eBay's value chain transformation from marketplace to transaction services provider

EBay Global Strategy Analysis Case Study

The eBay value chain is in the midst of a transition from being base purely on transactions to being more valuable based on the accumulation of transaction-based expertise and data the company has accumulated over time. The progression of eBay's business model and strategies from marketplaces and auctions into a transaction services provider and communications platform is evaluated in this paper. Implicit in this analysis is the transformation of the eBay value chain from being a marketplace that sought to bring together buyers and sellers into a communications platform and brokerage for information, transaction and network services including analysis of eBay data marts for cross-selling and upselling by enterprise accounts (Winter, 2008). The eBay value chain has progressed from the real or tangible products initially sold through the auction and pricing systems (Chen, Webster, 2010) to industry-leading expertise in recommendation systems (Dini, Spagnolo, 2009) (Zhou, Dresner, Windle, 2009) to information systems including data marts (Winter, 2008).

Assessing eBay's Core Competencies

At its most basic level, the eBay core competencies and strengths in the market are in its ability to manage pricing dynamically in the context of many different types of auctions (Chen, Webster, 2010). There are over two dozen auction scenarios the company relies on as part of its core strength in e-commerce including the option of bypassing any auction whatsoever and purchasing the product directly (Onur, Tomak, 2009). All of these auctions and their associated pricing computing platforms have inherently within them the ability to determine the relative elasticity of products in broad definitions of key markets. As a result of this insight the company has exceptional grasp of how well any given product or service is priced at any given point in time. The expertise in understanding the demand curve for a given class of products and the pricing on it is shown in how effective the auctions are run for larger lots of products intended for business consumers. eBay does not offer this demand curve-based data yet does offer data marts of what has been purchased over time and at what price, which does provide a rough approximation of the elasticity of demand for specific products (Winter, 2008).

This expertise in pricing and volume has assisted eBay in pricing their telecommunications services and understanding the spending dynamics of specific segments of their marketplace as well. The contributing effects of positive reviews and recommendations of sellers (Dini, Spagnolo, 2009) relative to negative ones and their implications on pricing elasticity and demand are also known by the company as well (Gregg, 2009). Insights into these three areas of their core business model gives the company greater flexibility in how they respond to and manage risk in new ventures, how to price new telecommunications and information services, and what are the best possible extensions to their value chain over time. This has been exceptionally valuable as the e-Bay value chain has progressed from being based on real or tangible products to be increasingly based on a hybrid of real and virtual goods, as is the case with their development of communications services, to purely virtual services as is the case with their data mining, data marts, market intelligence and nascent cloud computing platforms strategies (Winter, 2008).

Assessment of the eBay Value Chain

Having progressed from being primarily a value chain based on physical goods to virtual ones today the actual state of the value chain is more predicated on a hybrid of the physical and virtual; in fact the company must manage this balance if it is to grow in both core areas of their business. What makes the eBay value chain so unique is that it is predicated on the continued trust and transactions of its core base of customers and the growth of the value chain needs to always take this trust into account (Zhou, Dresner, Windle, 2009). The trust of the customer base is the compass of growth for the eBay value chain and the company will need to continue to manage its growth to ensure the highest levels of trust possible with their customer base. There are over 300,000 third party online stores in existence today and many include affiliate marketing and selling arrangements with eBay and its key partners (Lamiman, 2008). These stores form the foundation of the company's value chain and also are highly dependent on the trust-based programs and safeguards put into place including the recommendation and referent systems (Zhou, Dresner, Windle, 2009). The eBay value chain then shows an innate strength at being able to transform transactions into entire trading platforms and technologies, including the development of distributed order management and cloud computing platforms.

The value of trust and its foundational role in the entire eBay value chain can be seen when it is brought into question, as has been the case in the past when fraudulent transactions were completed as real (Klein, 2008). This caused resellers to demand an audit of the transaction systems and processes to ensure that any future violations of trust would not be possible. While it is impossible to make a system entirely fraud-resistant, the company was successful in creating more safeguards and authentication technologies for better manage the threats to their core customer base and transaction capability. Critics of eBay claimed the company had attempted to scale from being transaction to services centric and had lost track of their core strengths and as a result, fraudulent activities were beginning to increase (Klein, 2008). In part, the critics were right as the company continued to struggle to get into higher margin services yet was faced with keeping up their spending levels and R & D. investment in transaction systems, recommendation systems and transaction platforms including security. eBay also has needed for years to create a more equitable approach to the bidding process for small businesses, and the quoting platforms the company has continued working on are

Topic Sentence

The eBay value chain is in the midst of a transition from being base purely on transactions to being more valuable based on the accumulation of transaction-based expertise and data the company has accumulated over time.

Thesis

eBay can continue to experience economic growth in services if the company successfully manages to transform the insights gained from their data marts and base of intelligence into marketable services.

Hypothesis

Investing in R&D to continually grow the areas of reputation management and trust-based verification services will make a significant contribution to long-term value as these are areas all e-commerce strategies require.

I. Progression of eBay Value Chain from the Physical to the Virtual

a. Requires a Hybrid Model to integrate the physical and virtual

b. Critical for the company to move into services

II. Assessing eBay's Core Competencies

a. Dynamic Pricing and Auction Core Strength

b. Referent Systems Development

III. Assessment of the eBay Value Chain

a. Keeping Trust in Transactions is Critically Important

b. Must continue to have a strong focus on security and fraud detection

c. 300,000 third party online resellers form the foundation of the selling system

d. Referent Systems Development

IV. The Future of the eBay Value Chain

a. Capitalizing on the data marts and information sources to create data services

b. Strength of the value chain is also predicated on trust above all else