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The E-Bay Business Model and Current Problems

EBay’s original business model vs. its current business model

In fact, eBay initially began running its business model based on the pure auction principle. At that time, bringing such a process to the internet was an absolute novelty with its benefits and drawbacks. On the one hand, people have lost the spirit of physical auction due to the absence of high speed and intense operations (Laudon & Traver, 2019). On the other hand, the main focus shifted from bargaining to specific and particular choosing. As a result, eBay has transformed the traditional model towards more customer responsibility and selectivity.

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After that, the company integrated the new element of commerce into internet auctioning. More specifically, eBay developed the business-to-business (B2B) environment so that distinct retail businesses used the marketplace to sell products bought on the wholesale physical market on a regular basis. Consequently, at the end of the first decade of the 21st century, after the market fall of 2008, eBay became stagnating in profits on earnings before interest, taxes, depreciation, and amortization (EBITDA) level. This is mainly due to the fact that the company shifted its original business model to traditional e-commerce, where such big players as Amazon has a major part of the market power (Laudon & Traver, 2019). In other words, eBay focused on fixed-price retailers, which represent B2B operating activity, with less than 10% of the market dedicated to genuine auctioning. The company changed not only the market but also its main competitors, which has made a considerable impact on the company’s natural growth.

The problems that eBay is currently facing and how it is trying to solve these problems

In fact, by changing the initial strategy, eBay obtained many opportunities and problems at the same time. From the business operating perspective, eBay’s traditional e-commerce model was successfully chosen since it represented a more profitable market due to the greater sales volume, which is a major part of the marketplace’s revenue. However, while the sales issue was theoretically solved, the company was obliged to change the significance of branding, which was not successfully executed. Eventually, eBay failed to change customers’ view of its business as a fixed-price retailer rather than an auction dealer.

Some of the solutions to resolve the poor dynamics on EBITDA’s level include the buy now pay later (BNPL) function and developing mobile app and other features to simplify the access to the marketplace. From the perspective of financial services, BNPL increases the company’s competitiveness since the possibility to receive a zero percent credit develops customers’ relations with the company (Gerrans et al., 2021). However, too high leverage might harm the marketplace’s short-term debt index, which might lead to having a liquidity solvency problem. Even though financial services provided by eBay do not overshadow the taken risk, 14% or leverage, eBay’s decision to adopt the new business model for simplicity and efficiency of usage has a significantly positive impact on the company. As a result, the customers’ access to the marketplace is easier and, as a result, make more purchases, while the company gains higher revenue from the increased selling volume.

Other solutions that eBay should consider

Possibly, eBay could divide their activity by creating a sub-brand with new history and reputation, backed by the maternal company’s size of capitalization. More specifically, eBay might leave only the auction possibility on the main brand’s website. At the same time, the company would create a completely new brand for fixed-price retail competition so that the new reputation might increase the customer base (Laudon & Traver, 2019). In addition, by integrating better service for both suppliers and consumers, sub-brand might outperform such giants as Amazon or Walmart in profitability indexes, which is critical in the current situation.

eBay’s top three competitors online

In fact, eBay’s competitors mainly differ by market type. On the fixed-price retailing brokerage, eBay meets competition with large-capitalized corporations, such as Amazon, Sam’s Club, Walmart, and Costco (Laudon & Traver, 2019). On the initial eBay market, bidding companies, such as uBid and eBid, might create competition in the B2B segment. However, in the simple customers’ market, where physical people execute both selling and purchasing, eBay has no possible competition neither in size nor in the accessibility of the market.l harmony.

References

Gerrans, P., Baur, D. G., & Lavagna-Slater, S. (2021). Fintech and responsibility: Buy-now-pay-later arrangements. Australian Journal of Management, 031289622110324. Web.

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Laudon, K. C., & Traver, C. G. (2019). E-Commerce 2019: Business, Technology and Society (15th Edition) (15th ed.). Pearson.

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