VMS3.info FEATURE ARTICLE

Subject: Feb-Mar 2004 VMS3.info: eBay Analyzed via the Value Framework™
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Summary - eBay "The World's Online Marketplace"
Of all the Internet companies that started in the 90's, very few have survived the Internet bubble burst. Even fewer have really been able to apply the Internet to their businesses successfully. eBay by far is not only the most successful Internet Company to have survived the Tech Bubble, but unlike most of the other companies that survived, it has also markedly increased its market capitalization. eBay's success can be contributed more to its superior implementation and execution of an idea, rather than the idea itself. It has made online auctioning very easy for the members while developing a lucrative multiple revenue stream business model.

eBay not only did well during the Internet bubble, but also survived, and thrived, during the recent downturn. A downward economy, which encourages people to adopt frugal behavior, in fact helped eBay as its business model caters largely to the frugal. eBay has also excelled because the positive eBay experience is so ingrained in the new customers, that they continue to buy and sell long after the hard times have ended.

The future growth for eBay will depend on making the auctions simpler and reliable for the not-so-savvy Internet and computer users. The other growth factor will be eBay's continued expansion into international markets.

Strategy Deployed
eBay started as an online auction site in 1995, when Pierre Omidyar launched the site to sell his personal stuff . But soon eBay evolved into letting other individuals auction their stuff as well. Since an online marketplace needs lots of people to promote an effective auction, eBay's strategy became: "Get Big, Fast". eBay executed well on that strategy adding millions of members very quickly, soon becoming the biggest online market place.

In 1998, eBay hired Meg Whitman as the CEO of the company to take the company further. Meg and her hired team moved eBay into auctioning upscale and higher priced items. This strategy proved lucrative as eBay's major revenue comes from commission based on a percentage of the selling price. The team also worked on strategic partnership with brand name companies such as Sun, GM and Disney.

eBay went public in 1999and these funds helped eBay to expand it services in foreign markets. Currently, eBay has local sites that serve Australia, Austria, Belgium, Canada, France, Germany, Ireland, Italy, Korea, the Netherlands, New Zealand, Singapore, Spain, Sweden, Switzerland, Taiwan and the United Kingdom.

The Internet bubble burst and the economic slow down hit many businesses very hard. However, eBay was affected differently. As the buyers felt the punch of economic conditions, they switched from buying the product at full retail price at retail stores to eBay, where they could chose to bid based on their capacity to pay.

In addition to providing great tools for auctioning and bidding, eBay strives to provide a sense of community for its customers. eBay chat and discussion boards provide a platform for members to communicate and interact with each other.

Today eBay lists all kinds of items: new and used electronics, new automobiles from dealers, Real estate, and computers directly from manufactures are the few examples. Currently, eBay has more than 15 million items in 27,000+ categories at any given time.

Strategy Managed
eBay's goal is "to provide a global trading platform where practically anyone can trade practically anything". To achieve this goal eBay has created an environment where it is safe and easy to trade. This will entice more people to participate in selling and buying. eBay has developed several on line tools to provide friendly easy to use and safe experience to buyers and sellers. The tools include the Feedback Forum, Safehabor, and an intensive customer support department. The Feedback Forum is the most effective tool as it allows users to rate their transactions with other users. This creates a track record of behavior for all the users. People looking to transact with a particular user can access these records and assess if they want to do business with them.

eBay believes it can grow by making transactions easier for both sellers and buyers. To this end eBay bought Paypal this year, which enables buyers and sellers to exchange funds electronically easily and immediately. It also makes transactions safer for both parties because Paypal acts as a mediator when conflicts arise. It maintains the users transaction and payment history to decide, when necessary, if someone is not carrying out his or her part of the transaction. Attached to the payment service is also an insurance option against bad transactions. The acquisition of Paypal is a major step forward in eBay's strategy to make online purchasing easier and safer.

The effectiveness of the tools and acquisitions is measured primarily by the number of items listed and the dollar amount transacted. These two metrics are broken down further by market segments such as eBay Motors, eBay Stores, Collectible, Electronics, etc. This allows eBay to identify growth areas and areas that need attention or are declining.

Currently eBay does a really good job of attracting a broad range of items and interests to be bought and sold in its marketplace. What is even better is that even though there is a wide variety of products and services available, eBay has effectively segmented the auctions into markets that both make sense and are easy to navigate for both buyers and sellers. This allows eBay, who could otherwise sag under its own weight, to respond to niche markets. As the number and depth of items and services increases, eBay will have to continue to make the marketplace easy to search and use.

Strategy Evolved
eBay has come a long way since it started offering public online auctions in 1995. Back then its goal was to create an online marketplace where users could buy and sell easily. It has followed through with this strategy very well, meeting all its original goals and more. So where does a world class company go from here?

To be more effective in its business, eBay must continue to expand its reach to potential new buyers and sellers. eBay has good brand recognition among hard-core computer users (users who have integrated the internet into their lives), but lack brand recognition with the less computer savvy population. To reach this audience, eBay has stepped up marketing among the general public. In its effort to reach the people that are not familiar with eBay and what it has to offer eBay is buying a lot of Primetime TV spots and placing ads in popular magazines.

eBay is also expanding internationally. eBay is currently in many countries outside the US, but plans to expand even further. Its focus will not be to take the same eBay into each country; instead it will trail its services and strategy to fit the needs of each country.

eBay strategy is evolving to include all kinds of new partnerships in order to increase the number of buyers and sellers. Recently they have step up a partnership with MBNA to provide a card that rewards points that are usable towards eBay purchased items. Expect to see more of these creative partnerships in eBay's near future. eBay will also try to expand its services even farther. Maybe they should try providing warranties, or extended warranties on some items (like the optional warranties you are offered at stores like Best Buy and Circuit City.) Another logical advance would be if eBay started venturing into financial instruments to provide financing solutions to buyers. These multiple revenue streams will strengthen eBay's financial position, intimidate competitors, and insure eBay's future.

About the Authors:
Ajay Lunawat is working for a big computer company. Currently he is leading a team of software developers for the company's storage management software solutions. Previously Ajay has worked for Hewlett Packard, Unocal and Unison Software on various software projects.
Ajay has also taught Software programming courses at San Jose State University and computer training institutes in India. Ajay is currently enrolled in the MBA program at Santa Clara University. He has been in the program for the last three years expecting to graduate in summer 2004. Before joining the MBA program he completed various certificate programs related to software development and project management from University of California, Santa Cruz extension. He has a BS in engineering from University of Indore, India.

Brian Davis grew up 20 minutes outside of Albuquerque, NM, in the mountains. To better his chances of getting into the Naval Academy, he chose to go to New Mexico Military Institute for High School. After a very successful career at the Institute (achieving the highest rank attainable and was 12th in his class) he was accepted by the Naval Academy and was also granted Air Force ROTC and Naval ROTC scholarships. Soon after this great news, Brian learned he had been medically disqualified from the Academy and ROTC for asthma (He never had an asthma attack in his life and his physical fitness scores were on par with other applicants). So without the Academy and ROTC to help finance his college Brian turned to the University of New Mexico Business School where he choose finance and accounting. Upon graduating he moved to San Jose, CA. He got a job as an accountant at United Technologies soon after. He was promoted to Senior Accountant after only three months on the job. A year later, Brian saw his opportunity it get into Finance. He transferred to another department and took on the role of a Financial Analyst. He continues this work today.