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eBay

.vs. Amazon

Analysis of two first-movers that


lasted, in the E-commerce space

Student: Bryan Copeland


Student ID: 053171c
Submitted to: Wakayama-sensei

eBay

Summary

Founded by Pierre Omidyar in 1995

His wife needed a better way to lookup and trade


collectibles; decided to put his computer science skills to
use, never thought it would lead to a multi-billion dollar ECommerce company

Auction-based online sales of products (and sometimes


services) where users try to outbid one another by placing a
higher maximum amount; Dutch and Reverse-auction style
also recently available in some regions

Transaction fees for listing (regardless of whether item sells


or not) and additional fees for Premium Auction features (i.e.
extra photos, BuyItNow, Feature It!, etc) or Premium Seller
memberships

History

Date

Event

Stock ($)

1995

Founded by Pierre Omidyar

1997

Menl Park, Calif (VC) 22% stock acquisition

1998

CEO Meg Whitman (July); IPO

1.871

1999

Alliance with AOL

25.016

2000-2006

Global expansion to over 2 dozen countries

12.708

Feb 2002

Withdrew from Japanese market & Hong Kong

20.833

(where Yahoo! Auctions/Shopping had head start)

Jul 2002

Acquired PayPal

15.13

2005

Acquired Skype

49.500

Products & Services


eBay started out selling Collectibles and Antiques
Has since grown to include incredibly diverse categories of items:

Collectibles
Antiques
Art
Coins
Toys & Dolls
Memorabilia
Motor Vehicles
Cars
Boats
Parts
Electronics
Cameras
Cell phones & PDAs
Computers

Entertainment
Movies, Music & Games
DVD
CD
VHS
Event Tickets
Books
Clothing
Jewelry
Shoes
Accessories
Home Improvement
Dcor
Crafts
Gardening

eBay: Target Segments

Primary target markets are Online Auction & Shopping communities.

eBay has business strategies to target specific segments of each.

Key segment is Antiques & Collectibles.


(It was the lack of a good community-based pet collectibles company that
inspired Pierre Omidyar to develop eBay. Collectibles still among highest in
gross merchandise sales, boasts by far the most veteran sellers.)

Motor lovers: Using credibility of leading car collector Kruse Inc., eBay
expanded its categorical offerings with eBay Motors. eBay Motors became
one of its most successful target segments with $2,500M Global Gross
Merchandise Sales in 2002.

Art lovers: eBay also had a somewhat failed strategic partnership


targeting Art Collectors directly.

eBay (profit sites)

Internet value network consists of three major groups and they are users,
communication service provider and suppliers. Each subgroup of these three
segments are called profit sites. Here we will focus on eBays profit sites and its
implications .

Market maker: A market maker acts as a neutral intermediary that provides a place
to trade and also sets the rules for the market .Thus, eBay is acting as a electronic
auction market and brings buyers and sellers together to execute transactions
through a win-win strategy. And in this way, eBay is developing new markets.

Buyers

eBay is a market maker


Acts as an intermediary
Charges commission

sellers

Brokers and agents: to complete transactions, buyers and sellers depend on some
facilitating organizations like, citigroup or charles Schwab to complete transactions.
These groups are parts of eBays profit sites when eBay gets commission from these
organizations for each transaction.

Business Process
Seller Account
Creation
Listing an Item
No bids
(Auction Type) Reserve

Dutch

Buy-it Now

Bids Placed
Completing
a Sale
After-sales
Service

Regular
-eBay sends Outbid Notice if needed.
-Sellers feedback rating dictates
bidder confidence.

Final Value Fee = 5% of the first $25


+ 2.5% of remaining amount up to $1,000
+ 1.25% of any portion of sale over $1,000

Typically covered by Seller,


using eBays features.

Online Auction
Industry analysis

High threats of new entrants


Auction Universe
Yahoo! Excite Classified
2000

New Entrants

Low
Fixed rate
mediation
Large number of customer for
longer period of time

Threat of
New Entrants

Industry Competitors:

Suppliers

Bargaining
Power of
Buyers

Intense segment
of Rivalry
Newspaper cite on the web
Bargaining every Internet directory
Power of
Every music & video retailer
Suppliers Every personal homepage

Buyers

Threat of
Substitutes
Since suppliers are
large, so threat is low.

Porters Five-Force Framework

Substitutes

Few substitutes and


Low threats because of
strong CRM

eBays Business Model


Community platform
For global person
to person trade
Win-win
situation
Leads Repeat
Transaction

More
Profit

Decreased
Costs

Transaction
Exchange

Internet property
Network externality
Mediation
Universality
Information asymmetry
Virtual capacity
Low cost

Seller

sales format
social communication
(forums, buyer/seller ratings)
Regional sites
Trust and safety
large variety
Innovative
(Bid-based auctioning systems)

Buyer

Regional sites vs.


Network Externality

eBay created > 24 regional trading sites within countries in order to facilitate the
process of buying and selling items of local interest.

This regional focus and network externality are very much consistent because the
larger the network size, the more opportunity for buyers and sellers to have a
better match of their needs.

Localization and Internationalization of eBays services should also help make the
site more accessible in a specific region, for speakers of the native language; thus
offering the opportunity to gain new members at a faster rate

The only possible downside could be fragmentation and isolation of the individual
networks, so each new regional site must feel like part of the main eBay network
and family

eBay API

Buyers:
Get

the current list of eBay categories


View information about items listed on eBay
Display eBay listings on other sites
Leave feedback about other users at the conclusion
of a commerce transaction

Sellers:
Submit

items for listing on eBay


Get high bidder information for items you are selling
Retrieve lists of items a particular user is currently
selling through eBay
Retrieve lists of items a particular user has bid on

Internet Properties
Coordination

Commerce

Community

Content

Communication

Mediation

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Universality

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Network Externality

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Distribution Channel

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Time Moderator

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Info. Asymmetry Shrinker

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Infinite Virtual Capacity


Low Cost Standard

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Creative Destroyer

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Transaction-Cost Reducer

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Key Drivers
1. Network externality
The company believes that this critical mass of buyers, sellers, and items listed for sale created
a cycle that helped eBay continue to grow its user base. and one thing is very true for this model is its large
number of customers stay for longer period of time to complete transactions.
2. Mediation
In addition to providing a venue for selling items, eBay provides buyers and sellers a place to socialize, to
discuss topics of common interest, and to provide feedback on one another
3. Universality
On the Internet, amateurs and collectors from around the world, rather than locations within a reasonable
driving distance, could bid on items. And eBay is applying that latitude by connecting both parties.
4. Time moderation:
the property of time moderation assists eBay a lot by tailoring time according to customers needs.
sometimes it enlarges time period of auction according to needs of a buyer
5. Distribution channel and replacement effect:
eBay uses the traditional distribution channel without any sort of disintermediation and it is called the
replacement effect, that means, serving the same customers using the existing distribution channel.
6.Information asymmetry shrinking:
eBay reduces all sorts of information asymmetry by allowing sellers to provide all related information to buyers
to pave the way for successful transaction. So buyers are no more deprived by short of data .

Success Story:
Commission Junction

Partnered with eBay in 2001 as the exclusive Affiliate Network for


eBays affiliate program1

Allows partners to revenue-share by creating links to Auctions,


Seller sites and/or eBay pages (such as category listings, etc)

eBay in charge of payouts for specific actions (i.e. 9 cent clickthroughs .vs. $13 active user signups .vs. 5% purchases)

Commission Junction gains an even smaller ratio per eBay payout


to one of its affiliates, but, which adds up over time

Network externalities for both companies

1 - http://www.cj.com/news/press_releases0102/press_010418.html
2 - http://www.cj.com/news/press_releases0304/press_030918.html

Amazon

Summary

Online retailer of millions of products (books, toys, Cookware etc..)

Founded in 1995 by Jeff Bezos, in a computer science and electrical


engineering graduate from Princeton University.

Vision
To build the worlds most customercentric company
To establish a place where customers could buy anything

Located in Seattle
Close to the largest book wholesalers in Roseburg, Oregon
The sales tax rate of small state is cheaper than big state
Sites in 6 countries (US, Canada, UK, France, Germany, Japan); ship to >
200 countries

Percentage of sales responsible majority of revenue

Financial Status (Year of 2006)


Net Sales:$8,49billion
Net Income:$359million
Achieve a surplus since the 4th quarter of 2002

History
Date

Event

1994-1995

Founded then Launched by Jeff Bezos

May 15, 1997

IPO

3.917

Sep 23, 1997

Collaborative Filter recommendations launched

9.250

Oct 28, 1997

Millionth customer personally receives order


from Bezos's hands

9.896

Nov 18, 1997

First holiday-gift center opened

8.833

Mar 2, 1998

Amazon.com Kids launched

12.708

Jun 11, 1998

Music sales launched

20.833

Nov 17, 1998

Video sales launched

49.500

Dec 21, 1998

Acquired IMDB, worlds biggest movie database

54.135

1999-2003

Global growth in key international markets

67.85 (mean)

2003-2007

Merchant strategy; major corporate partners

72.29 (6-6-07)

1 - http://www.wired.com/wired/archive/7.03/change.html

Stock ($)

Online Retail
Industry analysis
Network Externality

(many customers )

(no customer base)

Low Cost Standard +


Universality +
Distribution Channel +
Transaction Cost Reducer +
Mediation

New Entrants

Distribution Channel
(No control over channel)

Info Asymmetry Shrinker +


(reduces asymmetry, so no
manipulation over data)

Universality +
(existing suppliers)

(reviews/community platform)
(replacement)

Threat of
New Entrants

Industry
Competitors:
Intensity of
Rivalry

Bargaining
Power of
Suppliers

Mediation +
Distribution Channel -

(no social platform)

Suppliers

Network Externality +

Threat of
Substitutes

Info Asymmetry Shrinker +


Low cost +

Bargaining
Power of
Buyers

Buyers

Network Externality +
(large customer base)

Transaction Cost Reducer

Mediation +,

(wholesale/retail)

(no social platform for sellers; great


platform for buyers)

Universality
(regional focus)

Distribution Channel +

Substitutes

Universality

Evolution: From Retailer to


Retail Platform

Sales Format
User
choice

Store 1
Locate
Sellers

Transaction

Store n

Sales Format
-Communication
(Reviews)
-Low Cost
-Large Variety
-Distribution
-Trust & Safety
(seller ratings)
B

Store 2

Merchant
Storefronts

Product from
Catalogue

Amazon Web Services


(AWS)

Amazon E-Commerce Service


Search

catalog, retrieve product information,


images and customer reviews
Retrieve wish list, wedding registry
Search seller and offer

Alexa Web Information Service


Retrieve

information such as page rank, related


sites given a target URL

Amazon Simple Queue Service


A

distributed resource manager to store web


services results

5 Benefits of AWS
1.
2.
3.
4.

5.

Pay-per use model


Instant scalability
Reliable/Redundant/Secure
Most services accessed via simple
REST/SOAP API
Superior Technical Support
(Experience & Commitment)

S3 in a Nutshell
Idea:

AmazonS3
Bucket1

Putobject

BucketN

Getobject

Client

Put/Getobjectsintobuckets
basedonuniquekeys.

MainFeatures:

Public/Privateaccess.
Supportforlargeobjects.

Positioning: Online
Shopping
Product Review
Convenience
Information

Value Configuration Diagram : _________


Repeat
Purchases

Loyalty &
Advocacy

Order Fulfillment
Product
Recommendations

Money-back
Guarantee

1-Click Shopping

(Buyer)

Association

Low Costs

Network
Externality
Brand Image

Fixed Merchants

Strong CRM

Email MarketingCustomer Base

Merchant Advantage:
Automatic Re-Ordering, etc

(Seller
)

Associates
Program

Partnering
Distributed
Web Services

Cross-selling

Diversification

Business Process

Shop=

The Amazon Business Process


is built around three main
operation:

Browse+Manage Account

Browsing: User looks for books


available at Amazon (searched,

Browse

Manage Account: check content of


user shopping cart, stock of
sellers, add and remove
products
Shop: First browse to find
product(s), place in the
shopping basket, then
complete a purchase

Process Model for Amazon.com

recommended, or browsed by category)

(payment/delivery)

Manage
Account

Internet Properties
Coordination

Commerce

Community

Content

Communication

Mediation

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Universality

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Network Externality

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Distribution Channel

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Time Moderator

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Info. Asymmetry Shrinker

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Infinite Virtual Capacity

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Low Cost Standard

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Creative Destroyer

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Transaction-Cost Reducer

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First-Mover Success

First to move booking retailing online (1994 Jeff Bezos)

Brand recognized worldwide, most visited site in USA (2000)

Simple Business Model:

Expensive inventory brick and mortar warehousing not required Require WEB to interface
with customers and take their orders

Continuous Rapid innovation

one-click, search facilities, collaborative filtering, affiliate programs (250,000 partners in


2000), order tracking mechanisms

Established strong brand presence created psychological switching costs in consumers


(collaborate filtering, privacy policies, builds trust)

Pillars (quality of service, value for money, trust worthiness)

WEB site easy to use, easy to find, and fast

Key Drivers
1. Low cost platform for transaction:
The Internet is certainly a lower cost platform for any transaction, communication or negotiation than
any other electronic media. Amazon is using this platform successfully to bring buyers and sellers
together for transactions, and doing so not by charging an upfront listing or transaction fee, but by
charging a percentage of each sales, which in the long-run could be a much larger pie and better
approach for Amazon on volume; on the short-term to merchants it appears to be a win-win situation
as well as cumulative listing fees can even become prohibitively expensive in some cases.
2.Transaction cost reducer:
The Internet is reducing costs of commercial transactions dramatically by matching the right buyers to
the right suppliers, for the right product at the right time. Just-in-time (JIT) theory which dominated the
late 80s and early 90s, is taken to the extereme in Amzons business model. In this model, sellers can
learn about buyers financial standing, review history and other characteristics of a good customer.
Likewise buyers can learn about suppliers reputations, product features, and prices.
3. Infinite virtual capacity:
Internet infrastructure gives customers the feeling that it has infinite virtual capacity to serve them.
Amazon is taking advantage of their distributed infrastructure through AWS and by bringing a large no.
of sellers with large no. of products for transaction. Buyers are confident that just about anything they
want must be available on Amazon, and most importantly, the quality and authenticity will be more
reliable than eBay.
4.Creative destroyer:
The Internet is transforming the traditional retailing distribution structure; business is now conducted
by Amazon to remove the middleman of the brick-and-mortar storefront, playing a role as a creative
destroyer. Amazon is paving the way for the digital storefront, which is much more affordable and
accessible (does not require large amounts of capital to startup). In this way, it is both a creator and a
destroyer, but certainly in terms of the traditonal system it is a creative destroyer.

Success Story : Toys-R-Us


1999 Christmas on-line orders flushed into
newly establishe ToysRus.com
Announced a joint-venture with Amazon for
online sales in 2000
Used AWS and Amazon site itself for Web
operations, order fulfillment, & customer
service
Toys-R-us controls buying and managing
inventory

Success Story (cont)


65 million and growing number of visitors
every year
Number one site in its category
Explosive growth in sales reaching $300
million
Posted profit for the fourth quarter of 2002

Side-by-Side

Technology

Tends to prefer big-name


brands and retailers with
strong distribution chains

Business

Superior technology through


AWS, EC2, S3 & catalogue

Strategy

B2C loser
C2C winner
B2B draw

Transaction fee structure

Technology

Enables big and small


sellers/affiliates to earn at
roughly the same rate

Business

Superior revenue-sharing
plan with Affiliate program

Strategy

B2C winner
C2C loser
B2B draw

Percentage of sales structure

Conclusion

Based on my analysis eBay should


not put additional resources
towards B2C market, due to
saturated market and competitors
near stranglehold on market share

Should instead surprise


competitors like Amazon with a
strong B2B initiative or campaign
(i.e. introducing a new comparison
shopping service for wholesalers)

Reinforcing their C2C presence


through continued rewards to their
loyal seller/buyer base to maintain
dominance there would also be a
wise strategy, after-all in C2C
eventually incentives are needed as
parties can communicate offline

Amazon should invest whatever


resources necessary to maintain hold
of B2C market by continuing to
compete on price, convenience &
reliability of vendors and continue to
bring in new brand-name retailers

Should reward smaller users as the


longtail works for network membership
as well (strength in #s, not just big
enterprise retailers, because if they leave,
sales/catalogue can shrink overnight)

Better position than eBay right now for


long-term B2B strategy with AWS,
should try new programs(i.e. sellerexchanges, etc)