The Opportunity

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The OpportunityMarketing Research and Data Analysis

EBay is one of the most profitable e-businesses. The successful online auction house has its roots in a 55-year-old novelty item—PEZ candy dispensers. Pam Omidyar, an avid collector of PEZ dispensers, came up with the idea of trading them over the Internet. When she expressed this idea to her boyfriend (now her husband), Pierre Omidyar, he was instantly struck with the soon-to-be-famous e-business auction concept

The Solution

In 1995, the Omidyars created a company called AuctionWeb. The company was renamed eBay and has since become the premier online auction house in many countries, with millions of unique auctions in progress and over 500,000 new items added each day. Almost 194 million registered buyers and sellers use eBay. Today, eBay is much more than an auction house, but its initial success was in electronic auction

EBay’s initial business model was to provide an electronic infrastructure for conducting mostly C2C auctions. EBay auctions do not require an auctioneer; technology manages the auction process.

People can buy and sell just about anything on eBay. The company collects a posting fee up front, plus a commission that is a percentage of the final sale amount. The posting fee is based on the amount of exposure the seller wants the item to receive, with a higher fee if the seller would like the item to be among the featured auctions in a specific product category, and an even higher fee if the seller wants the item to be listed on the eBay homepage under Featured Items. Another attention-grabbing option is to publish the auction listing in a boldface font (for an additional charge).

The auction process begins when the seller fills in the appropriate registration information and posts a description of the item for sale. The seller must specify a minimum opening bid. If potential buyers feel this price is too high, the item may not receive any bids. Sellers may set the opening bid lower than the reserve price, a minimum acceptable bid price, to generate bidding activity.

If a successful bid is made, the seller and the buyer negotiate the payment method, shipping details, warranty, and other particulars. EBay serves as a liaison between the parties; it is the interface through which sellers and buyers can conduct business. EBay does not maintain a costly physical inventory or deal with shipping, handling, or other services that businesses such as Amazon.com and other retailers must provide. The eBay site basically serves individuals, but it also caters to small busine

In 2001, eBay started to auction fine art in collaboration with Icollector.com (icollector.com) of the United Kingdom and with the art auction house Sotheby’s (sothebys.com), whose auction page is on eBay’s main menu. Due to a lack of profit, as of May 2003, eBay and Sotheby’s discontinued separate online auctions and began promoting Sotheby’s live auctions through eBay’s Live Auctions technology while continuing to build eBay’s highly successful arts and antiques categories. Sotheby’s website still exists, but now it is focused on supporting Sotheby’s live auction business.

In addition, eBay operates globally, enabling international auctions. Country-specific sites are located in over 31 countries, including the United States, Canada, France, Sweden, Brazil, the United Kingdom, Australia, Singapore, and Japan. EBay also has equity in or owns several countryspecific sites, such as those in China, India, Korea, and Japan; these sites generate 46 percent of eBay’s business. Buyers from more than 150 other countries participate. EBay also operates a business exchange in which SMEs can buy and sell new and used merchandise in B2B or B2C modes.

EBay has over 60 local sites in the United States that enable users to easily find items located near them, to browse through items of local interest, and to meet face-toface to conclude transactions. In addition, some eBay sites, such as eBay Motors, concentrate on specialty items. Trading can be done anywhere, anytime. Wireless trading also is possib

In 2002, eBay Seller Payment Protection was implemented to make it safer to sell on eBay. Now sellers are protected against bad checks and fraudulent credit card purchases. The service offers credit card chargeback protection, guaranteed electronic checks, secure processing, and privacy protection. Today, eBay owns PayPal, the P2P payment company, which many buyers use to pay for their purcha

After a few years of successful operation and tens of millions of loyal members, eBay decided to leverage its large customer base and started to do e-tailing, mostly at fixed prices. This may have been in response to Amazon.com’s decision to start auctions, or it may have been a logical idea for a diversification. By 2003, eBay operated several specialty sites, as well as half.com, the famous discount e-tailer

A special feature is eBay Stores. These stores are rented to individuals and companies. The renting companies can use these stores to sell from catalogs or conduct auctions. In 2002, eBay introduced the eBay Business Marketplace, located at pages.ebay.com/sellerinformation/growing/ business.html. This site brings together all business-related listings on eBay at one destination, making it easier for small businesses to find the equipment and supplies they need. EBay also offers software for building customized storefronts that eBay hosts (ProStores products) and provides templates for building standard storefronts. EBay is used by individuals, small businesses, large enterprises, and governments (see auctionbiz.com).

Many individuals are using eBay to make a living. Some of them are very successful. Holden (2006) describes how 10 different entrepreneurs have tapped into the power of eBay and are making millions. According to Kelsey (2007), in the United States approximately 1.3 million people are making their living on eBay.

In 2006, eBay launched eBay Express, which enables instant-purchasing using a shopping cart to buy multiple items at the prices set by the sellers. EBay also allows website affiliates to run contextual ads for eBay auctions in exchange for a cut of resulting ad sales. (The program is called eBay AdContext.) As of June 2006, eBay offers eBay Community Wiki, where buyers and sellers can exchange best practices and tips. EBay owned Skype, a VoIP provider of Internet communication, until mid-2009. The application was used to streamline complex auctions (e.g., if you wanted to buy a car on eBay you could ask the seller a number of questions). Also, some sellers need information from buyers so they can customize their prod

The Results

The impact of eBay on e-business has been profound. Its founders took a limited-access offline business model and, by using the Internet, were able to bring it to the desktops of consumers worldwide. This business model consistently generates a profit and promotes a sense of community—a near addiction that keeps traders coming back.

                EBay is the world’s largest auction site, with a community of over 94 million active users as of spring 2011, about half of them outside the United States (see Komiak et al. 2008). According to company financial statements, in 2004 eBay transacted over $62 billion in sales in 2010 (more than $2,000 every second).

                As a matter of fact, the only place where people are doing more business online than offline (and considerably more, at that) is auctions. By comparison, e-tailing is less than 5 percent of total retail sales.

Q: Why is the business successful?

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