Ebay Strategic Choices That E-Bay

eBay

Strategic choices that E-Bay has made: What is its competitive advantage and is it sustainable?

A eBay is famed as the world's largest Internet auction site. Its fame has been partially generated by a crucial strategic decision it made to disregard any type of screening of strange and unusual offerings. It has set virtually no parameters (other than legal ones, like prohibiting the sale of illegal drugs) as to what could be offered on the site. The site generated immediate publicity when it agreed to offer such items as grilled cheese sandwiches with depictions of the Virgin Mary or one seller's life possessions. For example, "type in an esoteric query like 'Led Zeppelin motocross bike' or 'antique kitty litter' and you'll find at least one result on eBay. Even an implicitly illegal query for 'stolen cars' calls up results" (Olsen, 2006). Despite the introduction of other sites, the name eBay remains synonymous with the online free-for-all of auctioneering.

A eBay's primary competitive advantage as a retailer is that it is a portal, rather than a real life, brick-and-mortar space with regular operating costs, like a retail outlet like Wal-Mart or a real-life auction. While even entirely online Internet retailers like Amazon still have shipping costs, eBay merely exists as a meeting place between sellers and buyers. The buyers evaluate the sellers through the available rating system, and the buyers and sellers negotiate price and shipping costs not born by eBay. However, this comparative advantage cannot last forever, as other retailers have begun to adopt its marketing model, and Amazon has also begun to provide links to other Internet sites for a variety of products, and offer access to used offerings by outside sellers. In 2005, Google became a rival "to the Web's leading auctioneer by introducing a classified ad service and an online payment technology that competes with eBay's PayPal" (Olsen, 2006).

But eBay has decided not to stand still and allow its profits to level out. With this in mind, eBay has set a goal for itself to generate more revenue from advertising sources, which is, analysts say, particularly crucial as rivals enter the online auction business and as the novelty of some of eBay's more unusual items declines. "In the last year, for example, the online auctioneer made roughly $1 in ad revenue per visitor, compared with Yahoo's estimated $7 in ad revenue per person" (Olsen, 2006). However, eBay has found a solution -- its new alliance with its one-time online commerce rival Google. Rather than continue their bitter rivalry, the two have negotiated a deal "that allows the two companies to share revenue on search-related text advertisements delivered on eBay's sites outside of the United States" (Olsen, 2006). As part of the deal, "Google will deliver sponsored links to eBay's search results pages only when there are insufficient results from eBay for a particular query" (Olsen, 2006).

However, Google is not the only major Internet force that eBay has allied with, in its effort to remain competitive and to remain the premier Internet auction site. In 2005, according to a May, 25 press release, Yahoo! And eBay agreed to collaborate by allowing Yahoo! search users to get more up-to-date listings from eBay through its tool bar. Yahoo! also selected PayPal to become the exclusive third-party provider of its online wallet, making it easier for Yahoo! users to use PayPal to buy from eBay.