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eBay inc. Case Study

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Chaahat Khattar
Chaahat Khattar

eBay was founded in 1995 by Pierre Omidyar with the belief that people are basically good. It created an online marketplace that allowed individuals to sell items directly to other individuals. eBay grew rapidly and now has over 90 million active users worldwide who trade over $62 billion worth of goods each year on its platform. eBay's success was due to timing its launch during the growth of e-commerce and online shopping in the 1990s. It provided a platform for individuals to sell items rather than just retailers.

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eB Inc. Bay . Chaa ahat Kh hattar Co onnecting b buyers and sellers globally s Buy i Sell it, Love it it, L User rpublishedconte entislicensedunderaCreativeCo ommonsLicense.Copyright©201 11ChaahatKhatt tar,Allrightsreserved. e
“Givetheindividualthepowertobeaproduceraswellasaconsumer” “PeoplenaturallygravitatetowardseBaybecauseit'sthelargestmarketplace.We'rethe original.We'vebeenaroundthelongestandsofar,we'vebeenabletoholdourown.” ‐ PierreOmidyar eBaywasfoundedwithasimpleidea‐Peoplearebasicallygood.Thisfundamentalbelief createdacompletelynewkindofmarketplace,forevertransforminge‐commerce.Today eBay’svaluescontinuetoguidehoweBaydoesbusinessandconnectsbuyersandsellers aroundtheworld. eBayhasbuiltanonlineperson‐to‐persontradingcommunityontheInternet,usingthe WorldWideWeb.Buyersandsellersarebroughttogetherinamannerwheresellersare permittedtolistitemsforsale,buyerstobidonitemsofinterestandalleBayusersto browsethroughlisteditemsinafullyautomatedway. FoundedbyPierreOmidyaronSeptember3,1995atSanJose,California,istheWorld’s largestonlinemarketplacewithover9billionUSDofrevenue(Exhibit1)withservices worldwide.Today,eBaycommunityincludesmorethan90millionactiveregisteredusers worldwideandaglobalpresencein39markets,includingtheU.S.eBayprovidesan internationalplatformwherepracticallyanyonecantradepracticallyanything.eBayenables tradeonalocal,nationalandinternationalbasiswithcustomizedsitesinmarketsaround theworld.Throughanarrayofservices,eBayisenablingglobalecommerceforanever‐ growingonlinecommunity.eBayconnectsadiverseandpassionatecommunityofindividual buyersandsellers,aswellassmallbusinesses.Theircollectiveimpactone‐commerceis staggering:In2010,thetotalworthofgoodssoldoneBaywas$62billion‐‐morethan $2,000everysecond. UserpublishedcontentislicensedunderaCreativeCommonsLicense.Copyright©2011ChaahatKhattar,Allrightsreserved.
CompanyBackground TheonlineauctionwebsitewasfoundedasAuctionWebinSanJose,California,on September3,1995,byFrench‐bornIranian‐AmericancomputerprogrammerPierreMorad Omidyar(bornJune21,1967)aspartofalargerpersonalsitethatincluded,amongother things,Omidyar'sowntongue‐in‐cheektributetotheEbolavirus.Oneofthefirstitemssold oneBaywasabrokenlaserpointerfor$14.83.Astonished,Omidyarcontactedthewinning biddertoaskifheunderstoodthatthelaserpointerwasbroken.Inhisrespondingemail, thebuyerexplained:"I'macollectorofbrokenlaserpointers." ChrisAgarpaowashiredaseBay'sfirstemployeeandJeffreySkollwashiredasthefirst presidentofthecompanyinearly1996.InNovember1996,eBayenteredintoitsfirstthird‐ partylicensingdeal,withacompanycalledElectronicTravelAuctiontouseSmartMarket Technologytosellplaneticketsandothertravelproducts.Growthwasphenomenal;in January1997thesitehosted2,000,000auctions,comparedwith250,000duringthewhole of1996.ThecompanyofficiallychangedthenameofitsservicefromAuctionWebtoeBayin September1997. Originally,thesitebelongedtoEchoBayTechnologyGroup,Omidyar'sconsultingfirm. Omidyarhadtriedtoregisterthedomainnameechobay.com,butfounditalreadytakenby theEchoBayMines,agoldminingcompany,soheshortenedittohissecondchoice, eBay.com.In1997,thecompanyreceived$6.7millioninfundingfromtheventurecapital firmBenchmarkCapital. MegWhitmanwashiredaseBayPresidentandCEOinMarch1998.Atthetime,the companyhad30employees,halfamillionusersandrevenuesof$4.7millionintheUnited States.eBaywentpubliconSeptember21,1998,andbothOmidyarandSkollbecame instantbillionaires.eBay'stargetsharepriceof$18wasallbutignoredasthepricewentto $53.50onthefirstdayoftrading. Asthecompanyexpandedproductcategoriesbeyondcollectiblesintoalmostanysaleable item,businessgrewquickly.InFebruary2002,thecompanypurchasedIBazar;asimilar Europeanauctionwebsitefoundedin1995andthenboughtPayPalonOctober14,2002. Inearly2008,thecompanyhadexpandedworldwide,countedhundredsofmillionsof registeredusers,15,000+employeesandrevenuesofalmost$7.7billion.Afternearlyten yearsateBay,Whitmanmadethedecisiontoenterpolitics.OnJanuary23,2008the companyannouncedthatWhitmanwouldstepdownonMarch31,2008.Whitman remainedontheBoardofDirectorsandcontinuedtoadviseDonahoethrough2008.Now MegWhitmanhasbeenrecruitedbyHewlettPackardasitsgroupCEO. UserpublishedcontentislicensedunderaCreativeCommonsLicense.Copyright©2011ChaahatKhattar,Allrightsreserved.
JohnDonahoehasbeentheCEOandPresidentofeBaysince2008.DonahoecametoeBay inFebruary2005asPresidentofeBayMarketplaces,responsibleforallelementsofeBay's globalecommercebusinesses.Inlate2009,eBaycompletedthesaleofSkypefor$2.75 billiontoMicrosoftCorporation,butwillstillown30%equityinthecompany. TheBusinessOpportunity Inrecentdecadestherehadbeenasignificantincreaseinthenumberofconsumer electronicproductssold. In1995theUnitedStateseconomymovedwellintoitsfifthyearofeconomicexpansion sincethelastrecessionendingMarch1991andexperiencedthemuchpublicized"soft landing."TheFederalReserve(Fed)engineeredthis"softlanding"withaseriesofinterest ratehikesfromFebruary1994toFebruary1995.The"softlanding"referstotheslowing downofanoverheatingeconomyonthevergeofdrivingupinflation,toaneconomy growingnearitsfull‐employmentgrowthratewithlowinflation.Thereforetherewasa marginalriseinpercapitaintheincomeofpeopleandalsointhepurchasingpower.Online shoppingwasinitsinitialstages.Amazonwasthefirstcompanytoopenanonlineshopping mallinin1995whichwaslaterfollowedbyeBayin1996.Frombankingtoorderingpizzas (PizzaHutwaspioneerinopeninganonlinepizzashop),almosteverythingwasavailableon internet.eBaystarteditsoperationsinordertopitchupontherapidgrowthinthisnew upcomingsector. Intheeraoftechrevolution,theworldwaswitnessingevolutionofvariousproductsand revolutioninquitealotoftechnologies.Thedependenceoverinternetwasincreasingata veryfastpace.CompanieslikeDellhadalreadytastedsuccessbygoingdirectlytothe customers(thefamousDirectModelofDellwhichwaslaterimitatedbyotherITmajorslike HewlettPackard).Alsoin1995JeffBezoslaunchedAmazon.com.Itwaslaunchedinitiallyas anonlinebookstoreandlaterexpandeditsportfoliotootherproductcategoriesaswell witnessingthesuccessfulbusinessmodelofeBay.Ciscoalsobegantoaggressivelyuse internetforcommercialtransactions.InthatcasethelaunchofeBaywasverywelltimed. Onlineshoppingisaformofelectroniccommercewherethebuyerisdirectlyonlinetothe seller'scomputerusuallyviatheinternet(Exhibit2).Thereisnointermediaryservice involved.eBayfurtherexpandedthisecosystem.Itwasprobablythefirstplatformtobring togethervarioussectorsofeCommerce.eBaywasatradingfloorforBusinesstoCustomer (B2C),BusinesstoBusiness(B2B)aswellasCustomertoCustomer(C2C). UserpublishedcontentislicensedunderaCreativeCommonsLicense.Copyright©2011ChaahatKhattar,Allrightsreserved.
EnvironmentalsoplayedaveryimportantroleinthesuccessofeBay.eBaypromotedthe conceptofrecyclingoldproductsandalsosavingotherresourceswhichwereusedin physicaltradingofgoods.WitheBayanindividualcanshopfrommostpartsoftheworld withmereoneclickonmouse.ThrougheBaypeoplecouldputtheiroldgadgets,books, gamesetc.oneBaywhichwouldotherwisejustconsumeunnecessaryspaceathomeor offices. In1990speopledidnothavemanyoptionstoselltheirproducts.Amazonwastherebutit wasmoreorientedtowardsprovidingaplatformforresellersorretailerstoselltheir products.eBaywasaplatformnotonlyforretailersbutalsoforindividualswillingtosell theirproductstomarketoftheirchoice. eBaywentpubliconSeptember21,1998,andbothOmidyarandSkollbecameinstant billionaires.eBay'stargetsharepriceof$18wasallbutignoredasthepricewentto$53.50 onthefirstdayoftrading(Exhibit3). eBay’sBusinessModelandOperations Bayhasbuiltanonlineperson‐to‐persontradingcommunityontheInternet,usingthe WorldWideWeb.Buyersandsellersarebroughttogetherinamannerwheresellersare permittedtolistitemsforsale,buyerstobidonitemsofinterestandalleBayusersto browsethroughlisteditemsinafullyautomatedway.Theitemsarearrangedbytopics, whereeachtypeofauctionhasitsowncategory(Exhibit4). eBayhasbothstreamlinedandglobalizedtraditionalperson‐to‐persontrading,whichhas traditionallybeenconductedthroughsuchformsasgaragesales,collectiblesshows,flea marketsandmore,withtheirwebinterface.Thisfacilitateseasyexplorationforbuyersand enablesthesellerstoimmediatelylistanitemforsalewithinminutesofregistering. Browsingandbiddingonauctionsisfreeofcharge,butsellersarechargedtwokindsof charges: WhenanitemislistedoneBayanon‐refundableInsertionFeeischarged,whichranges between30centsand$3.30,dependingontheseller'sopeningbidontheitem.Afeeis chargedforadditionallistingoptionstopromotetheitem,suchashighlightedorbold listing. AFinalValue(finalsaleprice)feeischargedattheendoftheseller'sauction.Thisfee generallyrangesfrom1.25%to5%ofthefinalsaleprice. UserpublishedcontentislicensedunderaCreativeCommonsLicense.Copyright©2011ChaahatKhattar,Allrightsreserved.
eBaynotifiesthebuyerandsellerviae‐mailattheendoftheauctionifabidexceedsthe seller'sminimumprice,andthesellerandbuyerfinishthetransactionindependentlyof eBay.Thebindingcontractoftheauctionisbetweenthewinningbidderandtheselleronly. Alongwiththeabovestatedbiddingprocess,eBayalsooffersbuyerstobuyproducts throughbuyitnowpriceprovidedtherespectivesellerhasindicatedapriceforbuyitnow (Exhibit5).Inbuyitnow,thebuyercansimplycheckoutafterbuyingtheproductunlike auctionsinwhichthebuyergenerallyhavetowaitforlistingtoend. AseBay’sbusinessisheavilyreliedonmonetarytransactions,eBayhavealwaysmadesure thatitprovidesafraudfreeandsafestplatformtosellersandbuyers. In2002eBayboughtPayPalfor1.5billiondollars.PayPalwaspurchasedtoreplaceeBay’s oldpaymentserviceBillPoint.PayPalwouldofferasaferandmoreconvenientwayof makingelectronicpayments.ThereweretworeasonseBayacquiredPayPaltoreplace BillPoint. ThefirstwastopreventeBayfraud.PayPalwouldprovideamuchsaferwaytopurchase productsonlinebecauseuserswouldnothavetotransfercreditcarddataovertheinternet. Userswouldbemoreprotectedagainsthackerswhotrytointerceptcreditcardinformation sincethatwasbecomingmoreandmorecommon. Thesecondwastomakethepaymentprocessfasterandmoreconvenient.WithPayPalall userswouldhavetodoisentertheirPayPalidandthenlogintotheiraccounttoconfirm purchases.ThatmethodwouldincreasessalesoneBaybecauseofhoweasyitwas.Ahassle freemethodofpaymentwouldmeanmoresales. Paymentsystemisverymuchcountryspecific.InIndiaeBayusesPayPal’ssistercompany PaisaPay.PaisapaydoesnotrequirethecustomerofeBaytomakeaseparateaccountfor Paisapay.Assoonasthebuyercheckoutsafterbuyingtheproduct,thesellerhastoputin shippingdetailsandPaisapaywouldreleasefundsonlywhenthebuyerconfirmsreceiptof theproductoneBay.Thisisassafeasanytransactioncouldbe. RecentlyeBayintroducedeBayBuyerProtectionPrograminordertoprotectinterestof buyersandsolvetheissuesinstantly.Anybuyerwhoisfacinganykindofproblemwitha seller(productnotdelivered,fakeproduct,wrongdescriptionetc.)cansimplyopenacase througheBay’ssiteandeBay’steamwouldinitiatetheprocessofsolvingtherespective issue.Similarlyifasellerisfacinganyissuewiththebuyer(receiptofproductnot confirmed,paymentnotmadeetc.)canopenacaseandgettheissueresolvedverysoon. UserpublishedcontentislicensedunderaCreativeCommonsLicense.Copyright©2011ChaahatKhattar,Allrightsreserved.
eBay’ssuccessisalsobackedbyeBay’sfeedbacksystem.Underfeedbacksystem,every registereduserofeBaygetsaratingwhichispublicallyvisible.Bettertheservicebetterwill befeedbackandmorewillbethebusinessforsellersandmorewillbetheauthenticityof buyer.Apartfromfeedbacksystem,eBayhavealsointroducedDSR(DetailedSellerRating) systeminordertoprovideaglimpseofanyseller’sperformanceoneBay. Inpastfiveyears,eBayhaveacquiredovertwodozenfirmsrangingfrommillionstobillions ofdollars.AlsoeBayhavebeenpartneringwithvariousorganizationsespeciallyforthe purposeofcharity. eBayalsohadsomebadtimes.eBaywaschargedwithforcingpeopletousePayPalbutlater thiswasjustifiedbyeBayclaimingPayPaltobethesafestmediumfortransactions.eBay alsogotinvolvedintocontroversywhichincludedanotheronlinemarketplayerCraigslist. AgainthejudgementcameinthefavourofeBayandcurrentlyeBayhaveover28%stakein thecompany. Googlebeingknownasthekingofinternethaveneverleftanysectorassociatedto internet.ItenteredtheonlinevideoindustrywithYouTube,socialnetworkingwithGoogle PlussimilarlyithasenteredintotheonlineshoppingindustrywithGoogleShopping(placed againsteBay)withGoogleWallet(placedagainstPayPal)beingthemediumoftransactions. ButlatelyGooglehaverealisedthatsomethingcanbesuccessfulonlywhentheyarecarried outbyspecialisedfirms.Hencegivingitsshoppingamiss,Googlehavesignedamulti‐year contractwitheBayregardingadvertisingsystemoneBay. UserpublishedcontentislicensedunderaCreativeCommonsLicense.Copyright©2011ChaahatKhattar,Allrightsreserved.
FutureofeBay eBaywithtimehavewideneditsportfoliotoallthepossiblesectors.SomethingwhicheBay prohibitssellingonitssitelikealcohol,armsandammunition,liveanimals,lotterytickets etc.canneverbetradedorsoldopenlyatanyshoppingmarketplace.eBayishence concentratingmoreitsexistingportfolioismakingsurethatitprovideshasslefreedealing toitsusers.eBayisalsoverymuchactiveinpromotingcharityauctionsforgoodcauses. eBayhavealwaysfacedstiffcompetitionfromrivalsallacrosstheworld.Easeoftradingand safergatewaysfortransactionshavealwaysmadeeBayafavouritechoiceofusers.eBay’s shareistradingatthelevelsof30USDpershare(Exhibit6)whichisneithertoobullishnor tooundervalued.eBayisadevelopingfirmandisconstantlyincreasingitsreachacrossthe globe.eBaycouldhaveeasilybeenamajorhubforpiracybuteBay’smonitoringsystem havealwaysprotectedeBayfrombecomingaplatformforillegalactivities.eBayhaveto constantlymaintainitsintegrityinordertoremainmarketleader. eBayisaperfectexampleofaverysuccessfulbusinessmodelwhichstartedwithasimple ideaandisexpandingeverafter. UserpublishedcontentislicensedunderaCreativeCommonsLicense.Copyright©2011ChaahatKhattar,Allrightsreserved.
Exhibit1 Exhibit2 User rpublishedconte entislicensedunderaCreativeCo mmonsLicense.Copyright©2011ChaahatKhatt o 1 tar,Allrightsreserved. e
Exhibit3 Exhibit4(Asnapsh hotofeBay’ ’sauctions ystem) User rpublishedconte entislicensedunderaCreativeCo ommonsLicense.Copyright©2011ChaahatKhatt 1 tar,Allrightsreserved. e
Exhibit5(Asnapsh hotofeBay’ ’sbuyitnow wsystem) Exhibit6(eBay’sStockAnalys sis) User rpublishedconte entislicensedunderaCreativeCo ommonsLicense.Copyright©2011ChaahatKhatt ar,Allrightsreserved. 1 t e
Bibliography ‐http://en.wikipedia.org/wiki/EBay ‐http://pages.ebay.in/community/aboutebay/news/ebayindiacorporatebackground.html ‐http://pages.ebay.in/help/sell/insertion‐fee.html ‐http://en.wikipedia.org/wiki/Electronic_commerce#Timeline ‐http://pages.cs.brandeis.edu/~magnus/ief248a/eBay/history.html ‐http://www.myincomespot.com/history‐of‐ebay.html UserpublishedcontentislicensedunderaCreativeCommonsLicense.Copyright©2011ChaahatKhattar,Allrightsreserved.

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