Ebay Contracting Case Ebay Creates Value Not

EBay Contracting Case

eBay Creates value not by actually producing, distributing, or selling any goods and services, but rather by facilitating this sale through its online site. This is a service provision of sorts, however it is a service that depends on their being another buyer and another seller at both ends of the service and would be considered simply a supportive element of the value chain in a more traditional construction (QuickMBA, 2012). As a facilitator of the sale of goods in a more traditional setting, eBay creates value by matching buyers with sellers in a secure environment that optimizes price for all involved in the auction model (Case, n.d.). Although the company only serves as a facilitator and thus avoids many contracting issues, there are still potential problems that eBay could face. Because the company offers a guarantee of a certain measure of security to both buyers and sellers, including providing insurance on certain items up to a value of $2,000, items that arrive damaged or not as described by the seller could indeed lead to contractual problems for the company (Case, n.d.). An implicit contract also exists regarding the Feedback Forum that eBay operates, which purports to provide reliable and non-fraudulent reviews of both buyers and sellers and thus must be maintained with some degree of oversight by eBay (Case, n.d.).

There are several steps that eBay takes to address these problems; the offering of insurance on items is actually one way to cover potential issues (and serves as an additional revenue stream for the company, no doubt) while at the same time incurring different albeit more controllable contracting issues. The Feedback Forum is similar, presenting certain complications to the company in terms of implicit contracts but also moving the onus of due diligence at least partially to buyers and sellers themselves, offering greater protection to eBay when it comes to the primary value it creates through its facilitation service. Clear and comprehensive user agreements for all parties are also used by the company that serve as the explicit and tangible contracts between eBay and the individuals that use the service and that also limit the liability eBay faces based on contracting problems. Because the contracts that eBay established with buyer and sellers that use its facilitative services are so limited and minimal in their scope, the contracting costs that the company faces are minimal in both creation and administration, allowing the bulk of the company's resources to be focused on enhancing its operations and delivering shareholder value. Especially since the spin-off of the payment service PayPal as a separate company, the contractual obligations, liabilities, and costs that eBay incurs as a results of its contracting activities with buyers and sellers and any resultant problems are truly miniscule.