IntroductionEBay Inc. is a United States-based company in the e-commerce industry. The company was incorporated in California in 1996 and in Delaware in 1998. The company was listed in the United States stock market since 1998. EBay operates in the global e-commerce and facilitates payments and logistical services on behalf of users, merchants, and retailers. The company operates in three main segments: marketplaces, payments and enterprise (United States Securities and Exchange Commission). The company’s business is driven by the increased use of internet and mobile phones in e-commerce. The company has developed several applications to facilitate customers in e-commerce activities including online shopping and payment systems. Apart from e-commerce services, eBay provides marketing and advertising services to customers. As of the end of 2014, eBay had more than 155 million active users and more than 800 million listings globally. Its payment segment had 162 million active user accounts (United States Securities and Exchange Commission). The operations management at eBay is mainly influenced by the external business environment on competition and technology changes in the ecommerce industry. The e-commerce industry is characterized by intense competition and random changes in e-commerce technologies.
Corporate and Business Level Strategy
The core business at eBay is the global commerce platform provided over the internet. The business level strategy at eBay is based on the need to improve user experience in the core business. The company’s revenue on e-commerce depends on the operations of merchants selling goods through its platform and the number of active customers buying goods from the platform. The major source of revenue for the company is based on gross merchandise volume, which is the total number of all transactions completed by merchants and customers through the marketplace platform. In 2014, eBay generated $82.95 billion as the total value of all gross merchandise volume (United States Securities and Exchange Commission).
The corporate level strategy at eBay is based on services that support e-commerce operations, and these include payment systems and logistics. EBay operates an online payment system called PayPal to support the core business of e-commerce. In 2014, eBay made proposals to operate PayPal as a separate company in order to fully support the eBay marketplace platform as a separate company (United States Securities and Exchange Commission). The company has been investing in the provision of logistic services to support the operations of merchants and customers using eBay to sell goods and services. In 2012, eBay established a pilot program called the same-day delivery service in which users could make orders from the eBay platform and get their deliveries on the same day (Kokalitcheva). Although eBay has stopped its same-day delivery program, the company is making investments in other forms of logistical services that support merchants and customers in the core business activities.
Porter’s Five Analysis
The degree of rivalry among established competitors in e-commerce industry
The degree of rivalry among established competitors in this industry is very high. The competition is in all aspects of the e-commerce including online payments, logistics, retailers, and distributors. The major competitors of eBay include Google, Amazon, Yahoo and Apple (United States Securities and Exchange Commission). These companies are larger than eBay, have greater capitalization and offer a wide range of services that are not available on eBay. EBay depends on some of its competitors for the success of its business, and this has been identified as a major threat to the success of the company in the future. For instance, Google controls the major search engine that directs customers to eBay’s online platform while other companies control online payment services that are used by customers on eBay. These competitors are a major threat since they can easily manipulate customers’ choices in e-commerce through pricing and redirections to online e-commerce platforms. For example, eBay is concerned by Google’s changes to its Internet search algorithm that directs most of the search traffic to certain platforms (United States Securities and Exchange Commission). In this case, Google can easily manipulate customers from eBay by directing their search results to its own platform or other e-commerce sites. Some of the competitors take advantage of popular internet search engines by paying for the listing of their e-commerce platforms above others in search returns. EBay may face technology barriers in the future if it is not able to control vital services, such as internet search engines, that are vital to the operations of online e-commerce platforms.
Threat of new market entrants
The threat of new market entrants in e-commerce is very high. The internet and mobile technology provide new and rapid evolving platforms on online marketplace and modes of payment. The cost of developing new online platforms is low, and new market entrants can take advantage of the evolution of internet and mobile technologies to establish their business. EBay’s online shopping website competes with other sites from rival companies. The requirements for new entrants are also very low, and this makes it possible for companies in related industries to easily enter the e-commerce business. EBay is currently faced with competition from new entrants in related businesses in auctioneering, export and import trade and distributors (United States Securities and Exchange Commission).
The bargaining power of buyers
Buyers in e-commerce have a wide range of alternatives, and thus their bargaining power is very high. The buyers have a large number of offline and online platforms that are focused on one or more categories of products. Some manufacturers have their own online retail stores that they use to sell products directly to consumers without going through e-commerce service providers like eBay. Apart from an online marketplace, there is a wide range of alternatives of modes of payment. These modes of payment include mobile money service providers, bank wires and credit card service providers. The online shopping websites provides merchants and consumers with the opportunity to compare prices with several e-commerce service providers before making their decisions (United States Securities and Exchange Commission).
Threat of substitute products
The threat of substitute products is high. Different companies providing services in e-commerce can merge to provide full e-commerce services that include an online marketplace, payment channels, and marketing services. Small scale retailers are able to market their products directly to consumers by partnering with internet search providers and online payment providers. Most of the applications required for internet and mobile users are also commercially available in the market (United States Securities and Exchange Commission).
Bargaining power of suppliers
The bargaining power of suppliers is moderate. The e-commerce service providers depend on the efficiency of the suppliers in providing quality delivery services to customers. The logistics in the e-commerce supply chain require full participation of suppliers. EBay’s same-day delivery initiative that was launched in 2012 was discontinued in July 2015 partially because of challenges in managing supply chain logistics (Kokalitcheva).
The opportunities for eBay include strong brand name and R&D skills and leadership. EBay is well established as one of the major providers of e-commerce services. The brand is established in several countries including Germany, Britain, Canada and Australia and this makes it a preferred e-commerce service provider for people selling goods outside the United States (United States Securities and Exchange Commission). EBay has established its brand name based on the need to satisfy customer needs by providing all e-commerce related services under one platform. EBay’s enterprise business depends on its level of commitments on R&D. The company has invested in applications and systems that promote its online marketplace platform. These innovations include online payment services through PayPal and web and mobile applications that are used by customers and merchants to easily access the market.
EBay has a narrow product line due to intense competition that has forced the company to concentrate on certain products only. EBay concentrates on a small category of products especially the collectibles from individual sellers. This narrow category of product puts the company at business risk due to the intensity of competition in the industry.
Available opportunities for eBay include expanding core business, exploiting new market segments and getting involved in industry acquisitions. Expanding core business provides an opportunity for growth at eBay. The expansion includes providing more related services to customers in e-commerce. The e-commerce market is currently concentrated in few countries, and eBay mainly depends on its market in the United States for profitability (United States Securities and Exchange Commission). Emerging markets in Europe and Asia have been identified by the company as possible opportunities for future growth. EBay has been using industry acquisitions to avoid patent litigations on important tools that are needed in the e-commerce industry. The 2012 launch of same-day delivery service came as a result of acquisition in which the company acquired Milo for $75 million (Kokalitcheva). The company also looks forward to collaborating with internet and mobile solution providers in developing new technologies for users to access online markets.
The major threats to eBay include the fall in barriers to entry and increase in industry rivalry. The company has identified competition in the e-commerce industry as the major threat to its success in future. The competitors are continually coming up with new technological solutions that may create a barrier for eBay in the future (United States Securities and Exchange Commission).
The major opportunities for eBay are based on improvements in its core business. The company has in the recent past concentrated on an online marketplace for personal collectibles like second-hand clothes (Kokalitcheva). The company can improve its performance by associating its brand name with a specific category of products and investing in R&D. Dealing with a specific category of products in the online market can be important in eliminating competition from the well-established companies in the market. For instance, eBay can eliminate the threat posed by lack of an established internet search engine by making the public aware of the kind of products on offer in its online platforms.
Technology is a major factor of competition in the e-commerce industry, and eBay should make more investments in R&D to support the marketplace platform with user support applications. Currently, the company relies on the internet and mobile solutions from competitors, and this may affect the future of the business based on the policies adopted by other companies for the use of their applications. Investment in R&D will eliminate technology barriers that give competitors a competitive advantage.
The e-commerce industry is characterized by intense competition and random technology changes that provide several risks in business. EBay is an already established company but is faced with intense market rivalry from the more established and well-funded competitors in the market. The main source of revenue for the company comes from the gross merchandise volume, which is the total number of complete transactions between merchants and customers. The growth of its business in the online marketplace depends on the provision of the necessary user support tools including payment systems, internet search engine, and mobile applications to improve user experience. EBay can grow its business by identifying its established brand with a specific category of products in the online market and investing more on R&D to improve user experience. The uptake in the use of internet and mobile technology for online shopping is also on the rise in developing markets in Europe and Asia, and this provide opportunities for future growth.
- Kokalitcheva, Kia. “EBay just killed off its same-day delivery service.” Fortune, July 2015. Web. 6 November 2015.
- United States Securities and Exchange Commission. “Form 10K: eBay Inc.” 2014. Web. 6 November 2015.