eBay Introduction In this paper, eBay’s strategy for its growth through the years 2001-2010 is analyzed.
eBay has tried itself to expand and diversify through its various business strategies. This paper would analyze the major strategies that affected the eBay’s growth positively and negatively. Mergers and Acquisitions One of the widely used strategies for diversification is Mergers and acquisition. Companies acquire stakes in other companies and control them.
Some companies follow the strategy of acquiring a company to enter a new business market. Year| Acquisitions| Stakes| Divestitures| 2009| 1| 0| 1| 008| 6| 0| 0| 2007| 3| 1| 0| 2006| 2| 0| 0| 2005| 8| 0| 2| 2004| 4| 4| 3| 2003| 3| 1| 1| 2002| 4| 2| 2| 2001| 4| 2| 1| Total| 35| 10| 10| *Source: Alcastore. com In the recent times, Mergers and acquisitions have become quite common due to the fact that the competition in business has grown. Also, economic recession has led to the strategic concept of acquiring and merging businesses. eBay is an online American company which specializes in online shopping and auction and it is one of the market leaders in the Industry.
eBay has strategically acquired companies so as to expand its market. In the initial ays, the focus was more on developing the company. In the recent times, it acquired stakes in Skype (Online Voice over internet Protocol Company) for $2. 6 billion. The best acquisition for eBay till date is considered as its buying out PayPal. Paypal In June 2002, eBay acquired PayPal, an online payment company for $1. 5billion.
PayPal was bought so as to help eBay in getting the payments quicker and help customers have a safe and reliable payment option. Merill Lynch’s Justin Baldauf (2002) said that PayPal is the gorilla Internet payment market as to eBay, the gorilla of web-based auction Industry.PayPal was popular and famous among many net-based customers of eBay at that time. For an online auction site like eBay, managing payments for both sellers and buyers tops the lists of challenges. eBay addressed this issue by acquiring PayPal. The management believed that it would be a reliable source for online payments with both parties can be satisfied. It has helped the e-commerce market in the global market thereby helping eBay’s diversification.
In the recent times, eBay is planning to expand Paypal as not only a tool for e-commerce but a global payment tool on the web. Many companies use PayPal for their online payment system.PayPal’s president Scott Thompson (2008) wants to expand their online business globally and to grow beyond e-commerce. This one M & A has helped eBay grow in terms of popularity among customers as PayPal provides better risk management and helps in fraud prevention.
*Source: eBay Analyst Day The above figure shows the predicted penetration rate for eBay with its acquisition PayPal. eBay’s management team (2006) felt that PayPal will overtake the credit card payment business and will become the company’s biggest income earner as the business expands in the Internet Market.Skype Skype is a telephony company over the web. eBay acquired Skype for 2 major reasons.
First, Skype’s user group is largely exclusive to eBay. This would help it increase its customer group. Also, Paypal could be used as the payment method for Skype which would help eBay expand and diversify into a complete new business market. The main strategy to acquire Skype is to liquidate its business of web-based monopoly. Also, Skype could be used as a effective tool for customers to communicate among themselves when selling the products and could be better for eBay.This would also help in expanding the market to developing countries like India, China, Russia and Brazil. Countries like Japan have limited visibility in the auction market.
This could help its business in these countries. Overall, eBay’s market would globalize and help in effective cross-border trade. But now, ebay sold off Skype stock in the market as the acquisition dint pay off. The reason behind this failure was eBay dint buy the key technology of Skye which is important for its functions. Also, the poor management and no proper vision for this acquisition resulted in this failed attempt.
May be, the management did a bigger mistake by selling off Skype. They could have persisted with the company and could have done effective strategy changes and could have attracted users to its business. eBay and Skype could have been a huge hit has it been properly managed and put into action with proper strategy. Gumtree. com eBay acquired Gumtree as its first UK acquisition. Gumtree has its operations in Australia, UK, New Zealand and South Africa. Gumtree is the leading e-commerce classified website in the United Kingdom. As the case with eBay, Gumtree had helped eBay in expanding its markets in the e-commerce Industry.
This has developed the growth of eBay’s Kijiji which was launched in 2005 as a online classified website. Loquo. com Another online classified which is prominent in Barcelona, Spain was acquired by eBay. The management feels the need for globalization and grabbing the lion’s share of internet revenue. All these strategies for the business are based around PayPal as it holds the key to managing payments in the online market.
Other Major acquisitions for strengthening eBay’s global presence and diversifying in the global market are Marketplats. com which has its presence in Turkey, Germany, Spain and Canada.This operated with the name Intoko which was later merged with Kijiji. In order to gain prominence in India, Kijiji was renamed Quikr.
Kijiji was recently replaced by eBay classifieds so as to extend eBay’s popularity among customers. Summary eBay’s best strategy in the business was its acquisition of PayPal. It helped to revolutionize the payment market in the Internet. eBay could have done better with its acquisition of Skype had it maintained a good vision and a strategy.
eBay did a big mistake by selling of Skype instead of positioning itself back in the market. Bay’s strategy in terms for M & A revolved around globalization and Diversification of products in the online Industry. Joint Venture and Strategic Alliance Joint Ventures and Strategic alliances are considered as cooperative strategies. This strategy is mainly adapted for products that are short lived or for rapidly changing technologies and for globalising markets. Barriers to free trade? Risk of dissipation of knowledge Resource limitation Export FDI Licence Strategic alliance No Yes Yes No Yes Containable *Source: Adapted from Rugman, Lecraw & Booth (1985) Google ebay has partnered Google for its search functions outside US.This venture is considered as the blending of e-commerce with Internet advertising. eBay has entered this venture to take the help of the Internet search tycoon’s advertising capabilities so as to beat the growing completion from Amazon.
Their idea is to start click to call services which would help the customers search for the items and can talk to the supplier about the product using either Google talk or Skype. Google would be benefited in terms of local advertising. Such a joint Venture could be beneficial to eBay from a strategic point of view as the company could overcome its shortcomings with the help of another company. Bay has to withstand the increasing competition from Amazon and has to keep its position as the Market leader in the online Auction market.
Click to call option would help to generate profits for both these companies and also would help eBay to succeed in its acquisition of Skype. Google could get better visibility in areas where its focus has been less. For example in china markets it could well extends its visibility. Craigslist Generally all Joint Ventures don’t go as planned.
One example is eBay’s association with Craigslist. In 2004, both eBay and Craigslist entered into a Joint Venture agreement.Their plan was to expand and grow in the web-based market. However the Alliance was stopped when eBay wanted to sell of craigslist shares to others. The main reason for the failure was the focuses of both these companies were different. They were pursuing different objectives and goals. Craigslist wanted to manage its own operations and wanted better control, however eBay had other intentions. It wanted to project itself as an online classified company with its subsidiary Kijiji.
They had the intention of competing against Google online classifieds using Craigslist and maximize profits.Though both shared the same vision of expanding globally, this Joint Venture ended due to difference in opinions and intentions. GMarket eBay enters the Asian Markets with alliance with Gmarket. It will hold 49% stakes as the remaining 51% will be held Gmarket’s founder Young Bae Ku. The association would help eBay’s growth and development in the Asian markets by meeting consumer expectations in a better way. China Post and US Postal Service The above association with China post is to counter the competition from Taobao. com, a local online auction website.They have entered into a Joint Venture to overcome competition and develop prominence in the market.
The plan is to help the Chinese Vendors sign shipping agreements with American consumers and help them service them easily. eBay in 2006, withdrew from Chinese markets as Taobao. com became a monopoly in the Chinese online auction market. This Joint Venture would help them re-establish them in this Industry as the Industry has 400 million online users. Their strategy is to target Chinese merchants who want to expand to other International markets.
MicrosoftIn 2001, Microsoft and eBay entered into a strategic alliance to expand their online presence and improve their consumer experience. eBay used Microsoft’s dot net technology and it was the first website to provide xml-based web service providing consumers with a e-commerce website. Yahoo eBay’s strategic alliance with Yahoo was to together improve their profits and stabilize their status in the online Industry. It was also considered as an association to tackle Google’s dominance. In line with the alliance, eBay would promote yahoo through advertisements in its website through banners and graphics in its website.In return, Yahoo would promote PayPal as a payment method for customers using Yahoo services.
This would help both these companies in boosting revenues through advertisements. The main strategy behind this alliance is to compete with Google which is the by far the largest online search engine as compared to its competitor Yahoo and also it has plans to launch its own online auction site rumoured to be a competitor to eBay. Sotheby Sotheby, an online auction company’s new website was launched and hosted by eBay in 2002. It helped eBay to increase profits and expand itself in the market. SummaryJoint Ventures and Strategic alliances between companies need not always be successful, but planning a clear exit strategy and defining terms and conditions at the start would help the companies to achieve their goals together.
In the alliances pursued by eBay, it could be seen that their main objective was to expand globally. With intentions of Globalization, eBay had alliances with companies in global developing market. Their co-operative strategy proves that their main objective for Joint Ventures was Internationalization. Entry into Developing Markets eBay adapts various strategies for entry into different markets.
In this section, eBay’s strategies into different developing markets such as China, India are analyzed and discussed. In this section, failure for eBay in Chinese and Japanese market has been discussed and briefed. eBay in China This is one of the best cases of business strategy in the online market. eBay launched its online operations of auction in china.
But by the end of 2006, it lost its market to its competitor TaoBao. com, an online Chinese auction site. It grabbed the lion’s share of the market and thereby ruining the eBay’s progress in the Chinese markets.Taobao offered the service for free. Its main revenue was from advertisements and it offered its auction service for free to customers. Also, eBay adapted the migration of Eachnet technology (Chinese) to its own US based technology.
It could also be blamed on poor management. The head of operations was not told of the loss of customers after the migration of Eachnet technology. Taobao gained its presence and acquired its market by providing free service to the consumers. By 2006, eBay withdrew its operations completely in China after 3 years of existence.Of late, they have decided to enter the markets with the strategic alliance with china post and US postal service thereby providing shipping options from other countries. eBay believes that this strategic alliance would help it regain the market in china. The company failed in its first attempt because of poor strategy and also its inability to adapt to the rigid Chinese culture and its poor analysis of the markets and competition has led to its downfall. eBay in India eBay was a huge success in India.
It expanded its operations in India by acquiring bazee. com. It also used PayPal to expand its market in India.The company also recently adopted a new pricing strategy to establish itself in the Indian Markets.
eBay has vowed to increase the consumer experience in Indian online Industry. eBay in Developing Markets eBay’s vision is to grow globally and it believes in globalization for expanding its operations. eBay has made many acquisitions and strategic alliances to expand into the developing markets.
As seen in the above sections, to overcome competition from the other online companies, eBay has diversified its operations by acquiring Skype and PayPal. eBay would continue to use Skype and PayPal in the online markets to grow their online markets. Bay has launched its operations in Asia with association with Gmarket. The only place where eBay failed was in the Japanese Markets. eBay has already entered into alliances with Yahoo and Google to continue its establishment in the Asian and other developing markets. eBay has found that the company has failed numerous times in its attempts to succeed in major Asian markets.
Hence it changes its strategy each time to compete in these markets. eBay has performed well relatively, however looking at its previous records in Asian markets, it has adopted conservative strategies.It should come out of its shell to prove itself in the developing markets. eBay has mainly adopted the way of entering new markets through strategic alliances, Joint ventures or through acquisitions. But they majorly failed due to their non-adaption to the countries cultures’ and the inability to manage and take decisions.
Most managerial decisions have gone wrong in these markets as they try to westernize themselves in these markets. eBay’s world of good helps Entrepreneurs from developing countries to market their products which are verified by fair trade independent organizations.It acts as a bridge between consumers in developing countries and suppliers in the developed markets. This helps eBay to promote green and socially conscious products and services. eBay has helped to foster entrepreneurship through world of goods in the developing countries.
On considering eBay’s various attempts and associations in these markets, it could be seen that eBay has to change its business strategy in the online markets. Threats facing eBay One of the major threats facing eBay is the competition from Amazon. com. It has been found that Amazon. om is about to overtake eBay as the online pioneer in auction market. In the recent times, buyers prefer other online auction websites because of the ease of use and better consumer experience. There has been a major stagnant in the buyer group. It was observed that the company had many products which had zero bidders.
Also the company’s selling of Skype could make it lose its competitive advantage. Improper strategy planning by eBay has made it lose its shine among the customers. In the recent times, eBay is making the biggest effort in its history to win back the buyers.Also the company is aiming to start neighbourhoods which would enable consumers to create categories and would help them improve their user experience. Competition is growing in the online business and e-commerce industry. Also, increase in online fraud is a cause of major concern to the online giants.
There has been quite an increase in grey market goods and online fraud in the last 2 years. Online Classified business has become a major threat to Newspapers. And there has been an increase in this online business and eBay has been struggling in this Industry.It has lost out with its connection with Craigslist and though it bought major classified sites of Spain and UK, it is still to establish itself as a brand in this Industry. The user experience is paving way for eBay users to get attracted to Amazon which was initially launched as an online bookstore but recently has kick started in the online auction Industry and would soon be the market leader overtaking eBay according to recent study. eBay has the services of PayPal which is regarded as the best in business as it offers safe and reliable means of transaction to the customers. Bay has to re-establish in the developing markets and has to rebuild its strategy and should make progress in to these markets with better visibility and better management.
Conclusion On overall evaluation of eBay, it was found that they used the first mover advantage in the Industry and was a huge success. However, their strategies let them down due to improper vision and management. The company’s only better investment was its acquisition of PayPal which helped in the increase of eBay’s revenues through electronic payment business. It however lost out on its buying of Skype.
Though a better online company and a monopoly of Voice over Internet Company, eBay dint use the capabilities of Skype in the right way. The Company failed to make use of Skype’s users in an effort to build its reputation. On top of it recently sold stakes of Skype which could prove fatal in the future. So, to negotiate the competition from Amazon and other competitors, eBay should consider re-evaluating its strategy for different markets. Also, it should consider establishing strategic alliances as done in china recently with china post to localize its business in the Global world.Finally, in the competitive world, it is important for Market leaders like eBay to maintain itself in the Industry. References Armstrong, Arthur and John Hagel III. 1996.
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