eBay: Connecting Internationally

A Rare success Legend has it that Pierre Omidyar, a young engineer, connected the idea for eBay in 1995 so that his girlfriend would use an easy way to meet and trade with fellow Pez designer collectors. Omidyar envisioned eBays Internet site for becoming a place where a network of buyers and sellers could connect, forming a community. Bill cob, the companys global marketing director, calls eBay a step towards the first worldwide economic democracy. eBay is just a step in one sense. The company pales in comparison to, for example, Wal-Mart. Wal-Mart raked in about $258 billion in sales in 2003 from its network of 3,551 stores, 1.5 million workers, and countless warehouses. By comparison, eBay generated only $2.16 billion in revenue from sales fees and advertising on the $24 billion in goods sold through 170 million transactions using its systems- less than 10 percent of Wal-Marts sales. However, eBay has no stores or warehouses or inventory and accomplished its results with fewer than 6,000 employees. Further, unlike most of the Dot-coms that sprouted in the late 1990s, eBay is proofable, having produced a net profit of $441 million in 2003. eBay, however, is no flash-in-the-pan. Analysts predict that its revenue will double to about $4.25 billion by the end of 2005 and profits would continue to grow at the rate of 40 percent per year. Investors seemed to believe the predictions, as eBays stock was trading at an astounding 94 times earnings in mid-2004, despite the stock markets depressed condition. Now eBay works The idea for eBays business model is simple-and old. Residents in rural and urban communities have for centuries gathered in town squares and marketplaces to buy, sell, and exchange goods and services. The modern-day flea market is a throwback to these markets. eBay simply took this old idea and removed the need for physical meeting between buyer and seller. The internet provided the cyberspace where the marketing exchange could take place. eBay simply created the software programs to enable the transactions. The eBay system, however, improves on the old market system in that the seller can display his/her items to a huge number of potential customers at the same time. Given that there may be more than one person interested in the item. Given that there may be more than one person interested in the item, the seller can hold a auction, hoping that demand for the item will prefaces a higher price than a typical market where the number of potential buyers would be more limited or even nonexistent. Obviously, the process also depends on modern transportation and payment systems

that allow the buyers and sellers to arrange for the products physical delivery as eBay plays no role in closing the transaction. eBay charges the sellers insertion fees for listing an item, picture services fees, final value fees upon a sale, and listing upgrade fees. The following table presents the impact of the final value fee structure at various closing values;

Auctions Gross Closing Value $0-$25 $25-$1,000 $10,000 $1,000

Final Value Free 5.25% of the closing value $1.31+2.75%of the amount above $25 $26.81+1.5%of the amount above

Because eBay does not take title to anything sold over its system, it has a gross margin of about 81 percent! Even with eBays projected growth, analysts predicted that its sales and marketing expense would hold at 30 percent of revenues. eBays average auction lasted 6.55 days as of the first quarter of 2002, and the average gross value per auction was $22.50. As of early 2002, the average seller sponsored 3 auctions and produced $1.72 in net revenue for eBay per auction. eBay classified its offerings into 18,000 categories, with high-priced merchandise, like cars and computers, continuing to grow as a percentage of total sales value. In fact, eBay Motors was the companys fastest growing category. Collectibles, like the Pez dispensers, accounted for only about one-third of eBays items. eBays members, or users (never called customers), would tell you that one reason the system has been successful is that they like winners whenever they are successful at an auction. The members police themselves, providing feedback points to each other so that disreputable buyers and sellers are quickly identified. Members also communicate directly with eBays staff to point out problems and suggest solutions. And, it is very easy for members to use eBays system. A New CEO In 1997, eBay recruited Meg Whitman to become the companys CEO. Whitman had worked at Disney and Hasbro, but was not an Internet junkie. She had degrees from Princeton and Harvard and brought with her a marketing background built on a commitment to customer satisfaction. When Whitman took over, the company had only $49 million in merchandise sales. She helped the company go public in 1998.

Whitman has led eBay through many changes. Recently, the company instituted a buy-it-now pricing system that lets a seller set a fixed price at which a buyer can purchase the item without going through the traditional auction process. Whitman estimates that this type of purchase will increase from 20% to 33% of eBays sales. Although the company began as a way for individuals to buy and sell, many people have realized that it is a perfect vehicle for their own businesses. As a result, analysts estimate there are over 430,000 businesses that exist only on eBay. New Frontiers eBay has announced that its goal is to achieve sales of $4 billion by 2005. To reach this lofty target, Whitman realizes that eBay must develop international markets especially in light of analysts suggestions that the companys core U.S. market growth rate is slowing and advertising revenues are down due to the economic slowdown. eBay has already ventured into international markets. It has operations in Australia, Austria, Canada, France, Germany, Ireland, Italy, New Zealand, Switzerland, the United Kingdom and other countries. In the first quarter of 2002, international revenues accounted for 21% of eBays revenues, up from 18% in the last quarter of 2001; and its 2001 international revenue reached $115 million, up from $34 million a year earlier. Despite eBays progress in international markets, all has not gone well. Yahoo! Japan beat eBay to the punch by offering online auctions in Japan in September 1999. ebay entered Japan five months later, but those five months were critical. eBay charged a fee for each transaction, which Yahoo! did not, and required users to provide a credit cards, preferring to pay by cash or bank draft. Further, although many observers thought online auctions would not work in Japan due to Japanese reluctance to buy used goods from strangers, its economic recession and the emergence of environmental awareness helped to overcome this reluctance. Plus, Yahoo! users could adopt local touches, like horoscopes and newsletters, which it needed to attract users. eBay compounded all this by taking a low-key approach to promotion, while Yahoo! bought billboards and opened an internet caf with Starbucks. All these missteps, analysts argue, resulted in the network effect. Sellers want to go where there are buyers, and buyers want to go where there is a large selection, i.e. sellers. Once this network reaches critical mass, it becomes very difficult for a competitor to succeed Sellers and buyers flocked to Yahoo!; and by mid-2001, Yahoo! had captured 95% of the $1.6 billion online market eBay had only 3%. By early 2002, eBay threw in the towel and announced its withdrawal from Japan. Within weeks, however, eBay announced it had purchased 33% of a China Internet auction site. EachNet, for $30 million. Two young entrepreneurs who met at Harvard Business School started EachNet in 1999. Shao Yibo and Tan Haiyin studied Internet businesses as part of a class project

and decided that the eBay model was the only one that would work in Asia. With support from Asian venture capitalists, they launched their site, which by 2002 had 3.5 million registered users and 50,000 items listed for sale. Although eBay executives argue that the eBay model has universal application, the companys experience in Japan and China highlight key differences as companies move from one national market to another. In China, for example, EachNets customers hurried to the site to trade practical items like apparel or cellular phones, not the collectibles that fueled growth in the U.S. market. Rather than use the postal or courier systems to make payment, as one might do in the United States, Chinese traders mostly sell within their own cities. Although transportation systems are improving, they are still creaky by U.S. standards; so shipping items is not easy or reliable. Many Chinese still dont feel comfortable doing business online, especially when they are dealing with other individuals rather than companies. Moreover, e-commerce companies have also been concerned about regulation by the Chinese government. In early 2002, the government blocked access to foreign-based news and information sites. China represents the worlds fifth largest online economy with 47 million Internet users. Of these, some 32 % indicate they made purchases online in the past year. Yet 3o% of users say they rarely visit an e-commerce site. With a population of over one billion people, however, there certainly is plenty of room for growth. In recognition of this potential, eBay purchased the remainder of Eachnet.com in mid-2003, although the company was still not profitable. However, Yahoo also sees Chinas potential. In early 2004, it announced that it was purchasing another Chinese online auction business, Sino.com, signaling that it would battle eBay. Moreover, in mid-2004, eBay announced that it would enter India, following a strategy similar to the one it followed in China. eBay indicated that it would acquire the countrys largest online auction site, Bazee.com, Inc. for $50 million. Even though India ranks just behind China in population, it lags far behind the U.S. and other nations in Internet usage, with only 17 million users. Meg Whitman and eBays other executives know that to meet their sales and revenue targets, they must be successful in international markets especially in China and India. eBay is the worlds largest person-to-person trading community. Whitman hopes that China and India, with the worlds two largest populations, will be perfect fits for eBays business model.

Questions for discussion 1. What are the forces shaping the development of Internet businesses like eBay in the United States? How are these forces similar or different in other countries, such as Japan, China or India? 2. How do the texts terms customization and customerization apply to eBays marketing strategy? 3. How does eBay create value for the members of its community? 4. What marketing recommendations would you make to eBay to help it be successful as it enters the Chinese and Indian markets?

1. What are the forces shaping the development of Internet businesses like eBay in the United States? How are these forces similar or different in other countries, such as Japan, China or India? The forces shaping the development of Internet businesses like eBay in the United States: Digitalization and connectivity. Customization. The explosion of the internet. New types of intermediaries. Digitalization & connectivity

Customization

Internet Business (eBay)

The explosion of the internet

New types of intermediaries

These forces are similar or different in other countries such as Japan, China or India like the following way:

Attractiveness to investors in internet related businesses

Other factors: Geography Population Population density

Private and foreign investment in Internet product and services

Political ideology: Govt. regulation and involvement in internet development

Usefulness and ease of the use of the Internet business (eBay)

Development in technology

Ability and willingness to use the internet business

Availability and price structures of IT infrastructures, products and services.

Education and other cultural factors

International and global forces

Economic factors: Income level

Consequences of internet adoption:

Diffusion level Diffusion pattern Integration of ways of lives internet in existing

2. How do the texts terms customization and customerization apply to eBays marketing strategy?

At first, we have to know what customization is and what customerization is. Customization: Delivering marketing offers which is based on individual customer needs. Customerization: Combination of operationally driven mass customerization with customized marketing in a way that empowers consumers to design the product and service offering of their choice. eBays customization: From the beginning, the functions of eBay were customized. Because the software was programmed in a way by which a buyer can easily choose a product which s/he wants to purchase by clicking the category of that product. eBays customerization: Normally, eBay doesnt follow the customerization strategy. Because the customers (members) have to follow that system which software is programmed by the eBay. There is no chance to fix the terms and conditions by the customers. Although the system is ever upgraded by eBay for gaining the customer satisfaction.

3. How does eBay create value for the members of its community? The steps by which eBay create value for the members of its community are shown below with a figure:

Segmentation: Divide the total market on the basis of Internet users.

Differentiation: They differentiate their market offer from the others by implementing auctions, Create value for the community Buy-it-now pricing system etc.

Targeting: Select the segments that are eager to buy and sell on the online marketplace.

Positioning: Taking position of the market offerings in the mind of the target customers.

4. What marketing recommendations would you make to eBay to help it be successful as it enters the Chinese and Indian markets? In Chinese and Indian market eBay couldnt able to make the desired turnover. For being successful they might take the following steps: Venture: They may venture with the other online business site like it in those countries for being more available. Trading practical item: In china and India people hurried to the site to trade practical items like cellular phones. So they make available this type of practical product on the site. Reduce formality: Without create an account one cant enter to this site. So, after reducing this formality, people will know this site better from previous and will be transferred to the actual customers from the potential customers. Promotional activities: They can advertise in the popular site such as facebook, yahoo!, skype, bing etc. it also may set billboards on the busy roads or take the sponsorship of international game like IPL for becoming more popular. Reduction of fees: As the promotional activities, firstly they may reduce the entry fee and closing fees in those countries.