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.
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 days, 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.
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 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...
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