Sellers only need to place their items online, Walt for bids and finally get connected to the buyers and settle the transactions. Unlike newspaper ads and actual auction events, doing business on eBay Is cheaper and more efficient. This is because sellers would not need to actively monitor the bids, and the minimal transaction fees that eBay charges sellers are cheaper than those of classified ads. After being guaranteed a sale and need not take on so much risk. As time went by, eBay started exploring additional services it can possibly provide.
In 2000, eBay introduced the fixed-price trading and the "Buy-let-NoW' features, as an effort to increase sales velocity and thereby revenues. EBay also went on to start side businesses, which included acquiring the Ballpoint payment system, offering shipping and logistics services as well as selling advertising space on its website. While the collectibles category remains as eBay's bread-and-butter business, revenues from other services have started to increase. For example, eBay's fixed-price trading, the "Buy-let-NoW' feature, (source: Case page 5), represented 11% of eBay's revenues in 001.
Also, eBay has been expanding its customer base not. Just by increasing its numbers but also by diversifying their types. Corporate sellers have started to enter eBay's marketplace, especially because of eBay's noticeably large community, which will provide them with a wider reach for their products. As eBay's user base grows larger, its main challenge now is to figure out how to best manage and sustain it.
The Role of Customers
What role do its customers (sellers and buyers) have in providing this service? As mentioned above, eBay is basically an online marketplace where sellers and errs (eBay's customers) interact in the form of transactions. Like a real marketplace, eBay, as the landowner, simply rents out space for sellers to display their merchandise, while the buyers come to the marketplace to make their purchases. EBay's interaction with the buyers and sellers is limited to providing them a channel to complete their transaction. EBay emails both the buyer and seller their contact details after closing each auction. It can be discerned that the whole business and the demand for the services of eBay revolve around its buyers and sellers. Without them, eBay would not have reached the prosperous level of existence hat it has today.
In 2001, eBay buyers purchased 1 piece of clothing every 3 seconds (Case Exhibit 1). (Case Exhibit 1). This is a sign of how popular eBay has become. A piece of clothing in eBay is sold faster than the time it takes for a person to walk from his living room to his kitchen. EBay's buyers have helped skyrocket the company's sales to 9 billion dollars (USED) in 2001. This is roughly 12,000 times the revenue that the company generated during its year of establishment.
Auction prices are driven upwards by the respective bids of eBay's buyers. In some resistances, the winning bid is higher than the retail price of the item. Because of this, eBay's sellers are said to be able to recover quickly the cost of their items on sale. This benefits eBay's sellers, and this gives them an incentive to list more items eBay's success and dominance in the online auction market. EBay's buyers attract the thousands of online sellers because of the vast profit opportunities and potential market for these sellers to tap into.
In addition, eBay's buyers post reviews and ratings to eBay's sellers for purchases made from them. This helps sellers to improve for future transactions and also helps allow buyers to determine whether particular sellers can be trusted for proper transactions. This encourages sustainability of transactions and better credibility towards not Just eBay's sellers but eBay itself. These feedbacks alert eBay's management to fraudulent activities by some sellers and address the problems as well. In conclusion, the main role of eBay's buyers for the company is that they attract a large number of online sellers to Join the eBay community. This increases traffic for the company and thereby increases profits.
On the other hand, eBay's sellers also attract a wide crowd of buyers that help eBay. Bay's sellers have an extremely diverse range of products, from time-shares to Beanie Babies to diamond rings. This reels in buyers to the eBay community because joining this online platform gives them the privilege of conveniently shopping for all their needs without having to go from one online store to another. In 2001 , eBay had approximately 423,000,000 product listings by sellers.
In addition, eBay's sellers increase the company's profit through commission for each successful bid from buyers. EBay also collects listing fees, both optional and mandatory, from its sellers. Even though each transaction yields only a small original amount, with eBay's base of thousands of sellers, the fees generate huge revenues for the company. As eBay is merely the "landowner" who waits for the rent, the company doesn't incur any of the costs the renters (eBay sellers) need to pay. EBay doesn't suffer any inventory holding costs or warehousing costs unlike other online auction sites.
With low cost of sales, the company is able to retain a high percentage of its sales. "Our best ideas are our user's ideas," stated Meg Whitman, CEO of eBay. This is how much importance eBay places on its buyers and sellers and the huge role the customers play in shaping eBay's success. The community of the buyers and sellers together is the main reason for eBay's massive success. As stated above, the buyers are drawn to eBay because of the seller's items while the sellers are attracted to the sales potential because of the large number of buyers.
Therefore together, they have increased eBay's value and profits. Plus, they are the ones who draw more people to eBay's website and make transactions. Companies. Retailers compete with each other to obtain a position in the eBay market. Those who do are able to tap into its established market with huge profit attention. EBay's popularity grows because of its users and also profits from companies through successful auction fees. In addition, companies are willing to allocate funds for eBay advertising because the large network of users means that advertisements will reach a large crowd. Bay earns non-auction revenues from companies through online advertisements. Advertising is a relatively large source of revenue for eBay, accounting for up to 10% of revenues in 2001 ($18 million dollars). It was also the community that helped eBay improve its services and they are eBay's source of knowledge. It was the users' activity that guided eBay to create the "Cars" category. This led to eBay becoming the largest auto site in the Internet. There were also times when eBay's users informed the management of some system problems that had to be resolved.
The community high degree of interaction with eBay, and within itself has led to sustainable sales, better understanding of customer needs and thus better services. All this contribute to the company's success. How effective is eBay in managing its customers and their behavior? What would you recommend eBay do in thee regard? Bay's efforts center around its customers and users because they have generated eBay's profits, value and worldwide recognition. If eBay's users were to suddenly turn their backs against the company, eBay might as well has lost its greatest assets.
Therefore, eBay should not only serve but also manage its users well to retain its community, its positive image to existing users and potential users image and keep its profits growing. EBay has experienced its share of ups and downs in handling its users. "We believe people are basically good. " This is eBay's motto. It has proven to be true n most cases, as the company has maintained a low 0. 001% registered fraud incidents. Nevertheless, eBay has implemented its own fraud protection program to deal with buyers' complaints regarding this matter as well as to prevent and mitigate fraud.
In addition, eBay takes disciplinary action against fraudulent sellers by issuing warnings and permanent suspensions. EBay has also decreased its cheating incidents by implementing a rating and feedback system amongst buyers and sellers. Because other people's ratings of sellers will always be shown on the seller's page, people will be less willing to buy room a seller with negative feedback and low rating. In addition, eBay can take note action if further deception occurs. This allows eBay to effectively regulate its users actions and ensure that sellers retain a minimum "good seller" standard.
However, eBay's users have an unusually high control over eBay's actions. For example, Mary Lou Song, eBay's senior product manager, made a simple change to the color of eBay's feedback stars. She got continuously criticized by eBay's users for two weeks. EBay's management were slow to react to the situation that had escalated from this simple user issue. There is an underlying issue in why eBay's management wasn't able to control the situation- which is a poor feedback system. If eBay had quickly addressed this concern by its users then this wouldn't have become "big news".
Therefore, eBay should create a better feedback system to address user's issues and concerns (further explanation will be seen below). In addition, eBay has fostered a sense of community in its site that has caused eBay's users to be loyal. This loyalty towards eBay has made its users eBay's own ambassadors, addressing concerns that will only propel eBay forward. Therefore, it is in fact eBay's poor feedback response system that has caused eBay's users to have an unusually high control over the company. In addition, eBay has successfully attracted attention from large companies (e. G. MM, Dell, Disney) that are potential drivers of increased volume sales. EBay treats its corporate users differently from its other users by giving them extra support to be up to eBay's user standards and to be knowledgeable about eBay's feedback system. Despite this, eBay has not been able to effectively manage these corporate sellers and user's reactions towards them. Bay's buyers demand more attention from these large companies than what these companies are used to giving. For example, buyers expect these corporations to ship their items quickly and be contacted right after their successful bids.
Some corporations needed a large degree of adjustment to accommodate these demanding users. Other corporate sellers have received negative feedback regarding broken merchandise and the inability to contact the company. Large corporations are known to ignore eBay's users and this has angered the users, as seen from constant complaints to eBay's management. EBay has yet to succeed in tackling this sticky situation properly to appease both the large corporations' and users' frustration towards each other. Our group believes that the solution lies in building a corporate service hotlist. Bay currently has a support system that is exclusively for eBay's large corporations, as stated above. With the new hotlist service, this team will also handle the complaints buyers have towards these large corporations. This team will act as the middle man for both the buyers and large companies to appease both parties and ensure transactions are completed well and without further complaints. Recommendations mentioned in this section will be further discussed in the last section. How successful is eBay?
How Successful Is EBay
Increasing Net Profit & Revenue eBay's financial statements tell us a story of consistent growth. Its revenue rose from $32 million in 1996 to $748 million in 2001. Specifically, it enjoyed a 73% increase in revenue from 2000 to 2001. This led to an 87% increase in net profits in the same p of time. (See Figures 1 and 2) b. Low Inventory Costs consistently lower than that of industry standards. This is attributed to eBay's business model. Bay's core service is being the connecting platform between a diverse network of buyers and sellers. Once an auction is won, the rest of the transaction, such as courier and payments, are left to the buyers and sellers to complete.
To the buyers and sellers, this set-up may be a curse or a blessing. It is thought to be an inconvenience to arrange one's own courier and payment, but this may also be good because each buyer-seller pair can come up with the least costly way of completing their transaction. For eBay, this arrangement means much more than convenience?it cuts their inventory costs. By letting their sellers deliver and store their own inventory, the need to rent out a warehouse for stocks, as well as to account for inventory and spoilage, is eliminated altogether.
In terms of expenses, we can see that eBay's efforts in Sales and Marketing have been expenses towards Sales and Marketing, its revenue has been growing at a faster rate. We can also see that although costs for Sales and Marketing have been growing over the past 5 years, they comprise a smaller portion of total operating expenses in 2001 than they did in 1996. This is due to eBay incurring more miscellaneous expenses such as stock option taxes, amortization and intangibles among other things.
This increasing absolute allocation to Sales & Marketing could possibly have increased their pull within the market, and it is shown in their sharp increase in revenue and net profit. By keeping their revenues high, and their costs low, we can see that eBay has succeeded in being a profitable firm. We have narrowed down two things that contribute to eBay's success: its growing network of users and its innovative low-cost operations. How Corporate Sellers tap into eBay's market eBay has become much more than an exchange platform. It has morphed into an immense network of buyers and sellers.
The large eBay network has attracted corporate retailers to Join eBay. EBay has accommodated these corporate sellers through a segment called eBay Stores, where large retailers can tap into the extensive eBay network. This only shows how much eBay's network has grown?the market no longer looks for sellers. The sellers actively look for the market. B. Loyalty of the Market eBay's network has such a great human pull that even during the 9/1 1 crisis, the company managed to outperform the analysts' forecasts. How did this come to be? Bay auctions are highly personal in nature.
Buyers will usually expect to receive high attention from the sellers, which range from personal notes to speedy responses. Through these personal interactions, both buyers and sellers would develop a sense of attachment to eBay, forming what can be called an eBay community. EBay's online discussion forums also help foster a great sense of community into the members. Members don't only get to interact with each other through bidding transactions. These discussion forums are also a platform for users to voice out their concerns with regards to the eBay service itself.
Issues would range from technical glitches in the system to simple color schemes. Users also come together to talk about what features they like or don't like, or even what features they would like to see. Because eBay listens to its members in such an attentive manner, these users become more and more loyal to the website. EBay's operations do not lie in sales. The website has strategically left all logistical dealings to its community of buyers and sellers, although not purely. This means that the success of eBay's main operating process is centralized around keeping the beset technologically up to date.
This involves debugging errors and constantly improving the website. In this process, eBay has to keep in mind the expectations and needs of customers. This kind of process is heavily based on reactions from users and this is something eBay must pay attention to. EBay has managed to understand this nature and they have taken appropriate steps to integrate their users into the decision making process for their website updates. EBay has taken much initiative into integrating its user feedback into the company's decision-making process.
There are twenty community help boards, and other user discussion forums that are set up not only for gathering feedback, but also to promote the high interaction of eBay's customers. Comments from these areas are submitted to eBay's developers so that the company could be constantly updated and connected to its customers' opinions. A focus group series called Voices" was also hosted in their headquarters. This focus group brought together both buyers and sellers from all over the country to meet with eBay's executives. These users would then share with them their opinions on owe eBay is run as well as on eBay's policies and future changes.