eBay and Online Auction Industry Analysis

eBay was founded in 1995 and has grown into a multibillion dollar corporation. The online
auction industry has grown dramatically since the 1990s. i!e its competitors" eBay does not
produce any goods. eBay#s business model is to ma!e money from the mo$ement of information
through the Internet. It does not produce a tangible product but pro$ides the ser$ice of %oining
independent sellers and buyers together. It ma!es its re$enue by charging sellers commissions
and fees. eBay has been $ery successful since the day it started &audon '('). This paper
contains an analysis of the online auction industry with a focus on eBay.
*orter competiti$e forces model identifies fi$e competiti$e forces that threaten a firm. These
include+ traditional competitors" new mar!et entrants" substitute goods and ser$ices" suppliers
and customers. The traditional competitors of eBay include+ Ama,on" -oogle" .ahoo/"
0raigslist" O$erstoc! and other ma%or search engines li!e mamma.com" as!.com etc. These
competitors are a constant threat to eBay. 1ntry into this industry is $ery easy because the
internet is so widely used nowadays and it is almost basically free to start up an online auction
website. 2ubstitute goods and ser$ices include products pro$ided by stores li!e 3al4mart" Target
etc. These stores are also a threat to eBay because once stores li!e this ha$e lower prices for
goods5 in my opinion" most buyers would rather buy from stores than online because of the lower
prices. In the case of suppliers" eBay has a lot of suppliers because of its business processes
therefore suppliers are a significant factor in the *orter#s competiti$e forces model. 0ustomers
ha$e high power within the online auction industry because of their ability to easily switch to a
competitor#s products or ser$ices. Also because all business transactions occur online" customers
ha$e access to all prices a$ailable instantly.
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0oncerning the business $alue chain" eBay has efficient primary and support acti$ities. Its
primary acti$ities include lin!ing buyers to the right sellers6suppliers with the help of
information systems. Its information systems help with impro$ing this acti$ity by ma!ing
searches for good6items easy and narrow. By also pro$iding a numerous number of categories
&tens of thousands of subcategories)" it ma!es listing and shopping easier for users. It also helps
by showing recommendations or similar items so that users can compare before buying or
selling. The ac7uisition of half.com and *ay*al also helped impro$e the primary and support
acti$ities because it made processes decreased costs for eBay because they became controllers of
the financial transactions and with the ac7uisition of half.com gained a larger share of the mar!et
by going directly into the media industry in competition against companies li!e Ama,on.
Its support acti$ities consist of its organi,ational infrastructure" human resources" technology
and procurement. These acti$ities in$ol$e the hierarchy of the organi,ation. eBay employs o$er
8"000 fulltime wor!ers and has operations in thirty two countries. This helps pro$ide di$ersity in
the company#s wor!force and helps ideas and creati$ity. Information systems help these
acti$ities because with so many employees scattered around the world" wor!ers can only
effecti$ely achie$e the mission of a company with the use of information systems.
i!e e$ery industry" companies in this industry are facing problems. 2ome of the minor
challenges facing eBay include the pre$ention by .ahoo/ into the Asian mar!et. eBay had
recently been auctioned out of the 9apanese mar!et. Another ma%or challenge they are facing is
the introduction of a new competitor4Taobao4 in the 0hinese online auction industry. Another
tri$ial problem eBay faces concerns enforcing rules on different %urisdictions in the international
community. This problem in$ol$es them trying to pre$ent sellers from selling unlawful goods"
such as weapons" drugs etc. :The largest threat to eBay is the honesty and integrity of its
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auctions; &audon '(<). The issue of fraud and misrepresentation of information by sellers or
unserious buyers is a ma%or challenge for eBay. eBay has $ery little control o$er problems that
stem from this. A ma%or issue that stems from this is the issue of customer ser$ice. =ost users
who complain to eBay are $ery dissatisfied with the system of customer ser$ice. =ost
complaints are that they are unable to get in touch with a :human; customer representati$e when
they need to. These customers feel that they go through long processes that should be a$oided by
them being able to tal! directly to a customer representati$e.
i!e all businesses loo!ing to grow" eBay has tried some solutions to o$ercome these
challenges. eBay has assigned >100 million to promote and enhance its 0hinese operations. This
should help gi$e them a competiti$e ad$antage o$er Taobao. 0oncerning the fraudulent
acti$ities" eBay does not ha$e a solid solution addressing this problem. 2ubse7uently" regarding
the issue of customer ser$ice" eBay tried to impro$e customer ser$ice but this meant increasing
the cost of commissions applied to se$eral groups of sellers. This increase in cost to sellers
caused a negati$e chain reaction. This policy had to be abandoned. The people that play a role in
eBay#s response to its problems include its customers &buyers and sellers)" senior le$el managers
and middle le$el managers. The technology in$ol$es a telecommunication system and a system
that monitors transactions and usage statistics to enable timely troubleshooting.
The following paragraphs will show suggested solutions that eBay can implement to help
o$ercome its two main problems+ the issue of dealing with fraudulent acti$ities6listings and the
problem of poor customer ser$ice.
?irst of all" we ha$e to determine where these problems stem from. Organi,ation factors@
Technology factors@ Or *eople factors@ These problems affect the strategy and performance of
eBay and others in the industry because it undermines a company#s name and therefore the
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company is seen in a negati$e way by potential customers. These problems stem from
organi,ational factors which include its business processes and culture. The fact that the
businesses in this industry generate re$enue by lin!ing independent6unaffiliated buyers and
sellers together is where these problems stem from. If eBay or O$erstoc! were a merchandising
company" they would not eAperience these problems5 or they would be at a much lesser degree.
Although it is said that these problems are minute" they ha$e the li!elihood of causing some
ma%or liability issues to the company in the long run.
The first solution to be offered is that eBay could introduce an annual membership fee or one
time membership fee for all users. This should generate enough re$enue for eBay to be able to
impro$e customer ser$ice by hiring more customer representati$es and eAtending the hours. ?or
eAample" if eBay charges each user >10 per year" it would get not less than >1 billion in a year
%ust from membership fees. By impro$ing customer ser$ice" this impro$es the $alue of the
ser$ice to customers and can benefit the business in a lot of ways discussed further down.
The second solution is that eBay can :discriminate; against users registering from certain
regions. These regions should be selected based on the amount of reports generated about
fraudulent listings by users of that region. They should discriminate against regions li!e Bussia"
Cigeria etc. where fraudulent acti$ities are highly common.
The third solution in$ol$es the company purchasing ad$anced automated systems that would
be more interacti$e or similarly more :human;. This should identify with the problems of
unsatisfied users and better help address their problems. 2ubse7uently this should pro$ide them
with better ser$ices.
The three solutions offered abo$e all seem feasible from a technical" operational and
financial standpoint. But they each ha$e their constraints and benefits. 2tarting with the solution
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of an introduction of membership fees5 some of the benefits of this solution are that it pro$ides a
cash buffer for eBay and this can be used to implement new costly strategies or perform more
effecti$e operations li!e hiring more customer reps. It will also help with the weeding out of
se$eral untrustworthy users. ?raudsters usually do not $enture into acti$ities that re7uire some
type of monetary in$estment from them. 3hen they are faced with an annual fee membership"
they are less li!ely to in$est because a return is not guaranteed. Also it will limit the registration
of multiple accounts by an indi$idual. Because with e$ery account created" a membership fee
must be paid" the cost adds up. A ma%or constraint is that most users will frown at the
introduction a membership fee. This constraint is that this might actually decrease the number of
future potential users.
The benefits of the second solution include+ the li!elihood of lesser cases of fraudulent
acti$ities" a slight decrease in complaints about customer ser$ice because lesser fraudulent
acti$ities mean a lesser number of people with complaints concerning transactions. The
constraints of this solution is that+ it is not guaranteed that the implementation of this proposed
solution will actually decrease the cases of fraudulent acti$ities. Also" by discriminating against
users from certain regions" this can negati$ely alter the image of eBay and they ris! allowing
users with ethical intentions into the business world and therefore lose potential income they
could ha$e attained from these customers.
The solution of ma!ing automated response systems more interacti$e will be a good idea if it
actually does benefit the users. The problem with it is that it costs money and the 7uestion of
whether the in$estment would actually pay off comes into play@ 3e need to figure out if this will
actually add $alue to the customers. 1$en if it ma!es customers satisfied" does it help our other
problem in anyway@
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After analy,ing all the solutions" it is my belief that the first solution will be most suitable for
eBay. The ma%or assumption we will ma!e here is that a ma%ority of users will not be concerned
with the >10 membership fee implementation. This solution was pic!ed because it pro$ides
benefits in both areas of the problems eBay is facing. ?irst of all" the introduction of a
membership fee will help generate funds to enable an additional number of customer
representati$es to address issues concerning poor customer ser$ice. Also" this solution will help
weed out potential fraudsters because of the initial in$estment e$en though $ery small should
effecti$ely pre$ent certain indi$iduals with bad intentions from %oining the community of users.
eBay can also set up this system in a way that it trac!s the method of payment of the membership
fee so as to pre$ent multiple registration of accounts under one indi$idual. The negati$e thing
about this solution is that it changes the culture of the organi,ation and ob$iously users will not
be happy with the implementation of this rule.
I did not pic! the second or third solution because they do not significantly show a way they
could help both areas of our problems. 0oncerning the solution of discrimination" this solution
after careful analysis seems too ris!y. It has the potential of wor!ing against eBay because of its
negati$e connotation. Begarding the introduction of more interacti$e information systems" this
will be eApensi$e and might not fulfill our purpose because of the nature of users usually. 3hen
it comes to customer ser$ice no matter how human this new system might be" it will not replace
a human being and therefore might not add that much $alue to the users.
1$en without the implementation of this solution" firms in this industry will continue to be
successful because they pro$ide a uni7ue ser$ice and the problems that ha$e been identified are
only on a small scale. eBay will continue to be successful in the long run because the problems
that are been identified are only minute. Therefore because the fraudulent acti$ities are only
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minor" eBay will continue to grow because it pro$ides an eAclusi$e ser$ice to numerous !inds of
di$erse indi$iduals globally.
3OBD2 0IT1E
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Kenneth, Laudon C., and Laudon P. Jane. "Business Probe!"#o$ing Case% Can &Ba'
Kee( )t *(+" &ssentias o, Business )n,or!ation #'ste!s. &d. Laudon Kenneth. *((er #adde
-i$er, .J% Prenti/e 0a, 2116. 322"325.
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