Spotlight: eBay Strategic Considerations

eBay was one of the first companies to revolutionise peer to peer shopping possibilities through the introduction of an e-commerce platform in 1995. The site was instantaneously popular, bringing together buyers and sellers in an honest and open marketplace, with the millionth item being sold within the first 18 months of the company’s existence.

Currently eBay operates in 180 countries, providing its core service of consumer-to-consumer and business-to-consumer sales through a large auction platform and a shopping website, as well as owning several other brands such as Gumtree. In recent years Amazon has become a fierce competitor, taking market share and providing a serious alternative to eBay.

eBay still remains as the world’s 10th largest internet company by revenue, so has a lot of power to compete and grow, and so will be considering lots of factors. In this article we take a look at a few…

PESTLE for eBay

The use of the eBay marketplace is fuelled by the economic and social factors: of trying to buy a good for the cheapest price available through a convenient and easy-to-use service. Nevertheless, eBay’s operations are subject to other factors in the Macro environment that may disrupt or provide opportunities for the brand:

With rising competition through technological innovation, consumers may begin to explore other providers. As the barriers to entry in this space are constantly being reduced with consumers being able to launch their own shop fronts on systems such as Shopify or Etsy.

The increase in average disposable incomes means there will be an increase in online spending. Providing opportunities for eBay to capitalise on the higher capacity for online purchases.

The increasing availability of renewable energy is an environmental factor that can enable eBay to reduce costs and fulfil corporate social responsibilities.

Overall, eBay is likely to be significantly influenced by increasing e-commerce regulations and increasing levels of competitiveness. Creating the need for eBay to be continually innovating. However, social and economic factors provide eBay with opportunities for growth and reduce perceived financial risks of internalisation.

Political:

• Restrictions on the company’s strategies for acquisitions and mergers
• Stronger barriers to entry for these markets with new VAT rules for online sales being enforced

Economic:

• Rising disposable incomes
• Economic stability in developed countries
• Consumers have more money to spend
• Increased incentives to internationalise operations to developed countries
• Expect higher revenues as consumers gain higher capacity for online purchases
• Could reduce the use of service with a portion of users seeking more expensive goods
• Economic barriers to operations in countries they do not currently cover are minimised

Social:

• Rising online activity
• Rising demand for high quality service
• Consumers are spending more time online, creating opportunities to attract individuals who will now be subject to more advertisements
• Consumers expect a certain level of security, meaning service providers must comply

Technology:

• Rising competition through technological innovation
• It is easier than ever for new alternatives services to be created, reducing barriers to entry.
• Rising mobile device usage

Legal:

• Rising e-commerce regulation
• Stricter anti-trust policies

Environmental:

• Business sustainability trend
• Increasing availability of renewable energy
• It is now expected that businesses should conduct operations ethically and sustainably.

Read the Ultimate Guide to PESTLE Analysis.

Five Forces for eBay

Industry Rivalry: High

• eBay is differentiated to Amazon in that it employs a wholesale pricing strategy
• Potential buyers have the option to bid on products and make offers. Meeting the needs of the customers: affordable products for the cheapest prices available
• Facebook now entered market but model similar to Amazon not eBay
• The US e-commerce market has continued to grow in 2019 and is expected to grow further

Threat of Entry: Low

• New entrants to the market would struggle to compete with eBay on a global scale
• Hard to replicate 182 million active buyers and 25 million sellers
• Would need considerable investment, infrastructure and years of operations for a new entrant to compete with eBay
• Seeing entry from established businesses such as Facebook and Amazon and startup App based sales

Threat of Substitutes: Low

• Service cannot be rivalled through physical stores provided by Walmart, Best Buy and Staples
• eBay continually introduces new product ranges to satisfy customer needs and can react to trends at a much faster rate
• Alternatives such as Best Buy and Walmart do not sell a wide range of second hand goods and sell goods with high margin mark-ups

Threat from Suppliers: Low

• Standalone sellers can setup their own shops via other platforms but access to audience hard
• eBay’s supply chain involves information technologies used to maintain trading services
• eBay’s main supplier will be online servers of which increasingly there are options (AWS, Google, inhouse, Microsoft, etc)

Threat from Customers: High

• The low switching costs mean both users can switch to Amazon’s marketplace with ease
• eBay is entirely reliant on both buyers and sellers using their marketplace, as eBay doesn’t stock a single item
• eBay exercises strong CSR to counteract this force
• Sellers and entrepreneurs has the highest prioritisation in providing a fair and equal marketplace
• Doesn’t extortionate sellers with high fees and limited visibility.

Complete your own Five Forces here.

SWOT for eBay

Strengths:

• Leading brand in online auctions
• 182 million active buyers
• Localised operations in 180 countries
• Trusted brand
• Strong acquisitions strengthening the brand (e.g. Stubhub and Gumtree)
• Vast product portfolio
• Do not stock a single item – considerable savings on inventory and infrastructure
• Good customer relations – eBay community
• Efficient business model – facilitator for buyers and sellers

Weaknesses:

• Fake or fraud sellers – can damage brand value and displease customers
• Intense competition – numerous emerging start-ups and established rivals
• Technology is vital to operations, subject to disruptions in technology services
• Perceived as just a second-hand seller, with some people having a car boot sale perception for the brand

Opportunities:

• Non internet markers – regions devoid of internet are an untapped market, high levels of profitability
• Non willing customers – customers who are not online consumers can be persuaded to trust eBay, opportunity to earn market share from segments
• Bulk selling – partner with other companies for bulk selling
• New global business market – opening business markets in India and China
• Rising popularity of online trading

Threats:

• Security threats – potentially subject to online frauds and security breaches
• Increased competition from Amazon, perpetually expanding
• Various government policies and taxations – effecting business margins, regulations and legislation on operations
• Pressure to collect sales tax on merchandise sold through online website – by the government

Read the Ultimate Guide to SWOT Analysis.

Possible Strategic Objectives for eBay

Given the different market opportunities and current positioning, three possible strategic objectives for eBay are:

• Increase the number of buyer and seller users within the eBay ecosystem
• Increase the number of transactions per user to stimulate more activity and thus revenue

There are a number of ways eBay can approach this, including geographic focus or product category focus. Metrics and goals might include:

• Increase penetration rate by 10%
• Increase market share by 5%
• Increase gross merchandise volume (GMV)

So a lot for eBay to consider as they grow, it’ll be interesting to see how the internet giant evolves and addresses the above.