eBay.vs.Amazon

Report
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
• Décor
• 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 eBay’s 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 eBay’s 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.
-Seller’s 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 eBay’s 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:
Bargaining
Power of
Buyers
Intense segment
of Rivalry
Suppliers
•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.
Porter’s Five-Force Framework
Substitutes
Few substitutes and
Low threats because of
strong CRM
eBay’s 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 eBay’s 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 customer’s 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
eBay’s 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 world’s most customer–centric 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:$359million
Achieve a surplus since the 4th quarter of 2002
History
Date
Event
1994-1995
Founded then Launched by Jeff Bezos
Stock ($)
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, world’s 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
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 +
Threat of
New Entrants
Threat of
Substitutes
(reduces asymmetry, so no
manipulation over data)
Universality +
(existing suppliers)
Distribution Channel +
Bargaining
Power of
Buyers
Buyers
Network Externality +
Mediation +, –
(wholesale/retail)
(regional focus)
Info Asymmetry Shrinker +
Low cost +
(large customer base)
Transaction Cost Reducer –
Universality –
(reviews/community platform)
(replacement)
Industry
Competitors:
Intensity of
Rivalry
Bargaining
Power of
Suppliers
Mediation +
Distribution Channel -
(no social platform)
Suppliers
Network Externality +
Substitutes
(no social platform for sellers; great
platform for buyers)
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
S
“Merchant”
Storefronts
Product from
Catalogue
Amazon Web Services
(AWS)

Amazon E-Commerce Service




Alexa Web Information Service


Search catalog, retrieve product information,
images and customer reviews
Retrieve wish list, wedding registry…
Search seller and offer
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:
Amazon S3
Bucket 1
…
Put object
Bucket N
Get object
Client
Put/Get objects into buckets
based on unique keys.
Main Features:
•
•
Public/Private access.
Support for large objects.
Positioning: Online Shopping
Value Configuration Diagram : _________
Repeat
Purchases
Loyalty &
Advocacy
Product Review
Information
Convenience
Order Fulfillment
Product
Recommendations
Money-back
Guarantee
‘1-Click Shopping’
(Buyer)
Association
Low Costs
Network
Externality
Brand Image
Fixed Merchants
Strong CRM
Email Marketing Customer Base
(Seller)
Merchant Advantage:
Automatic Re-Ordering, etc
Associates
Partnering
Program
Distributed
Web Services
Diversification
Cross-selling
Business Process

Shop=
The Amazon Business Process
is built around three main
operation:
Browsing: User looks for books
available at Amazon (searched,
recommended, or browsed by category)
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
(payment/delivery)
Browse+Manage Account
Browse
Manage
Account
Process Model for Amazon.com
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 Amzon’s 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


Superior revenue-sharing
plan with Affiliate program
Strategy




Enables big and small
sellers/affiliates to earn at
roughly the same rate

Business

B2C loser
 C2C winner
 B2B draw
Transaction fee structure
Technology
Superior technology through
AWS, EC2, S3 & catalogue
Strategy

Tends to prefer big-name
brands and retailers with
strong distribution chains

Business

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)

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