Situational Assessment and Problem Statement - eBay - Case Study Example

Part 4 Situational Assessment and Problem Statement Relevant environment conditions Business capabilities Despite competition from the likes of Yahoo and Amazon, eBay remains the single largest online auction business (Steiner, 2006). Having been founded early in the days when Internet diffusion was happening, the auction site has the advantages of being an early market entrant, and has thus developed loyal customers and also managed to penetrate the market in a way that most of its competitors have not. The company indicates that it has a value-enabling platform that serves as a meeting place for both sellers and buyers (Steiner, 2006). To retain customers, the company included community services, which provided branding and positioning for them (consumers). Consequently, the online auction platform has a strong network effect where consumers’ utility is affected (albeit indirectly) by the numbers of sellers and buyers participating in the online auction platform (Steiner, 2006). The first-mover advantage that eBay has prevented buyers and sellers from moving to other competitors (e.g. Yahoo and Amazon) because the competitors did not have the same depth and breadth in products and market size. Organisational structure eBay has two business segments namely: payment segment and marketplace segment. The marketplace segment includes companies that eBay owns, which are ebay.com, shopping.com, stubhub.com, half.com and shopping.com (eBay Inc., 2014). These individual companies are collectively managed by eBay marketplaces (eBay, 2010). People eBay commits itself to “hiring, promoting and compensating employees based on their qualifications and demonstrated ability to perform job responsibilities” (Vasbinder, 2011, p. 16). Employees benefit from development workshops, health and wellness benefits, and time off. They are also compensated for overtime work. Further, employees can buy the eBay stock at a 15% discount (Vasbinder, 2011). Notably however, eBay does not have long-term employment contracts with the key company personnel (eBay, 2010). Organisational culture The prevailing culture at eBay is founded on the principle that “people are basically good” (eBay Careers, 2014, para.1). The foregoing principle is said to drive values, actions and practices at eBay even as the company has outgrown its auction roots. Workers at eBay are guided by the principle that they are in the organisation to build a common ground and make dreams come true through inspiring new thinking, new technologies, new customers and new markets (eBay Careers, 2014). To do this, the organisation stresses the importance of exchange, conversation and technology. Current information system eBay has an open standard-based information system that enables the user, auction and billing databases to connect to the eBay platform. The eBay platform acts as the commerce engine and is connected to a user interface that includes an Application Programming Interface (API), search engine, listing, and an eBay Internet Server Application Programming Interface (ISAPI). The API enables third party applications to connect to the eBay platform while the entire user interface enables people to access the auction site through the Internet (Steiner, 2006). Analyses current situation and opportunities SWOT analysis Strengths eBay leads globally as an online auction site The company has attained market penetration with an estimated 100 million users buying and selling products on eBay. The company uses customer relationship management (CRM), thus creating strong interrelationships with consumers and buyers and ultimately creating loyal customers eBay has become synonymous with online auctions, hence giving the organisation market leadership (Marketing Teacher, 2014). Weaknesses The inability of eBay to overcome fraud is a major weakness in its business, which mainly occurs when dishonest and fraudulent dealers take advantage of eBay’s customer-to-customer (C2C) business model. Like other technology-based business, eBay is prone to system breakdowns which disturb trading activities on the platform (Marketing Teacher, 2014). Opportunities eBay can utilise emerging technologies (e.g. Skype) to reduce fraudulent cases, since buyers and seller could talk to each other. Emerging markets (e.g. China) provide an opportunity for market development Existing markets still have opportunities for eBay especially because not everyone therein knows how eBay works or its benefits (Marketing Teacher, 2014). Threats The threat of existing and new competitors is on an increase as more online businesses are established The fraud menace could also drive away customers who would prefer more ‘safe’ online marketplaces eBay does not bear some costs (e.g. credit card charges and delivery charges), and this may mean that consumers have to pay more in addition to the purchase price of an item on the site (Marketing Teacher, 2014). Five forces model The five competitive forces by Michael E. Porter are meant to help strategists understand the competition facing a business, and help it cope (Porter, 2008). According to Porter, competition is not just posed by direct competitors only; rather, it comes from other competitive forces, which include substitute products, potential market entrants, suppliers and customers. The five competitive forces as applicable in eBay are discussed below. Threat of new entrants is high Since eBay is anchored on technology, it is noteworthy that technology barriers related to setting up an online business are low. Arguably therefore, any business that sets up a commercial website is a direct competitor to eBay since it can easily steal some market share from the company, especially if it has better service or product offering and user experiences compared to eBay. Threat of substitute products is high The possibility that substitute products may emerge, offering different features from what is offered on eBay but having the same appeal to customers is high (Vasbinder, 2011). Currently, there are online payment companies and retail companies that are establishing their presence online. Consumer bargaining power is high eBay heavily relies on its consumers (Vasbinder, 2011). Consequently, they wield high bargaining powers especially because if unsatisfied, the consumers can easily switch to eBay’s competitors such as Amazon or Yahoo! Consumer play a significant role to eBay because without them, the transaction cycle would be incomplete. They are the ones who drive demand for specific things, and as such, it can be argued that they draw sellers to the online platform. Supplier bargaining power is high To generate revenue, eBay needs suppliers (sellers) to come on board and offer their products to sellers. Without many sellers bringing their product offers to the online marketplace, consumers would not have as many choices as they do today. Additionally, increasing competition for eBay means that sellers can choose to offer their products in different platforms. Rivalry among competing firms is relatively high As eBay (2010) aptly notes, “Users can find, sell and pay for similar items through a variety of competing online and offline channels” (p. 36). Rivalry comes from online and offline retailers, liquidators, catalogue companies, shopping networks, and classified advertisements. As the eBay broadens its product and service offers, it can also expect rivalry with existing and new competitors to deepen since each business will be fighting to acquire and retain a profitable market share. A statement of how the business needs are being met or not met eBay has several business needs identified as financial needs, process needs, customer needs, and renewal and development needs (Friedrich, Gaspar, Dornberger & Flack, 2009). To meet its financial needs, the company strives for profitability and acquires technological inventions that would enhance the attainment of this objective. Recently, it bought Skype, but it has now turned out that the purchase was a financial mistake since it is not profitable. In terms of process needs, the company strives to be user-friendly, to produce quality products, to implement user feedback and to reduce customer costs (Friedrich et al., 2009). However, the need for quality products is compromised by fraudsters. In respect to renewal and development, eBay strives to check what competitors are doing. However, this has been criticised since the company is perceived to be acting as a follower than as a leader. Following competition has also led to too many changes, which may upset users (Friedrich et al., 2009). Finally, the customer element is attended to by empowering the consumer with knowledge and striving to make eBay a place for all seller and shopper groups (Friedrich et al., 2009). The foregoing too is sometimes complicated by service problems and high prices. An analysis of the gap between the current situation and the business’s objective (gap analysis) Gap analysis is defined as a process “through which a company compares its actual performance to its expected performance to determine whether it is meeting expectations and using its resources effectively” (Investopedia, 2014, para. 1). In other words, a gap analysis for eBay would reveal where the company is currently relative to its desirable position in the future. Rey (2013) notes that eBay would like to attain remote working capabilities for its team members in the future. Currently however, remote working capabilities remain a milestone for the company. Additionally, the company seeks to have technology capabilities that sufficiently meet the business needs (Rey, 2013). However, there still are issues to do with system failures and lack of sufficient data backup systems (Rey, 2013). But perhaps the most relevant gap in eBay’s business is that while the organisation strives to have a marketplace where buyers and sellers can trade on the C2C business model honestly, fraudsters and cheats are still able to penetrate the system, often selling non-existing, illicit or illegally acquired goods to unsuspecting buyers. References eBay Careers. (2014). Culture/environment. Retrieved April 29, 2014, from http://ebaycareers.com/culture-environment.aspx eBay Inc. (2014). The eBay Company. Retrieved April 29, 2014, from http://pages.ebay.com/aboutebay/thecompany/companyoverview.html eBay. (2010). Annual report. Retrieved April 29, 2014, from http://files.shareholder.com/downloads/ebay/1416230913x0x454780/9d059442-fe35-4d7a-a6d8-126fc27e6bd/ebay_AnnualReport2010.pdf. Friedrich, N., Gaspar, V., Dornberger, K., & Flack, S. (2009). eBay in the view of high performance organization. 1-20. Investopedia. (2014). Gap analysis. Retrieved April 29 2014, from http://www.investopedia.com/terms/g/gap-analysis.asp Marketing Teacher. (2014). SWOT analysis eBay. Retrieved April 29, 2014, http://www.marketingteacher.com/swot/ebay-swot.html. Porter, M. E. (2008). The five competitive forces that shape strategy. Harvard Business Review. Retrieved April 29 2014, from http://hbr.org/2008/01/the-five-competitive-forces-that-shape-strategy/ar/1 Rey, M. (2013). Resiliency best practices: InfraGard Meeting- may 2013. eBay Inc. 1-18. Steiner, F. (2006). Formation and early growth of business webs: Modular product systems in network markets. New York: Springer. Vasbinder, A. (2011). eBay Inc. delivering commerce opportunities for the present future. Retrieved April 29, 2014, from http://www.scribd.com/doc/100051758/10/Organizational-Structure Read More