eBay Company Analysis - Corporate Level Strategy

By Ralph Martin,2014-05-16 16:40
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A SWOT analysis of eBay was prepared to examine what the company does well and what aspects may need some attention (Appendix C).










    OCTOBER 26, 2005

Coghlan, Pauley, Scott 5/16/2010 eBay, A Company Analysis

    There is no doubt that eBay holds the power in the online auction industry. An analysis of the key factors of their company was compiled to find out what the eBay

    strategy is, and how they are doing financially. Also an internal analysis of their

    strengths and weaknesses and an external analysis of their opportunities and threats have

    been provided. Finally, a strength assessment of the main competitors in the online

    auction industry has been determined to see how strong each competitor is. From its

    beginning in a San Francisco living room, eBay has grown to be in a league by itself.

    Analysis of eBay’s Strategy and Business Model

    Before eBay could begin to compete in the online auction industry a strategy and business model needed to be developed (Appendix A). eBay had to define the businesses

    they would be competing in and how they would compete in those specific businesses.

    They also needed to define how they would be a successful service to their customers.

    Corporate level strategy

    eBay’s corporate level strategy was to become a diversified business. They wanted to diversify not only the products they offered but also their customer base and

    global reach. By using the eBay service you can find virtually anything you are looking


    Business Level Strategy

     eBay competes in the online auction industry using a broad differentiation strategy. Although they may not be the most inexpensive online auction site, they have

    the largest variety of products offered. They also appeal to a larger group of consumers

    that include individual sellers, small entrepreneurs, and corporations all over the world.

    eBay achieves broad differentiation through their strong eBay community, a global reach


Coghlan, Pauley, Scott 5/16/2010 eBay, A Company Analysis

    not matched by any competitor, and a category span of 27,000. These aspects of the

    eBay service among others set their company apart from the rest. Customers see the

    value in using the eBay service. This is why eBay has become so successful.

    eBay’s Business Model

    eBay’s business model was based on creating and maintaining a person-to-person

    trading community. After implementing their model, eBay has been able to build

    strategic partnerships, continue to make innovative changes and improvements, and

    monitor its internal and external environments for possible future opportunities. This has

    given them the prestige of being the world’s largest online auction company.

    Financial Analysis

    Financially, eBay has shown improvement. Based on several critical financial

    ratios it can be determined that eBay has improved itself in this area nearly every year of

    its existence (Appendix B). Further, as of 2004, eBay was just shy of matching the

    industry averages of these ratios. The differences were small, and based on eBay’s

    record of improvement, it can be predicted that the company will continue to remain

    close to par with the industry average, if not begin to exceed it.

    SWOT Analysis

    A SWOT analysis of eBay was prepared to examine what the company does well

    and what aspects may need some attention (Appendix C). Also, eBay has many

    opportunities that are available to them in the future. Just like any company though they

    do have threats that may pose a problem for them. Some of the main strengths of their

    company include the variety of products offered, their customer service, and a

    tremendous global reach. Although they do not have very many weaknesses eBay should


Coghlan, Pauley, Scott 5/16/2010 eBay, A Company Analysis

    still work on keeping illegal activity to a minimum on their site. Also, they should look at to help provide better product descriptions for their customers.

    eBay must continue to look for opportunities to expand their company in the

    future. The changing lifestyles of people can be an opportunity for eBay to penetrate the market even further and broaden their customer base. Also, eBay should look at other online auction sites for possible acquisitions or partnerships. eBay must continue to expand internationally to keep the number one spot in this market. Threats to eBay’s reign include the continual growth of and also thievery within their own site. eBay should keep a close eye on threats to their company and do what they can to make them opportunities for change.

    Weighted Competitive Strength Assessment

    A weighted average competitive assessment of eBay and its competitors has been

    developed to determine how strong each is in the online auction industry (Appendix D). The assessment was divided into eight categories each carrying a separate weight determined by importance. The scale ranged from 1-10, with 1 being the worst, 5 being average, and 10 being the best. After multiplying each score by its given weight, we were able to add all the scores to determine the strongest company. eBay ended up on top. Even though eBay was not the strongest in each category, they had the highest score on the top three weighted averages. This led to the conclusion that a company does not necessarily have to be better than its competitors in all areas, just as long as they are ahead in the most important ones.


Coghlan, Pauley, Scott 5/16/2010 eBay, A Company Analysis

    Appendix A: Corporate-Level Strategy, Business-Level Strategy, and Business


Corporate Level Strategy

eBay is a very diverse company. The service they provide is appealing to both individual

    customers as well as large corporate customers. Hobbyist and collectors, casual sellers,

    professional buyers, and corporate sellers all belong to the eBay customer base. The

    products that are offered on the eBay website range from shoes to automobiles. This

    makes their product line very diverse as well. The creation of eBay motors, eBay Real

    Estate, and the LiveAuctions specialty site, as well as the acquisition of have all

    contributed to the growth and diversification of this company. In addition to diversifying

    their customers and their products, eBay has expanded their business by branching out

    into domestic markets as well.

Business Level Strategy

eBay competes in the online auction industry using a broad differentiation strategy. By

    choosing this strategy eBay determined that the best way to achieve a sustainable

    competitive advantage over its rivals was to differentiate their service. The way in which

    eBay has set their online auction site apart from its competitors has lead customers to

    prefer their site over other online auctioneers and retailers

    eBay’s Broad Differentiation Strategy

eBay has created a one-stop-shopping experience that is appealing to large corporations,

    independent entrepreneurs, and individual buyers and sellers. They have created value

    through many facets of their business that appeal to their customers and differentiate

    them from the competition. The main ways that eBay differentiates themselves is


    1. Variety of products offered

    ? When customers visit eBay they can search for virtually any product.

    eBay boasts a category variety not matched by any competitor with over


    2. The eBay Community

    ? eBay wants their customers to feel like they are a part of a community.

    This community feel gives customers the sense that they are branch of

    something and cared about. By showing the customers that their feedback,

    opinions, and feelings are important eBay has gained tremendous ground

    with their customers.

    3. The eBay Website

    ? eBay has created an auction and retail website that is unique and

    interesting. This creative site sets them apart from their competitors. The


Coghlan, Pauley, Scott 5/16/2010 eBay, A Company Analysis

    site is set up with many facets that reach a broad span of visiting buyers

    and sellers. The site is also entertaining and easy to use making it very

    appealing for online shopping and trading.

    4. The eBay Brand Name

    ? eBay was the creator of the online auction industry. When customers

    think of online buying the immediately think of eBay. This has given

    them a competitive advantage that sets them apart from other online


    5. eBay’s Global Reach

    ? The global reach of eBay is not achieved by any other online auction site.

    For large corporations international selling and buying is done everyday.

    Even for an individual buyer or seller, having the option of searching

    throughout 150 countries with a span of 94.9 million users is very


Why the Differentiation Strategy Works Best for eBay

The users of eBay have many different preferences and needs depending on why and how

    they use the service. eBay has determined a way to satisfy their customers whether they

    are large businesses or individuals. By offering a wide variety of products, globally

    expanding, and creating a community for all customers to join eBay has created a

    distinctive value unmatched by its rivals.

Analysis of eBay’s Business Model

eBay’s business model was based on creating and maintaining a person-to-person trading

    community. This allows buyers to easily search for what they want to purchase. It also

    allows sellers to post their items minutes after they have registered. There are a few

    specific elements of eBay’s business model that they recognized as key to its success they

    are (as given in the case study):

    ? Being the largest online trading forum with a critical mass of buyers, sellers, and

    items listed for sale

    ? Its compelling and entertaining environment, which had strong values, established

    rules and procedures that facilitated communication between buyers and sellers

    ? Establishing programs such as Safeharbor to aid in disputes and to punish users

    who violate eBay

    ? Cost effective and convenient trading

    ? Strong community affinity

    ? An intuitive user interface that was easy to understand, arranged by topics, and

    fully automated


Coghlan, Pauley, Scott 5/16/2010 eBay, A Company Analysis

    By implementing their business model, eBay employed three main tactics. First, they looked to build strategic partnerships. Second, they looked for customer feedback to constantly make changes and improvements. Finally, they monitored its internal and external environments for possible opportunities. By doing all of these things, eBay was able to adapt to the changing ways and keep their customers satisfied. To be successful eBay must continue to mold and change their business model to satisfy its customers and keep the level of quality they employ to the highest degree possible. If eBay is able to do this they will continue to be successful.


    Coghlan, Pauley, Scott 5/16/2010 eBay, A Company Analysis

    eBay eBay Appendix B: Financial Overview of eBay and the Internet Retail Industry Ratio 2003 2004 Industry Average 2004 Status Relation to Industry

    Gross Profit Margin 80.7 86.8 N/A Improving N/A Operating Profit

    Margin 30.6 32.5 32.8 Improving Nearly equal as of 2004 Net Profit Margin 21.7 24.2 24.3 Improving Nearly equal as of 2004 ROA 7.7 10.4 9.2 Improving Above Industry Average Current Ratio 2.683 3.315 N/A Improving N/A Debt To Assets 1.6 1.6 N/A Unchanging N/A Net Profit Margin 20.65 24.23 N/A Improving N/A

    It is clear that eBay as a company is remaining the same or improving in each of aspect of

    the financial ratios reported above. These six ratios are critical to evaluation a company

    on several different levels.

    Also, it should be noted that eBay is relatively similar to the industry average. However,

    there is still not one category where eBay outperforms the industry average. Yet, the

    improvement eBay is facing, is a positive sign for the company that it will remain

    competitive on a financial level, if not pull ahead of the industry average.


Coghlan, Pauley, Scott 5/16/2010 eBay, A Company Analysis

    Appendix C: eBay S.W.O.T Analysis

    ? Largest online trading forum ? Inability to measure illegal activity on site Strengths Weaknesses

    ? Sense of community ? Inability to penetrate some foreign markets

    ? Recognizable Brand Name ? Lack of in depth descriptions of products

    ? Over 250 Alliances ? Technology malfunctions

    ? Partnerships with international companies

    ? Global reach

    ? eBay University

    ? Entertaining site

    ? Over 27,000 different categories

    ? Publicly Traded

    ? Zero inventory held by company

    ? No need for the traditional sales force

    Opportunities Threats

    ? Changing lifestyles of people ? Thieves

    ? Acquisition of ? Increasing number of online auction sites

    ? Continued international expansion ? Rapid growth of

    ? Increasing use of the internet ? Increasing number of online stores

    ? Expand community services ? 1/3 of internet users already registered on


eBay’s Strengths

EBay is the leading provider of online auction and customer-to-customer trading in the

    world. They have many competencies, core competencies, and distinctive competencies

    that set them apart from their competitors. Their alliances, international dominance, and

    recognizable brand, name just to name a few, are some of the main reasons why eBay is a

    company that is hard to top.

Largest Online Auction Forum(core competence)

    From its beginning in the mid-1990s, eBay has been growing in leaps and bounds. They

    now have over 94.9 million registered users in more then 150 different countries. eBay’s

    founder Pierre Omidyar did not even see the tremendous possibilities that eBay had when

    it was first developed over ten years ago. eBay now holds the top spot in the online

    auction industry. In the United States alone one-third of the population is already

    registered with the site and with increasing use of the internet that number is sure to grow.

Recognizable Brand Name(core competence)

    A recognizable brand name is important to the success of a company. eBay has made

    sure to use color and unique writing to show their brand name off. They also use

    television and Internet advertising to get continued publicity on different media avenues. does not have as much face value as eBay. Their name is not distinctive to

    the customers like eBay’s.


Coghlan, Pauley, Scott 5/16/2010 eBay, A Company Analysis

    Over 250 Alliances (competence)

    eBay holds alliances with some of the largest companies in the world. They include UPS, America Online, IBM, PayPal, and Walt Disney. These alliances create more opportunities for eBay to advertise and reach potential customers. eBay has also created alliances with companies that help to maintain customer satisfaction. Tradesafe and I-Escrow have both partnered with eBay to make sure that all customers get what the pay for.

Partnerships with International Companies (competence)

    Partnerships abroad can be crucial to a company succeeding in foreign markets. By partnering with established foreign companies eBay is able to easily transition into that countries culture with the help of citizens who work with the partnering company. eBay also immediately acquires ties with companies in the foreign market, which makes it simple for them to make more partnerships and alliances.

Global Reach (core competence)

    The global reach that eBay has obtained is not matched by any other online auction site. Although is in a close second to eBay, customers obviously prefer eBay’s global ability. They have the capability to reach people in virtually any part of the world and get them the product they are looking for.

Sense of Community (distinctive competence)

    Caring about your customers and making sure they know the lengths you go for to keep them happy is crucial to the success of a business. eBay makes their community a main priority at all times. eBay is continually coming up with new ways to reach out to their customers. They have come up with the Feedback Forum that is used for customers to provide comments about their trading partners. Two new personalization features have also been added for their members, My eBay and About me. eBay takes great pride in their community and will go to great lengths to make sure that it stays intact.

eBay University(competence)

    eBay University is a distinctive feature of the eBay community. It was created in hopes of gaining more entrepreneurs and also educating new users. It has been a great success for eBay. It has helped new users gain knowledge as well as eBay. eBay used the many questions asked by participants in eBay University to their benefit.

Entertaining Site (competence)

    eBay has created a site that makes people want to come back again and again. They are constantly revamping their site to make sure that it is the easiest, fastest, and most fun auction site on the web.

Over 27,000 Different Categories (distinctive competence)

    The wide variety of products offered on eBay gives them a competitive advantage above all other online auction sites. They are like the Wal-Mart of the Internet! They say that anything you want you can find on eBay.


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