One of the key business areas that eBay is emphasizing is growth of PayPal. PayPal grew 31% on revenues of $439 million. Its user base expanded 36%, to 143 million accounts. On the other hand, PayPal’s larger growth came from outside of eBay. It functions as an online bank to deliver interests, process transactions and even wiring money through eBay’s internet phone service Skype. With those characteristics, PayPal is a company that has a lot of potential.
A second important business the eBay has is Skype. Seeing a first profitable quarter since acquirement in September 2005 and increase of new users of over 100 million, EBay uses Skype to smooth out transactions by making it easier for consumers to talk to each other, ask questions, and build trust. Not to mention that Skype also is a leader in the market for Web phones. On top of that, eBay could collaborate with Google or Yahoo to merge Skype with its classified advertising business to serve click-to-call ads, tapping into the market for local advertising.
Another business that eBay pays close attention to is its acquired ticket reseller StubHub. Ebay expects that the site will bring in between $105 and $120 million in 2007. StubHub’s business is a perfect fit for eBay. Management in eBay view StubHub as perfect complement to eBay’s ticket business given its success in the online tickets segment. The combined business will strengthen both businesses and provide fans with more choice and better service.
Also, eBay try to streamline its online auction business by eliminate low quality listings. EBay raised fees by roughly 6% in order to encourage merchants to sell items people want and to price them to move. As a result, the site saw declines in the inventory that sit in eBay stores before selling or that did not sell at all. On the other hand, by carrying out such vigorous business diversification, eBay is looking into relying less on its trademark auction business to achieve future growth. 2. Which framework, i.e. portfolio approach, leveraging core competencies, or parenting/patching, best helps explain what eBay is doing today in its corporate strategy? Why?
The synergy approach best describes eBay’s corporate strategy. EBay is able to create value via diversification based on its core competencies of online auction. In return, core competency could be leveraged by other businesses and push products into markets that were not part of where they were created. When seeing separate businesses, each could uniquely provide a relevant competitive advantage to the target business area. However, when put together, each business is related and beneficial to the company’s core competencies.
Aside from its online auction business, eBay’s other business sectors such as PayPal, Skype and StubHub each represents business leadership in their respective areas. At the same time, they do complement eBay’s core business. For example, the fact that eBay could merge Skype with its classified advertising businesses to serve click-to-call ads in the future and tap into the market for local advertising shows that different business sectors can rely on others to exploit new business opportunities and thus help firm’s growth collectively. Synergy approach best describes eBay’s corporate strategy.
3. What appears to be the major advantage of this new eBay strategy and the major disadvantage or risk? The biggest advantage of this new eBay strategy is that the business of the new eBay is well diversified. Furthermore, each individual business sector is able to draw synergy from other business sectors and fully utilize every business opportunity. Traditionally, eBay is only associated with online auctions and makes profit by charging a processing fee from each concluded deal. With the name strategy, while online auction still remains as a key part of the company, eBay has become so much more than a mere online auction platform.
The new businesses both serve different customer needs and help other business segments to grow. PayPal not only enable sellers and buyers to share one trusted payment service instead of registering and working with multiple merchant bank cards, but also has the ability to generate revenue on its own. Skype helped eBay to enter the lucrative online communications business and at the same time smoothed out auction transactions by making it easier for consumers to talk to sellers, ask questions, and build trust. In the future, eBay could also merge Skype with its classified advertising businesses to serve click-to-call ads, tapping into the market for local advertising.
On the other hand, with such vigorous change of strategy, it is hard for eBay to maintain its business identity. Since the start, eBay has been famous for its online auction platform. People use eBay because of its powerful system to link buyers and sellers and efficiently carry out each deal regardless of geographical distance. With the addition of the new businesses and features, it raises doubt about if the loyal customers that so used to the old eBay services still view eBay as a trustworthy service provider. Also there is the question of how eBay will portrait itself in the market in terms of product positioning. If the new strategies are not in line with what eBay used to have, the firm will face a great risk of losing ground on the business foundations that has been built upon by the old eBay.
4. Do you agree with eBay’s approach and the logic of eBay moving from being an online auction-based company to being a broader, Internet services-based company? Why? I do agree with eBay’s approach. There are three reasons for it. When eBay first started, it captured market attention by its distinctive service function of online auction and uniquely designed system. However, up to today, online auctioning websites are no longer new to customers and its features and functions can be easily imitated by the competitors. Without change and innovation, eBay will soon lose its shares in the market and eventually lost its competitiveness. Therefore, new services are needed to keep eBay in the game and constantly maintain its competitiveness in the online business world.
The new business areas that eBay is involved in, such as Skype for online communication and StubHub for ticketing, present great profitable opportunities. By diversifying into different business areas, it reduce the risk of eBay to be over dependent on any one business area and thus unable to adapt quickly according to different market conditions. With different business functions, it enhanced eBay’s profit generating abilities in times of different business environments.
There are overlapping characteristics between the businesses eBay expanded into and its original online auction service. With such overlapping, group synergy can be drawn to enhance each individual business sector. PayPal helps to simplify the payment process of online transactions while buyers and sellers can easily communication to each other by using Skype. Given such attributes of the new businesses, eBay’s core business of auction is further supported when compared to similar auction site on the web.