eBay was started in 1995 by an entrepreneur, Pierre Omidyar, working from his home. In 2009, the company he founded had over 90 million active users worldwide and a net profit of over $8.7 billion, up from just under $442 million in 2003. eBay is an international company with 54% of its earnings coming from overseas (eBay Annual Report, 2009, published in 2010).

eBay’s success was based upon its use of the Internet to create a new online marketplace. In essence, a market can be defined as the sum of all of the people who have possible interest in buying or selling a particular product or service and who are in contact with each other. The use of the Internet has enabled eBay to broaden markets to include people and organizations that otherwise would not have known of buying or selling opportunities. As could be expected, the expanded markets have usually provided benefits to both sellers and buyers. eBay helps make inefficient markets more efficient.

With the growth of its original online business in the United States slowing, eBay has been moving into related areas of service and creating a global network of strong brands. In addition to its purchase of PayPal, which was a major success, Skype, which was a disappointment and was sold at a loss, a number of other acquisitions in the United States and overseas were designed to complement and extend the company’s reach and services.

In the rapidly changing world of e-commerce, the danger of falling behind in new developments is always a threat, and capitalizing on strengths or finding new opportunities is a necessity. A case in point is the rapid growth of the market segment involving mobile commerce.

Mobile commerce, sales made through cell phones and other mobile electronic devices, had become an $18.3 billion industry in 2009, estimated at $25 billion in 2010, and projected to grow to $119 billion globally by 2015. Mobile apps, applications for using electronic devices for specific purposes that are often developed by companies other than the producers of the electronic devices, are specifically designed to help consumers to make purchases using their iPhones, Apple’s iPads, Black- Berrys, and handsets with Google Inc.’s Android software.

Though eBay’s mobile commerce sales were growing, eBay was losing market share to Amazon.com. Seeking additional growth, eBay undertook a major development effort to bring out more mobile apps. By mid-2010, it had already gained a market share more than double that of Amazon.com in this highly fragmented market. eBay is presently developing a number of new mobile apps each month for use in buying, selling, and searching for deals, including one to alert mobile shoppers on the status of online auctions. It has also designed an eBay fashion app that combines a slide show of clothes that people can peruse and virtual dressing rooms where they can try on garments (MacMillan and Galante, 2010). eBay faces both opportunities and challenges in selection of additional markets to serve, types of services to be provided, security issues, growing competition, and further expansion of operations overseas.

Other initiatives and approaches, domestically and internationally, are discussed later in this case after looking at how eBay was formed and developed. 

An idea becomes a company 

Pierre Omidyar, the founder of eBay, had been a computer science major at Tufts University when he moved to the San Francisco Bay Area and began working in the software engineering business. He had a combination of technical, creative, and entrepreneurial interests, and co-founded Ink Development Corporation. That company was subsequently sold to Microsoft. In 1995 his future wife, who collected Pez dispensers, complained that it was hard to find people in the area to trade with (Cohen, 2000). He decided that he could set up an auction site on the Internet and developed a simple and easy-to-understand mechanism for trading. In the autumn of 1995 he started AuctionWeb as a hobby on his home Internet service. The domain name was www.ebay.com (ebay.com website). It was started as a free service but there was so much traffic on the site that he began to charge a small fee. Omidyar made money the first month and revenue kept going up rapidly (Cohen, 2000). As the volume grew and problems emerged, it became necessary to increase the capacity, adding equipment and making changes to the software.
With business booming, Omidyar brought in a Stanford University MBA. They hired technical people, customer-support staff, and finance people. He worked with a venture capital firm and arranged an Initial Public Offering (IPO), turning his CEO position over to Meg Whitman (who was a Hasbro Inc. executive before joining eBay). The IPO took place in 1998, and all of the staff members found themselves rich (Cohen, 2000). Every year since then eBay revenues and profits have increased.

The number of employees also increased rapidly. The supporting software for the site, one of the most complicated applications ever created, had to be continually expanded and improved. Along with the rapid growth, there were some spectacular problems. In 1999 the eBay site went dark for 22 hours, resulting in lost fees of $4 million and a drop of $5 billion in eBay’s market valuation.
Maynard Webb was hired as president of eBay Technologies and Lynn Reedy was hired as senior vice president for software development after the crash. Technology became a core strength for eBay. Making use easier and entering new markets eBay has continued to innovate, providing new sites and new services, and made acquisitions to support its online marketplace. It has also benefited as more individuals and organizations find that they can profitably offer items on eBay sites.
eBay offers a wide variety of features that enable members to buy and sell on the site quickly and conveniently. In addition to the auction format for purchases, items may be purchased at fixed prices through the Buy-It-Now feature or through eBay’s Half.com. The company offers a number of workshops and courses to teach people how to promote their products more effectively on eBay. They also provide discussion and chat boards to encourage open communication between members and the company.
They have a feedback system in which buyers and sellers rate each other on each transaction, and the company watches for fraud. They have developed software to limit sales of merchandise such as guns and Nazi memorabilia (Hof, 2003b). In spite of eBay’s continuing efforts to make their site easier for customers to use, some people still hesitate to learn how to do it and to take photographs where appropriate.
Separate companies with storefronts have been started where people can take items they want to sell. For a fee, these companies then take photographs and handle all other aspects of the listing for the customer. eBay does not discourage the formation of such companies, believing that any additional customers benefit eBay. eBay itself does not want to get into the business of opening stores.
eBay purchased PayPal, a company that enabled users to send and receive payments through credit cards or bank accounts, for $1.5 billion in October 2002. This provided better service for eBay users than did eBay’s previous system, and also processes payments for other websites, increasing eBay’s profits.
eBay started a new Internet-postage venture with the US Postal Service in 2004 (Bandler, 2004). After an eBay manager saw that some people were listing real cars in its category for die-cast model cars, the company developed a site for real cars (Hof, 2003a).
eBay Motors, launched in 1998, has since become the top online automobile site, with sales of over 4,000 cars per month by 2003. It is used both by individuals and by dealers, for some of whom it provides the majority of sales.

Advantages cited include wide selection, quick responses, and often lower overall transaction costs (Ross, 2003). Buyers can hire someone to inspect a vehicle offered for sale, but most rely on photographs and sometimes on e-mails to the sellers. One poll indicated that the majority of buyers believe the cars they purchased are as good or better than described, 47% find them slightly or significantly worse than described.
Since the late 1990s parents looking for a hard-to-find toy have turned to eBay. In 2002, eBay kept in contact with toy makers and monitored its own sites to see which toys appeared to have high demand. They then supplied a list of the top 20 of these toys to regular sellers on eBay, mainly mom-and-pop merchants. The merchants then sold the toys on eBay when the toys became scarce in stores. A number of merchants did quite well in reselling these toys, though a few of the recommended toys did not sell well (Wingfield, 2002).
The types as well as the numbers of sellers on eBay have increased. Sears Roebuck & Co., Walt Disney Co., and others have sold brand-new items. These are often offered at fixed prices (Hof, 2003b). The site has not worked as well for corporations to move large stocks of unsold merchandise. One company found that when it offered more than a few dozen digital cameras or laptops, it tended to crash the price. eBay core merchants remain the small entrepreneurs for whom the site offers excellent opportunities (Wingfield, 2004).
At least 12 state governments in the United States have found eBay an effective and profitable way to dispose of surplus items. Traditional auctions are often poorly publicized, inconvenient, and reach relatively few people. The result is that the governments typically receive very low prices for the goods. Sales through eBay commonly double or triple the prices received, and the government may even be able to sell something that appeared unsaleable. The state of Massachusetts had been trying unsuccessfully to sell a 128-foot lightship for a year and a half. They finally posted it on eBay, and it eventually sold for $126,100 (Whitaker, 2000).

Everything from tools and furniture to confiscated jewelry is being sold. Since 1999 billionaire financial guru Warren Buffet has offered himself once a year as a lunch companion to the highest bidder. The money goes to Glide Memorial United Methodist Church in San Francisco, an institution that provides many social services. Up until 2002 the bidding was done live at a fund-raising gala in San Francisco. Winning bids were in the range of $25,000 to $35,000 every year. In 2003 Buffett suggested that the auction be conducted on eBay. It was, and the winning bid in the five-day auction was $250,100 (Kopytoff, 2003a).

A home where former President Bill Clinton once lived was put up for sale on eBay, as was a whole small town in California (the latter bringing a much higher price than expected).

Small businesses may find the site useful for purchasing items from testing meters to bulldozers, lathes, and dental X-ray machines. The equipment, often surplus at another company, is generally available at a fraction of the cost of new equipment from the manufacturer. In 2002 sales of business products on eBay reached $1 billion, up 90% from the year before (Kopytoff, 2003b).

Expanding internationally

eBay operates its core platform in 24 countries, and earns 54% of its profits from international operations. ‘Our international expansion has been rapid and our international business, especially in Germany, the UK, and South Korea, has become critical to our revenues and profits’ (eBay Inc. Annual Report 2006, p. 12). In 2009, eBay purchased a controlling interest in Korea’s Gmarket Inc. in an attempt to make eBay the biggest player in the online shopping market there. One of the setbacks was in Japan where Yahoo had entered ahead of eBay, and eBay also made some missteps that resulted in an inability to build adequate volume (Belson et al., 2001). In 2002, they withdrew their eBay marketplace offerings from the Japanese marketplace. In 2006, they changed their strategy in China by entering into a joint venture with a local company.

They are still experiencing some problems in China in 2010. In their 2006 Annual Report, eBay provides a list of 20 risks to which they are subject in doing business internationally. 

Looking to the future 

There are challenges facing eBay. Other online sellers and auction sites provide competition. Activists protest if items they deem offensive because of race or other reasons appear on the website. Varying laws regulate what can be sold in various countries. Taxes on online sales have been imposed in some countries. Vigilance against fraud and non-payment are required. The high degree of market penetration in the United States would seem to indicate that more growth must come from other countries if eBay is to continue to expand at the present rates.

Questions 

1. Evaluate eBay’s marketing strategies to date. What changes, if any, would you suggest?

2. Evaluate its technical and personnel strategies. What changes, if any, would you suggest?

3. Has eBay really created a new kind of market?

4. Are eBay’s efforts to increase and improve interactions with members worth the cost?

5. Is continued rapid growth desirable for eBay?

6. Where does growth appear to be feasible?