eBay Management Strategy: Shifting from Auctions to Fixed-Price

eBay's Original Business Model and First-Mover Advantage

From its inception, eBay's strategic planning was unique and innovative. eBay began — and remains — in the business of connecting buyers and sellers via an online auction, rather than trafficking in a single type of signature product (The eBay business model, 2010). Although sometimes a strange new item will arise on eBay that causes people to shake their heads — such as a supposed image of the Virgin Mary on a grilled cheese sandwich — and say "only on eBay," there is no single item that defines eBay as a brand. eBay represents the oldest form of commerce translated into the virtual world. It is a "person-to-person marketplace on the Internet, where sellers list items for sale and interested buyers bid on these items" (The eBay business model, 2010).

eBay was a first-mover in the new Internet business world, which gave it great name recognition as an enterprise. It was one of the few, proud survivors of the Internet boom and bust. Even sellers with mixed feelings about eBay will often use it as a venue in which to sell their products, because of its high levels of name recognition among potential buyers. Buyers are attracted to the diverse range of unique products offered on the site. "eBay had better relationships with its sellers earlier this decade, when its auction system was still catching on with consumers and fueled torrid growth. During the tech-bust year of 2001, eBay's revenue grew 74% and its stock more than doubled, as investors embraced its no-inventory, no-warehouse model" (Fowler, 2009, p. 1).

From an operational perspective, eBay has few overhead costs. It makes its money by charging sellers a nonrefundable insertion fee to post an item. Once the auction is completed, "a final value fee is extracted from the seller" (The eBay business model, 2010). eBay also offers a rating service for buyers, a feature that attracts users by giving them more information about the person with whom they are transacting than they might have on another site, or even in a real-world transaction.

Expanding the Marketplace: Acquisitions and Revenue Diversification

eBay has tried to expand its offerings and mitigate its risks as a firm. It has acquired a number of internationally focused sites, all of which are part of its combined Marketplaces business unit. Shopping.com, StubHub, Kijiji, and other e-commerce sites employ a fixed-price model, and these more conventional aspects of eBay the company are now responsible for a larger percentage of overall revenue. Approximately 60% of Marketplaces revenue for the fourth quarter, according to its most recent investment report, came from new international shopping hubs (Fourth quarter and full year 2009 earning results, 2010).

Strategic Shift Under CEO John Donahoe

This shift in emphasis from auctioneering to fixed-price sales was deemed necessary — a planned decision by new Chief Executive John Donahoe. He observed that other search engines and comparison-shopping sites were reducing traffic to eBay "by making bargain items easier to find on other sites… eBay has had sliding revenue and profit… while Amazon has reported record earnings. Over the past 12 months, while Amazon's stock is off 6%, eBay's is down 43%" (Fowler, 2009, p. 1). eBay reported its first financial decline in 2007. Donahoe also considered divesting the Internet phone service Skype and creating a leaner employee base. In October 2009, "eBay announced layoffs of 10% of its 16,000 workers" (Fowler, 2009, p. 1).

Because eBay makes more money from expensive transactions, it shifted its overall strategy to focus more on large sellers rather than small, quirky, or independent businesses. "Mr. Donahoe is shifting the site's emphasis away from auctions and toward fixed-price listings. The moves have divided sellers, some of whom complain that big merchants now have an edge. Some longtime sellers, including those with unusual inventory that draws people to the site, are giving up on eBay and moving their business elsewhere. Of the top 100 U.S. eBay sellers in January 2008, 16% were no longer active in the first quarter of this year" (Fowler, 2009, p. 1). However, Donahoe believes that focusing on larger sellers will allow eBay to shift to a model customers increasingly prefer, featuring "fixed price, quick service and free shipping" — a model associated with larger retailers (Fowler, 2009, p. 1).

Conclusion: A Leaner, More Corporate Future

Overall, eBay has embraced a sweeping strategic plan, with a clear focus on a leaner, more profitable, and more corporate future. Although some of its core sellers may bemoan the shift in tone, the market pressures created by other large auction-style sites like Amazon and smaller crafts-related portals like Etsy have forced eBay to craft a more coherent market niche for itself, in its desire to remain profitable.

References

The eBay business model. (2010). All Business. Retrieved January 29, 2010, from

Fourth quarter and full year 2009 earning results. (2010). eBay Investor Relations. Official website. Retrieved January 29, 2010, from http://files.shareholder.com/downloads/ebay/828325183x0x345224/b455630d-4bb9-4ba5-adb1-40dcf29e82ce/eBay_Q409EarningsRelease.pdf

Fowler, G. (2009). Auctions fade in eBay's bid for growth. The Wall Street Journal. Retrieved January 29, 2010, from http://online.wsj.com/article/SB124329254255652425.html