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 E-
Commerce 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 • Entertainment
• Antiques • Movies, Music & Games
• Art • DVD
• Coins • CD
• Toys & Dolls • VHS
• Memorabilia •Event Tickets
• Motor Vehicles • Books
• Cars • Clothing
• Boats • Jewelry
• Parts • Shoes
• Electronics • Accessories
• Cameras • Home Improvement
• Cell phones & PDAs • Décor
• Computers • 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.

eBay is a market maker

Buyers Acts as an intermediary sellers
Charges commission

 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 Regular

-eBay sends Outbid Notice if needed.

-Seller’s feedback rating dictates
Bids Placed bidder confidence.

Completing Final Value Fee = 5% of the first $25

+ 2.5% of remaining amount up to $1,000
a Sale + 1.25% of any portion of sale over $1,000

After-sales Typically covered by Seller,

Service using eBay’s features.
 Online Auction
Industry analysis Low

High threats of new entrants •Fixed rate

•mediation
Auction Universe New Entrants •Large number of customer for
Yahoo! Excite Classified longer period of time
2000 Threat of
New Entrants
Industry Competitors:
Intense segment Bargaining
Power of
of Rivalry Buyers
Suppliers Buyers
•Newspaper cite on the web
Bargaining • every Internet directory
Power of •Every music & video retailer
Suppliers •Every personal homepage

Threat of
Substitutes
Since suppliers are Few substitutes and
large, so threat is low. Low threats because of
Substitutes strong CRM

Porter’s Five-Force Framework

 eBay’s Business Model
Community platform
For global person
to person trade

Win-win More Decreased

situation
Leads Repeat Profit Transaction Costs
Transaction

Exchange

Internet property sales format

Network externality social communication
Mediation (forums, buyer/seller ratings)
Universality Regional sites
Information asymmetry Trust and safety
Virtual capacity large variety
Low cost Innovative
(Bid-based auctioning systems)

Seller 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 \/ \/ \/ \/ \/

Universality \/ \/ \/ \/ \/

Network Externality \/ \/

Distribution Channel \/ \/ \/

Time Moderator \/ \/ \/ \/

Info. Asymmetry Shrinker \/ \/ \/

Infinite Virtual Capacity \/ \/

Low Cost Standard \/ \/ \/ \/

Creative Destroyer \/ \/

Transaction-Cost Reducer \/ \/ \/ \/ \/
 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.

[Link] 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 click-

throughs .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 - [Link]
2 - [Link]
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:$359million
Achieve a surplus since the 4th quarter of 2002
 History
Date Event Stock ($)
1994-1995 Founded then Launched by Jeff Bezos
May 15, 1997 IPO 3.917
Sep 23, 1997 Collaborative Filter recommendations launched 9.250
Oct 28, 1997 Millionth customer personally receives order 9.896
from Bezos's hands
Nov 18, 1997 First holiday-gift center opened 8.833
Mar 2, 1998 [Link] 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 - [Link]
 Online Retail
Industry analysis
Network Externality – Network Externality +
(many customers )
(no customer base)
Low Cost Standard + Mediation +
New Entrants (reviews/community platform)
Universality +
Distribution Channel -
Distribution Channel +
(replacement)
Transaction Cost Reducer +
Threat of Info Asymmetry Shrinker +
Mediation –
New Entrants Low cost +
(no social platform)
Bargaining
Industry Power of
Competitors: Buyers
Buyers
Suppliers Bargaining Intensity of
Power of Rivalry
Distribution Channel – Suppliers
(No control over channel) Threat of
Info Asymmetry Shrinker + Substitutes
(reduces asymmetry, so no Network Externality +
manipulation over data) (large customer base)
Transaction Cost Reducer – Mediation +, –
Universality +
(wholesale/retail) (no social platform for sellers; great
(existing suppliers)
Universality – platform for buyers)
(regional focus) Substitutes Universality –
Distribution Channel +
Evolution: From Retailer to
Retail Platform
Sales Format
Product from Store 1

Storefronts
“Merchant”
Catalogue
User Locate Store 2
choice Sellers
Transaction Store n

Sales Format

-Communication
(Reviews)
-Low Cost
-Large Variety
-Distribution
-Trust & Safety
(seller ratings)

B S
Amazon Web Services
(AWS)
 Amazon E-Commerce Service
 Search catalog, retrieve product information,
images and customer reviews
 Retrieve wish list, wedding registry…
 Search seller and offer
 Alexa Web Information Service
 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. Pay-per use model

2. Instant scalability
3. Reliable/Redundant/Secure
4. Most services accessed via simple
REST/SOAP API
5. Superior Technical Support
(Experience & Commitment)
 S3 in a Nutshell

Amazon S3 Idea:

Bucket 1 Bucket N Put/Get objects into buckets

… based on unique keys.

Put object Get object Main Features:

• Public/Private access.
Client • Support for large objects.
 Positioning: Online Shopping
Value Configuration Diagram : _________

Repeat Product Review

Convenience
Purchases Information
Order Fulfillment
‘1-Click Shopping’
Loyalty & Product
Advocacy Money-back
Guarantee Recommendations
(Buyer)

Association Low Costs

Merchant Advantage:
Automatic Re-Ordering, etc
Network (Seller)
Externality

Associates
Brand Image Fixed Merchants Partnering
Program

Distributed
Strong CRM Web Services
Diversification

Email Marketing Customer Base Cross-selling

 Business Process
 The Amazon Business Process Shop=
is built around three main Browse+Manage Account
operation:

Browsing: User looks for books Browse Manage

available at Amazon (searched, Account
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 Process Model for [Link]
(payment/delivery)
 Internet Properties
Coordination Commerce Community Content Communication

Mediation \/ \/ \/ \/ \/

Universality \/ \/ \/ \/ \/

Network Externality \/ \/ \/

Distribution Channel \/ \/ \/

Time Moderator \/ \/ \/ \/

Info. Asymmetry Shrinker \/ \/ \/ \/

Infinite Virtual Capacity \/ \/ \/ \/

Low Cost Standard \/ \/ \/ \/

Creative Destroyer \/ \/ \/

Transaction-Cost Reducer \/ \/ \/ \/ \/
 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.

[Link] 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.

[Link] 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 [Link]
 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  Technology
 Superior revenue-sharing  Superior technology through
plan with Affiliate program AWS, EC2, S3 & catalogue
 Strategy  Strategy
 Enables big and small  Tends to prefer big-name
sellers/affiliates to earn at brands and retailers with
roughly the same rate strong distribution chains
 Business  Business
 B2C loser  B2C winner
 C2C winner  C2C loser
 B2B draw  B2B draw

 Transaction fee structure  Percentage of sales structure

 Conclusion
 Based on my analysis eBay should  Amazon should invest whatever
not put additional resources resources necessary to maintain hold
towards B2C market, due to
saturated market and competitors’ of B2C market by continuing to
near stranglehold on market share compete on price, convenience &
reliability of vendors and continue to
 Should instead surprise bring in new brand-name retailers
competitors like Amazon with a
strong B2B initiative or campaign
(i.e. introducing a new comparison  Should reward smaller users as the
shopping service for wholesalers) longtail works for network membership
as well (strength in #’s, not just big
 Reinforcing their C2C presence enterprise retailers, because if they leave,
through continued rewards to their sales/catalogue can shrink overnight)
loyal seller/buyer base to maintain
dominance there would also be a
wise strategy, after-all in C2C  Better position than eBay right now for
eventually incentives are needed long-term B2B strategy with AWS,
as parties can communicate offline
should try new programs(i.e. seller-
exchanges, etc)