The company started out as AuctionWeb and was developed by computer programmer Pierre Omidyar. Revenues for the fiscal year ending 2015 are down from the previous year by 2.3% to $8.592 Billion. Net income increased to $1.725 Billion. Part of this could be a 7% reduction in the payrolls. Another factor could be from the divestiture of PayPal from its operations. eBay also doesn’t have to worry about inventory costs and its profits are generated from fees generated by other peoples’ sales.
The concept started out as a hobby for Omidyar until his hosting service alerted him he must upgrade due to an increase in the volume of traffic. The higher cost of upgrading meant he had to treat it more as a business. He started charging listing fees to sellers which they did not object to.
As the company formulated, Omidyar wanted to use his consulting firm name, which was Echo Bay Technology Group. However, the echobay.com domain name was already owned by a mining company. So he settled on the name eBay.com instead.
How the Company Started
As mentioned, the company started out as a hobby for the owner, Pierre Omidyar.
The company did receive venture capital funding of $6.7 million. It wasn’t long after that eBay went public and its IPO skyrocketed to $53.50 per share on its opening day of trading.
The biggest problem eBay experienced early on was keeping the auctions honest. When introduced, the concept of an online auction was huge, and everyone got in the game.
Due to the sheer volume, it was difficult for the company to keep up with unscrupulous sellers. The company then developed a rating system and eventually bought PayPal. The advantage of using PayPal is it allowed buyers and sellers to have recourse in the event the auction did not go as planned.
Over time, the company started catering to big sellers, which went against the original concept of allowing small sellers to sell their goods. These smaller sellers were alienated, and as the online auction craze subsided, they looked for other ways to earn money online. Thus, they abandoned the website altogether.
The company continually raised fees charged to sellers which sellers complained about. This practice made it difficult for full-time sellers to continue earning a decent living on eBay. This is not as big an issue today as online auctions have lost their appeal. They still exist but are nowhere near as popular as they once were.
eBay initially allowed digital products to be sold on eBay, but this became a contentious issue as sellers would list products to be sold for one cent. They did this to gain positive feedback, which the company viewed as contrived and orchestrated. eBay still allows digital products to be sold on its platform, but sellers must deliver a physical product to buyers.
Why it Works
The company started the online auction craze and is still considered the quintessential resource for online auctions. It has since been trying to reinvent itself by becoming more of an online seller competing with the likes of Amazon’s Fulfillment By Amazon (FBA) program.
Many sellers today are buying products from eBay and immediately turning around and selling them on Amazon. This arbitrage-like activity has grown rapidly over the last several years.
eBay has recently divested itself from PayPal to concentrate on its core business model.
eBay has taken the lead in analyzing its massive data for insight on how to better serve its customer base. The company is considered a pioneer in this arena as many companies are only now discovering the value of data and how to mine it properly.
The company also purchased Shutl.com, which is a fast shipping company, boasting 90-minute shipping or within an hour of a time buyers specify. The incorporation of this company is ongoing, and it is unclear whether this has been a successful addition to the company. However, this is a good step in competing with Amazon, who is taking its own initiatives for fast shipping.
Clearly, in the beginning, it became a frenzy to list items on eBay. People talked about it at work and word-of-mouth promoting became the main marketing method. Forums, blogs, and chatrooms flourished with ideas about what to sell and how to sell it.
Marketers picked up on the craze and sold reports on how to find products to sell on eBay as well as techniques on how to best sell. As with any craze, some of the information was good, but most of it was junk or outright scams.
Peripheral services popped up all over the place including third-party sellers and websites dedicated to finding the best products to sell on eBay. Most of these services were a waste of money.
eBay does have an affiliate program which is probably more relevant now that eBay has shifted focus from being mostly an auction site to being an online seller of goods. When it was auction-centric, affiliates had to constantly update their links whenever auctions expired. While it was possible to link to specific stores and items that were sold in the stores, the best selling products were typically auction-only.
Even with this constraint, affiliates bring in traffic to the website at the expense and effort of the affiliates. This can provide a tremendous boost in traffic to eBay. The company has also relaxed to some degree where affiliates are allowed to include affiliate links, making it easier for these affiliates to make money.
eBay has an extensive rating system that allows buyers to rate sellers on how well the seller did for the entire selling process. The rating system is gold for the sellers or if negative can be the source for lost sales. The system is not perfect, as uninformed sellers can leave bad reviews even if sellers did not deserve them. But, overall, the system works to help buyers determine if the sellers are legit.
Lessons Learned By The Business
- Winning is great but how you win is what is important.
- When Meg Whitman was in charge of eBay, she hired people who would be capable of stepping up to roles they were not initially hired for. She looked for people who would be able to carry the objectives of the company for the long term. When the company grows, these employees will grow along with it.
- The company is fully aware of the 800-pound gorilla known as Amazon. It has made management come up with creative ways to reinvent itself.
- eCommerce is an ever changing vehicle. While all businesses must react to change, this segment is one of the fastest changing. Once the online auction craze died down, eBay had to readjust its business model to continue to compete.
- Technology can be something that will help you succeed, or it can be something that destroys your company. During the technology meltdown that happened in 1999, eBay realized just how vulnerable and dependent on technology their business model was.
How Other Businesses Can Learn From This
Don’t abandon your stakeholders. These are the people who buy or uses your company’s services. When eBay catered to the largest sellers, it does so at the expense of the group who made them successful in the first place. The company is still trying to recover from this mistake.