Strategic Management of eBay - Report Example

Title: Strategic Management: eBay Report Name Institution Table of Contents Table of Contents 2 Executive summary 5 Company Introduction 6 Company’s values 7 Mission statement 8 Company Analysis 8 External environment 8 Political, legal and governmental factors 8 Economic factors 8 Socio-cultural and demographic factors 9 Technological factors 9 Industry environment 9 Rivalry among competing firms 9 Bargaining power of consumers/customers 10 Threat of new entrants 10 Bargaining power of suppliers 10 Threat of substitutes products 10 Analysis of Internal environment 11 SWOT analysis 11 Strengths 11 Weaknesses 11 Opportunities 12 Threats 12 Financial analysis 12 Business outlook of 2014 and 2015 13 Outlook of 2015 13 Strategic Evaluation 13 Market penetration 13 Market Development 14 Product development 14 Diversification 14 Reviewing strategic options 15 Conclusion 15 References 16 Executive summary The eBay community is currently the largest online marketplace platform. It has more than 80 million legitimate users with registered accounts. This report examines eBay’s business structure, environment, financial analysis and strategies for growth. The mission of eBay Company is to create opportunities for passionate entrepreneurs. The report examines eBay external environment by using PESTEl model. Legal policies in United States are found to be the major external threat the company. The introduction of tax policies have led to decline in company’s revenue. Social-cultural and demographic factors affecting eBay company included online community diverse demands. Technology has been perceived to be accelerating business operations of the company. The report evaluates industry environment of eBay by use of Five Porters forces. The entry of Amazon and Apple Pay are among the few companies creating competition in the market. Bargaining power is perceived to be high due to product diversification and perhaps alternatives provided by close competitors. SWOT analysis has been used to examine internal environment of the company. Extensive market share is a potential strength of eBay company with string capital structure generated from strong segments. Advance in technology gives an opportunity for expansion. The business cycle of the company shows that the company is in mature stage and therefore sustainability is an option to be considered most. The financial report shows that the company has been doing exceptionally well in 2012 and 2013 when it comes to revenue generation. The acquisition of Braintree increased revenue growth by 14% in 2013 (Annual report, 2007). The report will focus on the growth strategies also. Product and market development are perceived to be avenues of sustainability for eBay Company. However, the focus on market penetration as growth strategy is seen to be appropriate due to its acceptability and feasibility from eBay community. This focus has led to identification of company’s strategic direction. Company Introduction Pierre Omidyar is the founder of eBay Company from a simple idea of “People are basically good.” His idea created a marketplace environment that has transformed and place e-commerce in another transformed level in business. In the current market environment, the values of any other business-oriented person who intends to tie market players (sellers and buyers) together around the world is directed towards eBay. The current users of eBay stands at more than 88 million users globally and this has made the company becomes world’s largest virtual marketplace (eBay Inc, 2010). It has provided an online platform where people can buy or sell whatever they have to anyone regardless of geographical location of the two parties. eBay Company developed in a community of passionate individuals with the support of vast technology advancement. Therefore, millions of items can be traded everyday with the help of vibrant society with advance technology (eBay Explained, 2006). Currently, eBay active registered active accounts stands at 75 million. However, Apple Pay and Amazon have turned up to be close competitors of eBay since most merchants consider PayPal as fast and safer online transaction platform. PayPal is available in 19 currencies operating in 190 markets globally (Slideshare.net, 2015). This has enabled payments across various locations and currencies possible. In 2009, Newsweek Green ranked eBay Inc. as one of the greenest companies in American market standing at number 76 from the list of 500 companies worldwide. In 2012, eBay topped the list of 1000 trusted online companies worldwide. Back in 2007, President Obama recognized eBay Company by awarding National Medal of Technology and Innovation. For the first time eBay became the first online company to receive this prestigious award (Lüthge, 2003). eBay Analytic Report (2011) shows that between 2004 and 2010, eBay company was receiving more than 5 million new items in a day and more than 50, 000 categories as well (Slideshare.net, 2015). This made eBay Company grow fast in terms of capital structure and operations and therefore has attracted many business-oriented individuals. eBay Inc. community has five categories of individuals. They include: Online buyers and sellers who are following their passion, Trusts that uses personal communication for their feedback system, Loyal customers involvement, Thousands of millions of growing entrepreneurs with innovative and advanced ways of conducting online market activities, and More than 1.5 million of people globally who are making a living out of eBay-either full- or part-time on eBay. Company’s values eBay company is driven by three core values: The company creates opportunities for passionate entrepreneurs, The company cares for collective interest of the community since it knows that people depends on the company, and Always adventures and make a world different every day. Mission statement “We intend to create a world’s leading e-commerce franchise through investment in core marketplace segments created as well as persistent pursuance in building our adjacent marketplaces ventures”. (Annual report, 2007). Company Analysis External environment Political, legal and governmental factors Collection of taxes policy of December 2010 on online companies exceeding a particular capital threshold reduced trading activity of eBay. This has affected many businesses even close competitors like Amazon. The tax compliance has increased operational cost of the company. This legislate has also prohibited the sharing of business information inform of ideas across boundaries thus affecting company’s growth (Vrontis and Thrassou, 2013). Economic factors The resource of close competitors like Apple Pay and Amazon are larger compared to those of eBay Company and this has led to the possibility of economic downturn for the company. A continuation of this could lead to harsh economic climate particularly for the community of eBay. Also, there is evidence of weak global economic climate which could limit revenue growth for the company. For example, the financial crisis in United States market segments was expected to rise in 2012. This created high demands to the community thus limiting their potential investment. Also, if the U.S. dollar weekend in the market, there is a possibility of revenue inflation and operating expense (Vrontis and Thrassou, 2013). Socio-cultural and demographic factors Since the community of eBay enjoys doing business in variety of products, they need a secure and efficient business environment. The rising cases of breach of data security have limited the business in many demographics (Harrison and St. John, 2004). Technological factors The online trading platform that eBay has created has enabled people to interact and share ideas locally, regionally and internationally. However, competition has become intense with the growing technologies. Therefore, investment in technology could be resource intensive to the company relative to returns since this has been affected by close competitors (Hill, Collier and Gilmour, 2010). Industry environment Rivalry among competing firms eBay faces competition through offline and online players. Customers can buy what they need from different retailers and distributers who are present both in online and offline platforms. Price-based wooed by close competitors online has limited eBay from raising their prices. When it comes to payment, eBay faces rivalry from bank wire, credit and debit holders or money orders (Jurevicius, 2015). Bargaining power of consumers/customers Since e-commerce at the moment is faced by huge competition in the industry, consumers take advantage of this to win. eBay in this case is fearing to rise prices in order to attract more buyers. Online customers often demand low prices as well as range of products therefore raising their bargaining power (Hill, Collier and Gilmour, 2010). Threat of new entrants Established and newer players like Apple Pay take advantage of low barriers to entering online marketplace. However, new entrants may fail to gain brand recognition and attain high traffic on search engines. Therefore, with the established eBay payment systems like PayPal, they have the potential to sustain eBay Company with their new online marketing strategies. Bargaining power of suppliers Hundreds of thousands of sellers present their products on eBay marketplace and therefore their bargaining power is limited. However, other sellers may list their products on the available multiple online platform and e-commerce sites. Therefore, the introduction of new and unsatisfactory policies by eBay particularly to sellers, then there could be a possibility of sellers dropping out of eBay marketplace. Also, we can consider those sources generating traffic as suppliers of eBay. According to eBay Inc (2010), search engines hold up to 20% more on paid searchers. Therefore, changes in search engine algorithm could have a negative impact to the traffic thus lowering the appearance of eBay to the marketplace players (Buyers and Sellers). Threat of substitutes products There is no identifiable threat from substitutes for eBay since the company operates with vast range of products on its platform. Also, the product range is diversifying and therefore eBay have the potential to introduce various types to counter the changing needs of customers in the marketplace. Basically, there is no rational option to sellers online since eBay and internet is a doorway to millions of buyers online across many geographical locations (Slideshare.net, 2015). Analysis of Internal environment SWOT analysis Strengths eBay inc. has more than 110 million active users globally in 38 counties. This reflect a market share of about 42% thus making eBay company a largest online marketplace with an abundant power over the other online retailers. eBay is also enjoy economies of since it invest day-to-day on information technology as well as raising customer relationship management. There is also localization of the business since it operates in 38 countries using local languages. eBay uses its payment system PayPal thus securing the transactions of the players in online marketplace. The brand reputation of eBay Inc. is incomparable and this has attracted even the new online entrepreneurs with great passion in online ventures (Jurevicius, 2015). Weaknesses Over the recent years, eBay fee have increased significantly on the side of sellers. The company receives fees on the chain of activities such as listed and sold goods and sometimes beautification fees through PayPal transactions. This has greatly negatively influenced profits on the sellers’ side of business. eBya is experiencing lack of further growth strategy therefore there is high uncertainty on the community (Jurevicius, 2015). Opportunities The opportunities include the growth of online mobile shoppers due to widely acceptance of PayPal payment system. Also, the increased services portfolio that has been done through acquisition adds extra new services, and the technology has led to opening of more stores in various countries. Threats The rising case of cybercrime has led to increase in online insecurity for shoppers. Regional low cost for some retailers may make customers to shift. The emergence of Amazon and Apple Pay may reduce the market share for eBay and the fluctuating exchange rates may influence the profitability of eBay community (Jurevicius, 2015). Financial analysis The financial report of 2013 shows that the volume of new items accelerated to 21% for the full years compared to other years. The revenue growth as at year ending 31st December 2013 increased by 15%. This revenue increased reflected an increase in capital by $4.5 billion compared to that of 2012 (Appendix 1). Over the same period, 2013, eBay company reported an increase in earnings per from 14% to 16% which reflected a 14% revenue growth for the company (LEI, 2013). PayPal payment system recorded an outstanding fourth quarter of 2013 performance by increasing company’s revenue by 19%. This resulted to $6.6 billion ending revenue of year 2013. During the same year, 2013, PayPal gained 5.2 million new active users ending the year with a total of 143 million registered PayPal accounts. This was a 16% market growth increase. Between 2012 and 2013, eBay company generated $5.0 billion operating cash flow and $3.7 billion free cash flow (appendix 2). This totaled the company’s cash equivalent and non-equity venture to $12.8 billion by the end of 2013 financial year (LEI, 2013). Business outlook of 2014 and 2015 The first quarter of 2014 generated net revenue of $4, 250 million on GAAP. This resulted from acquisition of Braintree Company. The full year of 2014 generated net revenue of $17,550 with GAAP earnings per diluted share of $2.45. The acquisition of Braintree led eBay to achievement of its financial objectives. Outlook of 2015 The full year of 2015, eBay project net revenue to lie between $20,000-$21400 million. This is with non-GAAP earnings/diluted share growth of more than 10%. This January, the Board of Directors ordered a repurchase of stock of %5 billion in order to meet the financial objectives of the company during the financial year 2015. It is important to that eBay Company’s directors are active ambassadors of solicitation of proxies from investors. This will call foe eBay to file to SEC connections as part of strategic growth of the company. Strategic Evaluation Ansoff’s Matrix in this report is used to evaluate the panning and strategic growth of eBay Company. eBay Company have different strategies for growth at different market segments. Therefore, Ansoff’s Matrix classify this eBay planning growth in the following four selections: Market penetration eBay Inc. is marketing its products to the existing customers. By so doing, and with the passionate customers, the company has increased its revenue. Also, in the process of marketing through existing products, eBay Brand image has become strong in the market. For instance, many freelance companies consider PayPal payment system as a secure and fast payment system. The brand image built has made many freelancers to register with PayPal thus increasing the market share of eBay (Peragine, 2009). Market Development eBay Company reaches new audience through referrals. Products are presented to new markets where across geographical borders. Advance in technology has helped eBay expand its products in to new regions. Social medial platform has played a crucial role in developing eBay market. Product development eBay receives more than 5 million new items in a day from sellers. These products undergo product innovation and development before it is presented to online customers. eBay have existing marketing models that develops products in order to attract customers. For instance, PayPal services have been linked to local bank accounts for customers where they can receive money directly into their bank accounts. One can send money to U.S bank accounts with no transaction fee (Slideshare.net, 2015). Diversification eBay is rich in product diversification. Thousands of millions products are traded by eBay company and this has made the company become one of the outstanding company with diversified products. As a result, eBay Company have had a result of high achievements in pursuance of set strategic directions. Reviewing strategic options eBay enables customers to create their own online stores for them to sell the new products. This practice facilitates the creation of community of interest and provides them with secure transaction in the global environment. As a result, eBay perceives itself as facilitator in development of both product and market. The acceptance of eBay as the reliable online marketplace platform has enables buyers and sellers create added value with the use of base ‘community of interest.’ Conclusion Company’s strengths and availability of feasible opportunities creates a foundation of effective market penetration. This will create a competitive advantage over the other competitors like Amazon and Apple Pay since ‘soft’ factors are easily addressed with the use of market penetration strategy. Using market penetration optimizes the process of gaining competitive advantage and is easily replicated in case a new product line is created. Therefore, the company should adopt this growth strategy since eBay Company’s business life cycle is at maturity. Any misapprehension of strategies intended for business sustainability would lead to business decline. References Annual report,. (2007). Annual report 2007. EPPO Bull, 43(3), 534-545. doi:10.1111/epp.12066 Bradley, S., Porter, K., & Rust, J. (2000). eBay, Inc. J. Interactive Mark., 14(4), 73-97. doi:10.1002/1520-6653(200023)14:43.0.co;2-3 Dennis, C., Fenech, T., & Merrilees, B. (2004). E-retailing. London: Routledge. eBay Explained,. (2006). The world's online market place. Singapore. Retrieved 14 January 2015, from http://agecon.okstate.edu/broadband/files/Starting+A+Business+On+eBay-MY.pdf eBay Inc,. (2010). Agile enterprise analytics. Ratzesberger: aBay Inc. Harrison, J., & St. John, C. (2004). Foundations in strategic management. Mason, Ohio: Thomson/South-Western. Hill, S., Collier, M., & Gilmour, K. (2010). EBay.co.uk Business All-in-One For Dummies. Hoboken: John Wiley & Sons. Jurevicius, O. (2015). eBay Company SWOT analysis 2013 | Strategic Management Insight. Strategicmanagementinsight.com. Retrieved 14 January 2015, from http://www.strategicmanagementinsight.com/swot-analyses/ebay-swot-analysis.html LEI, Q. (2013). FINANCIAL VALUE OF REPUTATION: EVIDENCE FROM THE eBAY AUCTIONS OF GMAIL INVITATIONS*. The Journal Of Industrial Economics, 59(3), 422-456. doi:10.1111/j.1467-6451.2011.00457.x Lüthge, M. (2003). Strategic analysis of eBay. Norderstedt, Germany: Examicus. Management, e. (2015). eBay Inc:Strategic Management. Academia.edu. Retrieved 14 January 2015, from http://www.academia.edu/1887922/eBay_Inc_Strategic_Management Peragine, J. (2009). eBay income advanced. Slideshare.net,. (2015). eBay Company Analysis.doc. Retrieved 14 January 2015, from http://www.slideshare.net/ebayworld/ebay-company-analysisdoc Slideshare.net,. (2015). Strategic evaluation of eBay. Retrieved 14 January 2015, from http://www.slideshare.net/lars.schmidl/strategic-evaluation-of-ebay Vrontis, D., & Thrassou, A. (2013). Innovative Business Practices. Newcastle upon Tyne: Cambridge Scholars Publishing. Read More