About eBay Part III
EBay Fine-Tunes its Strategy, Auction or Buy Now?
About eBay: Pierre Omidyar, a freethinking French national, founded eBay in May 1996. In 1997, he attempted to achieve funding for his fledging online flea market, eBay, by traveling to the then-technology hotbed of Silicon Valley. Benchmark Capital, a venture capital firm with "teams" in Silicon Valley, Europe, and Israel, agreed to invest nearly $7 million into the company. In early 2002, eBay, Inc. provided the technology for buyers and sellers to come together to trade items on a worldwide venue.
eBay was a U.S.-based dynamic pricing online trading platform (Auction) located at Ebay.com. The Company developed a web-based entity that served as an online flea market and as an online alternative to classified advertisements to buy and sell items. Auctions are markets where prices vary (dynamic pricing) depending on the competition among the participants who are buying or selling products or services. They can be classified as C2C or B2C, although generally, the term C2C auction refers to the venue in which the sale takes place ( Laudon & Traver, 2010).
eBay is a practical example of this statement and from this definition, we could easily deduce that the Web’s most prominent online auction giant has deviated or has changed its course so dramatically from the formula that made it successful. The new CEO John Donahoe wants to focus eBay’s business on the secondary market; he is trying to move eBay away from auctions towards fixed-price listings.
As I would expect, the move is more favorable to the investors than the smaller sellers of unique goods that brought eBay auction this far. These sellers are a symbol of eBay’s success. eBayers (I mean eBay shoppers) tend to be the bargain hunters who will go to any lengths to find what they’re looking for cheaper, eBay seems to have differentiated itself using this business model for a long time whilst shoppers who tend to be more conventional, looking for good value but at a fixed price will always go for fixed-price known sites like Amazon.
Through its wholly-owned and partially-owned subsidiaries and affiliates, it operated trading platforms in the U.S., Germany, the United Kingdom, Australia, Canada, France, Austria, Italy, Spain, and South Korea. At the end of 2001, eBay's employees totaled over 1,900 workers worldwide (Mehdi Khosrow-Pour, 2004).
To contrast eBay’s original business model which is the transaction fee revenue model through online auctions, with its latest proposed business model which is the sales revenue model by selling goods at fixed prices is like comparing life to death which are like parallel lines that never intersect (Euclid's parallel postulate). Before I proceed, I would like to define the business model for more clarification as this is what I am going to base my discussion on.
A business model is a set of designed or intended activities (sometimes referred to as business processes) calculated to result in a profit, in a marketplace. A business model is not always the same as a business strategy although in some cases they are very close insofar as the business model explicitly takes into account the competitive environment (Magretta, 2002). EBay is moving to change its business model and not its business strategy.
eBay’s original business model is the transaction fee revenue model. A transaction fee revenue model occurs when companies like eBay or E*Trade receive a fee for enabling or executing a transaction. Further explained, eBay provides an online auction marketplace and receives a small transaction fee from the seller if the seller successfully sells the item. Another example is E*Trade, an online stockbroker that receives transaction fees each time it executes a stock transaction on behalf of a customer.
eBay's latest proposed business model is the sales revenue model, a business model that will allow eBay to derive revenue by selling goods, information, or services directly or indirectly to customers at a fixed price. Direct sales from eBay are services it provides directly to the public like PayPal and indirectly through the services that it provides to sellers who use its platform to transact business.
This will be a tough call because companies like Amazon (which sells books, music, and other products), LL Bean.com, and Gap.com are well-rooted in the transaction fee revenue model.
Alright, guys, I have to go now. Writing is a bit tedious and I would like to go to bed now.
Till I hear from you folks again. It's bye for now.