Ebay Market Share

How to dominate the online auction bridgeeereer securities industry Jeffrey Phillips Brian Somok Xiaoke Zheng Executive Summary Background eBay Inc history September 1995 funded as a bushel proprietorship. May 1996 incorporated in California. April 1998 reincorporated in Delaware. September 1998 completion of initial public heading October 2002 acquired PayPal Product Online Auction E real day, 24 hours a day, 7 days a week, 365 days a year, jillions of people from in altogether over the world go shopping at online auctions. This is not an exaggeration eBay, with a 76% share of the auction site trade, reports 42. million go forrs and a growth factor of 100% per Year Porters Five Forces Analysis contender Rivalry is very intense. Yahoo had to give up Japan and Australia online auction sites in 2003 because of low margin in this merchandise even if Yahoo made great(p) investment in these two sites beforehand. Number of firms Online auction firms www. eBay. com, www. overstock. com, www. ubid. com, www. yahoo. com, www. amazon. com, www. CQout. com, www. bidville. com, etc. The spectacular number of firms in this merchandise reflects the intense competition among those sites. Margin profit is diminish to a relatively low level. Bay could still survive because of its outdo of economy and good reputation. However, eBays growth in 2004 was untold keener than in 2003. Shareholders put much pressure on eBay, and eBay had to readjust its pricing on varied services on the short run in order to retaliate peoples short term expectation. However, he is risking his long term revenue and reputation. Fixed personifys Essentially, fixed be on online auction market are quite low purchasing programming technology patents, web, administration, credit, accounting, staff, and daily operations. Product differentiationDifferentiation depends on how the transaction is performed. There is not withal much difference among different online auction companies i n web processing efficiency and shipping efficiency, exclusively eBay is more convenient than others, referable to their lengthy expertness in the market. eBay differentiated itself by integrating PayPal honorarium system, which is famous for its security, cheap rate and network utility. eBay offers a cheap transaction fee rate, as well. It has superlative number of users by far, which offers excellent network utility. amazon utilize to be a substitute increase provider.However, since 1999 virago added auction module in its communication channel. eBay as well as encroached on Amazons niche by adopting fixed hurt functions the manages of buy it now solelyton and purchasing www. half. com. eBay and Amazon have been slight different and therefore rivalry has increased a little. However, there is still an obvious gap amidst them in terms of melodic line model and bundle development. Amazon built its reputation with last-end users. It has a friendly and succinct transacti on interface, which offers superior convergence mix. Amazon is utilizing Porters value strategy and has not changed this for years.On the other hand, eBay is a large company of small emptors and sellers who deal with single-item transactions at negoti sufficient prices. It has a created cost advantage by scale of economy. Most goods traded on eBay are secondhand, and eBays inventory changes more rapidly than Amazons. eBay is actually victorious Porters cost strategy. Different condescension models result in different financial surgical operation. eBay generated $441 million profits in 2003 on $2. 17 billion revenue compared with Amazons much smaller $35 million profit on far more revenue $5. 3 billion. eBay has a more liquid and effective financial structure.Besides, these two companies are two cute by their own network/community. Most customers hold outt switch between auction and fixed price retail very often part because they are rooted in the community culture of eith er network. They dont have incentives to change their current method of transaction if it is satisfactory. Different commercial enterprise models and different networks are enough to place these two companies in different niches without likewise much rivalry. Barriers of New Entrants New entrants seize every opportunity to widen their market share. eBay still has a dominant market share of online auction.His reputation is a sweeping force in nurtureing his good performance. However, eBay has to be cautious in every marketing decision. His mistakes get out be taken advantage by these new appoint comers. For example, www. bidville. com , an online auction site, recently experienced a dramatic increase in new member registration after eBay announced they would elevator their listing fees for sellers. eBay took a prompt response by resuming the listing fee back to the headmaster level. eBay didnt win eitherthing in this price adjustment and readjustment, moreover eroded his r eputation.Essentially in this online auction market, whoever has the most name recognition, wins the game. Right now, Bidvilles prejudice in name recognition puts Bidville out as a possible alternative to eBays market space temporarily. eBay should think about more to maintain his name recognition on the long run. Patents eBay does not hold any key patented technology. A new entrant could easy emulate eBays interface. High cost of entry eBays most effective barriers are its large network and credible reputation. It is rather difficult for a new entrant to build a new network starting with no users. We do-nothing verify this by how new air ticketing companies grow. ) The save way to start a network from a reasonable size is to derive an online auction market from an existing online website company which already has a network, just as Yahoo and Amazon did. A new entrant must likewise demonstrate creditability and capability to customers and payment providers (credit gondola gon dolad, PayPal, eWallet, etc. ). New entrants must prove their guarantees of efficient and safe transactions, to both buyers and sellers. Why would buyers and sellers bother to switch from a sound existing online auction site to a new one?Incentives to switch include discounts, coupons, accumulative reimbursement like frequent miles, complements from other services an entrant or their cooperating company offers, and higher- attri simplye service in terms of timely and elegant shipping. All of these are trivial but not necessarily effective sales methods. Effectiveness depends on a comprehensive sales strategy which is based on keen insight of vexation dynamics and human group dynamics. It is hard for a new entrant to find an experienced strategist, and even if it does, there is still no guarantee to strain market share.This market is basically first-mover dominant. Furthermore, it is unlikely for payment companies like credit lineup companies or other electronic payment providers to support a new entrant, because profitability is unclear. The revenue for successful new entrants forget be low at the offshoot and stable on the long run. However, expenses will be passing high at the beginning. A new company rarely survives within a short term unless it has a very generous percentage of supplement or a large amount of venture capital, and leverage is only available for public companies.Therefore, a new entrant can likely only be an existing company that operates in other markets. It should either be sufficiently self-funded or have a very strong, persuasive income statement and business plan to prove liquidity and gain leverage. Since the internet bubble, venture capitalists are very cautious in investing in IT companies, especially Business-to-Customers or Business-to-Business ecommerce companies. (Check the performance of eBay during and after internet bubbles. ) Essentially, the scale of economy is very obvious in the online auction market.The value of an online network is proportional to the number of users squared. The scale of economy will naturally lead to a monopoly. A new entrant should either license a fraud prevention system or employ a third-party payment platform company that already integrates fraud prevention system in its service. Brand loyalty First of all, eBay has been operating in this market since the beginning of e-commerce. A lot of e-commerce companies have failed since the internet bubble. eBay has successfully survived because of the convenience and simplicity of its service. It has gained popularity and built loyalty among customers.It has a secure identity system, and every user has a record of past transactions. eBay has a sound rating system for every buyer and seller to open credibility amongst the users. eBays user accounts work like passports of their personal credit and reliability. Most customers of eBay are long-term users therefore, they will not attempt fraud in their transactions. If they do, t heir rating suffers. All customers tend to trust all(prenominal) other because transactions are transparent to the 3rd party supervisor, eBay. eBay has successfully turned their online auction site into a community which has a cohesive culture.Photos of items to be sell greatly enhance the community value and establish amiability and trust between sellers and buyers. (eBays success has influenced Amazon to adopt a analogous policy in its online transactions recently. ) New entrants are competing against a community as well as a company. It is rather difficult to build a new culture and a new community. There might be some other specialized auction niches available, but eBay offers nearly any product available. For example, eBay has online auctions for cars. However, since cars are large purchases, people tend to be cautious in purchasing them.They must inspect the cars in person, and the buyers and sellers tend to haggle in person. Online auctions dont seem conducive to the second hand car market. As one would expect, eBay doesnt have much revenue from car transactions, and any other online car auction websites are not likely to generate high revenues. Such specialized auction markets have uncertain viability. In the example of a car transaction, there are two types of creditability involved. One is buyers trust of eBay Will eBay protect the buyers privacy? The other is buyers trust of sellers Will sellers defraud the buyers or exaggerate the quality of their cars?Shipping is also a major cost in this transaction. Most buyers obviously favor in-person transactions. There is little market space for online auction providers. In fact, there are free online bulletin boards that provide used car sale information. They chip in it difficult for paid online car auctions to exist at all. Mostly, the viability of such specialized auction markets is doubtful. Therefore, there is limited chance for new entrants. Substitute Products The most important merit of fixed-pric e online retail is that a buyer does not have to wait for an auction to end. It is appealing to shoppers who prefer straightforward sales.They value their time more than the small price change. It is basically a tradeoff between time and price. Since online auction and fixed online retail target people with different personalities, these two products essentially dont conflict with each other. eBay spread out its market by adding fixed-price features to its online transactions, such as Buy It Now. Half. com is a fixed price online retail web site which is owned by eBay. This shows that eBay is flexible in its business model. On the other hand, Amazon, a traditional online fixed-price retail web site, launched its auction feature in 1999.Here, fixed-price retail acts somewhat like a complement. However, it is a complement only when a company is involved in both types of sales. It is especially beneficial for the companys network utility. eBay expanded its community (network) by addin g fixed price retail feature, as Amazon did by adding auctions. Both of them successfully combined these two functions together, which merged these two markets into one, and gave customers greater convenience by allowing them to decide which way to purchase goods impromptu. However, there is less differentiation between eBay and Amazon.Traditional retail is more prevalent when the buyer must check the product in person or shipping is difficult or expensive. eBay has had to build a strong creditability by making sure all the descriptions of online items to be sold are precise, complete and correct. Without this reliability, customers would switch to traditional retail stores. For those goods which are hard to price without observation, eBay cannot supplant traditional retail. This is particularly true for specialized items such as cars, jewelries, and plastic surgeries, all of which have too many details to be taken care of online.Online transactions seem impossible for these goods. The switching cost from online auction to traditional retail or fixed-price online is essentially high. For fixed-price online, sellers have to pay the memory board fee for Amazons storage plant. For traditional retail, sellers have to pay for the storage fee and shelf rental fee. These extra fees, which are switching cost, are enough to discourage single item sellers, who are main customer course of study of eBay, to switch. purchaser Power Customers price sensitivity Online auctions dont charge sellers for storage of their goods. Fixed-price sites might charge sellers for storage.Traditional retailers incur smasher costs. Sellers have incentives to sell via online auction. On the other hand, online auctions principally deal with unpackaged new products or secondhand products. Most buyers of such products are familiar with eBay, so sellers are more prone to sell via online auction. Buyer bargaining power is weakened. Customers negotiating power As I analyzed above, eBay is a l arge network of small buyers and sellers who mainly deal with single-item sales. A seller generally sells one item to one buyer on eBay, so eBay has high prices and high margins when providing services for many buyers and sellers.Online auction site, recently experienced a dramatic increase in new member registration after eBay announced they would raise their listing fees for sellers. eBay took a prompt response by resuming the listing fee back to the original level. eBay didnt win anything in this price adjustment and readjustment, but eroded his reputation. Essentially in this online auction market, whoever has the most name recognition, wins the game. Right now, Bidvilles disadvantage in name recognition puts Bidville out as a possible alternative to eBays market space temporarily. Bay should think about more to maintain his name recognition on the long run. Patents eBay does not hold any key patented technology. A new entrant could easily emulate eBays interface. Buyer Power Cu stomers price sensitivity Online auctions dont charge sellers for storage of their goods. Fixed-price sites might charge sellers for storage. Traditional retailers incur overhead costs. Sellers have incentives to sell via online auction. On the other hand, online auctions mainly deal with unpackaged new products or secondhand products. Most buyers of such products are familiar with eBay, so sellers re more prone to sell via online auction. Buyer bargaining power is weakened. Customers negotiating power As I analyzed above, eBay is a large network of small buyers and sellers who mainly deal with single-item sales. A seller generally sells one item to one buyer on eBay, so eBay has high prices and high margins when providing services for many buyers and sellers. Supplier Power Suppliers to eBay offer technology patent, legal support for intellectual property, and fraud prevention systems. eBay has great pressure to prevent fraud, since its reputation is at stake. Buyers and sellers ca re about very much about their security.Online auction fraud in 2004 made up 16% of all consumer complaints last year, and 48% in the subset of internet-related complaints, topping the list. eBay has 0. 01% fraud rate of all transactions, but these isolated incidents receive wide media coverage, which discourages many potential customers. eBay is still improving its fraud prevention system. The fraud prevention system is launched by Microsoft Inc. and visa Intertheme Inc. As this system is necessary to eBay, it has little leverage to negotiate a better price. Many online retail systems need fraud prevention system, but there is only one supplier in the market.It has great bargaining power. Complements PayPal, as an online payment solution, is a good complement of eBays online auction business. PayPal is a neutral intermediary based on the financial infrastructure of bank accounts and credit billhooks, supported by a proprietary fraud prevention system. legal proceeding on PayPal a re of low risk to both sellers and buyers. PayPal accepts gold from the buyer in one of the three ways. Charging the buyers credit card Debiting the buyers checking account Charging from the buyers PayPal account. The buyer can always send check to his/her PayPal account.Then PayPal will email the seller about the payment made by the buyer. The seller will receive money in one of the three ways. The seller might have his own PayPal account. The payment will directly transfer to his/her account. The seller might receive a check from PayPal. PayPal directly deposits the payment into the sellers checking account. Buyers care about security. Buyers credit card numbers are only shown to PayPal. That is safer than online payment directly by credit card. Buyers also care about the cost. For transactions between PayPal customers, theres no transaction fee.PayPal makes money on the float when customers money sits in their account, PayPal is collecting interest on it. Customers generally do nt care about the interest that PayPal collects on their deposits. Customers also care about ease of use. PayPal is one of the simplest services for online transactions. All a buyer has to do is to provide his/her name, e-mail address, credit card information, and billing address. For business accounts on PayPal, merchants are charged a 2. 2% discount rate + 30 cents on the transaction. It is better than the rate charged by merchant banks for judge credit cards, in most cases. eBay Micro StrategiesIncrease brand recognition Expand the auction market by introducing PayPal to more online auction markets Credit card companies charge more for Internet-enabled merchant accounts (the accounts the merchants need to accept credit card payments on the Internet), because of the high cost to main security. Therefore, credit cards become too expensive for smaller purchases. PayPal might negotiate with credit card companies for smaller fees for their subscribers. They can cooperate to share the market in the following way merchandiser accounts on PayPal will be charged less by credit companies than those on other online payment platforms.Therefore it can increase the number of small purchases on eBay auction. Nowadays, credit cards are the primary means of purchasing air tickets and recording frequent flier miles. eBay should enter the air ticketing markets. It definitely can offer the same service with PayPal. PayPal should cooperate with more air passages and online ticketing websites. If they can integrate PayPal into ticket sales websites, eBay will have a huge potential market in air ticketing and also increase its network utility. eBay should acquire a greater online auction market share by educating online customers that PayPal is the online currency.Yahoos pocketbook failed in the online marketplace. It was not easy to establish their own online payment platform, partly because the online payment concept goes against Yahoos traditional business model. PayPal sh ould make use of its competitive advantage and offer Yahoo and other websites its specialized solutions. Perfect its proprietary fraud prevention system, which is essential to its success. eBay should let its customers, cooperative online transaction sites, online airline ticketing sites, and credit card companies all feel that transactions through eBay will lower their costs and be more valuable. Bay should cooperate with shipping companies, and make its online transactions more paying(a) eBay should work with Phish Report Network and other anti-phishing organizations more efficiently in order to prevent fake online auction sites taking its market share and damaging the whole markets reputation eBay should work with software developers to improve the security, efficiency, and adaptability of its database. eBay should convince customers that there is no intentional statement up behavior involved in its online auction practice Develop real name feature for customers.Put some restric tions on new sellers in expensive merchandise transaction or large volume sale until they have a good track record. Expand to international market, decrease national boundary barriers in terms of payment (credit card/PayPal) and shipping. Cooperate with local equivalent companies or localize by itself. Mediate between buyers and seller at Security Center. Respect both sides privacy. Solve conflicts in conservative way. Dont take risk of eBays reputation. eBay Today eBay is the worlds firstly online marketplace.Through reliable customer service, efficient information exchange, and by utilizing the latest technology, eBay has created an auction-based market community of an efficiency unheard of prior to the internet revolution. agonistic emolument eBay has used its first-mover advantage to establish itself as the most reliable and, more importantly, largest auction house on or off the internet. In 2003 alone, more than 30 million people exchanged over $20 billion. Due to the size a nd diversity of its user base, eBay is able to offer a wider selection of merchandise than any online retailer.This is made feasible by the virtual nature of eBays market sellers can market obscure items to a global market as easily as and more cheaply than they could put an ad in their local paper. Famous for matching buyers and sellers across the world with the most extreme items, eBay has developed unnumberable value in its brand name. eBay has become a household word synonymous with an eclectic online marketplace. eBay comes to the mind of any buyer looking for that rare or rarely-cheap item any seller hoping to get rid of practically anything knows a buyer is lurking somewhere on eBay.The site has become an easily identifiable collect point akin to a popular dance club on a global scale everyone whos anyone is thereand everyone else too. eBays Macro scheme eBay seeks to maintain a high level of consumer patronage by capitalizing on its unique positioning as an internet marke tplace. Globalization. Since eBay is a virtual marketplace, eBay can establish language localized sites in other countries that have access eBays full auction database. Since the seller handles the shipping details, each seller whitethorn rule the extent to which they enter the global market. Bay has already expanded into 150 countries around the world. International transactions require little additional bookkeeping cost while their benefit to the consumer is enormous every buyer and seller has access to the largest market possible. Communication By allowing buyers and sellers to meet and communicate online, eBay is able to minimize the costs of remote market research and individual exchanges of information across states and borders. This interplay is essential to mutually amicable transactions on which eBay is based.To encourage fair transactions eBay provides an efficient feedback system to allow buyers and sellers to benefit from collective experience, giving customers a strong social incentive to honor each transaction. Integration Through its acquisition of PayPal eBay gained not only market share, but also vertical integration key to its long-term success. By embracing the payment method most commonly used on its site rather than forcing an unpopular one on its user base, eBay has not only retained the existing PayPal user base but expanded to those consumers previously unsure of which method to use.In 2003 there were 40 million PayPal accountsalmost twice as many as the previous yearand these customers transferred $12 billion across 38 countries. Diversification In addition to normal auction bidding, eBay now offers a Buy-it-Now option. Sellers set fixed maximum prices at which the auction will close before it begins. This attracts auction-wary consumers from other e-commerce sites outside of the strict auction market and effectively competes with amazon. com and froogle. com for fixed-price transactions.By allowing independent sellers to maintain sto refronts online, eBay seeks to extend its position to include an even wider range of transactions, thus not only broadening its appeal but securing ties to more conservative consumer bases. The Future of eBay Industry Trends What originally began as a small industry of auctions for collectibles has mushroomed into a behemoth encompassing individual sellers, small businesses, and large retailers. The e-commerce industry is constantly growing, and many businesses rely on the reputation of eBay or one of their competitors to sell their products.As the market grows, a wider demographic range of consumers will be purchasing an increasing number of products online. For example, teenagers are the target consumers of very recent products such as cell phone ring tones and games, many of which are available exclusively online. As such varied consumer groups are emerge in the online market, there is more room for differentiation perhaps some niches are being created. Therefore, the barriers t o entry will decrease as the market expands. Competitive Trends eBay has a solid foothold as the canonical online auction site.They have a niche as an enormous community with an extremely high success rate of matching buyers and sellers. eBay is distinguished by its availability of single, used, and/or rare items, and for its floating prices. They are adequately differentiated from their competitors, and they possess roughly 70% of the online auction market share. However, due to the relatively low switching costs and entry barriers inherent in a web market, eBay must continue to be rather defensive of their position, against current competition and potential new entrants. Current CompetitorsAmazon and Yahoo Auctions are the main competitors of eBay. Ubid. com has 14% of the market share, but they have a different niche than eBay by appealing to business-to-consumer transaction. Amazon may pose a threat to eBays utter dominance they are consistently manner of speaking retailers int o e-commerce. However, this comes with a great burden. Whereas eBay has virtually no overhead, Amazon needs to store and move vast quantities of inventory. Currently, Amazons revenues are considerably greater than eBays (about twice as much), but their costs are so high that eBays annual profits are roughly ten times Amazons.Alternatively, Amazon might choose to expand its auction operations, essay to nudge eBay from its niche. Amazon would have to establish a network, a community, on the scale of eBays in order to challenge them directly. Although this could be time consuming and costly to implement, focusing on transactions in which they are merely the broker and concede no cost could greatly increase their long-term profits. Yahoo poses little threat to eBay. While they theoretically have potential for growth similar to Amazon, they leave out Amazons reputation.They also lack the cost-free transactions in which eBay luxuriates. New Entrants Online auctioning doesnt have high c osts of entry, especially the way eBay operates All a new entrant needs is merchant software there is no need for warehouses or expensive machinery. However, many companies have tried to enter this lucrative market and have failed. New entry is difficult because eBay has an enormous community, which gives tremendous network value to both buyers and sellers. Any entrant would have to build up a network from scratch. Conceivably, if a new company entered a niche market, e. g. uctions of teenage clothing and cell phone accessories, they could survive, but such a market would likely be too small to gain any measurable market share. Alternately, a website that already has a large community would be able to enter more easily. For example, Craigs List has a network of millions of users, who rely on it for matching them up with people who can fulfill their specific needs. It would be simple enough to add an auction section to the site, and take advantage of this existing network to compete with eBay. Froogle, a new service from Google, may everlastingly change the way online shopping is done.While it currently is a beta version, it looks to be a promising engine for online shoppers to quickly search nearly all online stores for the products they desire. While Froogle isnt an entrant to the online auction market (yet), it is certainly the beginning of a powerful new substitute service. Froogle may be very chancy to eBay for many reasons. Google already has a huge network of search-users and advertisers. If vendors (especially specialized vendors, as many on eBay are) can set up their own online stores and be piece for free on Froogle, they have less of a reason to pay eBay for its high access. Bay certainly still has a lot going for it, (security and reputation) but may soon find its network challenged by Froogle users. eBays Response eBay recently started Business. eBay, a new business-to-business online auction that spans all sectors, from mining to farming. eBay is aware that they may need to accommodate larger retailers in order to grow, and to challenge Amazons growth in this direction. If Amazon decides to challenge eBays community appeal, thus eBay must block this attempt any way they can. A simple method would be to start a price war. Bays costs are so negligible compared to Amazons that Amazon could not possibly survive a price war. EBay could almost give away auctions to sellers, whereas this categorization of competition would bankrupt Amazon. If a new entrant emerges, eBays best bet is to rely on the value of their community. Even a company trying to enter into a niche market would have a difficult time building a network large enough to attract eBay customers. In the rare case of an established community site entering into online auctioning, eBay should ensnarl in a price war if they believe this sites community is comparable to theirs. Bay is famous for their extreme efficiency, and any entrant would likely be somewhat ineffic ient due to their inexperience. eBays best response to Froogle is to hold their security and reputation to their users If you buy from eBay, you know you will have a safe and fraud-free transaction, especially if you pay with PayPal. On the other hand, if someone buys from an online shop found on Froogle, he has no idea how reliable the vendor is, or if his credit card information will be safe.If buyers are reluctant to engage in potentially insecure transactions outside of eBay, buyers and sellers alike will continue to complete their transactions through eBay. Summary eBay virtually monopolizes the online auction market, due to their large network value, extremely low costs, reputation for security, and efficient operations. When confronted with competition, eBay either relies on its community niche, or buys out the competition (i. e. Half. com and PayPal). They have created a market where entry is very difficult, and competitors are relatively powerless, particularly given the t hreat of a price war.These advantages should ensure eBays continued domination of online auctions in the future. However, they should flirt larger retailers, as Amazon has, to expedite their growth. eBay is likely to stay the leading online auctioneer for quite some time, as long as they remain universal to the ever-dynamic online market. eBay has proven to be a successful chameleon in the past, making lucrative acquisitions and modifying its business model, depending on the state of the online market. As long as eBay continues to sharply maintain its community and reputation of security, it will dominate the online auction market.References 1. Crockett, Roger O. No Plastic? No Problem. BusinessWeek online. . October 23, 2000. 2. eBay 2003 Annual Report. . 3. Hof, Rob. Meet eBays Auctioneer-in-Chief. BusinessWeek online. . May 29, 2003. 4. Hof, Robert D. The eBay Economy. BusinessWeek online. . August 25, 2005. 5. Lewis, Marilyn. eBay and Amazon. webservicespipeline. . de clination 22, 2004. 6. Perez, Juan Carlos. Online auction providers grapple with fraud. Computerworld. . Februrary 17, 2005. 7. Roberts, Paul. Microsoft, eBay, Visa form Phish Report Network. Computerworld. . February 14, 2005