Can Ebay Continue Growing?

CSIT421 COURSE WORK 18th December 2007

Can eBay Continue Growing?

eBay.com is an online auction service whose business model is ideally suited to the Web. eBay stores no inventory and ships no products. Instead, it derives its revenue from the movement of information, an ideal task for the Internet. Since eBay was founded in 1995 by Pierre Omidyar and Jeff Skoll, the company has been profitable, attracting more than 200 million users by 2006. eBay now employs more than 8000 full-time workers and has operations in 32 countries, including an equality investment in MercadoLibre, which services Mexico and eight South American countries. In 2005, eBay users listed 1,8 billion worth of goods changing hands. The number of items listed in 2006 was expected to surpass 2 billion.

eBay has mass appeal because its fully automated auction service helps buyers and sellers trade high-end articles, such as fine art, automobiles, and jewelry, as well as more mundane and practical items, such as clothing, customer electronics, and house wares. Users can list their goods under more than 30 main categories and tens of thousands of subcategories.

The success of eBay relies on a unique formula. eBay derives the bulk of its revenue from fees and commissions associated with its trading services. This revenue, however, is only made possible by the hundreds of thousands of people who put time and effort in to selling goods on eBay but do not work for the company. Nearly half a million people rely on eBay auctions as their main source of income. The seller pays an insertion fee for listing goods that operates on a sliding scale. For example, if the opening bid price tarts between 1 cent and 99 cents, eBay charges the seller a 25-cent insertion fee. The fee increases as the opening price increases all the way up to $4.80 for goods starting at $500 or more. eBay also collects a fee from the seller when an auction is successful. These final fees begin at 5.25 percent of the closing price.

A portion of eBay’s revenue also comes from direct advertising on the site, as well as end-to-end service providers whose services increase the ease and speed of eBay transaction. The acquisition of PayPal, whose service enables the exchange of money between individuals over the Internet, brings additional transaction-based fee revenue. PayPal charges the recipients of payments a flat fee plus a percentage of the total transaction size and has more than 70 million user accounts.

eBay’s growth strategy focuses on expansion in geography and scope and on continuing innovation to enhance the variety and appeal of products on its sites. eBay has taken its model to numerous foreign markets and been successful, particularly in England, France, and Germany. It is also working hard to gain a foothold in the Chinese online auction market. Growth rates have been hindered somewhat in the United States and Germany by an increase in seller fees, but these losses have been covered by rapid growth in places such as France and Italy. Although eBay’s domestic growth has slowed to about 20 to 30 percent annually, the company’s international business is growing at 50 percent per year. By 2005, transactions completed on international Web sites accounted for approximately half of eBay’s business.

In 2000, eBay introduced eBay Motors to encourage the sale of bulky items that are too expensive to ship Critics believed that consumers would find purchasing a used car over Web too risky. However, eBay added extra measures of protection in the form of used-vehicle warranties and purchase protection up to $20000. These measures, combined with the standard eBay seller feedback ratings, gave users enough security to buy million cars within for boats, motorcycles, parts and accessories, and more.

Also in 2000, eBay implemented the “Buy it Now” feature, which enables seller to name a price at which they would be willing to sellers to name a price at which they would be willing to sell an item to any buyer. Buyers have the option to purchase the item instantly without the auction process. On Half.com, listings are free but eBay collects a commission for completed sales.

In 2001, the company launched eBay Stores. eBay Stores enable sellers with a proven track record, a verified ID, or a PayPal account to set up an online storefront and offer fixed-price merchandise. eBay Store owners pay subscription fees(from $ 15.95 to $ 499.95 per month), insertion fees, and final value fees on a sliding scale.

In another attempt to reinvigorate its growth, eBay agreed to buy Shopping.com, an online shopping comparison site, for $620 million in mid-2005. In September of that year, eBay acquired VoIP service provider Skype Technologies for $2.6 billion. Skype provides a service for free or low-cost voice calls over the