EBay Case Study - Term Paper Example

EBay Case Study Table of Contents Question 3 a) Assessment of the VRIO framework 3 b) How eBay does create values? 3 c) What is the source of eBay’s competitive advantage? 4 d) Are eBay’s advantages imitable? 5 Question 2 6 What is your assessment of the drop-off industry? 6 Question 3 8 a) Do drop-off stores make sense for eBay? 8 b) If so what is the best strategy for eBay in drop-off stores? 9 References 10 Question 1 a) Assessment of the VRIO framework EBay and its business can be analysed by means of VRIO framework. VRIO is the abbreviation of Value, Rare, Inimitable and Organised. Like any other business model, the business model of eBay can also be analysed in terms of its capability of adding value, rarity, inimitability and organised structure. The business model of eBay is found to be one of the most value adding business models in the world as a brand new industry has developed out of this model. EBay is the first organisation that has been successfully operating in an industry like online auction. The business model of eBay permits both sellers as well as buyers to be involved in an open communication process and this is the most value adding aspect of the model. As far as the rarity is concerned, eBay’s business model is one of its kinds when it was launched in the market. However, with time it is no longer a rare business model and this is further supported by the strong presence of its competitors. b) How eBay does create values? There are number of ways through eBay creates value. State-of-the-art systems and tools have been developed by the company. Such tools and systems have increased the productivity of the network members. Furthermore more number of members is encouraged to join the network. Such tools include the Turbo Lister service and Seller’s Assistant. The first one is capable of tracking and managing thousands of mass listings on the home computers, whereas the second one helps new sellers as well as makes professional-looking online listings. EBay has also set up and maintained performance standards which augment the steadiness of the system. Buyers and sellers are allowed to rate each other. Such ranking system bolsters users’ confidence level Sellers having good reputation among the buyers, attain the Power Seller status and those having bad reputation are excluded from any kind of future transactions (Iansiti & Levien, “Creating Value in Your Business Ecosystem”). Moreover, value created by eBay is shared with the members of the ecosystem. A moderate fee is charged from the users for allowing them to coordinate their various trading activities. Incentives in the form of special status (Power Seller) enhance the standards of the sellers and this benefits the entire ecosystem. c) What is the source of eBay’s competitive advantage? The major source of eBay’s competitive advantage is its social capital. Social capital is referred to the trust, goodwill and credibility. There are millions of eBay users who come out with different unique products as well as marketing techniques (Cahill, “eBays Competitive Advantage”). They even pay for handling and shipping. EBay just sit back and enjoy all the benefits. Social capital comes in from various social relationships which are developed on website. One of the most important source of social capital in the context of eBay is the feedback system that both buyers and sellers to rate each other. Sellers are found to be really honest as they are very concern about their status in the network. They provide all the true information regarding their products and services in order to attain good reputation. This in turn enriches the company’s social capital as the purchasers do not hesitate from purchasing a product from a stranger. Social capital also enables the company in having a clear understanding regarding the demand and supply scenario of the market (Cahill, “eBays Competitive Advantage”). Millions of eBay users help the company to remain updated regarding the ups and downs in the market. In addition to this huge social capital, the unique business model of eBay is one of the major sources of its competitive edge. EBay has been continuing to enjoy all the benefits of its business model and the main reason behind that is the fact that the company is ‘first-to-market’ in nature in the online auction industry. The time when eBay came up with its online auction site, nobody could even think about such a business model. EBay took the risk and enjoying the benefits. Today there are players like Amazon.com and Yahoo that have their own auction site, but they has not been able to gain the volume of social capital that eBay has gained. Another important source of competitive advantage for eBay is information technology. EBay is one of those rare companies that have successfully made information technology as a source of their competitive advantage. The brand identity of eBay has been another important source of competitive advantage for the company. Since, eBay is the first company in the industry of online auction; an unparallel brand identity is attached with it. Today, to most of the people throughout the world, the online auction industry means eBay and vice versa. More than 65% market share in the industry all across the world has strengthen the company’s overall brand equity as well as brand identity. The huge product line offered by eBay is an important source of competitive edge for the company. At present the number of products that are listed in eBay is greater than any of its competitors. The most important is the fact that there is large number of differentiated products listed in eBay. Lastly there is ‘customer service’ which is another area that has been a core competency of the company since its inception. A dedicated program of customer service is a competitive advantage for any company. d) Are eBay’s advantages imitable? By seeing apparently it may seem that none of the competitive advantages of eBay is actually inimitable. In the present age of internet marketing gaining huge social capital may look easy. However, in reality the volume of social capital that eBay has gained is almost impossible to gain for any other competitors. The company has been able to acquire the best out of this social capital. The way it has managed the entire network of this huge capital is nearly inimitable by any other existing and/or future players. However, if the mere imitation of the business model is considered it is no longer expensive to imitate and nor it is rare anymore. As mentioned earlier that there are already number of competitors that have been using the same business model. Moreover since the all the trading activities go on online with the help of software, the business model is no long expensive to emulate. However, the way eBay has been exploiting the business model in order to retain competitive advantage, can be costly for its competitors to do in the same way on a continuous basis. As far as brand identity is concerned, it is no more a unique or rare in the present business scenario. Any organisation having excellent product and service offerings along strong relationships with customers and/or users can enjoy the benefits of excellent brand identity. As far as the competitive advantage that is gained from the wide product range is concerned, it is almost rare. The diverse nature and the massive quantity of the products are almost inimitable for any other company. The competitors of eBay are also renowned for offering huge number of products, but the volume of differentiated products that eBay has been offering is incomparable. As far as customer service goes, it is no more a rare area of competency in the present business environment. Moreover it is not at all costly, given the financial capacity of the competitors of eBay. Today each and every company is focusing on customer service. They are spending significant amount of resources in enhancing the quality of their customer service programs. As a result it can be said that customer service in the context of eBay is very much imitable. Question 2 What is your assessment of the drop-off industry? The drop-off industry is found to be one of the most fragmented industries in the world. There are number of small sized players that are competing with other big giants. There are several major players in the drop-off industry. Some of them are QuikDrop, AuctionDrop and Trading Circuit. Each of these companies has adopted some innovative business model with the purpose of gaining competitive edge over the competitors. Partnerships, franchising, retail implanting are some of important business models that are being practiced so far. In addition to these, some players have opened a central warehouse powered by satellite stores for gaining competitive advantage. Considering these information it can be said that the drop-off industry is a highly competitive industry where each and every player is trying to retain their competitive position by using some high end innovative business models. Each and every player spends significant amount of resources to differentiate itself from the competitors. An important factor that drives the drop-off stores to adopt new business model is the change in technology. Information technology is one of the most rapidly changing sectors in the world. Drop-off industry being heavily dependent on the information technology, always need to remain flexible. If one drop-off store comes up with a new business model, the others have to take some steps in order to remain competitive. However, adopting new business models on a continuous basis is certainly not feasible. Adoption of new business model may involve huge amount of cost. As a result, the stores have to modify their existing models to face the challenge from the competitors. There are two different kinds of fee packages – premium and basic. The premium package is different from the basic package in the sense that it allows the seller in setting a minimum opening bid price for the auction. This actually makes sure that an item will not be sold at the price that is not lower than the value of customer’s choice. However such process of setting a minimum starting price and reserve price will decrease the probability that an item will be sold. Hence it can be said that pricing policy or system plays an important part in the drop-off industry. Innovative pricing will be required for the players to staying ahead in the competition. Drop-off stores should adopt pricing strategies based on the nature of demand of the consumers who are using such stores for selling their products. According to predictions of the experts, drop-off industry is likely to become a big industry in the coming future. It is found that eBay is used by most of the consignment stores as the auction host. There are few stores that use Yahoo! Auctions. The market and network of eBay is getting expanded by the drop-off stores. EBay has been providing its full support to these drop-off stores and the main reason behind that is the fact these stores actually increase the scale of network of eBay. Question 3 a) Do drop-off stores make sense for eBay? Drop-off stores have already started to play a crucial role in expanding the network of eBay. Prior to the arrival of drop-off stores, users had to wait for a long period of time. It used to take an hour sometime even more to complete the selling process. There are number of people who cannot afford to spend an hour for selling just one item. Moreover there are people who simply do not want to seat in front of the computer for such a long time. Drop-off stores are found to be perfect solution for these people. As people are becoming busier in their daily life, such stores are expected to gain much significance in future. In other words drop-off stores allow users to utilise their valuable time in various other important work. EBay should acquire most of the drop-off stores by adopting a vertical integration strategy. Acquisition of such stores is expected to provide more control to eBay over the network members. With the acquisition of drop-off stores, eBay will be able to increase the number of users. The simple reason behind this is the fact that the drop-off stores allow people to spend their time in doing some other important as they take care of the entire selling process. Drop-off market is likely to explode in the coming future and eBay can capitalise on this explosion. The company can make more profit by charging a commission fee. EBay can strengthen its brand identity by buying some of the most popular drop-off stores. These stores can help the company to reach the users more effectively and efficiently. b) If so what is the best strategy for eBay in drop-off stores? The best strategy that eBay can adopt will be to purchase all those online drop-off stores that have been successful so far. The company has to purchase most of them before any competitors can purchase them. This can be done by adopting vertical integration strategy. However, this strategy will require huge amount of capital. Moreover, the culture of eBay should be introduced in the drop-off stores. Once these stores are acquired they need to be run as efficiently as eBay is operated. The simple reason behind this is that, the brand image, goodwill and other intangible assets that are associated with eBay will also be associated with the drop-off stores that will be acquired by the company. EBay, after the acquisition of the stores can assist them in developing their technical infrastructure and customer service program. The company should always remember that if the stores fail to provide expected customer service, then the brand image of eBay will also be in danger. In addition to this strategy, eBay can expand its network in different parts of the world, especially in the developing countries where number of internet users is continuously increasing. Untapped markets like South America, South Africa, India should be explored more by the company. In these countries the concept of drop-off store is a new and unique. EBay can capitalise on this situation by introducing its own online drop-off stores. In fact the company can start its own stores in the US market as well. This strategy can be started on an experimental basis. However, the company can come up with such stores they are likely to bring success as the brand identity of eBay will be associated with them. References Cahill, M. eBays Competitive Advantage. 2002. Ohio University. July 29, 2010 < http://oak.cats.ohiou.edu/~mc160200/esp/memo2.htm#target3> Iansiti, M. and Levien, R. Creating Value in Your Business Ecosystem. 2004. Harvard Business School. July 29, 2010 Read More