1-1

© 2005 UMFK.

EBay Inc.

internet business models

text and cases

Anup Sharma

1-2

© 2005 UMFK.

Index

• Company Overview

• Origin and evolution

• The industry

• Business strategy

• Competition

• GBF..

• Conclusion

1-3

© 2005 UMFK.

History

• 1995 – founder Pierre Omidyar, graduate from Tufts University, encouraged by his wife’s hobby.

• Skoll, Omidyar’s partner joined him as first president.

• 1996 – incorporated in San Jose, CA

• Sept. 1998 – eBay first IPO. $18 per stock.

• 97, Meg Whitman, joins as CEO. HBS

1-4

© 2005 UMFK.

Company Overview

• An online auction platform that facilitates transaction between buyers and sellers of goods and services.

• Mission &Vision:

eBay’s Vision is to provide a global online trading platform where practically anyone can trade practically anything.

1-5

© 2005 UMFK.

Industry information

• Total value of global e-commerce transactions - $657 b

• Number of users online 534 m• B2B auction transaction growth from 98 to

2OOO was $8 b to $52 b• Increased awareness among users towards

the potential of internet as a trading platform.

1-6

© 2005 UMFK.

Business Model

• Seller uploads the picture and description of the item to be sold.

• Sale ends at predetermined time.• High bidder and seller contact each other and

make arrangements of shipment.• Buyer sends funds to seller {money order, check,

PayPal}, seller sends goods.• Buyer and seller then grade each other through

feedback forums.

1-7

© 2005 UMFK.

Revenue model and profit

• Fees for the seller to post the item, any promotion activities and final sale commission.

• Advertising revenue- 2% of TR

• Selling profit is approx 9% of TR

• Major money comes from listing and trading services -89% of TR

1-8

© 2005 UMFK.

Value Proposition

• Buyer– Massive Selection– More convenient– Saves time and money– Value added

• Seller - Broadens market - Lower Distribution Cost - maximize selling price - repeat business and clientele

1-9

© 2005 UMFK.

The Growth

• In 97, the revenue hit $5.7m• 98, Acquires Jump, Inc., the developer and

operator of Up4Sale, an online trading service with an auction format.

• 98, Special strategic alliance with AOL. Revenue grows 724%

• 99, acquires Kruse, Inc., a company that conducts auctions and performs appraisal services and auctioneer training for classic car auctions.

1-10

© 2005 UMFK.

Growth cont.

• 99, Acquires Billpoint, Inc., a firm that develops centralized turnkey authorization, billing, and payment solutions

• 99, eBay goes online in the United Kingdom and Canada.• 2000, acquires Half.com Inc.• Heavy investment in international markets including

Spain, UK • 2003: Transactions for the year near the $20 billion mark.

Sales exceed $2 billion.• 2004, International expansion in India-bazee.com and

Germany.• 2005, buys shopping.com and places a bid for skype.com

1-11

© 2005 UMFK.

Financials

• A presence in over 20 countries internationally contributes to 40% of total revenue.

• Main competitors, Yahoo! and Amazon have seen 65% and 61% revenue growth respectively over 6 year period from ‘98 to ‘03

• eBay’s ’98 revenue was 47.4 million; ’03 jumped to $2.1 billion, a 134% average increase over previous year.

1-12

© 2005 UMFK.

Acquisition of PayPal

• PayPal uses existing electronic infrastructure of bank accounts and credit cards to allow “small” monetary exchanges online.

• Its convenient for small businesses and individuals, because they can collect online payments without difficult set-up.

• eBay acquired PayPal in 2002 and has integrated it throughout its website as a payment option for auctions.

1-13

© 2005 UMFK.

Velocity of trading

• Processes a Pocket PC in UK very six minutes.

• Mobile phone every 3O seconds in Germany.

• A Volkswagen is sold every 25 minutes in Germany.

1-14

© 2005 UMFK.

eBay’s Revenue

0

500

1000

1500

2000

2500

Re

ve

nu

e (

$m

il.)

1998 2003

1-15

© 2005 UMFK.

Threats or Issues

• Bargaining power of suppliers.• Substitutes product or services such as b2b,

b2c service providers.• Increasing competition from Amazon and

yahoo.• No barrier to entry in the industry.• Buyer-seller frauds• Technology failure or/and change

1-16

© 2005 UMFK.

Issue of privacy and trust

EBay’s view and approach.• Trust is facilitated by fair information and

principles.• Users should be provided with notice and

communication, choice and control, security, authentication and enforcement.

• eBay has earned this trust in time by consistent service.

1-17

© 2005 UMFK.

eBay’s follow up

• Target key product categories for special users.• Continue developing community tools.• Enhance the community for women and senior

citizens.• Stress on adding services and features to make

trading easier.• Expand value added services.• Major focus on trust and safety programs• Maximum transparency.

1-18

© 2005 UMFK.

EBay's tackle of security

• Feedback forum- check the business practices or reputation of any buyer or seller on eBay.

• Escrow- inspection of the product purchased before payment is being sent.

• Fraud protection program- coverage of users up to $2OO.

• Verified rights owner program- make sure that items do not violate intellectual property rights.

• Neutral dispute resolution options.

1-19

© 2005 UMFK.

Popular Subsidiaries

• Half.com- offers an organized online market place to buy and sell high quality previously owned mass market goods.

• EBay stores- expands the market place for sellers by allowing them to customize shopping destination to merchandise their products.

• EBay motors: Internet’s largest auction place to buy anything automotive.

1-20

© 2005 UMFK.

Subsidiaries services

• EBay professional services- serving fast growing marketplace by providing a destination on eBay to find professionals.

• Ebay local trading- allow users to browse items near them and browse through local interests.

• Ebay premier- showcases fine art, antiques, fine wines and rare collectibles from leading auctions and dealers.

• Ebay live auctions- real time bidding on items being sold on sale floor.

1-21

© 2005 UMFK.

Competition

• Major Competitors- – Amazon

– AOL

– Yahoo

• Traditional stores• Wal-Mart

• Dell

• Macy’s

• Home Depot

1-22

© 2005 UMFK.

Ebay Vs Yahoocontent Ebay Yahoo

Max duration 1O days 14 days

Fee Based on the reserve price of the item

No charge to any buyers or sellers

commission Up to 5% of closing price

To buyer and seller when item is sold

Chances of buy/sell More likely Less likely

response Not as efficient Better than eBay

insurance yes none

Charge of posting yes no

scope wiiide Not as wide

1-23

© 2005 UMFK.

eBay Vs Competition- facts

• eBay had great first mover advantage and brand name establishment in the U.S.

• Google could also be a potential competitor but management does not see it as threat.

• In the International markets though, Yahoo moved in first and EBay is suffering from that still.( Japan and other south Asian markets.

• Amazon and yahoo stole most of the market share during three ebay crashes during 99.

• EBay does have its supremacy in the U.S. with yahoo, Amazon and Google following leaders.

1-24

© 2005 UMFK.

GBF

• Network effects• Sellers want to sell their item on the auction service with the

most buyers, so they put their items up for sale on eBay.• Buyers want to find the best prices with many sellers, so they go

to eBay.

• Economies of scaleCost allocation over broader range of transaction being processed.

• Customer Retention• Why would a customer would want to leave the biggest trading

platform?• Excellent opportunity to find similar interest sellers and buyers.

1-25

© 2005 UMFK.

Reason for success

• Mature and diverse board of directors –

7 outsiders, 1 insider, 1 related insider

• Strong management team lead by Meg Whitman. Senior staff consists of experienced managers from companies such as PepsiCo and Disney with an average of 20 yrs. of business experience and a strong vision for the company.

• Brand name development – eBay has carefully developed a brand name based on ease and trust. They have created the defacto online trading platform.

1-26

© 2005 UMFK.

Questions are welcome at this time.

Thank you for your continued attention..