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EBay: Business Model and Planning


eBay is an e-commerce company that was re-launched in 1997 and turned out to be the largest and most popular interpersonal e-commerce company. The company went public in 1998 and its ensuing spectacular increase in its stock prices turned its top three managers into overnight billionaires. The company has since then quickly grown and has several partnerships with America Online and WebTV, as well as several acquisitions. The three components that stand out the most from the eBay business model include scope,

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eBay offers a wide range of services and has 23 sub-sites in areas such as clothing, travel, and real estate. By the close of 2002, the company had five categories each of which produced more than $1 billion in gross merchandised sales (GMS). GMS is one of the company’s most crucial performance indices because it shows the extent of trading activity in each sub-site. eBay formed eBay Motors in 2002 after realizing that cars were growingly categorized as “miscellaneous”. eBay Motors grew significantly and by the end of 2002, it had sold double the number of cars sold in 2001.

Other sub-sites have also been introduced by eBay over the past years and include eBay Sports, eBay’s Consumer Electronics and Computer category, eBay Travel, HomesDirect, eBay Business, among many others. The wide scope of services offered by eBay is one of the reasons why eBay has remained a key player in the e-commerce industry. This is because the wide range of services fills a gap in the industry by offering services that were not initially offered by other companies over the internet.

Customer Value

eBay recognizes the importance of its customers and the fact that it would not be where it is today if it were not for its customers. To attract new customers, eBay utilizes partnerships, online promotion, public relations, direct messaging, and traditional marketing. One of its most significant strategies is its marketing partnership with American Online (AOL). Word-of-mouth is very important to eBay. Indeed, more than fifty percent of its users are a result of referrals made by past customers.

One of its managers states that “if you just do the math of our quarterly filings, you see that we’re spending less than $10 to acquire each new customer” (Tang 375). In recognition of the power of referrals, eBay created PowerSellers, a membership program for its users. This is a “recognized, respected & rewarded” program in which members earn different amounts of rewards depending on their status for their contributions. In addition, the company offers its loyal customers tips, invitations to company events, and personalized customer service through phone and e-mail. These special services offered to its customers help to drive the high demand experienced by eBay.

Cost Structure

The major cost driver of eBay is marketing. However, unlike its e-commerce rivals, eBay does not spend exorbitant financial resources on modern marketing channels such as television. Instead, it prefers to rely on traditional marketing strategies such as word-of-mouth from its current customers. This has indeed worked for eBay, an element that has enabled eBay to cut its costs significantly. Similar cost-cutting mechanisms have also been employed in other areas of the company such as operations, listings, and customer service. Cost minimization has therefore enabled the company to rake in huge profits.

Works Cited

Tang, Scott. EBay: Growing the World’s Largest Online Trading Community. Massachusetts: Massachusetts Institute of Technology, n.d.

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