Ebay Phenomenon Term Paper

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eBay Phenomenon

About eBay eBay's Phenomenal Success

The eBay Phenomenon

The number of eBay members online today is incredible. eBay has succeeded in redefining the way the general public buys and sells just about anything, as well as how the world communicates with one another. The reasons for the success and popularity of eBay really come down to a few things: membership, choice, value and communication. This paper will discuss the success of the eBay phenomenon, emphasizing how its innovative method of global communication filled a much-needed void in the consumer marketplace

In 1995, Pierre Omidyar, a Silicon Valley software engineer, created website so his girlfriend could find other collectors of Pez dispensers (Avis, 2002). To his surprise, droves of people came to the site wanting to trade various types of collectibles. He slowly expanded the Web site, eventually quitting his job to accommodate the overwhelming pressures of his new and successful site, which was generating thousands of dollars in fees per day.

Today, eBay is one of the highest traffic sites on the Internet, with 41 million members around the world (Avis, 2002). The site generates about 1.5 billion page views per month. eBay provides a source of worldwide communication to buyers and sellers from all markets. According to Forrester Research, eBay reported $15 billion in sales in 2002, as well as a market capitalization of $24 billion (Hill, 2003). Naturally, globalization has played an enormous role in the eBay phenomenon, as international business already accounts for about 15% of eBay's total annual revenue.

About eBay

The sole purpose of eBay is to provide a communication link (Avis, 2002). It is basically a place where buyers and sellers from around the world can meet to trade. However, rather than existing as a huge classified ad site, every sale is done through an auction. Over a given period of time, anyone with an interest in the product that is being sold can enter a bid. The bids are shown in real time and at the end of the auction, the current highest bidder buys the product.

A eBay is an exciting, innovative, and competitive market for communication.

Through first-mover momentum and superior service, eBay has capitalized on the network effect to a greater extent than any other e-commerce company in the market (Hill, 2003). Basically, eBay's huge customer base creates a growing bubble of influence that serves as a magnetic field.

Large and small merchants are drawn to eBay because they know that there is a surplus of buyers, Consumers are drawn to the extensive product selection. The result is a massive communications link that provides something for everybody.

According to Hill (2003), "two priorities dominate eBay's operational strategy: keeping its buyer/seller community happy, and keeping its massive Web site up and running." eBay's leaders operate the company as a community-based business. To do so, eBay maintains a great degree of communication with its customers through posted bulletins, interactive message boards and an unprecedented accessibility of its top-level executives. For example, Meg Whitman, eBay's CEO, is known throughout the community simply as Meg.

In addition to this form of communication, software tools serve to regulate trust in the community (Hill, 2003). The company's feedback system is a secure method of self-regulating that maintains integrity and accountability in eBay's marketplace. Through enhanced communication, eBay members feel secure and comfortable buying and selling through the site.

A eBay's Phenomenal Success

When looking at eBay's phenomenal success, its role in building out certain product categories is an important one (hill, 2003). The company follows its sellers to some extent in determining its product directory. For example, while eBay did not invent Beanie Babies, it enabled a brisk business in trafficking them.

Basically, when eBay determines that there is an excess of activity in a fairly new category, it works to promote it. For example, concentration on eBay Motors resulted in sales of $3 billion in 2002. According to Hill (2003), "home electronics ($2.2 billion), home appliances and furniture ($1.4 billion), and baby merchandise (50% growth in 2002 over 2001) also have grown robustly, thanks to the company's stewardship."

According to eBay CEO Meg Whitman, eBay's main goal is "to build the world's largest online trading platform where practically anyone can trade practically anything (Schonfeld, 2002)." This goal has been realized, as eBay has come closer than any other creation of the Internet boom to realizing the promise of the virtual corporation. The company has no inventory, no warehouses, and no sales force, yet it is successful and profitable.

In addition, eBay has mastered the exceptional ability to attract lots of social capital, which can best be described as trust, or goodwill, or credibility (Schonfeld, 2002). The company, with its huge community of buyers and sellers, deploys more social capital than almost any company in the market. Social capital allows eBay to enhance communication between millions of entrepreneurs on its site that want to meet the demands of the even more numerous buyers on the site.

According to Schonfeld (2002), the biggest source of eBay's social capital is its feedback system, through which buyers and sellers can rate each other. Buyers require confidence-building mechanisms to buy products from people they do not know. According to Schonfeld, "negative feedback is posted very rarely (less than 1% of the time, according to a study by University of Michigan economist Paul Resnick), but sellers are afraid of getting any negative comments and go to great lengths to avoid them. It's not uncommon for sellers to be brutally honest about their wares, going so far as to describe every nick and scratch. Displaying a buyer's negative comment by a seller's name is like letting a disgruntled customer leave a sign in a store for all subsequent customers to see." eBay's consumers do almost everything, bringing it new products and marketing techniques, taking care of shipping costs, and dealing with customer service. eBay simply provides a secure and managed site for buyers and sellers to communicate.

To maintain profitability, eBay takes advantage of the low communication and transaction costs of the Internet to provide a meeting place for its buyers and sellers (Schonfeld, 2002). The company takes a small commission on every trade on its electronic exchange. It also charges listing fees and other charges.

A eBay is an excellent example of a company benefiting from network effects, meaning that the more buyers who use eBay, the more sellers they attract, who end up drawing even more buyers as the site becomes a greater source of supply with better prices (Schonfeld, 2002). This positive feedback loop enhances the volume of trade on the site, as well as revenues to eBay, while making it increasingly difficult for other auction sites to compete.

As eBay expanded to include millions of users, it has greatly enhanced the ability of individuals and companies to buys and sell products of all kinds. Today, eBay exists as an online marketplace where any item imaginable is available, for a good price.

For precisely this reason, large institutional sellers, such as the U.S. Postal Service, J.C. Penney, various government agencies and many businesses are utilizing the power and efficiencies of selling on eBay.

As this happens, the smaller seller experiences setbacks. As more and more individual and institutional sellers start selling on eBay, the supply of similar items increases, resulting in a decrease in demand, and ultimately, lower bid amounts and lower profits for all sellers. This can eliminate the ability of smaller sellers to sell their products on eBay.

Many people enjoy success on eBay as result of finding a niche that they are familiar with and enjoy. According to Espino, "Many of the top eBay sellers have built their entire business around a niche that they enjoy, such as a certain type of collectible, or…[continue]

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