effect for eBay

The Network effect :The overall value for each customerincreases with addition of each new customer.

ora customer gains more to join a bigger network because

there are more options.E.g. Mobile phone services

Business Model of eBay highly capitalize thisnetwork effect. Its an exit barrier for people thinking of

leaving eBay to join competitor.

Revise Lesson 2Involve more people to your cause, it would help.


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21st Century Marketing Model-Holistic Marketing

Holistic marketing is based on the development, design andimplementation of marketing programs, processes and activitiesthat recognizes their breadth and inter-dependencies.

It has four components:1) Relationship marketing

Lesson 9: Foster the relationships, and business would take care of itself.

2) Integrated MarketingLesson 10: Whole is sum of parts, if parts are taken care of, whole wouldbe healthy.

3) Internal marketingLesson 11: Growth flows from Inside-Out.

4) Social Responsibility marketing Lesson 12: What you give to society, it would pay you back.

(pg. 17, 18 ch-1 of Book)


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HolisticMarketing

IntegratedMarketing

InternalMarketing

RelationshipMarketing

SociallyResponsible

Marketing

1) One of core Foundation Ideas is to usethe Internet for the good of regular people.

2) Established eBay foundation in 1998.3) In 2006 Appointed Matt Bannick, (PreviousPresident of eBay International ) to take care

of eBay's initiatives in corporate philanthropy.4) Raised Millions of US Dollars for victims ofTsunami tragedy (Asia, 2004 ) and 9/11 US victims.

5) Provides advanced fund raising tool for charitiesusing eBay.

1)Customers: Sense of Community (Distinctive Competence) eBay University Entertaining site2) Partners: Over 250 Alliances Partnership with International Companies3) Channel:

Global reach

1)Product: Over 27, 000 Different categories (Distinctive Competence)2)Communication: Web advertisements: Strong alliances with giants like

Google and Yahoo!

Events: Online workshops for enhancing awareness3)Channel:Very powerful CRM

1) Management: One of the best managementteams.

2) Employees: Valued very much eBay extends concept of community to

employees as well.

Employees are eligible to purchase companystock at 15% discount


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Driving The Success.

Brand Name

Value and position of Brand:

(Source: http://www.interbrand.com/best_brands_2007.asp)

The term 'eBay' has become a generic term for onlineauctions. Today it is common to hear that someone is'ebaying' or is an 'eBayer,' or that someone is going 'toeBay.

10%7,456InternetServices

U.S.eBay48

Changein Value

Brand

Value

(US$ m)

SectorCountry

of Origin

LogoBrandRank

2007


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Strengths

Strong Finances

eBays online auction market is about connecting people. That freesit from traditional retailing cost structure and helps in moreimpressive profit margins than "old economy" companies as shownbelow:

Cash King Margin (CKM) : Free Cash FlowSales

Tells how much cash company is generating.CKM > 10% is considered good.

Motleys flow ratio: Current assets Cash & Cash Equivalent(MFR) Current liability Short term debtTells How well company is using its cash.

MFR < 1.25 is good, MFR


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Finances Continued

1.24.91.93MFR

N.A.33.8%25.4%CKM

200520062007

In 2005 there cash outflow was more than inflow because of high cost acquisitionof Skype for $2.6 billion. So they had negative free cash flow value. So CKM can

not be calculated.

Lesson 12: Income figures can deceive, so always consider cash flow in addition toincome statement.


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Vulnerabilities

Inability to Measure Illegal Activityon Site

EBay: 1% fraud transactions

Experts: 10% fraud transactions

Lack of In-Depth Descriptions for

ProductsA factor for counterfeit and wronglyidentified products sold to customers


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Vulnerabilities

Technology Malfunctions

Anonymity and Uncertainty of

Dealing Online.

Trust Factor

Legislations


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Vulnerabilities

Inability to Penetrate Some Foreign Markets

Launched in Japan

2000 2001 2002 2007 2008

only 3% of Japanese market

Pulled out of Japan

Teamed up with Yahoo! Japan

Penetration in Japan


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Inability to Penetrate Some Foreign Markets

Vulnerabilities

Competition in China

Bought 30% of Eachnet in China

Controlled 90% of Chinese market

Decreased to 29% of market share

Squeezed to 7.7% market share

2003 2004 2005 2007 20082006

Implemented no-fees model


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Vulnerabilities

Competition for New Product MarketsGoogle is a strong competitor in new product

markets

PayPalGoogle CheckoutPayment

SkypeGmail/TalkCommunicationsKijiji, CraigslistGoogle BaseClassifieds

ebayGoogleMarkets


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Vulnerabilities

Competition for Existing MarketsIncreasing Number of Online Trading Sites

Increasing number of online stores.


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Recommendation

taking care of the email scams

filtering the content of eBay to shun

away all the scammers and illegalauctions

implementing a standard method of

payment and certified sellers withalternate method


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Recommendation

Improving the eBay mobile version

Strategic alliance with Yahoo

e-bay spot case analysis

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