My Assignment Case Study

eBay—The Ultimate E-Business This case illustrates how eBay has successfully garnered business success with its e-business strategies but needs to be constantly on guard to adapt and respond to an ever- changing marketplace. Pierre Omidyar was just 28 when he sat down over a long holiday weekend to write the original computer code for what eventually became an Internet super brand—the auc- tion site eBay. Omidyar viewed auctions as a fair mechanism for Internet commerce where sellers could set their mini- mum prices, and buyers could then determine an itemʼs mar- ket value by bidding up to what they were willing to pay. A novel feedback system could allow buyers and sellers to rate each other, helping minimize fraud by enabling the com- munity to police itself. “I really wanted to give the individual the power to be a producer as well. It was letting the users take responsibility for building the community,” Omidyar would later explain. The site launched on Labour Day, September 4, 1995, under the title of Auction Web, soon to be renamed after the siteʼs domain name—ebay.com (a shortening of Echo Bay, Omidyarʼs consulting firm). The service was free at first, but started charging to cover Internet service pro- vider costs. A Viable Marketplace Omidyarʼs auction Web site, eBay.com, took off. It provided something novel that its users craved: an efficient viable mar- ketplace with a strong community built on fairness and trust. A photography student looking for a used camera could choose from various models across the nation and trust the timely delivery of the product. The owner of a vintage clothing store could sell to collectors living in different time zones. The community would expose a deceptive or fraudulent user and ban them from the marketplace. Entrepreneurs in record numbers began setting up shop on eBay. For example, according to a survey conducted for eBay by ACNielsen International Research, 75,000 people supported themselves by selling items on eBay in 2002; how- ever, by early 2008, the Web site boasted hundreds of millions of registered users, over 15,000 employees, and revenues of almost US$7.7 billion. The stock market value of Omidyarʼs innovative company grew to US$2 billion in its first three years, and his siteʼs stay- ing power as an economic engine was evident. Jeffrey Skoll, a Stanford MBA, joined the company in 1996 after the site was already profitable. In March 1998, Meg Whitman took over as president and CEO. In September 1998, eBay launched a successful public offering, making both Omidyar and Skoll billionaires—three years after Omidyar created eBay. After nearly ten years at eBay, Whitman decided to enter politics. On January 23, 2008 the company announced that Whitman would step down on March 31, 2008 and John Donahoe was selected to became president and CEO. Business Ventures Via eBay This e-business has launched several sub-business ventures that add value for its customers, such as payments and communications. Over the years, eBay has had to create and adapt these businesses in response to changing marketplace conditions. The Payment Business—PayPal Founded in 1998, PayPal, a subsidiary eBay company that eBay purchased in 2002 for US$1.5 billion dollars, enables any individual or business with an email address to securely, easily, and quickly send and receive payments online. PayPalʼs service builds on the existing financial infrastructure of bank accounts and credit cards, and uses the worldʼs most advanced proprietary fraud prevention systems to create a safe, global, real-time payment solution. According to Scott Thompson, PayPalʼs president, the companyʼs key advantage over rival payment systems is its fraud management capa- bilities and its global reach. PayPal has quickly become a global leader in online pay- ment solutions with almost 200 million account members worldwide (active accounts range in the 75 million range). Buyers and sellers

on eBay, online retailers, online busi- nesses, as well as traditional off-line businesses are trans- acting with PayPal. PayPal is available in 190 markets and operates in 19 currencies worldwide. To grow this successful subsidiary even further to become one of the top global brands, PayPal plans to incorporate Bill Me Later Inc., which offers its own online payment service. Several merchants support both PayPal and Bill Me Later as separate payment options, and PayPal wants to strategically combine these services into one single payment option to promote uptake and usage. According to John Donahoe, there are only three global payment networks winners (Visa, American Express, and MasterCard) and he believes the same thing is going to happen in the online payment world— few winners will exist, perhaps only one—and there is a strong desire to take steps now to ensure PayPal is in that winning group. Further, PayPal plans to roll out an open development platform that will let other companies create Web applications that accept PayPal payments. The com- pany believes this will not only let merchants experiment with the ways they will accept and process online payments, but it will also decrease PayPalʼs development costs as it enables millions of developers worldwide to build profitable and sus- taining businesses with PayPal. The Communication Business—Skype Skype, a global Internet communications company, allows people everywhere to make free, unlimited, superior quality voice calls via its innovative peer-to-peer software. Launched in August 2003, Skype now boasts over 400 million users. In 2008, Skype generated revenues of US$551 million, up 44 per- cent from 2007. In September 2005, eBay acquired Skype for approximately US$2.6 billion, anticipating that Skype would streamline and improve communications between buyers and sellers as it is integrated into the eBay marketplace. With Skype, buyers gained an easy way to talk to sellers quickly and get the infor- mation they need, and sellers could more easily build rela- tionships. The auction company hoped the acquisition would strengthen its global marketplace and payments platform, while opening several new lines of business and creating significant new opportunities for the company. In April 2009, eBay announced plans to spin off Skype. The reason for the spin-off was a desire for eBay to focus on its core business of e-commerce. According to John Donahoe, Skype was a “great stand-alone business” but had “limited energies” with eBay. By dropping Skype, the company can hone its efforts on improving its e-commerce site. One area of expansion is international e-commerce. Operations from outside North America already account for more than half of eBayʼs revenue and there is certainly growth opportunity in this area, though competition is fast increasing. Can eBay Retain Its Tech Savvy? In the early days of the Web, eBay poured most of its resources into building a sophisticated infrastructure and auction system that could sustain large amounts of traffic and transactions. Later, eBay turned its energies toward acquisitions and expansions, such as PayPal and Skype, at the expense of delivering new technological tools and fea- tures to the eBay interface. Today, eBayʼs strategy is to re- orient itself toward a focus on e-commerce. For example, more services are being developed for PayPal such as the addition of an iPhone application and striking partnerships with thousands of Internet shopping sites. Some industry analysts question whether eBay can revive its technical elegance in time to attract and retain customers toward its online auctions. For example, many customers complain that conducting a search on eBayʼs site does not yield results that are as relevant as conducting a search on Google, and that the tools available on eBay do not enable people to interact with others as easily as they can on social networking sites such as Facebook. Inside the company, some eBay workers critique the exhaustive vetting process required to test out new ideas that stifle and create barriers to launching innovative technical solutions. In response, eBay has made some changes within the company. It has hired key senior personnel who have first- hand knowledge how to translate customer requirements into technical solutions and restructured the organizational chart to ensure better cross-pollination of technological know-how and ideas across various business units. Such steps are aimed at

promoting an internal culture and environ- ment that is open and receptive to launching new techno- logical innovations. Examples of technical solutions that aim to enhance the customer experience are the delivery of a “daily deal” widget that tips off shoppers to one-day deals on certain products, and an “email-a-friend” button next to each item posted on eBay that provides a simple way for custom- ers to remind themselves and their friends of bargain details.55 Question 1. eBay has long been an e-marketplace for used goods and collectibles. Today, it is increasingly a place where major businesses come to auction their wares. Why would a brand name vendor set up shop on eBay?