Critical Analysis of an E-Business: The eBay
The Internet has become an effective marketplace for most businesses today. Its many applications including communication, transaction and interaction resulted organisations putting up their websites to utilise such applications. Such applications of the internet led to the conceptualisation of the term e-business which has affected almost all areas of business. E-business can be simply defined as doing business electronically (Kalakota & Robinson, 2000) but it has integrated the communication and the value chain of the business, two of the most important aspects of the business.
Due to its many applications, there are actually organisations whose business models are designed specifically for e-business. That is, the core competency of their business is the effective utilisation of the internet using appropriate resources and effective strategies. One of these organisations is the very popular eBay. eBay has been the epitome of every e-business today due to its success in the dot com world and has been the study of many business organisations from which they can get some ideas on how to make their e-businesses a success.
Company Background eBay Inc. , the world’s most popular and by far the largest auction company has been around since 1995. It was founded as a sole proprietorship by Pierre Omidyar, a computer science graduate of Tufts University. He worked for Claris, Innovative Design and General Magic before creating eBay. eBay was conceptualised when his wife then fiancee was interested with Pez dispenser collection and was frustrated that the buy and trade of such collectors’ item is limited by geographical considerations (Krishnamurthy, 2004).
Having a programming background, Omidyar saw the potential of the Internet and created the program for the website that will help his girlfriend sell her collections, calling it AuctionWeb. A section of the website called Echo Bay Technology Group was for some consulting work to which the site was named after. But another company had registered echobay. com thus he chose eBay (Krishnamurthy, 2004). Having a good background with IT, he himself developed the program and the web design of his business utilising the C++ program.
When he met Jeff Skoll, an MBA graduate from Stanford Business School, they became business partners; Omidyar’s programming experience was balanced by Skoll’s business skills (Anonymous, 2007). Skoll wrote the business plan for the company they called eBay Inc. Initially, trading on the site was free but as the site generated traffic, it moved to a more expensive Internet Service Provider and began charging customers at 5% of the sale price for items $25 and 2.
5% for items more than $25 (Krishnamurthy, 2004). In 1997, the business moved from being an accidental company to becoming a real company due to the tremendous growth it experienced. In that same year, the company officially became eBay and brought in its CEO Meg Whitman, a Harvard Business graduate who was the general manager of Hasbro’s Preschool Division, an executive of the Walt Disney, Proctor & Gamble, and the president and CEO of FTD to help the company grow.
Omidyar, Skoll, Whitman and another person in name of Mary Lou Song came up with the idea of setting up a place where people could buy, sell and trade their items; they set the rules and provided a safe place in which to do business with banks and moneylenders helping with financial services (Anonymous, 2007). eBay is basically an online community used by buyers and sellers for the exchange of goods from memorabilia, to collectors’ items such as coins, computers, stamps and various items that can be sold usually those that are hard to find in regular stores.
Figure 1 shows the breakdown of gross merchandise listed on eBay. Big companies also began trading and eBay is now considered as the world’s biggest used car dealer (Maney, 2005). Sellers list items for sale and buyers bid on those items. Since it is based online and the service is fully automated, trading happens 24 hours a day, providing the convenience of online shopping to customers. Over the years since its foundation, eBay experienced tremendous growth.
