Running Head: EBAY, INC-2009: A CASE STUDY IN STRATEGIC MANAGEMENT

Ebay, Inc.-2009: A Case Study in Strategic Management Presented To Mr. Suplido,MBA Masters in Business Administration University of St. La Salle

In Partial Fulfillment Of the Requirement for the Subject Strategic Management

Submitted by: Erika S. Nicolas

December 17, 2011

EXECUTIVE SUMMARY Auction plus online equals eBay, the worlds first online marketplace. eBay started as a profitmaking enterprise for an individual, family or small business. Corporate revenues are earned primarily from three segments namely (1) Marketplaces, (2) Payments and (3) Communications. With over 86.3 million active global users for eBay Marketplace, 70 million active users for eBay Payments and 405.3 million registered users for eBay Communication as of 2008, it is definitely here to stay and will continually grow. Ebays founder, Pierre Omidyar, envisioned a community built on commerce, sustained by trust and inspired by opportunity. eBay's mission is to provide a global trading platform where practically anyone can trade practically anything. The company obviously provides a much faster, easier safer online commerce experience. Ebays global networked community of buyers and sellers interact 24/7 in a secure and trusted global marketplace. eBay brings together millions of people everyday on a local, national and international basis through an array of websites that focus on commerce, payments and communities. As a commercial enterprise, eBay seeks to provide value to its shareholders by growing revenues from its auction Web site and other business lines. Growing eBay.com revenues primarily seller-based fees means providing an open trading platform that attracts a sizeable network with voluminous supply and demand. Success depends on having not only a strong seller base that offers an appealing range of competitively priced items that consumers demand, but also strong visitation and purchasing rates that attract successful sellers. For investors, eBay states its goal for the eBay marketplace sites is to create, maintain and expand the functionality, safety, ease-of-use and reliability of our online commerce platforms while supporting the growth and success of our community of users.

Its proposition is to attract buyers by offering selection, value, convenience and entertainment. Sellers by offering access to global markets, cost effective marketing and distribution, access to large buyer base and good conversion rates. eBay positions itself as a (1) A place to buy. Get nearly anything you need or want at prices better than you can find in traditional brick-andmortar or even online stores. (2) A place to sell. Whether you're a bix-box retailer or just an average person cleaning out your garage, nearly anything you list on eBay will sell if you're flexible enough about the price. (3) A place to shop. Because of the immense variety of things that can be found for sale on eBay, many members have discovered that eBay is one of the best places in the world to window or comparison shop. (4) A place to collect. eBay is the world's largest marketplace for rare, discontinued, collectible, or hard-to-find items, no matter what the type or price. (5)A website. There is no physical eBay store. Founded in San Jose but now operated from several cities, eBay's service exists entirely online, and all aspects of business other than the delivery of bought and sold items themselves are typically handled through the eBay website. eBayss overall strategy is comprised of three components: products, sense of community and aggressive expansion. All three components evolved around the various geographic and specialty platforms the company introduces. eBay competes with virtually all online and offline commerce participants (consumer-toconsumer, business-to-consumer and business-to-business) and online and offline shopping channels and networks. One of the greatest threat to eBay is Amazons strong growth and satisfied customer base. Amazon started as Earths biggest bookstore and rapidly evolving to selling everything including toys, electronics, apparel, health, home furnishing, beauty aids and so on. Books and CDs and DVDs account for more than 65% of the firms sales. Another larger online competitor, Yahoo! has also a strong global presence, particularly in Asian markets. It

focuses its revenue mostly through search advertising though it also offers e-commerce services like Yahoo! Shopping, Yahoo! Autos, Yahoo! Auctions and Yahoo! Travel.

Important Facts of the Case

In September 1995, eBay, an online Web site in San Jose, California, was created by its founder Pierre Omidyar. Being the first virtual online business community, eBay empowers entrepreneurial individuals to become e-commerce business owners. Its mission was not formally declared but eBay integrates statements at every yearend reports which can be the basis of their companys mission statement. In 2005, it stated in the annual report that to achieve their mission is to create the worlds online marketplace and expanding across three main areas: categories, formats and geographies. While in 2006 annual report, eBay intends to achieve their mission of creating the worlds leading e-commerce by building upon the core Marketplaces business and building adjacent business. By 2007, the company intends to continue to work towards their mission of creating the worlds e-commerce franchise by investing in their core Marketplaces segments and continuing to build adjacent Marketplaces businesses. As of 2008, eBay has a 14 percent share of global ecommerce with 86.3 million active users. Ebays popularity is due to the value offered to its users. Nasdaq Global Market exchange became the trading floor of eBay common stock under the ticker symbol EBAY. There were approximately 4,800 common stock owners in February 11, 2009. eBay never paid cash dividend on stock from the start until to date and specifically states that there are no cash dividends forthcoming in the future. The Business Segments eBay, Inc. is comprised of three business segments namely: (1) Marketplaces, (2) Payments and (3) Communications. The first business segment is the eBay

Marketplaces is an online virtual trading platform for the sale of goods and services by a community of users that is composed of buyers and sellers as well as business owners. It is a place where a virtual marketplace auction happens where the market

determines the price items sold. Ebay, Inc.s Marketplaces platforms and services segment includes eBay.com, StubHub, Online Classifieds, Online Advertising, Shopping.com and Rent.com. Listings of items for sale have exceeded 140.0 million per day. The key to success is eBays user support such as announcements, bulletin boards, customer support, personal pages and more. eBay.com are offered in 39 markets. eBays different trading platforms also offer distinct services and target specific market niches, which allow eBay to broaden its customer base. In 2007, eBay sold about $60 billion goods which equates to worldwide eBay users trading more than $1900 worth in goods every second considering the 86.3 million active global users as of 2008. As of Dec 31, 2008, eBay employees reached 16,200 people. By 2009, eBay has attained customized local sites in Asia Pacific, Europe, North America and Latin America. Being a trusted online community, eBay facilitates trading with unknown partners on the Internet. Thus, the company decides to improve on services concerning a safer environment. These services are Feedback Forum, Safe Harbor Program, Verified Rights Owner Program, Customer Support, Value-Added Tools and Services and Loyalty Programs. Second, the Payment Segment which is composed of Paypal and Bill Me Later transaction services which started in December 1998 and acquired by eBay, Inc. in 2002. Paypal is considered the global leader in online payments. It enables individuals to securely send payments quickly and easily online. Paypal, having 70 million active users, generated $60billion in net total payment volume in 2008, an increase of 27 percent over 2007. Paypal has captured 15% of U.S. commerce and 9% of global e-commerce trade. International business processing accounted for 45% of Paypals total revenues for 2008. Paypal is accepted both online and offline in190 markets worldwide and processes payments in 19

currencies. It reports also a very low percentage of .33 loss from fraud. The Bill Me Later service offers consumers instant credit at the point of sale through over 1000 online U.S. merchants. Bill Me Later partnered with a chartered financial institution, CIT Bank, that initiates a consumer loan at the point of sale. Bill Me Later, then, purchases the consumers loan from CIT Bank. It earns by the revenues from interest on the outstanding balances, late fees, and transaction fees. In October 2005, Skype was acquired by eBay, Inc. to start their Communications segment. Skype is the worlds fastest growing Internet communication software platform, allowing free video and audio communication between users of Skype software. Skype allows buyer/seller communications 24/7 in a secure and trusted community that is supported by free unlimited Internet voice and video communication to over 225 countries in 28 languages. Skype revenue is earned through premium services such as making/receiving domestic or international calls to and from landline and mobile phone, voicemail, call forwarding, and personalization. Such services hit the market that it instantaneously grew by 51% as of December 2008. Competitors As eBays products offerings and pricing formats evolved so did its range of competitors. Before when eBay used to do online auctions, the company faced competition from alternative auctions or other venues for collectors, such as flea markets and garage sales. As years passed by, the company grew and introduced fixed pricing, the range of competitors widen that includes larger companies like WalMart and Kmart. Still, eBay faces the harshest competition from major online companies that include Yahoo and Amazon. Amazon was founded in 1994 and it started selling books online and now operates Web sites that offer various products and services, which include: music, DVDs, videos, electronics, camera and

photography, clothing apparel, shoes, etc. Features include: one-click shopping, customer review and e-mail order verification. The company is in coalition with other retailers and offers various new, refurbished, and used items in categories. Its headquarters is in Seattle (Washington) with an additional office in Coffeyville, Kansas. It has six global websites to serve domestic customers in the US, the UK, Germany, France, Japan and Canada. The success of eBay and Amazon are built on similar customer-centric entrepreneurial business model that focus on customerdriven value creation. Amazon reported net revenues of $19.2 billion as of year end 2008. By initiating alliances with partners, Amazon gain sales even in a declining economy. Several online marketing channels such as syndicated store program, sponsored searches, portal advertising, and email campaigns refer customers to Amazon.com. Generating fees from online auctions and web hosting for business ecommerce also added in their income. For eBay Marketplaces, increase in competition is highly probable since the entry in this segment are low and new online sites can be launched at a nominal cost. The continuing emergence of online services and classified ads by traditional department, warehouse, discount and general merchandise store, online retailers, classified services and other offline and online home shopping networks such as J.C. Penny, Macys, Sears, MSN, Home Shopping Network put eBay in direct competition with these companies. As for competition in the communication arena, the intensity of such can be measured through so many marketing and promotions of traditional

communications companies such as cable and satellite television, along with internet and voice communication services. The potential also exists for Skype

technology to become obsolete. These competitors involving firms who have larger resources could weather an economic downturn. Economic Environment Though the company is aggressively expanding globally, a big hindrance to its expansion is the weak global economic conditions that greatly affect all industry worldwide. In addition to this, mortgage and worldwide related financial crisis are expected to limit revenue growth, especially the Marketplaces segment which is closely tied to consumer purchase patterns.

It is now the World's Online Marketplace for the sale of goods and services by a diverse community of individuals and small businesses. Today, the eBay community includes more than a hundred million registered members from around the world. People spend more time on eBay than any other online site, making it the most popular shopping destination on the Internet.

During the start of the business, eBay did not charge fees to either buyers or sellers. However, because of its popularity, it gained a lot of exposure causing traffic which lead Omidyar to charge buyers a listing fee to cover internet service provider costs. On an average day, there are millions of items listed on eBay. People come to eBay to buy and sell items in thousands of categories from collectibles like trading cards, antiques, dolls, and house wares to practical items like used cars, clothing, books and CDs, and electronics. Buyers have the option to purchase items in an auctionstyle format or items can be purchased at a fixed price through a feature called Buy It People from all over the world buy and sell on eBay. Currently, eBay has local sites that serve Australia, Austria, Belgium, Canada, China, France, Germany, Hong Kong, India, Ireland, Italy, Malaysia, the Netherlands, New Zealand, the Philippines, Singapore, South Korea, Spain, Sweden, Switzerland, Taiwan, the United Kingdom, and the United States. In addition, eBay has a presence in Latin America through its investment MercadoLibre.comNow.

Opportunities

Opportunities 1. Current Internet usage estimated to be 420 million worldwide including 180 million in the US. 2. Generation X and Y entering the workforce. 3. Foreign markets especially in Asia are improving. 4. US and Mexico exceeded $3 trillion in online sales in 2003. 5. E-commerce in Latin America expected to grow to $82 billion in 2004. 6. Under 25 percent of online North American households made an auction purchase in 2003. 7. Online auction sales are estimated to reach $54 billion in 2007. 8. The price of personal computers continues to fall. 9. Internet sales remain tax free. 10. Some customers prefer to finance large purchases "in house"

Threats

Thre a ts O nline businesses could possibly be subject to future taxation. M edium fixed cost structure - barrier to entry not significantly high. O ngoining fraud issues, w ith merchants not sending payment or products. M any people feel the Internet is an unsafe medium to conduct financial business. 5. M any households still do not ow n a PC . 6. D espite imp rovements, many foreign economies are still unstable. 7. H igh unemployment rates in the US. 8. Transportation systems in foreign countries could be poor for delivering products. 9. Fluctuations in currency and exchange rates, could limit international business. 10. Possible w ebsite security problems such as hacking. 1. 2. 3. 4.

Conservative

FS 6 5 4 3 2 1

Aggressive

CA

-6

-5

-4

-3

-2

-1 -1 -2 -3 -4 -5 -6

IS

Defensive

ES

Competitive

Qspm

New Strategies Expand to all countries of the world

Cost: $500,000.00-1,000,000.00(advertising)

Advance in security of personal information 1,000,000.00+

Increase in Industry N/A

Increase revenues by capturing more customers N/A only in 38

Look into new pay system or create own (PayPal countries) Millions