Perspective of E-Commerce: EBay BOAT Analysis - Case Study Example

E-Business B2C (Business to Consumer) case study Contents 4 2. Choice of eBay 5 3. Business Model of eBay 5 3 e-Business 6 3.2. Objects Traded 7 3.3. Time Horizon 8 4. BOAT Perspective of E-Commerce: eBay BOAT Analysis 9 4.1. Business 9 4.2. Business Organisation 9 4.3. Business Architecture 11 4.4. Business Technology 12 5. Competitive Advantage of eBay 13 Conclusion and Recommendations 15 References 16 Bibliography 17 1. Description In 1995 Pierre Omidyar founded eBay which allowed users to buy and sell individual collections directly without involving any intermediate third party like brokers. Since then eBay has became the largest online marketplace with over 100 million registered users globally. The eBay platform allows members to sell and buy almost anything and everything (Hellriegal and Slocum, 2007, p.253). One of the most unique and expensive item sold on eBay website was a Gulf Stream Jet that attracted a record bid of $4.9 million. The eBay platform was also able to sell a cornflake in the shape of Illinois, United Sates for $1,350. The company started operating in United States but at present eBay has over 37 sites where each site focus on particular country of operation allowing traders to associate with members from the area of their choice. Only the eBay UK site attracts over 17 million unique visitors every month who have over 60 million listed goods. The site allows members simply to register and to sell products using the internet. Along the journey eBay expanded worldwide and added new companies in their portfolios all branded under the name of eBay. The two most known partners of eBay are Half.com and PayPal. While Half.com is eBay’s fixed-price platform that allows selling of music, books, movies, and games; PayPal on the other hand allows customers to make secure payments with requiring exchanging confidential bank details with other parties. Other business under eBay’s portfolio include open commerce platform that aids business expansions, interactive market solutions for retailers and brands, social innovations, investments into many partnerships, gsi commerce and so on. 2. Choice of eBay The business model of eBay is unique that provides automated auction system allowing buyers and sellers all over the world to collaborate and create a community. The most important aspect of eBay’s e-business is that the company does not purchase and sell goods directly but instead the transactions are take place between members. The company only facilitates the transactions by proving a platform and that allows buyers and sellers to interact. All activities including policies, packaging, postage, payments, sales returns, etc. are negotiated and completed by members and eBay only acts a facilitator to these acts (Venture Navigator, 2007). The company charges a small amount of fee to the members for adding products to be sold called ‘insertion fee’. It also charges a certain percentage of final sale price to seller called ‘final value’ fee. Hence, the unique e-business model of eBay justifies its selection (Peragine and Russell, 2010, pp.29-30). 3. Business Model of eBay The company in this case, eBay, has leveraged both streamlined and global traditional consumer to consumer community trading. In the past, such trading generally involved flea markets, collectible shows, traditional auctions, garage sales, and more; but the company has taken all these business models and consolidated them in the web interface. The most important aspect of eBay that has popularised its business model is that bidding and browsing on any particular auction by an interested buyer on eBay website is free of charge (Bjornsson, 2001). But there is a catch which is the sellers are charged in different points: 1. When the sellers list particular item(s) on the eBay platform, a non-refundable ‘Insertion Fee’ is levied on the seller that ranges anywhere between 30 cents to $3.30. The Insertion Fee depends on the sellers’ opening bid on listed good. 2. Another fee known as the ‘Final Value’ is charged to the seller at the end of auction when the final sale price is quoted. This fee generally varies from 1.25 percent to 5 percent of final sale price. Moreover, the sellers are charged additional charges for listing options to promote goods. Such options include ‘bold’ listing or ‘highlighted’ listing. The business model of eBay automatically notifies the seller and buyer via e-mail if at the end of auction the bids of buyer exceeds the minimum price quoted by the seller at the beginning of auction but the seller and buyer can finish the auction independently which further makes the model more flexible and time convenient for the customers. Another popular feature of this business model is that all parties involved in the auction process are not obliged to the binding contract. Only the winning or the highest bidder (has to pay second highest bid plus one small predefined amount) and the seller is the parties to contract. 3.1. e-Business E-business modelling has the same goals as that of the enterprise. A well defined e-business model helps to develop business strategies, visions, align business operations and share knowledge about business. The process involves setup of a business and network of partners for marketing and supplying value and creating relationship to multiple customers to generate a sustainable and profitable revenue stream (Phillips, 2011, p.339). The e-business model of eBay is such that at no point of time during the process of auction eBay takes physical possession of either item put on website for sale or sold to buyer. In the business model eBay money is not the differentiating factor but trust is the key issue when it comes to exchange of goods. In the traditional buy-sell business model the seller and buyer frequently exchanged goods for monetary considerations at the same time and place. But things are different in eBay that where it convince users to participate where deals are delayed intentionally so as to independently conclude the auction process without requiring the presence of buyer and seller at the time of ending auction. Later when the auction completes the buyer and seller are separately notified by eBay. The company has also introduced the Feedback Forum in their e-business model so that anonymity and uncertainty is reduced. All users are encouraged to submit their personal experiences including compliments and criticisms to their individual trading profiles and thus comment on each other. The advantage of including such aspects in the e-business of eBay is that a user will be able to make more accurate assumptions regarding the trustworthiness of its partner by looking at the trading partners’ history of trades. This in turn generates a relationship of trust between buyer/seller and the company. This property also has some drawbacks like users may be tempted to wait for auctions of expensive items until their reputation is good enough and not to mention that for any new user there won’t be any feedbacks which might discourage frequent buyers to overlook these sellers and further increase biasness towards some handful of sellers (Team Caffeine, 2012). 3.2. Objects Traded The item traded on eBay are both tangible (goods) and intangible (services) in nature that include millions of collectibles, computers, smart phones, decor, appliances, equipments & hardware, domain names, furnishings, vehicles, and other miscellaneous items that are bought and sold every day on the official website of eBay. In the year 2006, eBay launched Industrial and Business category that was further broken into industrial surplus business. In the website and license agreement of eBay it was found that almost anything can be sold via eBay provided that such goods or services are not notified as illegal by the government and that items listed must not violate eBay Prohibited and Restricted Items policies. Large multinational companies such as IBM often sell their newest products and offer services through eBay and take the advantage of competitive bidding auction and fixed-priced storefronts provided by the company. Another important aspect of the business model of eBay is that separate or customised versions of eBay websites like eBay UK and eBay US allow users to trade items using their local currencies. 3.3. Time Horizon The company eBay was founded in the year 1995 by Pierre Omidyar which was from the very beginning meant to be marketplace for exchange of goods and services between customers and not between businesses to consumers. By the early 2000, the company was able to shed its image of only auction of collectibles into a more organised marketplace offering an array of upscale market products which recorded higher average sale price (ASP). The ASP was an important metric that determines eBay’s success rate and transaction fee and so it was important for the company to gradually increase the ASP with time. The company was able to achieve this by forging with many partners that had strong brand recognition like General Motors, Disney, Sun, and the likes. 4. BOAT Perspective of E-Commerce: eBay BOAT Analysis The BOAT framework is very useful to analyse important dimensions of e-business models. The level of business looks at why a business should choose working as e-business by relatively comparing with traditional models. The organisational levels look at how the e-business will help to achieve organisational goals and objectives. The Architecture level analyses how the automated systems run within the business and the Technology level suggests requirement of appropriate technology to aid functioning of other levels. This report analyses the BOAT perspective of eBay. 4.1. Business The business model of eBay is a practical example of C2C e-commerce business model. The company has built an online consumer-to-consumer trading community on the internet using the connectivity facilitated by the World Wide Web. The sellers and buyer of goods and services are interacted and brought together in a manner such that sellers are permitted to list goods for sell and buyers are permitted to bid on the goods put on sale. The buyers and sellers primary mode of interaction occurs through the internet and all eBay users are browse through all listed goods in fully automated manner. All goods are well organised and arranged by particular category or topic that helps the buyer to find item of choice put on sale by the seller. 4.2. Business Organisation This perspective describes how e-business organisations implement different business elements so that technology enables business drivers and structures. The different elements of e-business organisational perspective include organisational structures, business processes, functions, operations and change management. Primarily, there are two ways of looking at organisation structures – 1) inter-organisational structures (comparison between businesses); 2) intra-organisational (comparison within businesses). The inter-organisational structures in e-business focus on three major market roles namely, Consumers – party that creates demand for company’s services Provider – party that offers services and is an inherent part of supply-side of the system Intermediary – The role of this party is supplementary to main parties involved in transaction and they assist to deliver products or service to ultimate consumer (like financial or transport intermediary) The nature of interaction between e-business parties changes frequently with change in technology and business models. However, in most of the time the core business activities hardly change. The intra-organisational structures require e-business structures to be flexible so as to enable necessary changes and structures. This is the reason why internal business functionality is decoupled from external business. The core business functions do not require exposure to outside world is called back-end operations while the business functionality that constantly interacts with outside world is called the from-end functionality. The Business-to-Customers is an example of front-end e-business structures where back-end functions support primary activities. The back-end activities that support B2C models include billing or invoicing. The front-end functionalities of the producer include Sales & Marketing, logistics and service while for the customers or intermediary party it generally involves procurement (search, negotiate, pay, etc.) and in-bound logistics (storing and receiving). These functions are supported by back-end operations like Finance, Human Resource Management, Technology, Procurement, and Infrastructure (Steiner, 2005, pp.85-88). The business organisation in any e-business allows business model and technology to provide optimal service. The organisation of eBay is different from other e-retailers given the fact the company has two types of customers that are selling to each other via eBay platform. The consumers establish their own policies that help the producers to deliver products and services to buyers. The payment in eBay is also conducted directly between the buyer and seller. The company charges a certain percentage as fee from the seller. 4.3. Business Architecture The e-business ‘Architecture’ is a pivot between business organisation and business technology. Architecture is the blueprint of structure of complex system. E-business architecture highlights the basic structure of the system in terms of functional components of software. The architecture also specifies supporting functions and interfaces among different components. The e-business software and interfaces are described by information system architecture. The hardware components including servers and other physical connections are not part of this architecture. In the world of 21st century there is immense competition in market which has complicated the e-business architecture. This required organisations to breakdown the architecture into multiple levels like, Market-Level architecture (focus on collaboration), Party-Level architecture (focus on single entity), and System-Level architecture (focus on single information system of a party). The abstraction levels of architecture are also divided into Reference (across multiple organisations), Standard (within single organisation) and Instance (for a particular information system) architecture. In case of eBay, the market level architecture acts between consumers (or suppliers) and e-business and it manages the front end of the business. The party level architecture operates between the back and front end of the company that has the responsibility to manage information systems through rich and plentiful communications. Communication between different systems is called ‘system’ level architecture which is also sometimes referred to as ‘white box’ since the back end of business allows view of every other information system. The e-business of eBay is developed using dispersed object oriented technologies. The requirement of newer and larger information system architecture has to be included in the framework to support and handle the complexities that cannot be handled by distributed object oriented technology. The most important component of architecture is the internet that supports its workings and also supports technology. The internet also allows communications to be restricted by encrypted codes that ensures secured information exchange. 4.4. Business Technology The ‘Technology’ employed in e-business can be categorised into in three ways namely, infrastructure, aspects, and functions. The main infrastructure technologies for any e-business are the Web and the Internet. The internet, also known as information superhighway, is a combination of wireless networks and physical networks of cables; the Web is an application that runs over the internet like e-mail. The advanced technology platform generally provides basic infrastructure for e-business. For instance, specific e-business standardised platforms are ebXML, Rosettanet, etc. and general e-business technology platforms include web service technology and multi-agent technology. The ebXML standard provides a very dedicated technological platform that supports software implementation required in e-business processes over the internet. The primary focus of e-business technology is to enable communication between different technologies being used within and between organisations. The research on technological development of eBay reveals that the e-business platform was developed in its own internal eBox framework. In the year 2007, CNET stated that eBox is a java-based web application framework that is built in line with the strategic goals of eBay site. The technology is proved to be high performing, scalable, secured and also have high availability. The study has also found that while most organisations aim to keep the inner technologies workings a secret providing competitive advantage, the strategy of eBay is completely different. The company uses World Wide Web as basic communication infrastructure which also involves two other technologies namely web browsers and https security. The web browser helps the customers to interact with eBay website while the https allows users to submit requests and queries in encrypted codes for secured information exchange. The web servers operational in eBay uses the https language to deliver web content which would have been impossible to receive otherwise. With the advancement of technology at rapid pace, the company would require to produce updated versions of technology platform that will be supported by latest trends like Apple iOS, Windows, and Android operating systems. 5. Competitive Advantage of eBay The study has found that eBay has been able to retain their position as the market leader by employing six major strategies that has given the company competitive advantage over others: 1. Large User Base – The Company has been able to establish a large user base and continuously attract new users. The company is also able to business collaborations with more than 60 online websites (Scupola, 2009, p.134). 2. Focus on Local and International Markets – Diversification into different geographies helped the company to manage market risk. The company has dedicated sites targeted to over 37 countries (Lewis, et al., 2006, p.337). These sites also enable consumers to purchase products at local currencies. Only in USA, the company has 53 local sites that help users from similar states to buy products from similar area that helps in better price comparison and also provides convenience to consumers to dispatch items thereby reducing transportation cost. 3. Strong Brand Recognition – The Company has been able to establish very strong brand recognition and very few are unfamiliar with what eBay does and where they can be found. The marketing cost of eBay was negligible during the initial years when the company wanted to spread the brand like virus that actually worked. 4. Expand Trade Platform – In 1999, eBay first faced competition from companies like Yahoo and Amazon. In order to increase their reach to consumers, the company entered into other domains and added more categories for the sellers that helped the company to popularise trading platform and increase profit margins. 5. Maintaining Strong Community Affinity – The eBay platform have connected buyers and sellers that share common interest and thereby creating a sense of community among the members. Sense of community helps develop loyalty between members. 6. Continuous improvement of website features and functionalities – The company has kept its image very updated and also changed their official logo keeping the brand image fresh. Conclusion and Recommendations Research reveals that the opinion of eBay’s power sellers became negative implying gradual losing of competitive advantage to rivals like Amazon. Skariachan & Barr (2012) argued that eBay is the perfect company to be partnered with when the rival competing against the likes of big brand names such as the Amazon. The company strives to convince retailers that it is their friend as the company does not hold any inventory and only provides a platform to bring the buyers and sellers together. This business model reduces cost to both buyer and seller as the transaction between them happens without any intermediate party. With the emergence of tablets and smart phones as latest trends in the market, the company is recommended to update their technology to include platform that could be run on android and also be compatible with other smart phone operating system. The company can also launch their own personalised Mobile App that will allow members to avail eBay’s features without require third-party compatibility software installation. References Team Caffeine, 2012. EBay History and Business Model. [Online]. Available at: http://teamcaffeine.wikidot.com/ebay. [Accessed on March 04, 2014]. eBay, No Date. eBay Partner Network. [Online]. Available at: https://publisher.ebaypartnernetwork.com/PublisherUserManualPage?page_id=help.BusinessModels. [Accessed on March 04, 2014]. Venture Navigator, 2007. eBay, One Internet Business Model that Works. [Online]. Available at: http://www.venturenavigator.co.uk/content/ebay_case_study. [Accessed on March 04, 2014]. Bjornsson, M., 2001. The History of eBay. [Online]. Available at: http://www.cs.brandeis.edu/~magnus/ief248a/eBay/history.html. [Accessed on March 04, 2014]. Peragine, J. N. and Russell, C. N., 2010. EBay Income: How Anyone of Any Age, Location, And/or Background Can Build a Highly Profitable Online Business with EBay (Google eBook). Florida: Atlantic Publishing Company. Hellriegal, D. and Slocum, J. W., 2007. Organisational Behavior. United States: Cengage Learning. Lewis, P. S., et al., 2006. Management: Challenges for Tomorrow’s Leaders. United States: Cengage Learning. Scupola, A., 2009. eBay: An E-Titan Success Story. United States: Idea Group Inc (IGI). Steiner, F., 2005. Formation and Early Growth of Business Webs. Germany: Springer. Phillips, M., 2011. E-Business Strategies. United Kingdom: Tata McGraw-Hill Education. Bibliography Hillis, K., Petit, M., and Epley, N. S., 2006. Everyday eBay: Culture Collecting and Desire. New York: Routledge. Daft, R., 2008. The New Era of Management. 2. United States: Cengage Learning EMEA. Collier, M., 2009. eBay for Dummies. New Jersey: John Wiley & Sons. Read More