The core circle contains the core service that eBay offer. The surrounding circle contains supplementary services that eBay offer, but many of these are services offered by competitors and are in most cases needed to facilitate the use of the core service. The outer ring contains a number of additional supplementary services that eBay offer. It is these services that have added value to the service and given eBay a competitive advantage.
The phenomenal success of eBay and the low start-up costs have made the online auction market very attractive. All that was required to setup an online auction was the computer software. David Bunnell author of ‘The eBay Phenomenon’ stated that “like an aggressive army, eBay’s strategy is to move quickly to capture territory and key positions in the new world of online auctions before opposing forces can do so, the costs be dammed” eBay made full use of their advantage over potential new entrants by using the fact that they were the first firm in the industry to firmly establish and build their brand and capturing as much of the market as possible.
Other barriers to entry that faced potential entrants were that eBay were the most well known online auction they had the most product postings and they were seen as the most trustworthy. Ellen Reid Smith author of ‘e-loyalty’ stated that “the feature that holds eBay’s e-loyalty strategy together is that it is the most trustworthy auction site on the web and this is why it has successfully held its leadership against new competitors”.
The major benefit that eBay had over its possible substitutes was the convenience that it could offer to both the seller and the purchaser. Both could operate the process from the comfort of their own home at any time of day convenient to them. eBay also offered it customers community, which was an element of service that none of the substitutes could provide. Sellers are extremely important to eBay because without them there would be no customers and thus no business. eBay have done a number of things to try and ensue that customers stay with them. The first was that they created an opportunity cost for deflection as detailed in a quote from Ellen Reid Smith below.
“Under e-bays safe harbour program, customers have their service rated. Traders who value the service record they have built up on eBay are reluctant to defect to other auction sites because the opportunity cost would mean starting with no service record, thus lower bids. This makes eBay customers loyal – the fact that the value builds with each transaction means that it’s hard for other sites to compete.”
eBay also set about developing the community mentioned in section 2, encouraging site users to air their views and actually taking notice of them. Another strategy of eBay’s was to differentiate themselves from the competition (see figure 4) and build their brand effectively. eBay cannot control the service that people receive when they purchase things, but they can provide the easiest usable site, put in place systems to enable the buyers to choose the best possible seller and provide community minded things such as the eBay cafe.
Although eBay obviously had an excellent strategic plan there also a lot of luck involved in their success. If there was a magic formula that guaranteed success then there would be more successful companies. A lot of it is about making the right decisions when opportunities came up. The combination of a powerful business design tailored to the Internet and a company philosophy of openness and community came together in the most effective way to form the success we now know as eBay.