eBay business model and operations

eBAY

Business - Management

The management functions at eBay: A strategic plan with an eye on the future

The management functions at eBay: A strategic plan with an eye on the future

From its inception, eBay's strategic planning was unique and innovative. eBay began -- and remains -- in the business of connecting buyers and sellers via an online auction, rather than trafficking in a single type of signature product (The eBay business model, 2010, All business). Although sometimes a strange new item will arise on eBay that will cause people to shake their heads (such as a supposed image of the Virgin Mary on a grilled cheese sandwich) and say 'only on eBay,' there is no item that defines eBay as a brand. eBay is the oldest form of commerce, translated into the virtual world. It is a "person-to-person marketplace on the Internet, where sellers list items for sale and interested buyers bid on these items" (The eBay business model, 2010, All business).

eBay was a first-mover in the new Internet business world, which gave it great name recognition as an enterprise. It was one of the few, proud survivors of the Internet boom and bust. Even sellers with mixed feelings about eBay will often use it as a venue in which to sell their products, because of its high levels of name recognition amongst potential buyers. Buyers are attracted to the diverse range of unique products offered on the Internet auction site. "eBay had better relationships with its sellers earlier this decade, when its auction system was still catching on with consumers and fueled torrid growth. During the tech-bust year of 2001, eBay's revenue grew 74% and its stock more than doubled, as investors embraced its no-inventory, no-warehouse model" (Fowler 2009, p.1).

From an operational perspective, eBay has few overhead costs. It makes its money by charging sellers a nonrefundable insertion fee to post its item. Once the auction is completed, "a final value fee is extracted from the seller (The eBay business model, 2010, All business). eBay also offers a rating service for buyers, a feature that attracts users, given that it allows them to have more information about the person with whom they are transacting than they might on another site, or even in the real world.

eBay has tried to expand its offering and to mitigate its risks as a firm. It has acquired a number of internationally-focused sites, all of which are a part of its new, combined marketplaces business unit. Shopping.com, StubHub, Kijiji and other e-commerce sites employ a fixed price model, and these more conventional aspects of eBay, the company, are now responsible for a larger percentage of eBay's revenue. Approximately 60% of Marketplaces revenue for the fourth quarter according to its most recent investment report came from new, international shopping hubs.

This shift in emphasis from auctioneering to fixed-price sales was deemed necessary, a planned decision by new Chief Executive John Donahoe as he saw other search engines and comparison-shopping sites reduce traffic to "by making bargain items easier to find on other sites… eBay has had sliding revenue and profit…while Amazon has reported record earnings. Over the past 12 months, while Amazon's stock is off 6%, eBay's is down 43%" (Fowler 2009, p.1). eBay reported its first financial decline in 2007. Donahoe is also considering letting go of the Internet phone service Skype and creating a much leaner employee base. In October 2009, "eBay announced layoffs of 10% of its 16,000 workers" (Fowler 2009, p.1).

Because eBay makes more money from expensive transactions, it is shifting its 'common standing' or overall plan to focus more on large sellers, rather than small, quirkier, or independent businesses. "Mr. Donahoe is shifting the site's emphasis away from auctions and toward fixed-price listings. The moves have divided sellers, some of whom complain that big merchants now have an edge. Some longtime sellers, including those with unusual inventory that draws people to the site, are giving up on eBay and moving their business elsewhere. Of the top 100 U.S. eBay sellers in January 2008, 16% were no longer active in the first quarter of this year" (Fowler 2009, p.1). However, the focus on larger sellers, Donahoe believes, will allow eBay to shift to a model customers increasingly prefer, with "fixed price, quick service and free shipping" -- a model associated with larger retailers (Fowler 2009, p.1).

eBay's long-term plan to encourage higher volumes of sales, and high-volume sellers is manifest in its reduction in the charge to post items and increase in commission sales -- a large retailer can thus sell many, many items for a lower cost than before, while smaller 'one-off' sellers collect less money. Smaller sellers protest that this is against the ethos of the company; eBay says that this gives buyers more variety, as there is less risk of a loss when a seller posts many items.

eBay has also modified its presentation on its website. "Before, the first items to pop up were those for which an auction was about to end. Sellers developed ways to game that system, such as trying to make their auctions expire at times of the week when buyers were most active… [The new formula] takes into account price and how well an item's seller ranks in customer satisfaction. The change meant that highly rated merchants got more exposure on the site. eBay also offered fee discounts to the best-rated sellers" (Fowler 2009).