Week 8

Q1: eBay is one of the only major Internet "pure plays" to consistently make a profit from its inception. What is eBay's business model? Why has it been so successful?

Brokers are market-makers: they bring buyers and sellers together and facilitate transactions. Brokers play a frequent role in business-to-business (B2B), business-to-consumer (B2C), or consumer-to-consumer (C2C) markets. Usually a broker charges a fee or commission for each transaction it enables. The formula for fees can vary. Brokerage models include:

Auction Broker -- conducts auctions for sellers (individuals or merchants). Broker charges the seller a listing fee and commission scaled with the value of the transaction. Auctions vary widely in terms of the offering and bidding rules. [eBay]


EBay's success is based on its ability to transform many fragmented,
primarily local markets into global ones at a relatively low cost to
its users.  People have always had a need and an interest in buying
and selling used, surplus, and collectible items.  Traditionally, they
have done so through garage sales, classified advertising in local
newspapers, and flea markets.  However, the number of people available
to complete a transaction was limited because a face-to-face meeting
was typically required.

For a price comparable to advertising an item in the classifieds
section of their local newspaper with three or four lines of text,
users can post lengthy descriptions and pictures available to a
worldwide audience.  Concerns about fraud have been mitigated through
a user feedback system escrow services. The company's ability to bring
a large number of buyers and sellers together is what has driven its
growth.  The more buyers there are, the more sellers want to
participate.  Conversely, the more sellers there are, the more items
are to buy, and the greater the attraction of the service to buyers.
EBay has allowed many people to become entrepreneurs with little
upfront expense or overhead and provides a method for companies and
even governments to dispose of unwanted items.

The recent downturn in the economy which crushed so many dot-coms
ironically worked in eBay's favor.  People who were laid off started
businesses selling on eBay, and many people were interested in getting
a deal even if it meant purchasing a used item.  Also, collectibles
markets have thrived by making it easier for buyers and sellers to
find one another.  However, prices have sometimes been affected as
items that were once thought to be rare have turned out not to be.
Companies have also found it attractive to purchase industrial items
online at steep discounts to conventional channels.

EBay makes money by charging listing fees and collecting a percentage
of the selling price of items sold through the site.  EBay also owns
PayPal, which makes money through investing its clients' assets and
from transaction fees.  EBay's growth has been remarkable.  "In 1998,
its gross merchandise sales -- the total value of all transactions --
were $700,000.  In 2000, at the height of dot-comm mania, they hit
$5.4 billion.  This year [2003]?  The number should pass $20 billion."
 Over 86 million people are eBay users.

EBay appears to have significant growth potential.  It has
successfully introduced new markets, such as car sales, which many
thought would not be adaptable to its business model.  Also, only a
small percentage of the world's population currently uses eBay.
Fundamentally, it is so successful because it meets its customer's
needs better than any competing service.  No one else has accumulated
such a large number of buyers and sellers in a single marketplace.



Q2: Other major web sites, like Amazon.com and Yahoo!, have entered the auction marketplace with far less success than eBay. How has eBay been able to maintain its dominant position?

Size of its user base

Feedback history

reputation

rating

Q3: What method does eBay use to reduce the potential for fraud among traders on its site? What kinds of fraud, if any, are eBay users most susceptible?


But even if that’s a small number, and it’s probably reasonable to assume that fraud is an underreported problem, still, it’s a thing that needs to be dealt with, and eBay does some very clear things in terms of trying to help people overcome their inhibitions and enter into transactions with what would otherwise be strangers to them.  And that’s sort of the second part of this conversation, which really has to do with how do we get or facilitate the trustworthiness or at least the acceptance of trustworthiness of other individuals and overcome any inhibitions to enter into transactions, and transactions which can be sometimes significant in terms of their value.

So anyone who’s been on eBay or has used eBay as a marketplace knows that a central feature of the transaction process is the feedback mechanism by which buyers and sellers rate each other’s behavior as part of a transaction.  And these feedback ratings, and, again, we’ve seen feedback processes that now exist across all kinds of web sites, but in the case of eBay, the user feedback element is really a very significant part of how buyers and sellers evaluate the relative degree of riskiness of entering into a transaction with the other party.

And so how it works is with each transaction both the buyer and seller are given an opportunity to rate the other party’s performance in that transaction through a simple rating mechanism.  And eBay collects this data together and then provides a kind of quantitative summary for each member of the community that gives other users a sense of their overall reliability, a sense of their reputation as a trader, by looking at the number of transactions they’ve entered into over a period of time from the most recent onward and looking at the ratings of whether those transactions met with the satisfaction of the other party or not, including some commenting and the like.  And so now any prospective trader who is going to enter into a buying or selling relationship with another party can pull up their evaluation feedback and decide to what extent that they feel comfortable doing business with this other party.

As one might expect, people who have accumulated a lot of positive feedback on their transactions within the system are going to be looked at more favorably when it comes time with others engaging in transactions.  And so if you’re a seller this most certainly translates into a potential premium that you might receive in terms of the number of bidders bidding on your product and hopefully yielding a higher price, and a much more likelihood that people are going to trust that their interaction with you is going to go well.  And so that has direct financial impact on your ability to be a successful trader in the eBay marketplace.

So the eBay feedback system and this whole issue of being able to create a reputation as a positive, fair party within the marketplace really becomes a central issue in monitoring the feedback system, making the feedback system more effective, making sure that it isn’t played with in some fraudulent way to bolster the reputation of an otherwise disreputable individual.  All of these things are a major concern of eBay and a constant focus to provide its membership with the best information it has on its respective members, and hopefully, again, coming back to this central aspect of what eBay is, is being a broker, that creates a fair and level playing field for its membership.



Paypal

Reputation

Rating

Feedback History

Education

Q4: eBay makes every effort to conceptualize its users as a community (as opposed to, say "customers" or "clients"). What is the purpose of this conceptual twist and does eBay gain something by doing it?

Yes gains trust

Q5: eBay has long been a marketplace for used goods and collectibles. Today, it is increasingly a place where major businesses come to auction their wares. Why would a brand name vendor set-up shop on eBay?

Brand name vendors would set-up a virtual presence on eBay for a number of reasons;
- Email has a huge user base across the globe. No business can ignore eBay's sheer reach.
- Removing costly intermediaries such as wholesaler, distributor and retailer thus gain bigger profit by selling through eBay.
- No need to set up its own eCommerce website, can use existing eBay templates and payments system.
- Protect their product brand and quality as customers are likely to purchase from a big name vendor, reduced the likelihood of the brand is misused or misrepresented by other eBay sellers..

Q6. I have a few businesses, and I have used eBay for about 12 years on and off. Currently I have about 600 books listed on eBay (seller name ozrural). I stopped selling on eBay for a few years but they changed the rules this July and it is viable again (for me). What do yu think changed?

According to the 2011 Fall Seller Update two main seller benefit starting from July last year are;
- Extra 25 characters in the title to draw more buyers
- and new protection for seller's rating when buyer fails to contact you first before opening a case and the seller also work quickly to resolve it.