Case Study: eBay’s Business Model

Founded on 1995 by Pierre Omidyar, eBay was considered a pioneer in the online auction industry whereby people are brought together on a local, national and international basis to serve the purpose of creating a person-to-person community where ever individual could have an equal access through the same medium which is the Internet. eBay offers wide varieties of products and services for bargain hunters, hobbyists and collectors and sellers, changing the way people engage in trading hence eBay had changed the face of e-commerce from its inception. Today, eBay is continuously the brand preference with over 39 market presence and with $60 billion of the total value of sold items on the site’s trading platform.

Basically, eBay introduced several crucial innovations tailor-made for the internet at the business level, a strategy which was conceived to be an improvisation. The online auction business model is where eBay served as the value-added facilitator of trade between a buyer and a seller in a highly individualistic manner. The online auction model developed by eBay marked an important extension of e-commerce, offering millions of individuals a low-cost opportunity to engage in a new type of economic activity.

When Whitman arrived in 1998 as eBay’s second president and CEO, eBay became a public listed company in September of that year, brand building recognition at eBay was prioritized. eBay’s registered users had grown six-fold, to over 2 million. Under Whitman’s leadership the company grew to over 200 million users globally and over $7 billion in revenue. During her tenure, Whitman helped eBay enter China, integrated globally recognized brands like PayPal and Skype into eBay portfolio and successfully steered the company through the dot-com bust by staying focused on its core users and core competency-online auctions. eBay made acquisitions in order to support its growth as a supplement to word-of-mouth and public relations advertising into tapping opportunities through national magazines and online alliances. These acquisitions aid in the expansion and improvement of the company’s services.

eBay is currently the first ranked online auction company within its industry, with nearly one-third of U.S. internet users registered on its site.  The company is a substantial threat internationally as well, competing in the Asian, European, and Latin American markets.  The online auction industry commands significant revenues that continue to increase to the projected amount of $229.9 billion by 2008.  The outlook for both eBay and the online auction industry holds great promise, as is evidenced through the study of SWOT analysis, the driving forces of the industry, key success factors, eBay’s financial status, and eBay’s positioning in the market.  eBay must also keep in mind the key strategic issues facing the company.

eBay’s Business Model

eBay’s business model was based on creating and maintaining a person-to-person trading community.  After implementing their model, eBay has been able to build strategic partnerships, continue to make innovative changes and improvements, and monitor its internal and external environments for possible future opportunities.  This has given them the prestige of being the world’s largest online auction company.

Target Market:

Sellers and buyers who transact online

Largest Online Auction:

From its beginning in the mid-1990s, eBay has been growing in leaps and bounds.  They now have over 94.9 million registered users in more than 150 different countries.  eBay’s founder Pierre Omidyar did not even see the tremendous possibilities that eBay had when it was first developed over ten years ago.  eBay now holds the top spot in the online auction industry.  In the United States alone one-third of the population is already registered with the site and with increasing use of the internet that number is sure to grow.

Over 27,000 Different Categories:

The wide variety of products offered on eBay gives them a competitive advantage above all other online auction sites.  They are like the Wal-Mart of the Internet!  They say that anything you want you can find on eBay.

Partnerships with International Companies:

Partnerships abroad can be crucial to a company succeeding in foreign markets.  By partnering with established foreign companies, like Alando in Germany, iBazar in France, Tradera in Sweden, Internet Auction in South Korea and Bazee in India, eBay is able to easily transition into that countries culture with the help of citizens who work with the partnering company.  eBay also immediately acquires ties with companies in the foreign market, which makes it simple for them to make more partnerships and alliances. In 2007, eBay established a partnership with a Beijing-based Internet company, Tom Online Inc., taking 49 percent stake in the company and possessing administration rights. This allows ebay to have strong local management that understands the culture and consumer desires. Tom eBay has done much to win the trust of Chinese consumers such as using escrow service to hold payments until buyer confirms satisfactions with the product.

Over 250 Alliances:

eBay aligned with Yahoo! In 2006 in a marketing alliance to promote revenue growth for both companies. Under this alliance, Yahoo! Became the exclusive advertising provider on eBay and PayPal became Yahoo!’s preferred provider. Google also aligned with eBay in 2006, making Google the primary advertiser on eBay’s websites outside of the United States. Google sought to integrate Skype into the alliance as a method to further sales from Web advertising. eBay also holds alliances with some of the largest companies in the world.  They include Northwest and Southwest Airlines to enable PayPal as a method of payment option, and with Wal-Mart and to promote growth of Skype, and in 2008, a middle-of-the market tool that links retailers with buyers and immediately added five million fixed-priced listings to the eBay marketplace.  These alliances create more opportunities for eBay to advertise and reach potential customers.


To increase its geographic reach and to move into related businesses such as online payments, to obtain technology that will strengthen its product differentiation, eBay has completed many acquisitions such as in 2000 to enter the fixed price market price for products like used books, CD’s, games and DVD’s; Paypal to enable sellers to receive online payments from buyers’ credit cards or checking account; that allows people to search for products and compare prices, and that joins landlords and tenants online, charging property owners for each lease produced. eBay then acquired 28 percent of Craiglist in 2004 and Skype in 2005, an internet phone provider to allow buyers and sellers to communicate prior to transactions. Other acquisitions would include in 2007, a secondary ticket place marketplace that integrates guaranteed fulfillment and shipment using FedEx. And Fraud Science Ltd in 2008 to detect fraudulent purchases and provide eBay with the technology that it needs, to improve the level of trust that it provides.

Positioning of eBay

eBay positions itself in the online auction industry using a broad differentiation strategy.  By choosing this strategy eBay determined that the best way to achieve a sustainable competitive advantage over its rivals was to differentiate their service.  The way in which eBay has set their online auction site apart from its competitors has lead customers to prefer their site over other online auctioneers and retailers