Strategic Analysis of Ebay - Essay Example

Strategic Analysis of Ebay of Introduction Ebay is an American based internet consumer-to-consumer company that runs a website known as eBay.com (Smith, 2011: 291). Ebay.com is a specialised website that allows the Internet-users everywhere in the world. Sellers can advertise on eBay.com and buyers can also purchase from their website (Moore, 2009: 23). It runs an online shopping outlet and an auction website that allows different people to undertake various sales and commercial ventures in a one-stop shop (Finstein, 2011: 99). The company has expanded to include other e-commerce related entities like PayPal and eBay Classifieds (Ireland, 2009: 82). Ebay.com was founded in 1995 and has been one of the most successful entities in history (Peng, 2010: 109). The company has worked as an important mediator for various commercial entities. Buyers get the ability to compare prices and continue to get accurate results as well as compare results and other things. This also gives way for convenient shopping and quick delivery of goods. This paper will involve a business analysis of the strategy of eBay. The paper will involve a critical analysis of the strategic plans and systems that was used over the past 3 – 5 years. This aims at undertaking an analysis of the strategy development system and an examination of the core competencies of the company to provide an examination of the core capability. The paper will undertake the recommendation of a future strategy for eBay. Internal Analysis eBay has a strong base of 30 million subscribers (Hill and Jones, 2011: 123) and this include buyers and sellers who spend a lot of time and resources buying and/or selling on the website. Ebay is always listed amongst the pioneering entities and they started putting the internet to economic use in 1995 alongside the biggest names like Yahoo and Amazon (Hill and Jones, 2011: 122). This puts them in the category of the largest entities with the biggest brand recognition. According to Haberberg and Rieple (2010: 182), eBay has the most competent public relations officials and they come up with strong strategies to ensure that consumers are interested in their services. Ebay also has niche markets in different parts of the world and this is quite specialised and enables the company to get important returns and results in different areas. For instance, in 2005, eBay claimed that in an average day, according to their sales per minute, they trade one comic book in France, one mobile phone in China and one car in the United States (Haberberg and Rieple, 2010: 182). This shows the power of their technological capabilities and strengths. The company also aims at continuous improvement of their capabilities (Singh, 2009: 311). eBay spends significant sections of their income towards the acquisition of new companies like the acquisition of PayPal to support in e-commerce (Campos, 2007: 19). This kind of horizontal integration provides important competitive advantage in the industry. Other strategic partnerships include cheap rates negotiated for the shipping of products to consumers in different parts of the world. (Hsu, 2011). In spite of these, eBay faces some significant challenges. These challenges include the fact that they are represented online only (Botha, 2009). This means that they cannot compete in any area aside the Internet. This limits their strengths and abilities on the markets. Additionally, the systems used by eBay is quite easy to replicate (Baldauf and Stair, 2010: 441). This means that eBay is competing in an industry where many competitors can easily enter the industry and compete with eBay to capture market share. However, eBay is highly capitalised and can withstand such competitions with so much ease. SWOT Analysis of eBay Strengths Weaknesses 1. Strong brand equity 2. Strong asset base. 3. Quick growth in revenue 4. Strong advertising and PR capabilities 5. Strategic alliances for horizontal integration 6. Efficient and ever-improving technology 1. Services online only 2. Ease of replication and entry of competitors 3. Increased expectations by consumers Opportunities Threats 1. Globalization and increased reach to consumers 2. Expansion to different niches of operations. 3. Potential to launch discount promotions and other activities to increase market penetration. 4. Opportunity for entry into other online services. 1. The growth of competitors like Amazon and Google. 2. Seasonality of demand and requirements by consumers. 3. Foreign exchange and currency risks. 4. Risks of scams and fraud. External Analysis In order to position a firm in the competitive environment, it is imperative for the company to analyse the environment within which it operates. The most popular model that is used is the PEST Analysis which includes the examination of the Political, Economic, Sociological and Technological changes that occurs in the industry within which a firm operates. Political Political analysis involves the decisions taken by the people in authority which is relevant to the nation as a whole. The relevant changes that affect eBay include globalization and the growth of international treaties that promote the use of the Internet, banking regulation, growth of e-commerce and the like (Simmenthal, 2009). All these come together to increase the market size of the consumer base of eBay. Also, local governments are enhancing policies about banking to promote the reach of the Internet and this affects all nations including developing nations (Simmenthal, 2009). Additionally, there are professional and regulatory relaxations that enhance the purchase and sale of goods without much restrictions. All these provide a positive view of eBay and a propitious future for improvement. Economic From the global economic position, it appears that the UK economy has increased by 1% in the second half of 2012 (Perry, 2012). This shows that there is a significant increase in the economy that would be good for sales. The US economy is also doing well and the world is recovering from the global financial crises. This gives an assurance that there would be more disposable income to be spent in the coming year. Sociological All around the world, more people are being laid off from work. More stay-home mothers want sources of second income and there is a trend towards doing business online (Zazula, 2011: 92). Now, more and more people are building a trend in online business. Technological The industry is getting more and more sophisticated as competitors get into the online commercial industry. This means that only the companies with access to the most sophisticated technology can serve consumers better and this would ensure survival. Industry Analysis: Porters Five Forces Porter identified that there are several elements that determine the competition in a given industry that a firm operates in (Henry, 2008: 87). The forces come together to define threats and other trends that exists in a given industry. This is made up of five main threats which define competition in the industry. They are: 1. Threat of new entrants 2. Threat of suppliers 3. Threat of buyers 4. Existence of substitutes 5. Competitive rivalry (Porter 1998: 2) Threat of new entrants refers to the possibility of new entrants entering the online sale industry (Schwarzinger, 2012: 1). There are numerous possibilities because these companies can easily replicate the software base by acquiring scripts that can be easily installed to provide services. However, the challenges of maintaining a large capital base, building brand equity and entering contracts to operate at the level of eBay makes it almost impossible for businesses to grow to meet the competition of eBay. Thus, this risk is minimal. The threat of suppliers integrating is also minimal. This is because there is a countless list of sellers who supply products through eBay. However, they are a lot and located in different areas of the world. This makes it almost impossible for these sellers to come together to compete against eBay. The same can be said about the threat of buyers who are numerous and scattered around the world. Although they rely on eBay, they do not have a practical motivation to start an entity similar to eBay. And due to capital constraints and other limits, these buyers cannot really compete with eBay. The threat of substitutes would involve buying directly from buyers websites or going directly to shops to buy. However, this would prevent access to smaller buyers and sellers and will be inconvenient for most buyers because they cannot make comparisons and other things. This means that substitutes are not really an option and there is limited risk. The threat of competitive rivalry refers to competition between the leaders of the industry (Roy, 2011). In this case, we can mention competitors like Amazon.com, Google and Yahoo. These companies have major brand recognition strong industry position and large user base. These entities compete and their movements on the market makes things change significantly. Thus, eBay would have to ensure that it remain competitive in the industry to survive the threats of these competitors. This would enable them to maintain its market share. Future Recommendations The TOWS matrix enables a business to match its internal strengths and weaknesses with its external opportunities. This provides the framework for strategic recommendations for improvement. Strengths are used to enhance opportunities and reduce threats whilst weaknesses are reduced to take up opportunities and threats. The TOWS matrix help in mapping up future strategies for businesses. Internal Strengths Internal Weaknesses External Opportunities - Enhance brand equity to promote globalisation. - Expand to different niches through the current asset base - Diversify and use the strategic alliances and marketing potential to promote brands. - Improve strategic alliances to take control of different online business opportunities - Try to expand to other ventures and not remain online to boost competitive advantage. - Differentiate to remain ahead of competitors - Segment the markets and provide different services to different consumers. - External Threats - Improve brand equity and boost competitive advantage. - Position its assets to meet seasonal changes and benefit from seasonality. - Invest in foreign currency and business risk management and hedging arrangements - Diversify to improve position in the industry. - Cut operations to high risk nations like nations where scams are rampant. In line with these elements from the TOWS matrix, the following recommendations are being made for the improvement of services this include: 1. Expanding to other nations and markets around the world. 2. Entry into strategic alliances to promote the expansion into unusual areas and regions of the world. 3. Find different online market niches and pursue a strategy of horizontal integration to expand the scope of operations of eBay. This can be done by linking the brand equity strengths of eBay to enhance the offerings of the company. 4. Differentiation is essential to enhance the operation and position of eBay. This would be based on the brand equity of eBay and promote innovation on a regular basis. 5. Market segmentation is necessary to provide better services to specialized groups and regions of the world. 6. The company would need to make risk management a strategic function. Risk management should be influential in changing decisions relating to foreign currency matters and fraud and scam. 7. There should be a serious diversification drive that would enable eBay to operate in areas outside the Internet. The company can attain success by going into real estate or property in order to attain the best results in their existence and growth. References Baldauf, K. J and Stair, R. M. (2010) Succeeding with Technology. Mason, OH: Cengage Botha, M. (2009) Competitive Advantage in Modern Business Cape Town: JUTA Publishing. Campos, P (2007) E-Commerce Strategy San Antonio: University of Texas Press Finstein, D. (2011) Strategic Business Management Indianapolis, IN: Infinity Publishing. Habarberg, A and Rieple, A. (2010) Strategic Management: Theory and Practice Oxford: Oxford University Press. Henry, A. (2008) Understanding Strategic Management Oxford: Oxford University Press. Hill, C. W. L and Jones, G. R. (2011) Strategic Management: An Integrated Approach Mason, OH: Cengage Hsu, Y. (2011) Examination of Strategies of Successful Technology Businesses New York: McGraw Hill. Ireland, D. (2009) International Business Strategy London: Authorhouse. Moore, C. (2009) Analysis of Modern Businesses New York: Milner Publications. Peng, W. (2010) Global Business Mason, OH: Cengage Perry, J. (2012) “Economic Contrasts and Changes in the UK Economy” Guardian Newspaper November 12, 2012. Porter, M. (1998) Competitive Strategy New York: Simon & Schuster Roy, D. (2011) Strategic Foresight and Porters Five Forces Berlin: GRIN Verlag. Schwarzinger, A. (2012) Porters Five Forces Framework Berlin: GRIN Verlag. Simmenthal, P. (2009) Globalisation London: Polity Press. Singh, R. (2009) Technology and Business Management Delhi: Prentice Hall. Smith, V. (2011) E-Commerce and Business Strategy Mason, OH: Cengage Zazula, S. (2011) Doing Business Online Santa Barbera: ABC-CLIO Read More