Fosters Five Forces Model Of Competition

Published Date: 02 Nov 2017

Introduction

About eBay

eBay is an online auction website that was founded in 1995 by Pierre Omidyar. The first name of eBay was "Echo Bay Technology". When the company tried to register the domain name echobay.com, they found that it was already in use and then they shortened the name to eBay.com. (Amy Mullen) The first item that was posted in eBay was one Pierre’s broken laser point that was sold for $14.83. (http://legacy.ebayinc.com/history) You can find almost every anything you can think on eBay, like clothes, DVDs, tickets, cars, electronics etc. Pierre believed that people are basically good and that the majority do not want to harm each other so he created eBay which emphasizes in the customer and the online auctions require that strangers to trust each other. (Amy Mullen)

Milestones

In 1996, revenue tops $10,000 in a single month and there are 41000 global registered users. In 1997, eBay's "feedback stars" make their debut and there are 341000 global registered users. In 1998, eBay launches the eBay Foundation, which helps a wide variety of national charities and in September it goes public, listing shares on NASDAQ under the symbol EBAY. In 1999, eBay expands internationally with sites in the United Kingdom, Germany and Australia. It’s global registered users increased to 10 million. In 2000, eBay starts the new decade as the #1 e-commerce site. Also, eBay acquires Half.com, a marketplace for used books, movies, music and games. Also, the "Buy It Now" feature is introduced, allowing buyers to shop at a fixed price. Marketplaces are opened in Austria, Canada, France and Taiwan and the global registered users increased to 22.5 million. In 2001, eBay expands internationally with sites in Ireland, Italy, Korea, New Zealand, Singapore and Switzerland increasing its global registered users to 42.4 million. In 2002, eBay Inc. acquires PayPal, combining the strength of the world's largest online marketplace with the web's leading payment system. In 2004, eBay expands its presence in Asia with sites in Malaysia and the Philippines, increasing its global registered users to 135 million. 2005 was the year that eBay acquired Skype, a leading global Internet communications company and expanded in Poland. In 2007, eBay introduces gift cards. In 2008, it launches its first mobile application (on iPhone) giving buyers mobile access to eBay and that increased its global active users to 87.7 million. "Daily Deals" was introduced in 2009, connecting buyers and sellers easier and faster. Also, the "Top Rated Seller" badge was introduced, making the identification of high level sellers easier. Today, eBay has more than 90 million users worldwide and is trading more than $1900 worth of goods each second. (http://legacy.ebayinc.com/history)

Methodology

SWOT Analysis

In order to analyze and evaluate eBay’s strategies and activities I am going to use one popular technique, the SWOT (Strengths – Weaknesses – Opportunities – Threats) Analysis. If we look into the business unit we can identify the Strengths and the Weaknesses of the business. Then can review the environment, in which the business unit operates, to identify opportunities that are presented by that and the threats that are posed by that. (vivlio) So, strengths and weaknesses are come out from the company (internal) and opportunities along with threats come out from the environment (external).

Foster’s Five Forces Model of Competition

This technique is designed by Michael Porter (Harvard Business School Management) and is used for developing and organization’s strategy and is it determined industry structure. The nature of competition in the industry is personified in the following five forces: Threat of new potential entrants, threat of substitute products/services, bargaining power of suppliers, bargaining power of buyers and rivalry among current competitors. (http://www.managementstudyguide.com/porters-model-of-competetion.htm)

eBay SWOT Analysis

Strengths

World’s Largest Marketplace

eBay (eBay Inc.) has a global presence in 37 countries, including United States, with a customer base of 233 million. Just the British eBay (co.uk) has over 13.000 categories. http://pages.ebay.co.uk/aboutebay/thecompany/companyoverview.html

Payment System

In 2002, PayPal (the largest online payment market) was acquired by eBay. With PayPal, eBay offers faster trading, information privacy (seller doesn’t know buyer’s personal details) and buyer protection (refund in case something happened with the trading). http://pages.ebay.co.uk/paypal/for_buyers.html

Business Model

eBay has a strong business model which is a person-to-person trading community. Sellers are selling their own items, buyers bid as much as they want for them and eBay gets a commission for the transaction. At the end everyone is happy. eBay gets paid when sellers list their items (no refundable). Depending of the options of the listing item (buy now, promoted, ten-day auction etc.) additional fees are charged. At the end of the trading eBay gets a commission. After the acquisition of PayPal, eBay Inc. makes additional profit in every transaction. (http://www.venturenavigator.co.uk/content/151)

Localization

It’s obvious that one of eBay’s plans is to be expanded globally. Now it is localized in over 30 countries. (http://pages.ebay.com/globaltrading/buyer/index.html) and has localized sites in many of them (http://pages.ebay.com/aboutebay/thecompany/companyoverview.html). Each site (e.g. ebay.es for Spain) uses the local language and you can find more items of local sellers. eBay is the only one online marketplace that is expanded so much.

Weaknesses

Fraud

There are several types of fraud that bad people do in eBay. Fake accounts, fake auctions (get paid but do not send the item), selling of stolen or fake items. Pierre Omidyar created eBay because he believed that people are good and they do not want to harm each other. If fraud is becoming more and more common phenomenon, then people will stop doing business on eBay.

Shipping Price

Many sellers exploit the fact that eBay does not control the set shipping price of an item. They set a very low price for the item (to be on top of the search results) and a high price on shipping.

Content Control

eBay is not controlling the content of the products and this is leading to illegal transactions like selling fake items.

Opportunities

Expand in more countries

In order to grow its marketplace more, eBay should open online stores in more countries, especially large economies (e.g. Japan).

Acquire more companies

Among other companies, eBay acquired PayPal and Skype to extend the services it offers to its clients and keeps its profits growing. More services it offers more clients are coming (increasing the profit)

Threats

Competition

eBay has a lot of competitors on selling online, especially the Amazon. Although Amazon is not a direct competitor (is not running an auction system) is still a powerful competitor.

Thieves

There are people who exploit the weaknesses of eBay and commit illegal actions like selling fake items or not sending the item at all. eBay did make some additions to the website like feedback and "top rated" budges but thieves it’s still a dangerous threat for the company.

Recommended Strategies

To create a business strategy we have to advantage of its opportunities by building on its strengths, avoiding any threats, and compensating for its weaknesses. (vivlio)

In the SWOT Analysis above, two opportunities are noted. The first opportunity is to expand in more countries. eBay can use its global presence and its brand name to be easily expanded in other countries. Along with localization technique, eBay can remain the number one online buy/sell company. The second opportunity is to acquire more companies so it offer more services to the clients (buyers/sellers). eBay can seize this opportunity to overcome the weakness of shipping prices. For example, eBay can acquire (or to create a new one) courier company and as a result the shipping price of an item will be set and controlled by eBay and not by any seller. Except from the overcoming of the weakness of shipping price, eBay will also have profit from this service.

eBay Foster’s Five Forces Model of Competition

Threat of new potential entrants

It’s really hard for a new entrant to enter the market of online e-commerce and become a threat for eBay. eBay has a strong brand name and recognition among internet users and has became a giant company. Regarding the economical perspective, a new entrants will need a very strong capital base in order to compete eBay.

Threat of substitute products/services

In the case of eBay we have to deal with substitute services. As I mentioned above, the only competitor of eBay is Amazon, yet is not a close competitor because eBay offers the auction service where buyers are bidding on products. So, regarding a service substitution, I don’t believe that there is any threat for ebay.

Bargaining power of suppliers

When we are talking about eBay’s suppliers it means that we are talking about its sellers. Sellers are providing eBay with supplies and eBay takes care of the transaction between buyer-seller. A typical eBay seller won’t be a threat for the company but a big company that collaborates with eBay and selling products through it can become a threat. The suppliers of eBay is a vital part of the system.

Bargaining power of buyers

As long as eBay satisfies its buyers then they will not become a threat in any way. eBay is not supposed to sell products in large quantities so if a buyer stops using eBay then it is not a problem. However, eBay is trying to satisfy its buyers and take feedback from them using the community and feedback tool.

Rivalry among current competitors

As I mentioned before, eBay does not have any close competitor yet eBay has strong rivalry among competitors, especially Amazon. Regarding the product prices, eBay has an advantage over Amazon because of the auction system. Regarding the products, eBay has strong advantage over any competitor because there are thousands types of products in the catalogue. Finally, eBay has strong brand loyalty.