Case Study

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  • Topic: EBay, Online auction business model, Auction
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  • Published : April 20, 2013
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Case

17

Teaching Note

Ebay: Facing the Challenge of Global Growth
Overview
This version of the eBay case has been substantially revised and extensively updated from the version that appeared in the 14th edition. While some of the fundamental material remains the same, the case includes new data and strategic issues that eBay’s managers must address as the company moves beyond the traditional auction niche that it now dominates largely unchallenged and as the company drives to continue its phenomenal growth by expanding into international markets. In 2005 when people thought about online auctions the first name that popped into their heads was eBay. In fact, eBay was the largely unchallenged leader in the online auction industry. Benefiting from the network effect, eBay had created the world’s largest Web-based community of consumer-to-consumer auctions using an entertaining format that allowed people to buy and sell collectibles, automobiles, jewelry, high-end and premium art items, antiques, coins and stamps, dolls and figures, pottery and glass, sports memorabilia, toys, consumer electronics products, and a host of other practical and miscellaneous items. The company had also become a business-to-business and business-to-consumer clearinghouse for Fortune 500 companies and large governmental agencies seeking to liquidate inventories and/or other assets as eBay’s core buyers changed from collectors to bargain hunters. Ebay’s business model had further evolved to include more fixed price transactions with the increasing popularity of the buy-it-now option, the acquisition of Half.com and the promotion of eBay. Ebay’s product mix also broadened to include more bigticket auctions including automobile, real estate, and boat sales. In 2003, eBay engaged in forward vertical integration through the purchase of the online payment service PayPal. At year-end 2005, eBay held more than 4 million auctions per day and had over 168 million registered users. The company’s revenues had grown from approximately $431 million in 2000 to over $3 billion in 2004. In addition, with 2004 net income of $778.2 million, eBay was among the Internet’s elite in terms of financial performance. Heading into 2006 eBay had achieved the ambitious goals it set for itself in 2000 of yearly revenue of $3 billion with gross margins above 80% and operating margins of 30-35%. In managing this explosive growth eBay had successfully met a number of challenges including calming the fears of smaller sellers that the company had “sold out” to large corporations, besting rival upstarts and large competitors, and integrating the acquisitions of Half.com and PayPal. However, growth was slowing in the domestic market and one issue continued to linger for eBay: international expansion. While eBay had successfully expanded into a number of international markets, the company had experienced grave difficulty in the large markets of Japan and China. In fact, losses were so significant and consistent in Japan that eBay withdrew from this market in 2002. While eBay had greater success in China in terms of users, 13.2 million, the company was still losing money in this strategically important market by the end of 2005. To make matters worse, Yahoo! had become quite successful in China, often at eBay’s expense, using the local knowledge of adept and unconventional management. In spite of this intense competition and competition to come in the form of Amazon.com, eBay has repeatedly committed itself to suc-

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Case 17 | Ebay: Facing the Challenge of Global Growth

ceeding in the Chinese market with great potential. Thus, eBay looked ahead to new challenges. Chief among these new challenges were the following: (1) How could the company maintain its stellar growth rates in the face of a maturing domestic market and an increasing threat of competition from substitutes for online auctions? (2) How could the company successfully penetrate the Chinese market?...
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