EBay the Perfect eBusiness - Case Study Example

eBay the Perfect eBusiness Businesses have seen exodus towards the online arena. Some succeed while most fail. However, for those businesses like eBay.com that was born online, management gurus and theorists since its birth are looking into how far could management tools tried and tested with offline businesses work with online enterprises. This paper discusses the how and what kind of organizational management has made eBay.com as successful and award winning in terms of securing both the competitive advantage against other dot com at the same time keeping a sustainable and effective corporate culture in hyperspace. eBay, Inc., provides online marketplaces for the sale of goods and services. It has online payment services, and online communication offerings to a wide range of community and individuals that use the e store for business transactions both in the United States and in other countries worldwide. The company has three big departments: eBay Marketplace, Payments, and Communications. The eBay Marketplaces provides infrastructure enabling online trade in a variety of formats. eBay is forerunner of the traditional auction platform that went online. Rent.com, Shopping.com, Kijiji, mobile.de, and Marktplaats.nl are other online venues where trading is done. Basic to its many services include trust and safety features; prompt customer support, trading tools and services and My eBay services. My eBay “permits users to receive a report of their eBay activity that includes bidding, selling, account balances, favorite categories, and recent feedback, as well as About Me, which provides users to create their own personal home page.” (YF, 2006) Payments is an online segment that caters to small businesses, merchants online and individuals who needs to send and receive payments on the net. Payments segment includes easy activities such as joining the network, verifying of Paypal account holders, withdrawal of money, as much as its own trust and safety programs. Skype heads the Communications segment of the business. With Skype, voice over IP calls is available. It provides connectivity of the computer user to fixed-line and mobile phones systems. “The company also offers online apartment rental services and comparison shopping resource service, as well as provides an Internet payment platform that allows merchants to authorize, process, and manage online payments. eBay, Inc. was founded by Pierre M. Omidyar in 1995 and is headquartered in San Jose, California.” (YF, 2006) Pierre Omidyar started the company in his apartment in 1995. While looking for PEZ dispensers for his girlfriend, he realized that there is a vacuum in the net to create the perfect marketplace for all those merchants in the world. But other than a grand and big dream, he had armed himself with core values that would mould his company towards stability and growth. He believed in the values of commerce and community over competition. He believed that through the net, there was equal access to information. And given this, opportunities affected the efficiency of the marketplace. Nurturing a level playing field proved profitable. Thousands of eBay members thrive entirely on eBay while 150 million strangers successfully deal, pay and deliver to strangers as well. Each transaction symbolized not just mere exchange of money and products but more than that, a common ground where people who have not met before do a virtual handshake on a common ground. The venue would prove to be the first on the face of the Earth. Rick Gagliano’s case clearly illustrates how the success of eBay helped those who really needed a break with just the opportunity to meet the world market at the least cost to you. When Rick found himself with old Playboy and Hustler magazines under his old used furniture, he decided to sell the magazines online. The rest is a booming history of a successful business. Another success story was Pongo who ran early amongst the eBay message boards. Who would think that a housewife in Alaska who was recovering from a bad case of amnesia was actually Pongo. BASIC BUSINESS MODEL eBay’s basic business model is built upon the person-to-person trading process done online using the World Wide Web. Buyers and sellers are permitted to list items for sale. Buyers bid on these items depending on what they are looking for or what their interests are. Items through the web and programming are easily listed as bidders would like it, whether in terms of costs, bid closing schedules or buy nows or simply arranged by topics. “eBay has both streamlined and globalized traditional person-to-person trading, which has traditionally been conducted through such forms as garage sales, collectibles shows, flea markets and more, with their web interface. This facilitates easy exploration for buyers and enables the sellers to immediately list an item for sale within minutes of registering.” (Casseres, 2001) eBay earns from the sellers and not from the bidders. Sellers are charged of a nonrefundable Fee which is 30 cents or $3.30. Sellers are charged for additional listing options like highlighting the item or putting the item in bold format for easy spotting. When the item at the end of the auction is won, there is another fee charged which is 1.24% to 5% of the final sale price. When the bid closes, the eBay facilitates communication between the buyer and seller via e-mail. If the bid has exceeded the minimum selling price of the seller, transactions between buyer and seller will be done independently of eBay. REVENUES Through the basic business model, eBay’s revenue has steadily increased. Their gross profit from 2003 to 2005 more than doubled. Net income increased as well from $441,771 to $1,082,043 in a span of three years. View: Annual Data | Quarterly Data All numbers in thousands PERIOD ENDING 31-Dec-05 31-Dec-04 31-Dec-03 Total Revenue 4,552,401   3,271,309   2,165,096   Cost of Revenue 818,104   614,415   416,058   Gross Profit 3,734,297   2,656,894   1,749,038   Operating Expenses Research Development 328,191   240,647   159,315   Selling General and Administrative 1,835,458   1,291,078   879,858   Non Recurring -   -   29,965   Others 128,941   65,927   50,659   Total Operating Expenses -   -   1,119,797   Operating Income or Loss 1,441,707   1,059,242   629,241   Income from Continuing Operations Total Other Income/Expenses Net 111,148   77,867   36,573   Earnings Before Interest And Taxes 1,552,855   1,137,109   665,814   Interest Expense 3,478   8,879   4,314   Income Before Tax 1,549,377   1,128,230   661,500   Income Tax Expense 467,285   343,885   206,738   Minority Interest (49) (6,122) (7,578) Net Income From Continuing Ops 1,082,043   778,223   447,184   Non-recurring Events Discontinued Operations -   -   -   Extraordinary Items -   -   -   Effect Of Accounting Changes -   -   (5,413) Other Items -   -   -   Net Income 1,082,043   778,223   441,771   Net Income Applicable To Common Shares $1,082,043   $778,223   $441,771   Source: Yahoo Finance CORPORATE CULTURE Cooperation has always been deemed important for human societies to be sustained. However, in real life cooperation is not necessarily the rule of the game. The rules are founded on competition as studied by evolutionary biologists as survival of the fittest. However, this is not the case with successful online e-commerce experience as Brad Williams, VP for Corporate Communications, eBay elaborates on eBay’s winning corporate culture. Beyond competition, eBay was built on the value of cooperation evident since the Barter Trades era. In the online environment, people do not actually see each other. Sometimes, trading at eBay happens with just knowledge of the product and the price. As shipping follows next and is successfully made, a happy seller gets his money while a happy buyer gets his goods. With everyone happy online, another trading is bound to happen. The invisible handshake works at eBay because people respect the rules of online trading and anyone overstepping the limitations of the online context will be punished whether you’re a tycoon in New York or a farmer in Sri Lanka. The culture of cooperation that is so simple that multi-cultures easily understand it is the one that drives eBay to gain customer’s trust. The trust that is gained is precisely the value added product of the service that eBay produces on a daily basis. It is trust that is embedded in eBay’s corporate culture that brings eBay on a different trading field as compared to its traditional competitors. “Brad Williams from eBay had stated in his presentation that eBay's culture is very open and cooperative. EBay employees will contribute to company discussions in helping to make a better company. And even some employees joining eBay, once the employees have experienced how the culture works at eBay, cannot always handle the level of openness. For eBay their cooperation marketing efforts succeed because that's how the company's culture is hard wired.” (Cass, 2006) eBay is not only the online store who have adopted this cooperative culture. Amazon.com, and Craigslist.com have been at the forefront of the competition through simple trustworthy cooperation from its network. GROWTH POTENTIALS Growth for eBay remains foreward looking and significant. Meg Whitman, eBay’s CEO looks at growth in three ways. For the US business, big opportunities still lie on the collectibles. The collectibles market that eBay has covered is its most mature and oldest category, is only 5% of the total US collectibles market. The only way to go on this market is up. The second way is through the company’s international expansion programs cornering international markets. The international program is eBay’s fastest growing segment. “People from all over the world buy and sell on eBay. Currently, eBay has local sites that serve Australia, Austria, Belgium, Canada, China, France, Germany, Hong Kong, India, Ireland, Italy, Malaysia, the Netherlands, New Zealand, Poland, the Philippines, Singapore, South Korea, Spain, Sweden, Switzerland, Taiwan, the United Kingdom, and the United States. In addition, eBay has a presence in Latin America through its investment MercadoLibre.com.” (Ebay, 2006) As more countries are hooking up into the internet, eBay will virtually be there. eBay can go and expand anywhere there’s trading. Entrepreneurs are more than businessmen. They are craftsmen of trade and these people succeed because trading for them is a pleasure. The international expansion of eBay is imperative and unavoidable. Meg moves on with the third global strategy, “the third leg of our strategy is PayPal. We bought PayPal about 15 months ago because it had become the de facto payment standard on eBay.com. PayPal's strategy is to continue to be the standard on eBay.com, and then secondarily follow eBay's footprint around the world. And then finally of course, PayPal has an off-eBay opportunity. If you have a website and you just sell on the Web, regardless of your affiliation with eBay, you can use PayPal to accept credit cards and accept payment electronically.” (Grebb, 2004) CHANGE Change management is more urgent with ebusinesses such as eBay. The speed of technology that cradles online businesses drives the change and if businesses are not quick to evolve, they will suffer the fates of the internet boom that failed due to the creation of some ebusinesses founded on hype. Since 1998 and 1999, people browsing the net have learned from the birthing pains of the world wide web. Browsers are wiser. The bane that internet users experienced years ago didn’t hamper the growth of internet users. More people are still going online and spending more time browsing. The ebusinesses realised that the internet remains a tool. The businesses that stayed on had underlying foundations that are completed unrelated to hype. The underlying structure ebusinesses that survived still remained all about information and communication. The speed and mode of communication was what evolved but the need for information and the services that used the information did not change. The medium is what became more powerful and it will continue to change how things will be processed to achieve timeless traditional business goals. Specifically for eBay, it handles change by using coexistence. Whitman elaborates, “EBay is an evolution, and the thing that you have to know is that we do not sit in a conference room and say, "How about we go after small business?" The entrepreneurs evolve this marketplace to take the best and optimal use of the platform. Another example would be used cars, the largest category on eBay today in terms of gross merchandise sales. We did not sit in a conference and say, "How about we get into used cars?" Entrepreneurs understood that there was inefficiency in the used-car market. You didn't know what was available. You didn't know what your vehicle was really worth or what you should be willing to pay. Perfect for the eBay market. So our job in management is to enable the evolution of this marketplace the way in which our buyers and sellers want to take it. So it started as a collectibles website. Collectors were the first to come because collectibles is also an inefficient market. If you collect Civil War memorabilia, you don't know what's available. You don't know what you should pay. So collectors were the first to come, and then the sellers and the buyers extended it to the now 43,000 subcategories that we have across the globe. And this will continue to evolve in ways we can't predict.” (Grebb, 2004) ORGANIZATIONAL BEHAVIOR eBay is a perfect example of an ebusiness model with foundations born ages ago from social constructs of trading, reborn in the world wide web. The way eBay’s leaders transformed the auction system to the online platform has revolutionized the way people across the globe living in different countries think and appreciate trust. “Trust affects an organization's ability to develop and sustain relationships with partners and publics. Trust is "social capital" measurable against the corporate bottom line and is culturally defined by rituals and religion.” (IABC, 2003) eBay has built on trust that is illustrated in its ethics, disclosure and transparency guidelines, and the way they measure it. Ethical principles that are closely related to eBay’s core business is supported deeply by management’s commitment. If an employee cannot sustain open mindedness, he can’t stay long in eBay’s enterprise wide disciplines. Feedback on their merchants and bidders are clearly published and anyone on eBay can get real time information on the credibility of the persons involved in transactions. The organization is a facilitator between cultures. Merchant and bidders come from different part of the globe. They have different languages. Merchants and bidders understand the cost published because there is available currency exchange calculators. The products have photos and specifications. Merchants’ backgrounds are published and rated with symbols that most languages understand. eBay ensures there is culture audit. Some countries cannot access Paypal services specially if credit rating of these cultures are below what is needed. As a strategic integrator, eBay’s online communication systems enables people to open new categories for trading themselves. eBay competently records these data that becomes information that they eventually use for future strategies. Built on trust, the programming of the eBay site uses technology that do not underestimate the enormity of possibility. In social exchange theories, managers need to gauge the outcomes of interactions that will be done by the business. People base their actions on the possible outcomes of the trading. Some items for bid do not ship internationally and it is very much explicitly noted on the web. The organization behaves following the cost / reward theory that assumes relations as moulded by rewards and costs. With the auction process, a merchant who trades at eBay is ensured that his product will be taken by the highest bidder. The value of his product will be pitted against the highest appreciation of his product which is a reward by itself. Opportunism therefore cannot survive in the organization due to this hard wiring system and curbed by controls. eBay’s organizational trust thrives because it is culturally rooted, communication-based, dynamic that is constantly chaning, building, stabilizing and dissolving, and essentially multi-dimensional. SUMMARY eBay Inc. will see action in countries such as China, the European Union while keeping stronger evolution in Asia and the US. While more and more people join the web and get online, the market place where trading is just and trustworthy will continue to suport entreprenuers, consumers that believe in the value of fairness with the power of information. Globalization will expect managers and leaders of interational firms both online and offline to keep up with their management tools in order for their companies to secure competitive advantage. eBay will definitely be trailblazing online companies with their competence, credibility, competitiveness through their cooperation culture. REFERENCES Casseres, Ben Gomes Spring (2001) The History of eBay Retrieved April 14 2006 from http://www.cs.brandeis.edu/~magnus/ief248a/eBay/history.html Cass, John (2006) March 02, 2006 What Culture Does A Company Need To Adopt To Use Cooperative Marketing Effectively? Retrieved April 14 2006 from http://blogsurvey.backbonemedia.com/archives/2006/03/what_culture_does_a_company_ne.html Ebay, (2006). The World’s Online Marketplace Retrieved April 14 2006 from. http://pages.ebay.com/aboutebay/thecompany/companyoverview.html Grebb, Michael. (2004). eBay’s Growth Just Beginning. Wired News. Retrieved April 14 2006 from. http://www.wired.com/news/business/0,1367,63378,00.html IABC, (2003). More than a social virtue: public trust among organizations' most valuable assets - Foundation Findings Communication World,  April-May, 2003 Retrieved April 14 from 2006. http://www.findarticles.com/p/articles/mi_m4422/is_3_20/ai_100567588/pg_3 Wagner J. A., Hollenbeck J. R., "Organizational Behavior: Securing Competitive Advantage" 5th Ed ISBN: 0-324-25995-6 Yahoo Finance. (2006). eBay. Inc. Retrieved April 14 2006 from http://finance.yahoo.com/q/pr?s=EBAY Read More