Strategic Management: The Case of eBay
1.0 Introduction
With achieving sustainable competitive advantage as the goal, organisational changes are considered to be an important part of the development process of a particular company. Aside from globalisation, technology also plays an important role in the changes among modern organisations. Technological boom, specifically through the dotcom and World Wide Web, had become one of the inevitable ways in obtaining a wealth of information about a certain issue or topic. For the organisations, the Internet was perceived to be a significant avenue for doing business and marketing per se such as being done by eBay with their online auction. Individuals are able to obtain and purchase their needed and wanted items directly, without the hassle of traveling and physically looking for the products through online auctions. Strategies are deemed important in responding to various internal and external threats and problems which can directly and indirectly impact organisational decision making. This report purports to present and discuss the case of eBay through investigating the strategies that the company employs. Likewise, the paper will also address the building blocks unique to the company. How eBay operates despite the fierce competitive nature of online auctioning business will also be addressed.
2.0 Company Background
Founded on 1995 by Pierre Omidyar, eBay was considered a pioneer in the online auction industry whereby people are brought together on a local, national and international basis to serve the purpose of creating a person-to-person community where ever individual could have an equal access through the same medium which is the Internet. eBay offers wide varieties of products and services for bargain hunters, hobbyists and collectors and sellers, changing the way people engage in trading hence eBay had changed the face of e-commerce from its inception. eBay participates in the demand-based or dynamic pricing segment of online commerce where transaction prices are determined entirely by buyers. The auction is the most familiar form of demand-based pricing (Bunnell and Luecke, 2000, pp. 8-9). As Bunnell and Luecke (2000) put it, eBay has become the world's leading auction market and one of a handful of major dotcom companies to actually turn a profit while also expanding the e-commerce industry (pp. 4-6). Today, eBay is continuously the brand preference with over 39 market presence and with $60 billion of the total value of sold items on the site’s trading platform.
3.0 Current Strategy of eBay
Basically, eBay introduced several crucial innovations tailor-made for the internet at the business level, a strategy which was conceived to be an improvisation. One being the online auction business model wherein eBay served as the value-added facilitator of trade between a buyer and a seller in a highly individualistic manner. The online auction model developed by eBay marked an important extension of e-commerce, offering millions of individuals a low-cost opportunity to engage in a new type of economic activity. Gomes- Casseres (2001, p. 2) firmly believes that eBay had built an online person-to-person trading community in the Internet. In addition, there had been a growth in the organisational structure which was primarily manned by Pierre as the visionary and his colleague Jeffrey Skoll as the strategist and then further growing to include Meg Whitman and other teams, striking a balance between over- and under-structuring. The integration of new systems and practices was seen to be a way to creating value than just focusing on efficiency of the people and the processes with further focus on internal innovations (Brown and Eisenhardt, 1998).
Throughout the history of eBay, regeneration and experimentation were both inherent, which were seen to be instrument of innovative processes and responding to competitive schema. EBay had developed proprietary software capable of supporting a robust, scalable user interface and transaction-processing system which can handle all aspects of the auction process. EBay users can browse through listed items in a fully automated way. The sellers are allowed to list items that they want to sell while the buyers bid on items of interest. The items on eBay’s site are arranged by topics and each type of auction has its own category. It sends e-mails when users register for the service, when they place a successful bid, and when they are outbid, and it communicates the outcome of auctions in which they participate. The same system sends daily status updates to active sellers and bidders and maintains user registration information, account information, current auctions, and historical listings. All of this information is archived to a data warehouse.
Further, eBay has been bounded by two things: a clear mission to be the world's largest person-to-person online auction company, and a focused strategy with five key elements: expanding the user base, strengthening the eBay brand, broadening the trading platform by increasing product categories and promoting new ones, fostering community affinity and enhancing site features and functionality. EBay must realised to live in the present and so strategies must be refreshed and realigned basically through clarifying the purposes of the company itself. Priorities and responsibilities must be well-established (Brown and Eisenhardt, 1998) and for eBay, there are three main strategies implemented which are: building strategic partnerships at all levels of value chain, seeking customer feedbacking and working on with the information collated and monitoring the external environment. Within eBay, functions were further subdivided intended for overseeing strategic direction and growth, business model and site development and community advocacy as well as strategic planning and analysis, competitive analysis, new business planning and incubation and customer support operations.
When Whitman arrived in 1998, brand building recognition at eBay was prioritised. The related problems of consumer product marketing were divided into two: first was clarifying what eBay stood for by which in their judgment is a personal trading community and second, brand building exercises or marketing per se. EBay made acquisitions in order to support its growth as a supplement to word-of-mouth and public relations advertising into tapping opportunities through national magazines and online alliances. These acquisitions aid in the expansion and improvement of the company’s services. EBay’s boldest and most costly effort of gaining greater name recognition began in August 1998, when it entered into a three-year marketing deal with America Online (AOL) aiming at further enhancement of the site and value-adding features to be established. Other online allies include Kinko’s, First Auction, Z Auction, Netscape and GO.com.
Broadening the products and services portfolio was another priority strategy for eBay, reaching to almost 3, 000 categories. At the onset, eBay utilised content-specific chat rooms and bulleting boards to provide real-time interface between buyers and sellers; customised home pages were also sought. EBay also collaborated with an online portal of the collectibles in exchange of affiliation referrals for Collecting Channel. Regional auctions were also established, focusing mainly on profitable markets in the US. It is believed that these regional auction sites could localise products while also providing buyers with the advantage of cutting off shipment or delivery charges. Such strategy was known as co-adoption where eBay diversified the firms into units and then collaborated with individuals within the system. Such action was known to be an element of expanding the traditional business model where eBay now shifts its focus on exploiting economies of scale and scope and extending offerings to new market segments (Brown and Eisenhardt, 1998).
The sense of community was further developed through designing an online tool with which could address more personal yet secure interactions between buyers and sellers and which is embedded on trust. Interest-based chat rooms were created, allowing a more transparent interface among individuals. These Feedback Forums, however, did not guarantee an honest community and so fraud and other illegal activities were witnessed. Synergism as another co-adoption strategy was realised. A SafeHarbour program was launched with features including Mister Lister bulk-listing tool, help boards, and My eBay, which allows a user to track multiple auctions simultaneously and also About Me, which allows a trader to customise home pages. EBay’s share of the total system consists of Sun database servers running Oracle relational database management systems and a suite of Internet servers that operate on Microsoft's Windows NT. Generally, the most important chore-reducing features have been added through arrangements with partner firms or third-party suppliers such as iShip, Mailbox Etc., Wells Fargo and E-Stamp. These are long-term strategies for eBay as the company launches more experimental products and services and creating more alliances toward nascent markets and emerging technologies (Brown and Eisenhardt, 1998).
4.0 Building Blocks at eBay
4.1 Time Pacing
EBay belonged to an otherwise chaotic market, time pacing is important in the sense that any mistake that could impact real-time interfaces could affect the credibility of the company (Eisenhardt and Brown, 2008). Indeed, there are specific times when eBay was not able to respond to the ever-growing demand of traders as evident by 22 hours downtime mainly because of server problems leading to the crashed of the website in 1999. This had made eBay believed that advantage is indeed temporary and so the need to continuously look for new source of advantages (Brown and Eisenhardt, 1998). The sense of urgency was thereby developed but eBay was realised to be lacking strategic capabilities of responding to changes during that time especially because eBay was attempting to do all things at the same time. For instance, the website crashed due to the fact that the auction house is managing the processes of flow of users on the site, processing new members, accepting bids and managing huge database of list of categories while also integrating new products and services information. Nevertheless, when problems like this occur, eBay acts promptly and respond through adding workforces whom will oversee specific functions while also avoiding problems such as this.
4.2 Edge of Time
In continuously evolving to be the business of tomorrow, eBay could still rely on its business model but could also consider expanding it. Black (2007) mentioned that e-commerce is becoming increasingly important to consumers, sellers, and entire communities and online marketing has become and will continue to become a full and complete business model for other companies. The increasing importance of e-commerce and the use of the Internet, led many online companies, such as eBay to engage in online auctioning. Ten aspects are attributed to the success of eBay, namely, commitment, well-spent funds, an effective and persistent marketing and public relations, great products or services to sell, not selling of junk, great customer service, efficient and pleasant facility, polished listings and photos, paying attention to details, and good recordkeeping (Mansfield 2006). These ten aspects are perceived to be contributory to the success of eBay in the industry as the leading online auction house, and determine its edge over its competitors.
4.3 Edge of Chaos
The success of eBay has inspired other online companies to engage in the same business, of perceiving the same attention that it receives from consumers. With this, several competitors can be pointed out, which are also online companies that engage in the same services that eBay offers. Amazon.com and Yahoo! Auctions are the two main rivals. Amazon.com was the second largest online auction house, which is perceived to be a competitive threat to industry leadership position of eBay, is also a one-stop-shop online auction site. Compared to the business model of eBay which is trader-centric, that of Amazon.com’s is more inclined as profit-oriented. On the other hand, Yahoo! Auctions was the first online navigational auction house over the Internet, a reputation that sets its identity apart from the other two main auction houses. The advantages of eBay over Amazon.com and Yahoo! Auctions are three-fold: wider portfolio with over 3, 000 categories, low to zero transaction costs and information-support, manifesting that changes inside eBay are diverse and emergent (Brown and Eisenhardt, 1998).
In comparison with perhaps Fable, this report maintains that although eBay has proved to be lacking in strategic time pacing at certain point, experimentation and regeneration have been the survival strategies. Fable was more focused on short-term successes, missing the opportunities for new products growth. In opposite, one of the primary objectives of eBay was to strengthen products and services portfolio as evident by the incessant acquisitions of alliances and partnerships to boost categories and site features and functionality. Compared to Fable which is highly dependent on ‘repeated layering’, eBay is an epitome of a well-developed organisational structure where the top management especially Pierre was willing to accept what he cannot do for eBay and resorting to seeking the help of strategists such as Skoll and Whitman. For eBay, change is an opportunity that must be taken advantage instead of seeing it as a threat (Brown and Eisenhardt, 1998). Finally, Fable was not able to reap the benefits of changes but for eBay, the company is equipped with the capability to transition while maintaining a superior performance.
5.0 Conclusion
EBay is well aware that in order for the company to maintain its competitive advantage and make it sustainable in the long run, the company must take advantage of the changes at the corporate, organisational and business levels. EBay embraces the five building blocks which are applied randomly throughout eBay's history: improvisation, co-adaption, regeneration, experimentation and time pacing as evident by the strategies discussed. The company also embraces the 10 principles of competing on the edge about strategy, organisation and leadership.
6.0 References
Black, G S 2007, ‘EBay Users and Non-Users: Comparison and Implications for eBay Entrepreneurs’, at Association of Small Business and Entrepreneurship Annual Conference, Austin, Texas.
Brown, S and Eisenhardt, K 1998, Competing on the Edge: Strategy as Structured Chaos, Harvard Business Press.
Bunnell, D and Luecke, R A 2000, The EBay Phenomenon: Business Secrets Behind the World’s Hottest Internet Company, John Wiley and Sons, New York.
Eisenhardt, K M and Brown, S L 2008, ‘Time Pacing in Markets that Won’t Stand Still’, Harvard Business Review.
Gomes-Casseres, B 2001, ‘The history of eBay’, International Economics and Finance, vol. 1, no. 1, pp. 1-2.
Mansfield, R 2005, eBay to the Max: Be a Trading Post Owner, Trading Assistant & Power Seller, Que Publishing.
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