Ebay: SWOT Analysis Company Overview

Ebay: SWOT Analysis

Company Overview

Ebay is an online auction site that was founded in San Jose, California. It was first founded as Auctionweb by its founder Pierre Omidyar (Gomes-Casseres, 2001). Ebay first targeted collectors of antique products and antique resellers, but now Ebay offers millions of items to millions of customers on a global basis every day. It is the largest online auction sites on the Internet. In the beginning, it was meant to be a place for individuals, but now corporations and small businesses use it as a primary distribution network. Some businesses have been developed that all only use Ebay as a means to reach their customers. Ebay makes its revenues by collecting fees for insertion and listing, as well as final value fees based on a percentage of the final sale of the item.

Internal Factors

Strengths

Ebay's greatest strength is that it was the first online auction site of its type. It had the ability to establish its brand name as synonymous with the online auction concept. Strong brand image has given it an edge over competitors, both new to the market and old. The business model is also a key strength, as millions of transactions are processed through its web site. Anyone in the world can access Ebay and its site is easy to navigate, even for a first time customer. Ebay has a strong, loyal customer base, developed largely through brand recognition and reputation for excellent customer service.

Ebay's success is undoubtedly a result of its business model (Jones, 2009). Unlike competitors, such as Amazon.com, Ebay of does not have the expense or issues involved in inventory management. Customers exchange payment and ship the items without involvement from Ebay, other than the initial listing, auction, and sale of the item. Ebay's risk from inventory loss or expense is due to its unique business model. This business model is a key strength of Ebay that has allowed it to keep its position at the top.

Ebay built its brand on the idea that individual customers could trade directly with other individual customers. It gave them a platform that offered them greater security than dealing with individuals on their own. It also gave sellers a wider marketplace than they would normally have through channels such as classified ads or the other trading networks. Ebay's unique system of customer satisfaction ratings allowed consumers to have an extra degree of certainty that the person they were dealing with was honest and that they would be likely to have a positive experience. This allowed it to establish its unique identity of in the world of online auctions.

Weaknesses

One of Ebay's key weaknesses is that it does a poor job of controlling fake or illegal action items. Scams are a threat to Ebay's reputation and potentially a source of legal liability (Consumers Union, 2007). The inability to control the specifics of the transaction represents a key weakness in Ebay's business practices.

These weaknesses have not caused a significant chance for failure of the at this point. However, if another company can develop software that mitigates these weaknesses, they may be able to take a significant portion of Ebay's market share. Taking measures to mitigate these circumstances will be the key to remaining at the top of the market in the online auction industry. These weaknesses do not only affect Ebay, but also any other online auction company. However, Ebay is the big company and these problems often generate negative press. The other auction companies tend to stay out of the press, therefore avoiding negative publicity. This is where brand equity can also have the effect of attracting negative attention as well.

External Factors

Opportunities

Ebay's ability to take advantage of opportunities when they occur has been a key factor in its rise to the top of the industry. Ebay formed an alliance with Paypal long ago that gave it a unique, secure payment system. They recently formed an alliance with Skype, giving buyers and sellers the opportunity to talk using VOIP service. Ebay takes advantage of every opportunity to expand into a new and growing market, including developing nations and other countries.

Ebay is currently working on forming alliances with major corporations such as Yahoo (Williams, 2007), Burger King and key computer manufacturers (Ebay Inc., 2001). These alliances will give Ebay the ability to sell branded products in a similar manner as its key competitor, Amazon. Expanding into new markets provides opportunities to make sales in areas that it did not have before. This will allow it to continue to grow and expand its business. Forming alliances with Top sellers will give Ebay the ability to sell products at cost, compared to brick and mortar retail stores, because they do not have the costs associated with inventories and sales personnel. This would give them a potential advantage over the brick and mortar retail store.

Threats

Although Ebay's opportunities are many, it also has key threats that could prove to be the Achilles heel in the end. Eroding global market conditions, as well as weakened economies in local areas of the world are a threat to business. When consumers have less expendable cash, they are not as likely to buy the extras that Ebay's customers offer to them. However, Ebay has taken measures to diversify, which helps to mitigate the risk of economic threats in a particular locality. Size and diversity are key tools for mitigating this threat.

Another key threat the Ebay faces is that there is a potential that competitors can purchase online auction software at a relatively cheap price. In the beginning, Ebay's software was unique. There was little else available like it on the open marketplace. Now, software is available that has similar functions and features and cheaply priced. This makes entry into the marketplace easier than it was in the past and is a threat to Ebay's continued position at the top. However, EBay's brand is the best strategy against this type of competition.

Google recently entered into competition with its proprietary payment system that is similar to Paypal, but claims to mitigate some of the weaknesses of Paypal's system. One of the biggest threats to Ebay and Paypal is the use of their name of by scammers and Phishers (EBay.com., 2011). This creates uncertainty and distrust in the marketplace as people become afraid that they are not really on Ebay's web site, but instead are giving their information to a Phisher. Google claims to eliminate many of these problems, but only time will tell, and it is expected that Google will eventually experience some of the same problems.

Recommendations

Ebay creates of a seamless experience for developing customer-to-customer relationships. Diversification has always been a key strategy of Ebay. For instance, it branches into countries such as India, China, and the UK, providing a unique brand that is an alignment with local customs and traditions. While, diversification is generally a strength in terms of risk management, it can also be a threat if proper attention is not given to understanding the specifics of that particular market. Ebay cannot simply assume that just because something worked in the U.S. market, that it will be accepted by the rest of the world.

In terms of reducing the weakness of created by the legal scams and Phishers, this is where being too big can be a threat as well. It is simply so big that it cannot possibly keep track of every scam auction on its site. Ebay needs to increase its efforts to employ more people dedicated to addressing the issues of scams and illegal auctions on its site. This would help to increase brand equity and give customers the assurance that they are taking measures to mitigate these circumstances. This would give customers a greater sense of confidence in using Ebay.