2002 Mini Case study: EBAY registered and 90 million active users and receives 81 million unique visitors a month. More than 1 million members make their living from the site. Yet eBay itself doesn't buy any in- >>eBay ventory or own the products on its site. It earns its money by collecting fees: an insertion fee for each listing plus a final- value fee based on the auction or fixed price. For example, if an item sells for $60.00, the seller pays 8.75 percent on the first $25.00 ($2.19) plus 3.5 percent on the remaining $35.00 ($1.23). Therefore, the final-value fee for the sale is $3.42. This pricing structure was developed to attract high-volume sellers and deter those who list only a few low-priced items. With eBay's expansion into a wide range of other cate- gories from boats and cars and travel and tickets to health and beauty and home and garden-collectibles now make up only a small percentage of eBay sales. eBay's business model is based on connecting individ- uals who otherwise would not be connected. It was the first example of online social networking, years before Twitter In 1995, Pierre Omidayar, a French-Iranian immigrant, and Facebook existed, and consumer trust is a key element wrote the code for an auction Web site where everyone of its success. While skeptics initially questioned whether would have equal access to a single global marketplace. consumers would buy products from strangers, Omidayar Omidayar couldn't believe it when a collector bought the believed people are innately good, and eBay's originators first item, a broken laser pointer, for $14.83.* Soon the did two things well: they worked hard to make their Web site grew into a broader auction site where consumers site a community, and they developed tools to help reinforce could auction collectibles such as baseball cards and trust between strangers. The company tracks and pub- Barbie dolls. The momentum continued when individuals lishes the reputations of both buyers and sellers on the ba- and small businesses discovered that eBay was an effi- sis of feedback from each transaction. eBay extended its cient way to reach new consumers and other businesses.feedback service in 2007 by adding four different seller cat- Large companies began using eBay as a means of selling egories: items as described, communication, shipping time, their bulk lots of unsold inventory. Today, people can buy and shipping and handling rate. The ratings are anonymous and sell virtually any product or service, on the world's but visible to other buyers. Sellers with the highest rankings largest online marketplace. From appliances and comput- appear at the top of search results. ers to cars and real estate, sellers can list anything as long eBay's millions of passionate users also have a voice as it is not illegal or violates eBay's rules and policies. in all major decisions the company makes through its eBay's success truly created a pricing revolution by al- Voice of the Customer program. Every few months, eBay lowing buyers to determine what they would pay for an brings in as many as a dozen sellers and buyers and asks item; the result pleases both sides because customers gain them questions about how they work and what else eBay control and receive the best possible price while sellers needs to do. At least twice a week the company holds make good margins due to the site's efficiency and wide hour-long teleconferences to poll users on almost every reach. For years, buyers and sellers used eBay as an new feature or policy. The result is that users (eBay's cus- informal guide to market value. Even a company with a new- tomers) feel like owners, and they have taken the initiative product design that wanted to know the going price for any- to expand the company into ever-new territory. thing from a copier to a new DVD player checked on eBay. eBay continues to expand its capabilities to build its eBay has evolved to also offer a fixed-price "buy it community and connect people around the world by now" option to those who don't want to wait for an auction adding services, partnerships, and investments. The and are willing to pay the seller's price. Sellers can also use company acquired PayPal, an online payment service, in the fixed price format with a "best offer" option that allows 2002 after eBay members made it clear that PayPal was the seller to counteroffer, reject, or accept an offer. the preferred method of payment. The acquisition low- The impact of eBay's global reach is significant. In 2009, ered currency and language barriers and allowed over $60 billion worth of goods was sold on eBay that's merchants to easily sell products around the world. almost $2,000 worth every second.The site has 405 million eBay also acquired Skype Internet voice and video communication service in 2005, which allowed buyers have helped take the company to the top of such lists and sellers to communicate over voice or video free and such as Newsweek's Greenest Companies in America generated additional ad revenue for eBay. However, in and Fortunes 100 Best Companies to Work For in back- 2009 eBay sold a majority stake in Skype to focus more to-back years. on its e-commerce and payments businesses, leading the company to acquire Shopping.com, StubHub, Bill Questions Me Later, and others. eBay now has a presence in 39 1. Why has eBay succeeded as an online auction mar- markets around the world. ketplace while so many others have failed? Although eBay was a darling in the dot-com boom and has achieved tremendous success since then, it is 2. Evaluate eBay's fee structure. Is it optimal or could it not without challenges. These include a worldwide re- be improved? Why? How? cession, increased competition from Google, and diffi- 3. What's next for eBay? How does it continue to grow culties as it expands globally into tough markets such as when it needs both buyers and sellers? Where will China. Its CEO, Meg Whitman, retired in 2008 after lead this growth come from? ing the company for 10 years and was replaced by John Donahue. Under its new leadership, the company con- Pp. 43-48, Catherine Holahan, "eBay's New Tough Love CEO) BusinessWeek, February 4, 2008, Sources: Douglas MacMillan, "Can eBay Get ts Tech Sawy Back?" BusinessWeek, June 22, 2009, tinues to focus on one of its founding beliefs: a strong . 58-50 , Adam Lastinsky "Buliding eBay 2.05 Fortune, October 16, 2006, p. 16164 commitment to and investment in technologies that help Mathew Creamer, "A Million Marketers" Adertising Age , June 26, 2006 , pp . 1, 71 ; Clive people connect. Recent efforts to adopt mobile applica- Emerging Era of Customer Advocacy; Mir Shan Management Reviews Winter 2029) 7-62; Thompson, "eBay Heads East," Fast Company (July-August 2006): 87-89; Glen L. Urban, "The tions, integrate with iPhones, and become more green www.ebay.com