eBay's strategic opportunities and threats in e-commerce markets

EBay was founded in 1995 as the very first auction website where the market determines the value of items that are sold (About eBay). Since this time, the company has become the world's largest online marketplace selling practically anything. Eighty-four users in 39 global markets conducted just over $60 billion worth of business in 2008 (About eBay; 2008 Annual Report). Since its initial public offering in 1998, the company has made two major acquisitions to stake leadership in online payments and communications (About eBay). Acquired by eBay in 2002, PayPal enables any individual or business with an email address to send and receive payments online. Acquired by eBay in 2005, Skype allows people everywhere to make unlimited voice and video calls online for free using its software.

External Environment

Opportunities

eBay has the opportunity to differentiate itself from competitors by creating a one-stop shop where customers can make purchases in a wide variety of ways -- from bidding in auctions to clicking on ads, scanning classifieds, or making outright purchases (Burrows, 2009).

In its bid for fixed-price online retailing, the company has the opportunity to focus on secondary-markets such as making it easier for consumers to hunt for last year's fashions, overstock supplies, and hard-to-find products such as collectibles (Burrows, 2009)

PayPal may represent a great spinoff opportunity if eBay decides the company is worth more on its own that as part of eBay (Buley, 2009). According to Buley, PayPal's revenues were up 25% to $2.4 billion in 2008 and the service routes nine percent of all global e-commerce (Buley, 2009).

Emerging markets such and China, India and Korea provide growth opportunities. eBay's recent stake in South Korea's Gmarket gives the company control of Korea's top two e-commerce vendors (Ihlwan, 2009), providing tremendous local access.

eBay's opportunities represent a renewed focus on its core marketplace businesses, paying close attention to fixed-price sales, market niches where there is limited competition, and emerging markets. PayPal is highly successful, but could perhaps be even more so as a spinoff which would also provide the added benefit of allowing eBay to concentrate on its marketplaces.

Threats

By far the greatest threat to eBay is that customers have begun shunning auctions for fixed-price sales (Burrows, 2009). Fixed-price electronic commerce is extraordinarily competitive, even in secondary markets, with the likes of Amazon.com, Buy.com, Smart Bargains, and Overstock.com as well as traditional brick-and-mortar retailers vying for online customers.

New startups such as Shopify are chasing eBay's traditional auction business by appealing to its customers who are upset over the company's listing fees and ratings polices.

In emerging Asian markets, eBay faces tremendous competition. In addition to local companies, Yahoo holds a 40% stake in the Alibaba Group, the parent of China's largest e-commerce company (Ihlwan, 2009).

Google Checkout has gained market share from PayPal. Of the alternative payment options on the Web, PayPal has a 25% market share while Google Checkout has 11% of the market (Reisinger, 2009).

eBay has a fine balancing act as to how it can expand into a crowded fixed-price market while still maintaining leadership in its auction business. The company has not done particularly well in Asian markets in the past, mostly due to its inability to understand and respond to cultural differences. While PayPal is a cash cow for eBay, vendors, especially Bill Me Later, are making inroads into the online payment market.

Internal Environment

Strengths

eBay is the leading global brand for online auctions with millions of users who buy and sell almost everything. The company's brand is so strong that its name is synonymous with the online auction industry

The company has a stellar balance sheet with more than $3 billion in cash as of December 31, 2008 (Burrows, 2009).

eBay is a successfully global corporation. In addition to its original U.S. website, eBay has established localized websites in more than three dozen other countries (About eBay).

In addition to gaining revenues through listing and selling fees and through advertising, eBay also sees gains from its online payments division, composed of PayPal and Bill Me Later, and other e-commerce platforms, including StubHub and Half.com.

As a well-branded, cash-rich company that is successful throughout the globe, eBay is strong enough to take on new opportunities. Further, the company has a diversified revenue stream so that it can better weather the recessionary storm than many other electronic commerce companies.

Recommendation # 1: Improve Execution of the One-Stop Shopping Strategy

The one-stop shopping strategy appears to be a good move on eBay's behalf. It provides diversification should online auctions continue to lose their appeal and it offers a way for eBay to differentiate its site by providing more ways to purchase products than other online retailers. And, targeting the secondary market should be a better option than going after a primary market dominated by Amazon.com.

However, the execution of the strategy needs improvement. Most notably, eBay needs to protect its auction business while adding fixed-pricing. It needs to stop using fees to favor fixed-price sales and it needs to do more to support small customers who are the back-bone of its auction service rather than trying to get rid of them through poorly conceived ratings policies. Although the site will provide one-stop shopping, it must accommodate the various requirements of all the types of suppliers who participate. Therefore, eBay should segment its various sellers and develop pricing and policies that suit each individual segment. Further, eBay might consider developing different sections of its Web site for auctions and for fixed-pricing. This is because eBay is so heavily branded as an auction company. The addition of a separate section would permit branding for fixed-pricing.

Recommendation # 2: Do More to Remove Fake and Illegal Auctions

Fake and illegal auctions ought to be a top priority for eBay. They negatively impact customer satisfaction and can destroy eBay's coveted brand name which is one of the company's major assets. One can't help but wonder if fraud is the root cause of the decline in auction popularity. In addition, illegal auctions can result in costly litigation, and even when won, are an unwanted distraction and a source of negative publicity.

To combat fraud, eBay should take a number of steps. First, it needs to invest more in data mining technologies that detect fraud at the content level. Second, the company should pursue prosecution with a vengeance; account suspension is not enough and there should be a zero tolerance policy. eBay should publicize these efforts so that its sites becomes known as the worst place on the Internet to commit fraud. Third, the company needs a stricter certification process for sellers. Fourth, eBay needs to immediately respond to all customer complaints concerning fraud.