eBay .vs. Amazon

1. 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

2. eBay

3. 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

4. History

5. Products & Services • eBay started out selling Collectibles and Antiques • Has since grown to include incredibly diverse categories of items: • Collectibles • Antiques • Art • Coins • Toys & Dolls • Memorabilia • Motor Vehicles • Cars • Boats • Parts • Electronics • Cameras • Cell phones & PDAs • Computers • Entertainment • Movies, Music & Games • DVD • CD • VHS • Event Tickets • Books • Clothing • Jewelry • Shoes • Accessories • Home Improvement • Décor • Crafts • Gardening

6. 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.

7. 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. • 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. eBay is a market maker Acts as an intermediary Charges commission Buyers sellers

8. Business Process Seller AccountCreation Listing an Item No bids Dutch Buy-it Now Reserve Regular (Auction Type) -eBay sends Outbid Notice if needed.-Seller’s feedback rating dictates bidder confidence. Bids Placed Final Value Fee = 5% of the first $25 + 2.5% of remaining amount up to $1,000 + 1.25% of any portion of sale over $1,000 Completing a Sale After-sales Service Typically covered by Seller, using eBay’s features.

9. Online Auction Industry analysis • Low • Fixed rate • mediation • Large number of customer for longer period of time High threats of new entrants Auction Universe Yahoo! Excite Classified 2000 New Entrants Threat of New Entrants • Industry Competitors: • Intense segment • of Rivalry • Newspaper cite on the web • every Internet directory • Every music & video retailer • Every personal homepage Bargaining Power of Buyers Suppliers Buyers Bargaining Power of Suppliers Threat of Substitutes Since suppliers are large, so threat is low. Few substitutes and Low threats because of strong CRM Substitutes Porter’s Five-Force Framework

10. eBay’s Business Model Community platform For global person to person trade Win-win situation Leads Repeat Transaction More Profit DecreasedCosts 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) Buyer Seller

11. 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

12. 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

13. Internet Properties

14. 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. UniversalityOn 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. 6.Information 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 .

15. 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 - http://www.cj.com/news/press_releases0102/press_010418.html 2 - http://www.cj.com/news/press_releases0304/press_030918.html

16. Amazon

17. 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

18. History 1 - http://www.wired.com/wired/archive/7.03/change.html

19. Online Retail Industry analysis Network Externality + (many customers ) Mediation + (reviews/community platform) Distribution Channel - (replacement) Info Asymmetry Shrinker + Low cost + Network Externality – (no customer base) Low Cost Standard + Universality + Distribution Channel + Transaction Cost Reducer + Mediation –(no social platform) New Entrants Threat of New Entrants Bargaining Power of Buyers Buyers Suppliers Industry Competitors: Intensity of Rivalry Bargaining Power of Suppliers Distribution Channel – (No control over channel) Info Asymmetry Shrinker + (reduces asymmetry, so no manipulation over data) Universality + (existing suppliers) Threat of Substitutes Network Externality + (large customer base) Mediation +, – (no social platform for sellers; great platform for buyers) Universality – Transaction Cost Reducer – (wholesale/retail) Universality – (regional focus) Distribution Channel + Substitutes

20. Evolution: From Retailer to Retail Platform

21. Sales Format Product fromCatalogue Store 1 User choice LocateSellers Store 2 “Merchant” Storefronts Transaction Store n Sales Format -Communication(Reviews)-Low Cost -Large Variety -Distribution -Trust & Safety(seller ratings) B S

22. 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

23. 5 Benefits of AWS • Pay-per use model • Instant scalability • Reliable/Redundant/Secure • Most services accessed via simple REST/SOAP API • Superior Technical Support (Experience & Commitment)

24. S3 in a Nutshell Amazon S3 Idea: Put/Get objects into buckets based on unique keys. Bucket 1 Bucket N … Put object Get object Main Features: • Public/Private access. • Support for large objects. Client

25. Positioning: Online Shopping Value Configuration Diagram : _________ Product Review Information Repeat Purchases Convenience Order Fulfillment ‘1-Click Shopping’ Loyalty & Advocacy Product Recommendations Money-back Guarantee (Buyer) Low Costs Association Merchant Advantage: Automatic Re-Ordering, etc (Seller) NetworkExternality Fixed Merchants AssociatesProgram Brand Image Partnering DistributedWeb Services Strong CRM Diversification Email Marketing Customer Base Cross-selling

26. Business Process Shop= Browse+Manage Account • The Amazon Business Process is built around three main operation: Browsing: User looks for books available at Amazon (searched, 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 (payment/delivery) Browse Manage Account Process Model for Amazon.com

27. Internet Properties

28. 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

29. 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. 2.Transaction 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. 4.Creative 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.

30. Success Story : Toys-R-Us • 1999 Christmas on-line orders flushed into newly establishe ToysRus.com • 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

31. 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

32. Side-by-Side • Technology • Superior revenue-sharing plan with Affiliate program • Strategy • Enables big and small sellers/affiliates to earn at roughly the same rate • Business • B2C loser • C2C winner • B2B draw • Transaction fee structure • Technology • Superior technology through AWS, EC2, S3 & catalogue • Strategy • Tends to prefer big-name brands and retailers with strong distribution chains • Business • B2C winner • C2C loser • B2B draw • Percentage of sales structure

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