{"id":3900,"date":"2017-02-26T13:22:25","date_gmt":"2017-02-26T18:22:25","guid":{"rendered":"https:\/\/digital.hbs.edu\/platform-digit\/submission\/ebay-can-an-e-commerce-giant-reinvent-itself\/"},"modified":"2017-02-26T14:51:21","modified_gmt":"2017-02-26T19:51:21","slug":"ebay-can-an-e-commerce-giant-reinvent-itself","status":"publish","type":"hck-submission","link":"https:\/\/d3.harvard.edu\/platform-digit\/submission\/ebay-can-an-e-commerce-giant-reinvent-itself\/","title":{"rendered":"eBay \u2013 can an e-commerce giant reinvent itself?"},"content":{"rendered":"

History and Business Model<\/strong><\/p>\n

eBay was founded in September 1995 as an auction-format marketplace platform using online solutions to bring together buyers and sellers. In November 2000, the company first deviated from the auction format with the launch of the website\u2019s \u201cBuy It Now\u201d button. At this time, revenues were doubling almost every year as new innovations, like eBay stores, helped to strengthen the platform. The company\u2019s strategy also relied on purchasing complementors and competitors like StubHub, PayPal and GSI Commerce.<\/p>\n

eBay is a true platform, enabling e-commerce transactions through its marketplace for a fee and holding no inventory itself. As such, eBay\u2019s 2015 net revenue of $9 billion is a small percentage of its total gross merchandise value (GMV) of $82 billion (compared to Amazon\u2019s product revenue of $79 billion). This business model is also highly profitable and geographically diversified. In 2015, eBay\u2019s gross margin was 80%, while operating margin was 34% (Amazon\u2019s operating margin is only 2%, but is growing at a much faster pace). In 2015, 58% of eBay\u2019s net revenue was from international sources, while larger peers are tied to specific geographies (e.g. Amazon is largely U.S. focused while Alibaba is China-centric) [1].<\/p>\n

New Entrants \u2013 Overcoming Network Effects<\/strong><\/p>\n

In 20015, eBay\u2019s market capitalization was three times that of Amazons, as Wall Street loved its asset-light business model and high profitability [2]. So, how did Amazon successfully take over this market when competing with a formidable incumbent?<\/p>\n

To compete with the goliath in the industry, Jeff Bezos focused on product differentiation. Since Amazon\u2019s infancy, Bezos envisioned the marketplace as an easy, efficient portal for all of one\u2019s shopping needs. While eBay was focused on hitting quarterly analyst estimates, Amazon was willing to take short-term hits to profitability in return for long-term gains in share. Amazon spent hundreds of millions of dollars building its brand, from hiring customer service representatives to refunding unhappy customers, in order to secure its reputation as a trusted retailer [2].<\/p>\n

In order to amass a product offering, Amazon courted eBay\u2019s sellers and even offered to waive some fees as an incentive to join the platform. Sellers were happy to oblige as there is no downside to multi-homing (for them) in this industry. Finally, Amazon created greater control over the customer experience by selling products directly and integrating small merchants onto its site through \u2018Fulfillment by Amazon\u2019, whereby Amazon stores and ships retailer\u2019s inventory for a larger fee [2].<\/p>\n

As eBay\u2019s control of everyday goods slipped, smaller niche competitors have been attacking from the other side. For example, Etsy has emerged as a marketplace for homemade or vintage goods like art, jewelry and clothing \u2013 competing directly with eBay\u2019s product offering [3].<\/p>\n

Why didn\u2019t eBay fight back?<\/strong><\/p>\n

With such competitive positioning, eBay continuously failed to recognize the importance of reorienting its core business. \u00a0Despite evidence that the auction model was hampering growth, many senior executives believed the brand was tied up in the excitement of auctions and a fundamental shift would alienate core customers and sellers. And, instead of focusing on fixes to its slowing business model, eBay turned to acquisitions in high-growth segments like StubHub and Skype to maintain growth [2].<\/p>\n

Finally, with such a large base, the company did not realize the importance of focusing on the customer experience. Long delays between ship times, a difficult to navigate user interface and little use of structured data (to generate reviews, link to relevant items, optimize search, etc.) made it easy for Amazon to improve on the experience and attract customers \u2013 despite ingrained indirect network effects.<\/p>\n

Looking Forward<\/strong><\/p>\n

eBay CEO Devin Wenig believes that, as e-commerce is still in its infancy, there is room for multiple marketplace competitors. Wenig sees eBay as \u2018the anti-Amazon\u2019 in the future and wants to avoid competing directly with Amazon for lost share. Instead of focusing on everyday merchandise (where eBay\u2019s slower shipping model cannot compete), Wenig wants help customers discover new products in an online bazaar setting, making shopping enjoyable and encouraging impulse purchases [4]. The company has also launched several initiatives to improve its user interface \u2013 including improvements in structured data, search engine optimization, reviews, etc.<\/p>\n

However, eBay\u2019s biggest obstacle at this point is overcoming its brand image in the market. Despite the fact that 84% of its sales are now transacted at a fix price, most people still view eBay as predominantly an auction house or the world\u2019s largest garage sale [5]. eBay\u2019s success will ultimately depend on the success of these newly launched initiatives in shaping customer perception. However, the bigger question remains \u2013 is there room for two players in this industry or do strong indirect network effects suggest it will be winner take all?<\/p>\n

\u00a0<\/strong><\/p>\n

[1] Initiating Coverage of EBAY with LT Buy Rating; Hilliard Lyons, Jeffrey Turner. August 30,2016.<\/p>\n

[2] http:\/\/www.nytimes.com\/2008\/10\/12\/business\/12giants.html?hp=&pagewanted=all<\/a><\/p>\n

[3] Modest Expectations, Strong FCF and Capital Returns, Initiate Positive; Susquehanna Financial Group, Shyam Patil. January 14, 2016.<\/p>\n

[4] https:\/\/www.bloomberg.com\/news\/articles\/2016-09-19\/how-ebay-s-ceo-plans-to-take-on-amazon<\/a><\/p>\n

[5] http:\/\/www.nytimes.com\/2013\/12\/22\/magazine\/ebays-strategy-for-taking-on-amazon.html<\/p>\n","protected":false},"excerpt":{"rendered":"

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