How successful do you expect eBay to be going forward?
Online CEO was unhappy with the joint venture, subsequently resigning:
In 2009 there were rumors that PayPal might be “contemplating a Chinese acquisition. Chinese independent third-party online payment company 99bill.com has signed an agreement with PayPal to jointly improve its international payment efficiency and promote international trade settlement.”
In Korea, the acquisition of Gmarket was completed in June 2009. Gmarket is said to operate “a bit differently from eBay. For one thing, Gmarket places less emphasis on an open-auction format, instead focusing on selling goods at fixed prices, with an option to negotiate with a seller on an exclusive basis. This allows buyers to conclude deals instantly instead of having to wait until an auction deadline.” See more of the story at:
The Asia-Pacific environment is still volatile and the differences between this region’s consumer shopping culture and the rest of eBay’s customer experience seem to have required significant retooling. Do you think eBay will eventually be able to gain any significant share of the Asian consumer-to-consumer market?
What source of competitive advantage does eBay have, and is that position supported by its resources and assets? Does eBay deal effectively with its external environment in Asia?
In order to fully appreciate eBay’s difficulties with its growth strategies in Asia, it may help if students can step back and consider eBay’s need for a strategic analysis and formulation. eBay had already been a success in North America before it ventured abroad. That success was based on a specific competitive strategy.
Referencing Chapter 5: Formulating Business-Level Strategies
In order to achieve a sustainable competitive advantage, eBay had to assess its ability to contend with other online auctioneers. The question of how to compete in a given business to attain competitive advantage requires an assessment of the types of competitive strategies, including the three generic strategies that are used to overcome the five forces and achieve a competitive advantage:
Overall cost leadership
Low-cost-position relative to a firm’s peers
Manage relationships throughout the entire value chain
Create products and/or services that are unique and valued
Non-price attributes for which customers will pay a premium
Narrow product lines, buyer segments, or targeted geographic markets
Attain advantages either through differentiation or cost leadership
Ask the students which strategy they think eBay pursued, and why. Their answers may include some of the following points:
eBay competed by creating customer options that were uniquely different from those of its competitors. It also targeted distinct market niches. Because of its reputation and longevity in providing value to its customer segments, eBay was in a unique position to continue to capture a significant share of the growing online market. Therefore, eBay pursued a combination strategy of focused differentiation.
Regarding its competitive strategy in Asia, in order to maintain control over costs, eBay had kept central management control in the U.S. Although this centralized decision structure allowed eBay to keep to a consistent global platform, it made it more difficult to be responsive to local needs. Therefore, the value of eBay’s service in Asia did not yet convince users to either seek out the service or pay a premium.
Referencing Chapter 3: Analyzing the Internal Environment
To answer the question of how to support a competitive strategy, it’s important to consider the concept of the resource-based view of the firm, and the three key types of resources: tangible resources, intangible resources, and organizational capabilities. Determining whether the internal resources are valuable, rare, difficult to imitate, or difficult to substitute (VRIN) can help a firm sustain a competitive advantage. See Chapter 3, Exhibit 3.6. eBay’s profile might look like this:
Financial – strong financial growth
Physical – unknown, but not that essential a resource in a service business
Technological – assumed very strong, given the nature of eBay’s business model, and its success
Organizational – centralized decision-making worked well except in Asia
Human – based on the commitment and loyalty of Whitman & Donahoe, very capable and dedicated human resources
Innovation – major strength
Reputation – another major strength – essential in this service business
Competencies – eBay had the critical strengths in its human, technological, innovative and reputational resources that should allow it to sustain a competitive advantage with its chosen business model
Referencing Chapter 4: Assessing Intellectual Capital
See the concepts of intellectual capital, human capital and social capital, all of which are intangible assets that a company such as eBay needs to have in order to compete successfully. Intellectual capital is a measure of the value of a firm’s intangible assets, its reputation, employee loyalty and commitment, customer relationships, company values, brand names, and the experience and skills of employees. Human capital involves the individual capabilities, knowledge, skills, and experience of the company’s employees and managers. Social capital is a function of the network of relationships that individuals have throughout the organization. If employees are working effectively in teams, across business divisions, and sharing their knowledge and learning from each other, not only will they be more likely to add value to the firm, but they also will be less likely to leave the organization. This applies to strategic alliance partners as well.
Both Meg Whitman and John Donahoe were examples of the dedication, experience and skills of eBay’s intellectual capital. Since eBay was in the knowledge business, the capabilities of its employees and managers were essential assets. However, especially in Asia, social capital was critical. Think of social networks like marketing by word-of-mouth. As eBay founder Omidyar said, eBay was envisioned as a community built on commerce, but sustained by trust, and inspired by opportunity. The social network of buyers, sellers, browsers, technical support gurus, managers, corporate employees, local partners, all had to see the same opportunity, and trust that commerce would happen.
It appeared possible that eBay had not yet understood how to leverage social capital in Asia. A telling comment was rival Alibaba.com’s CEO Jack Ma’s observation that eBay moved too quickly to replace local management with foreigners, and tried to create a market through spending rather than through a ground up process of networked local involvement.
Contrasting eBay with Yahoo, when Yahoo chose to partner with Taobao and Gmarket, both Taobao and GMarket had an in-depth understanding of the Asian culture and local market needs. They allowed users to conveniently interact with each other by offering alternate communication channels such as instant messaging and voice-over-IP (VOP). This enabled sellers to respond to buyer questions more quickly, completing the transaction in a timelier manner. Both companies also offered fixed pricing at an early stage which allowed buyers to purchase items without having to spend time on negotiations. Despite Yahoo’s involvement with both companies, local management control was retained allowing Taobao and GMarket to meet local market needs.
Referencing Chapter 2: Analyzing the External Environment
Regarding the general external environment, eBay must consider the political/legal, economic and global, sociocultural and demographic, and technological forces that might affect the ability of the firm to deliver its services and sustain its business. See which factors in the general environment students might pick that have a significant impact on the online auction industry. Students might respond as follows:
Political-Legal – trade and tariff issues, local and national regulations
Economic – currency fluctuations
Demographic – population growth outside of North America; Asia & Africa had the most population, least Internet penetration
Sociocultural – people worldwide paying increasing attention to social issues, global poverty, the environment; on the Internet, increasing move away from auctions to quicker transactions based on fixed price arrangements
Technological – Internet users had increasingconcerns with online privacy, fraud
The above analysis indicates that eBay should have been well positioned with both resources and a competitive strategy to deal effectively with its external environment, including its competition. However, eBay’s insistence on a single global platform may not be appropriate for all markets. This is why eBay might want to consider developing a more adaptive transnational strategy. Giving up some corporate control in Asia to rely on more local expertise might be critical for success in this market.
Also see the CASE DVD, which has a clip of an interview with Meg Whitman.
NOTE – ADDITIONAL READING, WEB LINKS, EMBEDDED VIDEO:
Use the tools available at this link to examine the performance of eBay’s stock over the last five years: http://finance.yahoo.com/q?s=ebay
Jim Cramer’s The Street believes eBay is a good stock pick in July 2009 based on what new CEO John Donahoe has done over the year he’s been in charge. See the video report here:
What do you believe explains the stock’s performance? Would you expect the current trend to continue? Why or why not?
Here is a video reportedly produced for eBay’s employees in 2005 on the occasion of its tenth anniversary. It interviews eBay users from different perspectives, one of whom is a Chinese seller using Eachnet.
Watch the video interview of eBay outgoing CEO Meg Whitman and incoming CEO John Donahoe dated January 2008 on the transition in leadership and projected changes:
Focus is on making eBay “easier and safer to shop”. Changes were announced regarding product and pricing. Some eBay patrons have been getting increasingly upset with eBay policies. See, for instance, the following series of blogs from Australia starting in 2008. Sellers are upset that they have to use PayPal exclusively:
http://www.bloggernews.net/115079 and sellers are upset that eBay has prevented them from leaving bad feedback about buyers. The implication is that buyers are more important than sellers, at least in eBay Australia:
U.S. eBay patrons have been complaining also. See this article and the comments from August 2008:
In the attempt to make it safer for buyers to shop, has eBay alienated the sellers?
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