Ebay: Expanding Into Asia

eBay: Expanding into Asia

On September 3, 1995, Pierre Omidyar founded eBay in San Jose, California. Pierre and his wife, Pamela Wesley, had a vision that included creating a marketplace online where people could share the same interests. This vision also included a format that could create a fair and open meeting ground where prices were determined purely by the market. The site was based on five main values: people are basically good; everyone has something to contribute; an honest, open environment can bring out the best in people; everyone deserves recognition and respect as a unique individual; and you should treat others the way you wanted to be treated.

The online auction website did not initially charge user fees, but as popularity grew, a listing fee was implemented. These fees did not affect the number of bids and Omidyar realized that eBay could potentially be a profitable operation. Three years after eBay was founded, an initial public offering made the owner and company president instant billionaires.

The overall strategy of eBay consists of three primary areas: products, sense of community, and aggressive expansion. eBay developed a wide array of product categories through different trading platforms. Paypal was acquired by eBay in 2002 and is considered the leader in online payments globally. Rent.com was obtained in 2005 and is the most visited US online apartment listing service. Skype became part of eBay in 2005 offering customers' free video and audio communication online.

eBay looks to create personal connections through "social commerce" which they define as "a powerful combination of commerce, communication and community that enhances traditional buying and selling." They would like to expand opportunities economically by making the entire shopping and buying experience emotionally satisfying. They are also continually looking for ways to integrate technology to make activities increasingly fair and efficient.

eBay's business model is a direct reflection of the time period at which it was introduced. The internet age has led to the availability of sellers and buyers to come together from all areas of the world. eBay created an online marketplace where these buyers and sellers could interact using an auction style website in an efficient manner. Another benefit of their business model being based around the internet is that this online marketplace can offer such a major variety of goods that could not be offered in a traditional brick-and-mortar style marketplace. Citing one of eBay's more popular commercials, "Whatever 'it' is, you can get 'it' on eBay." Clearly, they are trying to get the public to be aware of the vast number of different products offered on their site.

According to the text, Meg Whitman explained that "the company started with commerce and what grew out of that was a community, essentially creating a community-commerce model." Their model is based on being a trustworthy site, while also allowing for a way to keep track of individuals' reputations to help other users trust the people conducting the transactions. Without this trust and the sense of the online community marketplace, eBay would not have reached the success that they have had. It is important to note that eBay has not kept an unchanged business model to follow.

With the advent of increasing competition, eBay has had to slightly change their strategy. They have expanded their operations on a global scale, especially where countries are increasingly using the internet. Furthermore, they have changed what kind of merchants to business with their auction site. They once focused on primarily consumer-to-consumer transactions (C2C) but have now also put an emphasis on business-to-consumer transactions. This is due to the increased interest from businesses willing to sell products on eBay because of it being the most lucrative distribution channel. Another aspect of their business model relates to synergy. eBay gets most of its revenues from three main channels, two of which were acquired in attempt to push for further growth. These channels are as follows: marketplaces (eBay), payments (PayPal), and communications (Skype). One weakness about this approach should be noted; that is, Skype has not been very successful and has been partly blamed for the decline of eBay.

There are two major issues which may have a major effect on the success of eBay in the future. The first is that there are very low entry barriers to the online marketplace. Almost anyone with a computer has the capability of starting an online company. This results in an almost limitless number of competitors. The second major issue is eBay's inability to penetrate the Asia Pacific market. In order to remain competitive eBay must capitalize on this rapidly growing market.

There are many companies competing for market share in the online auction market. Amazon, and Yahoo! are among the largest of these companies. Amazon is more of a local threat in the United States because the items it sells are linked to brick-and-mortar stores. Yahoo! is a tremendous global threat, especially in Asian markets. Yahoo! competes with all aspects of eBay's business with Yahoo! Shopping, Yahoo! Auctions, Yahoo! Autos, etc. They also have partnerships with the largest online auction sites in Asian markets. In 2006, Yahoo! purchased a 9% stake in GMarket which boasts 17.2 million unique users in Korea. An even more important partnership is with Taobao which controls over 70% of the Chinese online auction market. Yahoo! and Taobao are a major threat to eBay's penetration of the Chinese market.

Perhaps the biggest issue eBay must overcome is the ability to enter into the Asia Pacific market. This market is home to more than 50% of the world's population whose internet usage has skyrocketed 248% in recent years. In order to capitalize on this area for growth eBay must develop a strategy and adapt to these markets so they can compete with local competitors such as Taobao and GMarket. Up to now they have not succeeded. In 2000, eBay pulled out of Japan due to high costs and competition with Yahoo!. They purchased Eachnet, a Chinese startup, but failed to properly manage it. Many see eBay's joint venture with Tom Online as Eachnet's failure to compete with Taobao. The joint venture gave Tom Online a 51% stake in Eachnet and control of its management. Critics, including the CEO of Taobao's parent company, Alibaba.com, feel that a major part of eBay's failure is due to their replacement of local management with foreigners. This inability to create a community feeling has become a tremendous hindrance to their attempts at penetrating the Asia Pacific market.

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