Executive Summary
Section One – Corporate Level
Part 1 – Brief History of the Corporation
eBay was founded by Pierre Omidyar’s in his San Jose home in September of 1995, under the name AuctionWeb. From its early beginnings it was meant to be a marketplace for the sale of goods and services for a variety of interested individuals. It was incorporated in 1996, and has since grown to become the world’s largest most financially successful online auction company.
After realizing the overall potential of his idea, Pierre and his cofounder Jeff Skoll brought on Meg Whitman, as CEO, to efficiently handle the growing popularity, and sustain eBay’s success. Meg earned a MBA at Harvard Business School, and had gained high acclaims and top-shelf experience at the successful company of Hasbro.
With the addition of Meg Whitman’s expert experience eBay soon expanded rapidly to service a wide variety of buyers and sellers, and in September of 1998 the company went public. The shares were initially offered at $18 and immediately rose to $47 by the end of the day. The company has not faltered since, rising to revenues exceeding $700 million by 2001.
In its short history, eBay has chosen several different paths than traditional companies to get to where it is. Most all of eBay’s advertisement was done through word of mouth and through agreements with a few Internet companies such as AOL and Disney. The large portion of savings from low advertising costs is invested in innovative marketing strategies to keep them ahead of its competitors.
The Term Paper on Meg Whitman, CEO Of EBay One Of The Richest Female CEOs In The World
... themselves and their businesses. Meg Whitman represents a digital leader as a CEO of the online auction company eBay. She presides over ... for the company that eBay is a company that’s in the business of connecting people, not selling them things. Meg Whitman has ... achieved success as president and CEO of eBay, now the fastest-growing company in history. The ...
I believe that eBay is has achieved such an incredible amount of success in such a relatively short period of time because of its beginning philosophy of giving power to its users. With that foundation of loyal users it is able to expand its name by word of mouth and continue to grow to service a wider variety of users and their products. Also eBay’s ability of provide access to such a broad variety of products at relatively low prices will continue to attract more users and profits in the future.
Part 2 – Corporate Level Analysis
1.
Does the corporation have a mission statement? Does it define the business, identify the major goals, and articulate the corporate philosophy?
Yes, eBay does have a mission statement. I believe that this mission statement defines the business as broad and simplistic as possible. It is very broad and short, not identifying any of its specific goals. It is very short and simple “eBay’s mission is to develop a global online trading platform that will help practically anyone buy or sell practically anything.” The statement describes the ultimate goal of the business without describing any other goals of the company. I think it demonstrates how eBay’s philosophy is simple and “down to earth”, creating a very inviting environment to it users.
2.
Is their mission statement appropriate for them? Explain.
I believe that eBay thrives on its image of providing a simple way for its users to get the very best deals on trading online. Although short, I think that their mission statement describes not only the ultimate goal of the company but some of their character as well. After researching more about the company it seems to fit perfectly within their overall values and philosophies. Also because their market is so broad it helps to have a very broad mission statement to allow them to make changes in their focus without altering their overall goal.
3.
How vertically integrated is the corporation? If it is vertically integrated, is it pursuing a strategy of taper of full integration?
eBay is not vertically integrated. It is a company that simply supplies a medium for person to person trading. It connects the buyer to the seller and allows for an easy transaction between the two. The products are registered and displayed on the site by the sellers, and when an item is purchased the seller ships it to the buyer, and eBay earns a commission from the sale.
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4.
How diversified is the corporation?
It is highly diversified in the types of products it provides. The range of products varies from collectibles to cars, almost anything that a user is willing to sell. The site makes it easy for the buyers to locate the products with everything divided into categories and a convenient search engine for quick access to a specific item. Although it provides a wide variety of products eBay’s area of business is relatively simple; it only offers a stable connection between the buyer and a seller. I believe the overall concept of business for eBay is simple, to provide the most convenient, reliable, and cheapest way for users to buy and sell products on the Internet.
5.
Is the corporation transferring skills, realizing economies of scope, and/or achieving supply chain efficiencies through strategic alliances?
eBay has many different alliances with a variety of major companies. Many of its partnerships have provided it with a vast amount of resources allowing it to grow more rapidly. It has various marketing alliances, which associates major brand names with eBay, and helps to attract new users through advertisement and name recognition. Also a recent alliance with Microsoft has allowed eBay to dramatically upgrade its technology of API (application programming interface), which allows them to fully integrate into other sites across the Internet. These partnerships are key to eBay’s overall success and it offers a variety of benefits to it allies as well. Many of its partners receive benefits such as brand name recognition, increased user base, and strategic networking opportunities. This vast network of partners is allowing eBay to continue its rapid expansion, creating new markets, increasing technology, and bringing on a broad range of new users.
6.
Which division/business contributes the most to competitive advantage?
eBay’s key factor in gaining competitive advantage is its marketing division. eBay has made arrangements with over 13,000 partners which has helped it to drive user growth by putting eBay in front of more people than any of its competitors. Its powerful marketing promotions with such diverse brands such as AOL Time Warner, Disney, Visa, The History Channel and General Motors is critical in bringing in new users and user retention. eBay’s heavy concentration on expanding its promotions and partnerships has continued to draw new users away from its competitors, develop strong user loyalty, and increase brand recognition.
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7.
Which division/business, if any, detract from competitive advantage?
One of the major aspects of eBay that detracts from their competitive advantage is their limited operating history. The company was formed as a sole proprietorship in 1995 and was incorporated in 1996. This causes eBay to be competing with companies with such longer histories, larger customer bases, and greater brand recognition. Most of their competitors have significantly greater financial, marketing, technical and other resources than eBay due to their rapid growth. I believe that this significantly short operating history puts eBay a considerable competitive disadvantage. This disadvantage may cause eBay to be forced to make decisions that may harm its firm in order to stay competitive.
8.
Is the corporation involved in international operations?
Yes, eBay has expanded its operations to various countries worldwide. eBay is expanded is online trading platform globally to many countries that generate a majority of the world’s e-commerce revenue. In 2000 it entered the online trading market in Japan, Canada, France, and Austria. In 2001 eBay expanded to Italy, South Korea, Europe, Ireland, Switzerland, and New Zealand. With its global expansion eBay has acquired strong leadership positions in 15 of the top 20 global markets.
Part 3 – Financial Analysis
1.
Provide a full financial analysis of the corporation over the past three years, including comparison to industry averages or leading competitors.
eBay.com, Inc.
Amazon.com, Inc.
Year Ended Dec, 31
Year Ended Dec, 31
1999
2000
2001
1999
2000
2001
Income Statement
Revenues
$224,724
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$431,424
$748,821
$1,639,839
$2,761,983
$3,122,433
Cost of Revenues
(57,588)
(95,453)
(134,816)
(1,349,194)
(2,106,206)
(2,323,875)
Gross Profit
167,136
335,971
614,005
290,645
655,777
798,558
Operating Expenses
(170,509)
(300,977)
(473,579)
(896,400)
(1,519,657)
(1,210,815)
Operating Income (Loss)
(3,373)
34,994
140,426
(605,755)
(863,880)
(412,257)
Other Income
23,833
46,337
41,613
45,451
40,821
29,103
Other Expenses
(10,893)
(33,037)
(91,591)
(159,664)
(588,214)
(184,123)
Net Income
9,567
48,294
90,448
(719,968)
(1,411,273)
(567,277)
Balance Sheet
Assets
Cash
$221,801
$201,873
$523,969
$133,309
$540,282
$822,435
Other Current Assets
243,506
473,591
359,836
878,869
667,638
538,694
Total Current Assets
465,307
675,464
883,805
1,012,178
1,207,920
1,361,129
Other Investments/Assets
504,518
506,939
794,724
1,459,373
429,627
774,040
Total Assets
969,825
1,182,403
1,678,529
2,471,551
1,637,547
2,135,169
Liabilities & Equity
Accounts Payable
$32,133
$31,725
$33,235
$463,026
$444,748
$485,383
Short-term Debt
15,781
15,272
16,111
14,322
14,992
16,577
Other Current Liabilities
45,127
90,445
130,793
261,587
461,674
472,996
Total Current Liabilities
93,041
137,442
180,139
738,935
921,414
974,956
Long-term Debt
15,018
11,404
12,008
1,466,338
2,156,133
2,127,464
Other liabilities
7,637
19,797
57,244
Total Liabilities
115,696
168,643
249,391
2,205,273
3,077,547
3,102,420
Total Equity
854,129
1,013,760
1,429,138
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266,278
(1,440,000)
(967,251)
Total Liabilities & Equity
969,825
1,182,403
1,678,529
2,471,551
1,637,547
2,135,169
Analysis Ratios
Current Ratio
5.00
4.91
4.91
1.37
1.31
1.40
Debt-to-Asset Ratio
0.12
0.14
0.15
0.89
1.88
1.45
Debt-to-Equity Ratio
0.14
0.17
0.17
8.28
(2.14)
(3.21)
Cash Flow-to-Assets
0.23
0.17
0.31
0.05
0.33
0.39
Return on Equity
0.01
0.05
0.06
(2.70)
0.98
0.59
Gross Profit Margin
0.74
0.78
0.82
0.18
0.24
0.26
2.
Is the corporation in a strong financial position?
After calculating and thoroughly analyzing eBay’s financial data and comparing it to Amazon.com, one of its major competitors, and with industry standards, it is evident that they are in a strong financial position. This fact is proven through analyzing its financial statements and ratios.
The financial statements show that eBay has continued to grow in net income as well as total assets, demonstrating its overall success and growth of as a company. The growing increase in liabilities is mainly in part of investments to continuing growth and advancing technology. By looking at eBay’s financial statements, and comparing them to its competitors, it can be concluded that eBay has been continuing to grow in all aspects of its company, advancing its competitive advantage, and increasing its overall profits.
After calculating and analyzing the ratios it is possible to make many more conclusions about eBay’s financial situation. eBay has a very high current ratio, demonstrating that it has more than enough short-term assets to cover its immediate liabilities, but it also shows that eBay might not be investing enough of its excess assets. The debt-to-asset ratio for eBay is very low which means that its assets are financed more through equity than debt, and not a very debt leveraged firm. The debt-to-equity ratio is very low for eBay showing that equity provides a majority of the financing, but it is also exposing itself to a large amount of equity. The cash flow-to-assets ratio over the past three years portrays that eBay is growing in cash flows and is less likely to run into problems generating cash in the future. The increasing ROE is another example of how eBay is continuing to grow, because a higher ROE is expected in high growth companies. And finally the gross profit margin proves that eBay is generating a very large percent of net income from each dollar of sales. This ability to earn a high profit per dollar of sales is because of its very low cost to generate income, and this contributes greatly to the growing of eBay’s overall financial strength.
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Section 2 – Business Level
Part 1 – Business Level Analysis
1.
Apply the five forces model to the industry in which the business is based. What does this analysis tell you about the nature of competition in the industry?
The risk of entry by potential competitors is relatively high due to low barriers to entry. New competitors can launch new sites at a nominal cost using commercially available software. This low barrier to entry will cause competition to intensify in the future. Also due to the broad range of products sold at eBay there is many more opportunities for new competitors to enter in more specific market segments.
The degree of rivalry among established companies within eBay’s industry is very high. This high degree of rivalry is very common in discount retail industry due to the high concentration on being the price leader. EBay’s competition is very broad and varies with each of its different products. eBay competes closely with many well know broad-based companies such as traditional department and general merchandise stores, as well as a large variety of online retailers. Due to this complex competitive industry, eBay must concentrate on many competitive factors such as: ability to attract buyers, volume of transactions and selection of goods, customer service, system reliability, brand recognition, and many others to keep their edge.
The bargaining power of buyers is low because the seller sets the prices of the products and because a majority of the sales are in an auction platform. This gives eBay and the buyer less control of the products prices, but in most cases the large amount of sellers per product keeps the prices low and competitive. The buyers benefit from the competition of the sellers, convenience of a trade environment, and not on the power of price bargaining.
The bargaining power of suppliers is relatively high because eBay must keep its fees and commissions low in order to attract and keep loyal sellers. Sellers are the suppliers of the products and are able to pick from different auction companies and select one offering the lowest fees and commissions. The ability for the suppliers to select the company offering lower selling costs and higher profits per sale, forces eBay to remain competitive in selling costs. With the power more in the suppliers hands eBay is required to satisfy their needs with higher customer service, more convenient selling platform, and lower selling costs in order to keep a large supplier base and attract new sellers.
The threat of substitution is high due to the growing number of online auction and shopping sites. Online retail is a highly volatile and rapidly growing industry where substitutes and rivaling competitors can emerge with relatively minimal costs and in a short amount of time. This high degree of threat forces eBay to continuously use its strong finances to maximize user satisfaction and to acquire high quality auction properties in order to remain dominant in its industry.
After analyzing the forces of this industry I believe that the competition is very intense. In order to succeed in this industry a company must continuously improve all of its aspects of business. If the company becomes content or satisfied with its success it will be quickly surpassed or replaced by another competitor. This industry is extremely volatile and it is imperative to invest in improving your company in order to remain competitive.
2.
In what stage of its life cycle is the industry in which the business is based?
eBay is obviously in an industry in the growth stage of the life cycle. The online retail industry is exploding right now due the low prices and convenience of an at home search and buy environment. The high degree of demand in this growing industry has attracted many new online retail companies and caused many offline retailers to develop online sites as well. The industry is relatively new and expected to continue to grow not entering the shakeout stage any time soon.
3.
What are the implications for the business of being in this stage of the life cycle in terms of the intensity of competition both now and in the future?
eBay clearly recognizes its industry as rapidly growing, and has made numerous plans to keep up with the demand and continue its dominance. It realizes its presence highly competitive market and concentrates heavily on leading the competition. eBay believes that if it continues to focus on attracting a larger user base, increasing customer service, developing strong brand recognition, improving its technology and system reliability, and preserving quality of its products and services, it will continue to lead the growing competition in the future. I believe that eBay is well aware of its environment and has been successful in keeping up its competitive intensity and has made substantial plans to continue its success.
4.
What are the core competencies of the business?
eBay’s core competencies include many of its principal competitive factors. These factors include:
•
brand recognition;
•
ability to attract buyers;
•
volume of transactions and selection of goods;
•
customer service;
•
community cohesion and interaction;
•
system reliability (technology);
•
reliability of delivery and payment;
•
website convenience and accessibility;
•
level of service fees; and
•
quality of search tools.
5.
What is the generic competitive strategy pursued by the business?
eBay’s objective is to build upon its position as the world’s leading community-commerce model and the most compelling commerce platform on the Internet. Its vision is “to help practically anyone buy or sell practically anything in the world.” Some of eBay’s key strategic elements include:
•
broaden the eBay trading platform;
•
foster eBay community affinity;
•
enhance features and functionality;
•
expand value added services; and
•
continue to develop US and international markets.
6.
Does the business possess the appropriate set of competencies to pursue the generic competitive strategy identified above?
I believe that eBay has the resources and competencies to strive for its overall generic strategy. If eBay continues to utilize its resources and capitalize on its competitive advantage then it should continue to achieve success in the future. eBay’s generic strategy is very broad which I think is important because they compete in many different markets. Constantly striving for their overall strategy, as well as, improving and expanding their core competencies will help eBay to remain ahead of its competition.
7.
Does the business have a sustainable competitive advantage?
eBay is involved in many different markets such as business-to-business, specific categories of goods, broad-based goods, and other online auction sites. This wide variety of markets makes it difficult to dominate each one, but eBay is the leading online auction site. eBay is also near the top in competition in all of its other markets. As eBay continues to expand its user base and product selection, it will continue to strengthen its competitive advantage. eBay is involved in many volatile markets prominently based on price leading and product selection, and it must strive to constantly improve all of its aspects of business in order to remain competitive.
Part 2 – SWOT Analysis
1.
Identify the business’s key strengths. Why are these strengths?
Marketing
Brand recognition
Ability to attract users
Dynamic Pricing Format
2.
Identify the business’s key weaknesses. Why are these weaknesses?
Low control over product quality
Ability to accommodate for growth
3.
Identify the business’s key opportunities. Why are these opportunities?
International market
Half.com (fixed price)
4.
Identify the business’s key threats. Why are these threats?
Hackers
Rapid user growth
Competitors
Legal cases, regulations
Consumer acceptance/confidence in the Internet
5.
Is the business as a whole dealing effectively with environmental threats?
6.
Is the business as a whole effectively exploiting environmental opportunities?
7.
Is the business as a whole in an overall competitive position?
