Reference no: EM13994640

Case Study

Case1 - EBay Inc.

Company Overview

EBay Incorporation is one of the leading and extremely close to be the top best place for buyers and sellers to meet and be able to exchange practically anything. eBay Inc. provides online trading services by developing eBay Marketplace, an Internet-based community in which buyers and sellers are brought together to buy and sell various products. The Company's online service permits sellers to list items for sale, buyers to bid on items of interest, and eBay users to browse through listed items in a fully automated service that is available online seven days a week. Through its PayPal service, eBay enables various businesses or consumers with e-mail in 45 countries to send, and in 44 countries to receive online payments.

EBay's role is to create, maintain and expand the functionality, safety and reliability of its trading platform while, at the same time, support the growth and success of its community of users. EBay falls under the category of online market makers as it facilitates the trade and exchange of various kinds of products without having any ownership or liability. EBay possesses all the characteristics of a market maker which are to provide a platform for the traders to meet, market governance and have the infrastructure to enhance the transactions. EBay has the potential of being a clear winner in the online market maker industry with billions of dollar worth of auctions involving a vast variety of products from pens to automobiles being processed every day.

Business Model:

EBay's business model was very simple and based on basic traditional auction procedure without a physical auctioneer. Before being named as EBay, Auction Web sellers posted information about their items, and buyers were able to browse the site and submit bids by electronic mail. The actual auction for an item was held over three to four days, with bidders receiving e-mail notices when someone made a higher bid. They could then counter the bid or drop out. The winning bidder made arrangements with the seller for payment and shipping. When an item is listed on EBay, a nonrefundable insertion Fee is charged, which ranges between 30 cents and $3.30, depending on the seller's opening bid on the item. A fee is charged for additional listing options to promote the item, such as highlighted or bold listing. A Final Value (final sale price) fee is charged at the end of the seller's auction.

eBay's e-business model

eBay's e-business model began in the C2C space, using the brokerage value model and collecting transaction fees in consumer-to-consumer auctions.  Rapid user growth created community, content, and search value streams, which in turn created the critical mass for substantial advertising revenue.  B2B followed by offering the Small Business Exchange.  In addition, there is nothing that would prevent eBay from licensing its technology in the B2B space, for industry-specific auctions.  eBay could potentially expand into the B2C space, providing firms the option of auctioning merchandise directly to consumers using the eBay infrastructure.  Finally, while this would be the greatest stretch for eBay, it could choose to move into the C2B space, allowing consumers to "name their own price" for merchandise and services.

Other major Web sites, like Amazon.com and Yahoo!, have entered the e-marketplace with far less success than eBay. Since eBay's first-mover advantage allowed it to dominate the online auction space. Bay also has an excellent reputation for superior customer service.  Two priorities dominate eBay's operational strategy: keeping its buyer/seller community happy, and keeping its massive Web site up and running.  Consumers flock there because of the great product selection.  The result is a juggernaut that has vanquished latecomers, such as Yahoo! Auctions and Amazon Auctions.  Both of those operations are still in business, but they have reduced expectations and make relatively small contributions to their parent companies' balance sheets.

There is different forms of online payment methods for consumers and business, where

EBay's customers might benefit from these different payment methods.

• Consumer forms of online payments include:

Credit card. A financial cybermediary is an Internet-based company that facilitates payments over the Internet. PayPal is the best-known example of a financial cybermediary. An electronic check is a mechanism for sending a payment from a checking or savings account. There are many implementations of electronic checks, with the most prominent being online banking. An electronic bill presentment and payment (EBPP) is a system that sends bills over the Internet and provides an easy-to-use mechanism (such as clicking on a button) to pay the bill. EBPP systems are available through local banks or online services such as Checkfree and Quicken. A digital wallet is both software and information-the software provides security for the transaction and the information includes payment and delivery information (for example, the credit card number and expiration date).

• Business forms of online payments include:

Electronic data interchange (EDI) - a standard format for exchanging business data. One way an organization can use EDI is through a value-added network. A value-added network (VAN) is a private network, provided by a third party, for exchanging information through a high capacity connection. VANs support electronic catalogs (from which orders are placed), EDI-based transactions (the actual orders), security measures such as encryption, and EDI mailboxes.

Financial EDI (financial electronic data interchange) - a standard electronic process for B2B market purchase payments. National Cash Management System is an automated clearinghouse that supports the reconciliation of the payments.

1.  eBay is one of the only major Internet "pure plays" to consistently make a profit from its inception. What is eBay's e-business model and why has it been so successful?

2.  Other major Web sites, like Amazon.com and Yahoo!, have entered the e-marketplace with far less success than eBay. How has eBay been able to maintain its dominant position?

3.  What are the different forms of online payment methods for consumers and business? How might eBay's customers benefit from the different payment methods?