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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.

ebay business model case study

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 business 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 My-Space.com to promote growth of Skype, and Buy.com 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.

Acquisition:

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 Half.com 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; Shopping.com that allows people to search for products and compare prices, and Rent.com 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 Stubhub.com 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

eBay’s Broad Differentiation Strategy

eBay has created a one-stop-shopping experience that is appealing to large corporations, independent entrepreneurs, and individual buyers and sellers.   They have created value through many facets of their business that appeal to their customers and differentiate them from the competition.   The main ways that eBay differentiates themselves is through:

  • Variety of products offered
  • When customers visit eBay they can search for virtually any product.   eBay boasts a category variety not matched by any competitor with over 27,000.
  • The eBay Community
  • eBay wants their customers to feel like they are a part of a community.   This community feel gives customers the sense that they are branch of something and cared about.   By showing the customers that their feedback, opinions, and feelings are important eBay has gained tremendous ground with their customers.
  • The eBay Website
  • eBay has created an auction and retail website that is unique and interesting.   This creative site sets them apart from their competitors.   The site is set up with many facets that reach a broad span of visiting buyers and sellers.   The site is also entertaining and easy to use making it very appealing for online shopping and trading.
  • The eBay Brand Name
  • eBay was the creator of the online auction industry.   When customers think of online buying the immediately think of eBay.   This has given them a competitive advantage that sets them apart from other online auctions.
  • eBay’s Global Reach
  • The global reach of eBay is not achieved by any other online auction site.   For large corporations international selling and buying is done everyday.   Even for an individual buyer or seller, having the option of searching throughout 150 countries with a span of 94.9 million users is very appealing.

Why the Differentiation Strategy Works Best for eBay

The users of eBay have many different preferences and needs depending on why and how they use the service.   eBay has determined a way to satisfy their customers whether they are large businesses or individuals.   By offering a wide variety of products, globally expanding, and creating a community for all customers to join eBay has created a distinctive value unmatched by its rivals.

Analysis of eBay’s Business Model

eBay’s business model was based on creating and maintaining a person-to-person trading community.   This allows buyers to easily search for what they want to purchase.   It also allows sellers to post their items minutes after they have registered.   There are a few specific elements of eBay’s business model that they recognized as key to its success they are:

  • Being the largest online trading forum with a critical mass of buyers, sellers, and items listed for sale
  • Its compelling and entertaining environment, which had strong values, established rules and procedures that facilitated communication between buyers and sellers
  • Establishing programs such as Safeharbor to aid in disputes and to punish users who violate eBay
  • Cost effective and convenient trading
  • Strong community affinity
  • An intuitive user interface that was easy to understand, arranged by topics, and fully automated

By implementing their business model, eBay employed three main tactics.   First, they looked to build strategic partnerships.   Second, they looked for customer feedback to constantly make changes and improvements.   Finally, they monitored its internal and external environments for possible opportunities.   By doing all of these things, eBay was able to adapt to the changing ways and keep their customers satisfied.

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eBay Business & Revenue Model

Ever heard of the phrase, “there’s an app for everything?” well it’s true. According to a report…

October 12, 2021

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Table of Content

eBay – A Platform to Buy and Sell Anything

Key Stats and Facts About eBay

The success timeline of ebay.

eBay Story: What’s the Reason Behind Its Success?

eBay’s Customer Segments

Value Propositions Offered by eBay

The eBay Business Model Explained

The eBay Revenue Model Explained

Interested in Creating Online Marketplace Like eBay?

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The E-commerce marketplace industry has seen tremendous growth during the COVID-19 pandemic. After all, the pandemic has completely transformed the way people buy – resulting in an exponential rise in usage of online shopping platforms like eBay.

As of the 2nd quarter of 2021, eBay’s revenue amounted to over  2.67 billion U.S. dollars – a 14% increase year-over-year.

So, if you’re thinking of building a platform like eBay, you’re on a right track to commence a lucrative business. That being said, it’s a must for you to have a solid understanding of eBay’s business & revenue model to kick off your venture the right way.

In this post, we’ve covered how eBay works and makes money in detail. But before getting to that, let’s first have a look at what eBay is all about and some key facts related to the platform.

eBay – A Platform to Buy and Sell Anything

ebay business model

eBay is a multi-vendor online marketplace that connects millions of buyers and sellers from all over the globe to buy and sell new or used products. It facilitates both B2C (business to consumer) and C2C (consumer to consumer) transactions via eBay’s website and app.

At present, eBay is available in 180 countries as an online shopping platform with a wide range of products along with other unique services such as online auction, stubhub.com (event ticket trading) and online classified ads.

That’s why it’s no wonder to see that eBay was the second most popular e-commerce and online shopping website based on visit share – as of June 2021.

ebay-business-revenue-model-explained

  • Year of Foundation: 1995
  • Founders: Pierre Omidyar
  • Headquarters: San Jose, California, United States
  • Industry: e-Commerce
  • Number of Funding Rounds: 2 (As Per  eBay’s Crunchbase Profile )
  • Total Funding Amount: $6.7M
  • Number of Acquisitions: 65

Here’s a quick look at eBay’s success timeline.

Also Read (That Might Interest You):  Udemy Business and Revenue Model Explained

eBay Story: What’s the Reason Behind Its Success? 

Though eBay is one of the oldest online marketplaces worldwide, it is still one of the multibillion-dollar e-commerce platforms in the industry. After all, eBay is the only platform to offer a product auction feature to both buyers and sellers in addition to buying products at a fixed price.

Thus, it’s no surprise to see why millions of buyers and sellers from all over the world prefer to trade on eBay.

Thanks to eBay’s product auction listings feature, those in possession of rare and collectable items found a platform to welcome the best offers. At the same time, collectors found a place where they could bid and purchase rare items.

Well, that’s not at all what makes eBay so successful.

eBay has a large product catalogue with thousands of products including antique Items, collectables, out-of-season, used products and the new arrivals in categories like electronics, appliances and fashion.

All in all? One can buy and sell nearly everything on eBay and no wonder – millions of transactions happened on the platform every single day.

Moreover, eBay leaves no stone unturned when it comes to delivering outstanding customer experience in the form of amazing features like eBay’s money-back guarantee, eBay Top Rated Seller program, SafeHarbor program and Verified Rights Owner Program.

eBay’s efforts through these programs have helped the company win a loyal global customer base that’s has been a significant part of its success.

eBay has a two-sided marketplace business model, with two customer segments of the platform are:

Individuals or businesses who are interested in listing products up for auction or sale.

As of now, eBay has 19M sellers worldwide and over 1 billion active listings posted by individual sellers and large or small businesses alike who create eBay stores to leverage the platform to its full potential.

Individuals who are interested in bidding on products up for auction or purchasing products via a fixed price offered by sellers. As of the 2nd Quarter of 2021, eBay had around  159M active buyers  all over the world.

Value Propositions Offered by eBay

eBay is a leading e-commerce marketplace that provides a unique set of benefits and perks to its key players – buyers and sellers. Have a look!

For Buyers: 

  • Large product catalog
  • Quality assured products
  • Free shipping & fast delivery
  • Order tracking system
  • An option to review & give feedback related to products
  • Money back guarantee

For Sellers

  • Global customer base
  • Bidding & Buy It Now feature for product selling
  • Powerful marketing & distribution channel
  • Decent customer satisfaction rating of 77% as of 2020 (As per  Statista )
  • eBay’s Top Rated Seller program

The eBay Business Model Explained 

eBay was originally merely an online auction website where sellers listed their products for bidding and the highest bidder getting the products. With time, eBay has evolved into an online e-commerce marketplace platform that enables both C2C and B2C transactions.

The platform doesn’t own any inventory. It simply acts as a mediator between buyers and sellers – enabling people to buy or sell their items.

Here’s a quick overview of how eBay works for its two key players – sellers and buyers.

Firstly, sellers will register on the eBay platform to begin listing their products on the platform. While listing, the platform enables sellers to add product images, product descriptions, price, shipping details and other related things to make products appealing to buyers.

  • Auction-Style Listings

Some listings on the platform are auction-based where the item is sold to the highest bidder. In the auction-style listing, sellers also need to mention the minimum bidding price, the duration of the bidding window and available payment options.

  • Fixed-Price Listings (Buy It Now)

The other type of product listing that exists on eBay is listing products at a fixed price. In this scenario, sellers will list their items with the “Buy It Now” option. Through available payment options, buyers can purchase the product.

In fact, eBay now provides the option to sellers to open their own stores on the platform, with some additional tools to promote your brand or business.

Like sellers, buyers will register on the eBay platform to start bidding or buying the items through the platform. eBay offers two ways to buyers for buying a wide range of products. The first one is the bidding option and the second is the Buy It Now.

  • Buying via Bidding

When it comes to buying via bidding, eBay allows buyers to bid the price they are ready to pay to purchase the product listed in auction-style listings by sellers. A buyer with the highest bidding price acquires the item through available payment gateways options.

In this option, buyers simply pay the fixed price set by the sellers to purchase the product. eBay marketplace platform also offers shopping features such as a shopping cart for buyers to store their favorite items temporarily and can buy them later.

Moreover, eBay enables buyers to keep track of their purchase history and can save their searches as well.

That’s how eBay works for both buyers and sellers – a platform business model that has made eBay a well-known online marketplace worldwide.

Also Read (That Might Interest You):  How to Build an Auction Website and App Like eBay 

The eBay Revenue Model Explained 

eBay marketplace platform makes money in several ways. Let’s have a look at eBay’s revenue model in detail:

1. Listing Fee Model

eBay enables every type of seller to list a minimum of 200 products on its online marketplace platform free of cost. Once the limit is exhausted, eBay charges a listing fee (or insertion fee) of $0.35 for each listing.

2. Commission Based Revenue Model

eBay earns a commission on every sale made by sellers on the platform. This commission is earned in the form of the Final Value Fee and is gauged as a percentage of the total amount of the sale, along with $0.30 per order.

3. Advertising Based Revenue Model

eBay doesn’t earn revenue just via listing fees or commissions upon successful sales. The platform allows sellers to advertise their products on eBay in trade for money. To advertise on eBay, sellers have to pay a fixed amount.

In addition to these revenue models, eBay brings significant revenue from international trade and through its acquisitions of leading companies such as StubHub.

While deciding to build an e-Commerce marketplace platform like eBay, there is another important decision you need to make i.e., the budget for the marketplace development.

If you want to save overall development costs,  hiring a dedicated remote development team  over building an in-house team to build an app like eBay is the way to go.

By outsourcing development to remote developers, you get to save on not just training for your team but even on infrastructure – resulting in significant cost-savings benefits.

We at InfoStride strive to help companies onboard remote developers quickly with flexible engagement models to meet the budget requirements. Our resources are available to hire on a full-time, part-time, hourly, monthly or project basis.

When you decide to hire InfoStride’s remote talent for your marketplace development needs, you can expect:

  • Pre-screened and trained experts
  • Support for end-to-end development of your eCommerce platform
  • State-of-the-art development center to empower your remote team to work on your projects without facing any hassle and securely
  • Support from onboarding to offboarding resources
  • Deployment of time zone aligned developers for your project

Still, have questions? Schedule a free consultation session with our experts to clear any  doubts you have in mind about hiring remote developers  or building a marketplace app like eBay. 

Conclusion 

One of the key reasons why eBay is one of the leading online marketplaces worldwide is its business model that’s quite different from other players in the e-commerce industry. eBay’s auction feature along with buying products at a fixed price is what sets eBay apart from others.

When it comes to building a marketplace app like eBay, it’s all about getting a solid understanding of eBay’s business and revenue model.

eBay brings considerable revenue to the table from various sources including but not limited to the listing fees model, commission on every sale, advertising, international trade and more.

If you feel we miss something crucial related to eBay, let us know in the comments below. 

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ebay business model case study

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eBay’s Business Model and How It Makes Money

eBay

eBay’s Background

eBay started in the mid-1990s as a platform to connect buyers and sellers. At that time, the concept of the internet and online shopping was unique to most users. The founder, Pierre Omidyar, started the company for his personal transactions. However, it grew to become a household name across the US and several other countries worldwide.

Several factors played a role in eBay’s popularity. Being one of the first few online platforms that facilitated both sellers and buyers added its growth. The company also invested in various other ventures early in its lifetime, increasing its impact significantly. The company has had an active investment portfolio buying companies quite often.

One of eBay’s top acquisitions came in the form of PayPal in 2002. The company purchased PayPal for $1.5 billion at the time and benefited significantly from it. PayPal became the world’s largest online payments and receipts solution, even doing more business compared to eBay. However, both companies have parted ways recently.

eBay is also a highly financially successful company. The company has had growing revenues for several years, except in the last 5 out of 6 years. eBay made total revenues of $10.8 billion, which was an increase of 0.50% from the $10.746 billion it made in 2018. The company also had total assets of $18.174 billion and total equity of $2.87 billion at the end of 2019.

eBay’s Business Model

eBay’s business model has been its primary source of success. It combines the company’s strengths to generate a substantial amount of revenues each year. While most experts believe it was eBay’s timing that allowed it to capitalize on the early online platform, there are several other factors that also played a crucial role in its financial growth.

As mentioned, eBay’s business model has allowed it to expand its services into various other business ventures . These ventures have generated a significant amount of revenue for the company. Through its online platform, the company provides buyers with a great alternative to buying in person. Its platform has a wide selection of products from which buyers can choose.

However, eBay’s business model also attracts high expenses. The company has had variable net incomes throughout the years that don’t reflect growth in its profits. For example, the company made its highest net income of $7.266 billion in 2016, although its net sales were $9.927 billion. The company generated its highest revenue of $14.072 billion in 2012. However, it only made a net income of $2.609 billion.

How Does eBay Make Money?

eBay makes money from several segments and countries. The company’s primary source of revenue comes from its online platform eBay.com. Similarly, its primary market is the US market. However, there are also other markets and segments that produce decent profits and revenues for the company. Therefore, it is necessary to look at its performance through its segments and countries of operations.

eBay’s Segments

eBay generates a significant amount of its revenues from its online marketplace. However, it also makes a decent amount of money from StubHub and classified platforms.

Marketplace

eBay’s online marketplace is a substantial source of income. The company generated almost 80% of its revenues in 2018 and 2019 from its online marketplace. In its marketplace, the company offers two different types of services. The first type of service comes from its transactions between sellers and buyers. The second type of revenue comes from its marketing services and other services from the platform.

From its primary selling activities, the company made total revenues of $7.578 billion in 2019. It was an increase of 2.14% from the $7.416 billion the company generated in 2018. Similarly, these made 70.04% and 69.01% of eBay’s total net sales for 2019 and 2018.

From its marketing and other services, the company generated revenues of $1.060 billion and $1.225 billion for 2019 and 2018. Similarly, the company suffered a decrease of 15.57% in revenues in this category for 2019. These activities accounted for 9.80% and 11.40% of eBay’s total revenues in 2019 and 2018.

Overall, eBay generated $8.638 billion and $8.641 billion in 2019 and 2018, respectively. Overall, there wasn’t a significant increase or decrease in the revenues. It only suffered a drop of 3 billion, attributable to its bad performance in the marketing and other services category. Overall, revenues from the segment amounted to 80.41% and 79.83 of the company’s revenues for both years, respectively.

The second highest source of revenue for eBay is its StubHub segment. StubHub is an online ticket reseller company. eBay acquired StubHub in 2007 for $310 million. However, in 2020, Viagogo acquired the company from eBay for $4.05 billion. However, it contributed to eBay’s income in 2019 and the years before.

eBay won’t make any more money from this segment. However, in 2019, the company generated total revenues of $1.121 billion from the segment. It was an increase of 3.39% from the $1.083 billion the company made from StubHub in 2018. eBay also divided revenues from the segment into the net, and marketing, and other revenues. The segment accounted for 10.36% and 10.08% of the company’s revenues in both years.

Classifieds

eBay also has several classified platforms in various countries. These include a collection of brands such as mobile.de, Marktplaats, eBay Kleinanzeigen, Kijiji, Gumtree, eBay classifieds, and others. It is the company’s third-largest segment in terms of revenues.

The classifieds segment generated revenues of $1.061 billion and $1.022 billion in 2019 and 2018. The revenues increased by 3.68% in 2019. Similarly, they accounted for 9.51% and 9.81% of the company’s total revenues in both years.

Intersegmental revenues

eBay also had $20 million in intersegmental revenues, which the company canceled from its consolidated revenues. However, the company did not specify to which segments these revenues relate.

Given below is a summary of eBay’s total revenues from its various market segments.

eBay’s Markets

eBay operates in several countries around the world. Its primary market has always been the United States. However, it also generates significant revenues from Germany, the United Kingdom, and South Korea. Apart from these countries, the company also operates in various other locations.

eBay generated total revenues of $4.337 billion and $4.373 billion from its US market. The market experienced a 0.83% decline in 2019. However, it also accounted for 40.16% and 40.69% of the company’s total revenues in both years, respectively.

eBay made total revenues of $1.506 billion and $1.591 billion from its German market. It suffered a 5.64% decrease in 2019. It also accounted for 13.94% and 14.81% of the company’s total revenues in both years, respectively.

United Kingdom

eBay made total revenues of $1.441 billion and $1.481 billion from its UK market. Like the above two segments, the UK segment also suffered a drop in 2019. For this segment, the decline was 2.78%. The UK segment accounted for 13.78% and 13.34% of the company’s revenues for both years.

South Korea

The South Korean market experienced an increase of 2.13% in 2019. The market generated revenues of $1.221 billion and $1.195 billion in 2019 and 2018, respectively. Similarly, this segment accounted for 11.31% and 11.12% of eBay’s total revenues in both years.

Rest of the World

eBay classifies all its other markets under the ‘Rest of the World’ category. The company operates in 32 countries. Therefore, all other countries come under this category. From the rest of the world, eBay generated $2.295 billion and $2.106 billion in revenues in 2019 and 2018. It experienced an increase of 8.24% over the year. Similarly, it accounted for 21.95% and 19.60% of the company’s total profits.

Given below is the summary of eBay’s profits from its various markets.

eBay is among the world’s largest online platforms that facilitate interactions between buyers and sellers. The company has had a successful business history. Its growth and expansion have been possible due to its business model. eBay’s primary source of income is from its online marketplace. Similarly, it generates a substantial amount of its revenues from its US market.

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eBay's changing business model responds to omnichannel challenge

Martin Koehring

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ebay business model case study

Martin Koehring is senior manager for sustainability, climate change and natural resources at Economist Impact (part of The Economist Group). He leads Economist Impact's sustainability-related policy and thought leadership projects in the EMEA region. He is also the head of the World Ocean Initiative , inspiring bold thinking, new partnerships and the most effective action to build a sustainable ocean economy.

He is a member of the Advisory Committee for the UN Environment Programme’s Global Environment Outlook for Business and is a faculty member in the Food & Sustainability Certificate Program provided by the European Institute for Innovation and Sustainability.

His previous roles at The Economist Group, where he has been since 2011, include managing editor, global health lead and Europe editor at The Economist Intelligence Unit.

He earned a bachelor of economic and social studies in international relations from Aberystwyth University and a master’s degree in diplomacy and international relations from the College of Europe.

It is easy to assume that relatively new companies, such as eBay or Amazon, are leading the charge towards online and hybrid shopping, wiping out traditional retailers as shopping habits change in their favour. In fact, these companies are themselves having to change fast to keep up with rapidly evolving consumer habits. In the space of just 15 years eBay's business model has changed fundamentally, for example, and it continues to evolve.

Set up as an online auction site, most of eBay’s business is now selling new goods for a fixed price. "More than three-quarters of our listings today are 'buy it now'," says Valerie Nygaard, eBay’s senior director of buyer experience. The company's growth has been as fast as the changes to its business model. In 2013 its gross merchandising volume (excluding vehicles) was above US$76bn globally and continuing to grow fast, up 13% on 2012.

As expected from an online specialist, eBay is an expert at many of the basics demanded by consumers, from simple ordering and delivery procedures to an effective mobile app. However, as Ms Nygaard points out: "We face the reverse challenge to bricks-and-mortar retailers." She points to the formation of eBay Collections, allowing customers the chance to browse their favourite things on the site as well as in physical stores. "It gives us a shop window," she explains. As well as allowing eBay to highlight offers from the millions of different items available on the site, shoppers can create collections around the areas that interest them, from vintage clothing to computer equipment.

eBay is also working hard on data analytics techniques to identify customers' tastes and offer them the right things in marketing e-mails, recognising the value of the huge amount of information that it holds. "You have to be careful not to overload people with offers," warns Ms Nygaard, acknowledging how annoying endless sales messages can become.

Perhaps most intriguing, however, is that eBay, in many ways symptomatic of the new online competition that troubles traditional retailers, also recognises that it must become a part of the omnichannel revolution. Its own research shows that close to one-third (31%) of customers visit a store before making a purchase online, but also that a greater percentage—34%—research online before buying in-store. Simply put, eBay needs to co-operate with the retail chains that use it as a sales channel.

In the UK alone it now has tie-ups with more than 100 retailers. For eBay, this allows it to get around some practical problems, such as offering options for home delivery. Its customers can now opt to pick up their packages from Argos stores, for example. For retailers already using eBay heavily as a sales channel, it allows the one-time auction site to become a part of their omnichannel strategy, rather than being in opposition to it. See something in-store, buy it over eBay and then have it delivered to the store or to your home. It's a natural fit, and a big shift in the way of doing business for both eBay and traditional retailers.

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Digital Enterprise

Case Study: Ebay

eBay  is The World’s Online Marketplace™. Founded in 1995, eBay created a powerful platform for the sale of goods and services by a passionate community of individuals and businesses.

On any given day, there are millions of items across thousands of categories for sale on eBay, as well as on Half.com, eBay’s site dedicated to fixed price trading.

eBay enables trade on a local, national and international basis with customized sites in markets around the world. [Source: eBay]

Things to read:

  • About eBay ;
  • Company Overview ;
  • eBay Trust and Safety ;
  • eBay Security and Resolution Center ;
  • eBay Community Values ;
  • eBay  Safe Harbor ;
  • Annual Reports .

Questions to consider:

  • eBay is one of the only major Internet “pure plays” to consistently make a profit from its inception. What is eBay’s business model? Why has it been so successful?
  • Other major web sites, like Amazon.com and Yahoo!, have entered the auction marketplace with far less success than eBay. How has eBay been able to maintain its dominant position?
  • What method does eBay use to reduce the potential for fraud among traders on its site? What kinds of fraud, if any, are eBay users most susceptible?
  • eBay makes every effort to conceptualize its users as a community (as opposed to, say “customers” or “clients”). What is the purpose of this conceptual twist and does eBay gain something by doing it?
  • eBay has long been a marketplace for used goods and collectibles. Today, it is increasingly a place where major businesses come to auction their wares. Why would a brand name vendor set-up shop on eBay?

Intellectual Property

Selected trademark applications and registrations:

  • THE WORLD’S ONLINE MARKETPLACE;
  • SAFEHARBOR ®;
  • Search real-time for  U.S. trademarks .

Selected patents:

  • 6,415,320  — Information presentation and management in an online trading environment;
  • 6,058,417  — Information presentation and management in an online trading environment;
  • Search real-time for new U.S. patents granted to  eBay .

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eBay, Inc. and Amazon.com (A)

By: Ramon Casadesus-Masanell, Anant Thaker

This case has been designed to explore strategic interactions among organizations with different business models. The case considers how a competitor successfully challenged the incumbent in a…

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  • Publication Date: Apr 3, 2012
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This case has been designed to explore strategic interactions among organizations with different business models. The case considers how a competitor successfully challenged the incumbent in a platform market defined by strong network effects and high switching costs. The case allows students to assess the advantages and disadvantages of eBay's platform business model in comparison to Amazon's retail business model; to evaluate business model performance when value loops of two industry players interact; to analyze how Amazon expanded its business model and overcame barriers to entry in a platform market that generates winner-take-all effects for first movers; discuss how eBay can respond to the new competitive dynamic, exploring both tactical and strategic interactions; and assess the strategic implications of eBay's 2011 acquisition of GSI Commerce.

Apr 3, 2012 (Revised: Oct 30, 2013)

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ebay business model case study

The Strategy Story

How does eBay make money: Business Model & Strategy

Founded in 1995 as a sole proprietorship, eBay is a brand that needs no introduction. eBay is one of the world’s largest and most vibrant marketplaces for discovering great value and unique selections. eBay connects millions of buyers and sellers in more than 190 markets worldwide. 

eBay was founded by Pierre Omidyar in 1995 and became a notable success story of the dot-com bubble. eBay manages an online auction and shopping website in which people and businesses buy and sell various goods and services worldwide.

To read eBay’s history, you have  Wikipedia . But The Strategy Story is renowned for publishing high-quality insights on business models and strategies of organizations. Therefore, in this story, we decided to analyze eBay’s strategy and business model and learn how eBay makes money.

Business Strategy of eBay

As a global commerce leader and third-party marketplace, the business strategy of eBay is designed to provide buyers with choice and a breadth of relevant inventory from around the globe and to enable sellers’ access to eBay’s 147 million buyers worldwide. 

EBay’s business model and pricing are planned and executed so that eBay is successful when the sellers are successful. eBay makes money primarily through fees collected on paid sales, payment processing, and first-party advertising. 

eBay’s strategy is to leverage technology to enhance the marketplace experience for its customers to drive growth in Gross Merchandise Volume (“GMV”) while increasing the rate of revenue growth through its managed payments and advertising initiatives and delivering healthy operating margins. 

In 2020, eBay embarked on a multi-year journey to build more compelling category experiences for enthusiastic consumers, to become the partner of choice for sellers, and to strengthen trust in relationships with buyers on its platforms. eBay derived most of GMV in 2021 from the following product categories — parts & accessories, consumer electronics, and home & garden. 

During 2021, eBay completed the migration of its managed payments in all markets, delivering buyers and sellers a simplified end-to-end payments experience. Through managed payments, eBay can provide a frictionless experience for current and next-generation customers, consistent with today’s retail standards. 

“All-Inclusive” business model of Amazon Prime

eBay offers buyers more flexibility and choice in how they’d like to pay and offer sellers a more streamlined way to run their businesses. eBay’s advertising business focuses on growing its Promoted Listings offerings (first-party advertising products) while reducing non-strategic, third-party advertising. 

In 2021, eBay launched three new products:

  • Promoted Listings Express (a cost-per-acquisition product for auction listings)
  • Promoted Listings Advanced (a cost-per-click product)
  • External Promoted Listings (an off-platform advertising product) 

These new products complement its existing first-party advertising offering, Promoted Listings Standard (a cost-per-acquisition product for fixed-priced listings).

Through its portfolio of Promoted Listing’s offerings, eBay is providing sellers with data-driven recommendations to optimize their conversion and drive velocity while testing and building more technology features to drive growth, position eBay as the seller’s platform of choice, and surface relevant inventory to buyers. 

As part of its growth strategy, eBay focuses on categories where it is positioned to win, prioritizing non-new-in-season inventory that makes up 90% of eBay’s GMV. At the end of 2021, eBay had 147 million active buyers, 17 million sellers, and approximately 1.5 billion live listings globally.

How does eBay make money? What is the business model of eBay?

In 2021, eBay made $10.4 billion. eBay primarily makes money from fees collected from sellers on paid sales, payment processing, and first-party advertising. eBay makes money from two revenue streams: Net transactions revenue (94%) and Marketing services & others (MS&O) revenue (6%).

Net transaction revenues  primarily include final value fees, feature fees, including fees to promote listings, and listing fees from sellers on eBay. The net transaction revenues include store subscriptions and other fees, often from large enterprise sellers. eBay made $9.8 billion in Net transaction revenue in 2021.

eBay makes money from sellers in two phases : pre-sales and post-sales. In Pre-sales, eBay charges an insertion fee. For most casual sellers, it’s free to list on eBay. If sellers list more than 250 items per month, they must pay a $0.35 insertion fee per listing to eBay. In post-sales, eBay keeps a portion of the sale. This final value fee for most categories is 12.9% of the sale price or lower, plus $0.30 per order.

Two key operating metrics impact net transaction revenue: Gross Merchandise Volume (“GMV”) and take rate.

  • GMV consists of the total value of all paid transactions between users on eBay, including shipping fees and taxes. In 2021, the GMV of eBay was $87 billion.
  • Take rate , in e-commerce parlance, is the commission fee a marketplace charges for a transaction it facilitates on its platform. Take rate provides a valuable measure of eBay’s ability to monetize volume through marketplace services on its platforms. eBay uses take rate to identify key revenue drivers in its marketplace. In 2021, eBay’s take rate was 11.19%.

Amazon Pricing Strategy: Behind the Scene

Marketing services and other revenues  are derived principally from the sale of advertisements and revenue-sharing arrangements. eBay made $600 Million from this segment in 2021.

  • Advertising revenue is derived principally from the sale of online advertisements, which are based on “impressions” (i.e., the number of times that an advertisement appears on pages viewed by users of eBay’s platforms) or “clicks” (which are generated each time users on its platforms click through advertisements to an advertiser’s designated website) delivered to advertisers. 
  • eBay’s most significant revenue share arrangements are with shipping service providers. eBay primarily acts as an agent in these arrangements and makes money by connecting the shipping service provider to its customers.

During 2021, eBay completed the migration of its managed payments in all markets, delivering buyers and sellers a simplified end-to-end payments experience. Net revenues increased 17% to $10.4 billion in 2021 compared to 2020, primarily due to the migration of managed payments on a global basis and the associated higher take rate. 

Transaction take rate was higher in 2021 (11.19%) compared to 2020 (9.41%) as a result of revenue initiatives such as global payments and Promoted Listings, which along with final value fees, are calculated as a percentage of an item’s sale price and category mix. 

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How Does eBay Work – Business Model, Strategies, Key-Facts, Funding and Success Secrets

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Home » Blog » Brand Stories

eBay Revenue Model

eBay is the second most influential online marketplace in the United States in terms of gross merchandise value and the fifth all over the world. According to Forbes , eBay’s net revenue surged by 19.7 percent from 2016 to 2018. But, how does eBay work and brings money to the table? Let’s find out.

eBay started out as AuctionWeb, an online auction portal that allowed interpersonal transactions. It was a first of its kind – a platform business model that generated revenue by drawing a transaction fee from the people and businesses that used the website for selling or buying products and services.

Today, eBay is a multibillion-dollar e-commerce platform linking millions of buyers and sellers across the globe. It allows consumer-to-consumer and business-to-consumer transactions. The platform is freely available to buyers. The sellers receive a pre-determined number of free listings and are charged a fee for subsequent listings. eBay also generates revenue from the commission gained from product sales.

eBay currently operates across 30 different countries, serving as a traditional online shopping website (ebay.com) with thousands of different products in addition to offering services like online auctions, event ticket trading (stubhub.com), and online classified ads.

Let’s have a look at some of the stats and facts to get an idea of how does eBay work and makes money.

eBay Stats and Facts – Funding and Major Milestones

  • Founded: September 3, 1995
  • Founder: Pierre Omidyar
  • Headquarters: San Jose, California, U.S.A.
  • Estimated Market Value: $21.8 Billion (as of December 2022)

eBay Success Timeline

How eBay Makes Money? Revenue Model Explained

eBay draws its earnings from a fee levied on listing products and features along with the sale of various services. In addition, the company charges a final value fee to the sellers for every transaction completed.

At present, ebay.com, eBay’s US-based online store levies an insertion fee of $0.35 for basic listings. The final value fee ranges from 10 to 12 percent of the product’s selling amount (inclusive of shipping costs). This fee structure is identical across all eBay websites, with varied cost charges for different markets.

eBay draws considerable revenue from international trade. The company has always been committed to evolution and expansion. Since its inception, it’s grown from its auction-centric business facilitator roots to become one of the best all-rounded online marketplaces. Today, the company has expanded its operations to more than 2 dozen nations that make up a sizeable addition to its earnings.

eBay’s Competition and What Sets it Apart?

What makes eBay stand out from the popular alternatives is the company’s marketplace platforms. With their far-out reach and an enormous customer base, eBay marketplaces offer local businesses and people immediate access to products. eBay appeals to and engages sellers across diverse demographics, resulting in rich, vibrant marketplaces that in turn draw buyers who’re aware they won’t find the same products or deals at any other place in the world.

Interestingly, one of eBay’s biggest challenges stems from one of its greatest assets – the number of new, often obscure sellers on the company’s websites. While seasoned eBay sellers have past customer reviews and ratings to boost customer trust, new sellers don’t have similar track records to rely on. eBay makes up for it with programs and policies to safeguard the interests of buyers and instill confidence in them.

Features like eBay’s money-back guarantee, SafeHarbor program, eBay Top Rated Seller (eTRS), and Verified Rights Owner Program are examples of the company’s conscious efforts in protecting customers against fraud and enhancing customer experience and brand loyalty. The company’s stellar return and exchange policy seller rating system and feedback forum have struck a chord with global customers, giving it a large, loyal customer base that’s been crucial to its success over the years.

Also Read: Why 99 Dresses – an eCommerce Business with a Brilliant Idea Failed?

Wrapping Up

A brilliant idea, good execution, and the willingness to evolve have led eBay to its current position – the top tier of international online retailers.

Despite venturing into direct retail, eBay’s continued focus on the things that brought it the most success (auctions, listings, and customers’ trust) has enabled the company to remain adrift even when in troubled waters. eBay is a true success story. It is a shining example for startups of how to embrace change without letting go of their core competencies!

eBay Business Model

Frequently Asked Questions(FAQs)

Q 1.How Does eBay Work When Buying?

eBay allows its customers to buy products in two ways. They can either buy the product instantly for a fixed price or can bid for it to get it for a lower price and save money. The bidding feature on eBay makes it different from its competitors and also gives it an edge.

Q 2.How Does eBay Work as a Seller?

That’s not much complicated. On eBay, sellers can list a product to sell, add photos and a description, and select a selling price. Buyers can either buy the item instantly or bid for it. When a deal closes, the buyer can make payment via any of his/her preferred payment options, and the seller ships it.

Q 3.How Does eBay Work with Shipping?

Whenever a buyer purchases an item on eBay, he/she pays the shipping charges. Selecting the shipping method is the seller’s decision, however. The seller prints the shipping label on the item and pays from his account.

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Humane yet subtle, Naiya is a girl full of ideas about almost everything. After earning a bachelor’s degree in computer science and engineering, she decided to merge her technical knowledge with her passion for writing – to accomplish something interesting with the fusion. Her write-ups are usually based on technology, mobile apps, and mobile development platforms to help people utilize the mobile world in an efficient way. Besides writing, you can find her making dance videos on Bollywood songs in a corner.

Tags: ebay business model , ebay business model canvas , ebay business model case study , ebay revenue model , how does ebay makes money , how does eBay work

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Amazon vs. eBay: A Case Study In Business Models

FireShot Screen Capture 419 Amazon com GANKER EX Remote Control Robot Batt www amazon com dp B07WWGLZPR refcm sw r em api i zo5aEb4J827AQ

Dear fellow investors,

On June 4, 2020, eBay Inc (NASDAQ:EBAY) released a business update to make investors aware that the quarantine circumstances have caused their business to perform “significantly better than expectations,” compared to their earnings report on April 29, 2020. Here is what they shared:

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  • Strength in global gross merchandise volume (GMV) seen in April has continued through May, and the Company now expects full Q2 volume growth rates to land between 23% and 26% as compared to the prior year period.
  • All major verticals are accelerating significantly compared to previous quarters, including Home & Garden, Electronics, Fashion, Auto Parts and Collectibles.
  • Demand strength is driven by increased organic traffic, better marketing efficiency, and higher platform conversion.
  • Active buyer growth is accelerating, with approximately 6 million new and reactivated buyers added in April and May.
  • More sellers are joining eBay through efforts like Up & Running. Since March 2020, tens of thousands of small business sellers have been added to the platform.
  • Classifieds revenues are performing at the high end of previous expectations disclosed on the Q1 earnings call with automotive subscription revenues recovering as dealerships reopen across international markets.
  • Bezos On Amazon's Q1 Results

eBay vs Amazon: Comparison

Business model, bezos on amazon's q1 results.

Contrast this update with what the CEO of Amazon.com, Inc. (NASDAQ:AMZN), Jeff Bezos, said about first quarter results:

Amazon expects to spend $4 billion or more - the predicted operating profit for the company’s entire coming quarter - just on COVID-19 -related expenses. In a quarterly earnings release today, Amazon CEO Jeff Bezos said the expenses will come from spending on personal protective equipment (PPE), cleaning for facilities, “higher wages for hourly teams,” and expanding its own COVID-19 testing capabilities.

This got us thinking about business models and how profitable they can be. These companies are in e-commerce and have had the state governments of the U.S. shut down most of the physical locations of their competitors. The last three months were effectively two Christmas selling seasons spread from late winter into spring. Why is one of these business models responding so well to these circumstances? How profitable have these two platforms been in the past? Why does EBAY sell for such a steep discount to Amazon?

To answer these questions, our Director of Research, Tony Scherrer, and I decided to become 28-year-old business school students at Harvard and do a case study. The study seeks to determine how profitable these business models have been over the last 20 years. To do this, we had to back out the GAAP profits Amazon received from Amazon Web Services (AWS) beginning in 2013. We then compared 20 years of e-commerce profits on a per-share basis.

Here is a snapshot of the last seven years on each:

Amazon eBay

Source: Amazon Annual Report, Bloomberg

Amazon eBay

Source: eBay Annual Report, Bloomberg

There are several obvious contrasts. First, eBay has generated more cumulative earnings per share for its shareholders over the last 20 years than Amazon has, sans its cloud business. Amazon’s e-commerce business boasted 8x more in revenue than eBay's over the last 20 years, but eBay was able to generate $25 in earnings per share from its revenue vs. the $23 per share that Amazon could bring to its bottom-line. Second, the operating margins on eBay have averaged 24%, versus Amazon's without AWS of less than 1% over the last seven years. Third, the average annual earnings growth for the past decade has been 4.4% for eBay vs. 12.8% for Amazon (ex-AWS). It’s notable that eBay has shrunk its share count by 35% since 2013 vs. Amazon increasing its by 8%. The cash-flow generated by eBay has allowed it to buy back ample amounts of its own stock .

Ben Inker, of Grantham Mayo Van Otterloo, has done strong work in showing that high price-to-earnings (P/E) stocks do a great job in predicting what companies will generate high earnings growth over the next 12-months. Unfortunately, it also shows that these same highly valued stocks are inversely related to forward stock price performance.

PE Earnings Growth

The eBay vs Amazon comparison may be a case in point for Inker’s work. Current consensus opinion on Amazon’s future long-term earnings growth rates is 26% per annum, consolidated. This compares to eBay's consensus of 12%. Benjamin Graham, in his revised formula for valuation published in The Intelligent Investor gives credit for high growth companies. Using the forward expected GAAP earnings of $3.50 for eBay, Graham’s formula implies Intrinsic Value of $91 per share vs. its current price of $47.69 per share as of June 15, 2020. Using forward GAAP expectations of $18.86 for Amazon implies $927 per share Intrinsic Value against it’s current $2,550 trading level.

Over the last 20 years, eBay's consolidated e-commerce model has produced more earnings than Amazon's, but is a distinctly different business model. eBay is a virtual exchange where buyers and sellers meet. There is no membership fee, no inventory, no logistics and no grief. The industry analysts have 2020 consensus estimates for them to earn $3.50 after-tax profit per share, which means eBay trades at just over 14 times this year’s profit. They are preparing to sell the classified advertising business for $8-10 billion and eBay has a market capitalization of $40 billion. They have $3 billion in cash and $7 billion of existing debt, while gushing copious free-cash flow.

Amazon has two main components, AWS and e-commerce. It has a market cap of $1.27 trillion. Using a very healthy multiple compared to other high-growth digital behemoths, we estimate that AWS would be worth about $350 billion at 50 times after-tax profits. Readers can insert their own multiples here in picking whatever number they think is realistic. Remember, we are a couple of hypothetical 28-year-old business students at Harvard. If AWS is worth $500 billion, or around $1,000 per share of Amazon, then the stock market (Mr. Market) is pricing the e-commerce/fly wheel side of Amazon at $1,550 per share and putting a P/E multiple of 188 times on its 2019 GAAP earnings. Is eBay’s business, which has produced the most e-commerce profit in the last 20 years, really worth that much less than the one which is adored by investors?

eBay has a business model far different from Amazon, which is drastically easier to run and maintain. It does not have to own and operate warehouses, delivery trucks, fleets of long-haul trailers or airplanes. eBay does not have to fight the ever-increasing call of antitrust and is not continually working against its own sellers as it develops and increases its own private-label brands. This may explain why eBay shrank its headcount from 17,700 a decade ago to 13,300 today vs. Amazon’s 24,300 headcount in 2000, which has exploded to today’s eye-popping 798,000. Accordingly, eBay does not have any costs associated with Covid issues for warehouse workers, wage-creep, or the other labor-oriented issues that Amazon has had to deal with lately. Therefore, Amazon's e-commerce business model is doomed to low profit margins as they pursue massive totally addressable markets.

We have been thrilled to own eBay for 12 years and like its prospects for the future. We are comfortable owning businesses based on free cash flow and profit growth. We will leave the Amazon stock in the “too hard” pile and tip our caps to those who it makes wealthy despite these contrasts.

Warm regards,

William Smead

Tony Scherrer, CFA

The information contained in this missive represents Smead Capital Management's opinions and should not be construed as personalized or individualized investment advice and are subject to change. Past performance is no guarantee of future results. Bill Smead, CIO and Tony Scherrer, CFA, Director of Research and Portfolio Manager wrote this article. It should not be assumed that investing in any securities mentioned above will or will not be profitable. Portfolio composition is subject to change at any time and references to specific securities, industries and sectors in this letter are not recommendations to purchase or sell any particular security. Current and future portfolio holdings are subject to risk. In preparing this document, SCM has relied upon and assumed, without independent verification, the accuracy and completeness of all information available from public sources. A list of all recommendations made by Smead Capital Management within the past twelve-month period is available upon request.

©2020 Smead Capital Management, Inc. All rights reserved.

This Missive and others are available at www.smeadcap.com .

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eBay Business Model | How Does eBay Make Money?

ebay business model

Founded in the living room of Pierre Omidyar in 1995, eBay is the pioneer of marketplaces for consumer-to-consumer and business-to-consumer vending. Even though it started off as a platform to auction collectables, eBay business model has drastically shifted its focus and is now a leading e-marketplace, a classified service as well as an online ticket vendor.

eBay Business Model

eBay’s approach is that it places a substantial prominence on the first-mover advantage and has been constantly reinventing itself since the beginning.  The business model of eBay can be reported as service differentiation with the pivot on the user experience of both buyers and sellers.

How Does eBay Make Money?

The revenue model of eBay includes revenue from eBay marketplace, subsidiaries, branding solutions, and advertising business.

eBay Marketplace

eBay is among the pioneers of online trading. It digitized the people-to-people trading which usually used to take place at flea markets, garage sales, etc. eBay, just like any other marketplace, is a platform to buy and sell things online. However, trading on this platform can happen either as an auction or a fixed-price sale. One being a buyer’s auction where buyers bid for a single product and the other being a seller auction where different sellers bid their fixed price for a single product and buyer chooses the best offer for him.

The company has also introduced features such as SafeHarbor Program, eBay Top Rated Seller Program, Feedback Forum, Verified Rights Owner Program, eBay Money Back Guarantee etc as well as loyalty programs for both sellers and buyers to let the customers feel safe in trading with undisclosed partners.

The simplest way to trade on eBay is Buy It Now. Buy It Now is the method used by most of the marketplaces over the internet. There are three different options in Buy It Now:

  • In the Auction-style listings with a Buy It Now option the customer can either bid in the auction or purchase it directly. The difference is that the Buy It Now price will be at least 30% higher than the starting price of the auctions.
  • In the Reserve price auctions with a Buy It Now option, the option is shown only after the reserve price is met.
  • The third option is Buy It Now without bidding. This is like every other e-commerce company where customers buy products for the given price.

While most of the features provided to the buyers are free of cost or included in the final price sold, the sellers are charged the following charges:

Insertion Fee

Every seller on eBay is charged an insertion (listing) fee for listing their article on the platform. The fee is charged per listing and vary as per the category of the item listed.

Nevertheless, every seller is provided with few (50) free listings every month. After the first 50 free listings, eBay charges a fee for every extra listing from the sellers. It is 5 cents for fixed-price Books, Movies, DVDs, Music and Video Games. If it is any other category, it is 30 cents per every extra listing.

ebay insertion fees

Final Value Fee

eBay also charges a commission on every sale made by the seller on the platform. This commission is charged by the name of Final Value Fee and ranges from 3.5% to 10% depending on the category of the product.

ebay fees

Advanced Listing Upgrade Fees

eBay also provides options to promote, highlight, relist the item on the platform. The features are available for both the fixed price and auction-style trading and involve certain predetermined charges as well.

close5 business model

eBay lent its original objective of local trading to its subsidiary Close5 when it shifted its business model to become a full-fledged marketplace. The business and revenue model of close5 is very similar to Letgo’s business model & Craigslist’s business model where the company earns revenue through promoted posts.

StubHub was taken over by eBay on January 2007. It is an online ticket exchange enterprise which provides a platform for buying and selling theatre, sports, concerts and other live entertainment events tickets. From being the largest secondary-market ticket marketplace in the United States, it rose to become the world’s largest ticket marketplace.

There are no fees for the sellers to list their tickets but they are charged 15% of the cost of the tickets if they get sold while the buyers are charged 10% of the fees. Depending on how much tickets are sold by a seller, the fees could get reduced up to 10% as well.

Kijiji or eBay Classifieds

kijiji business model

Kijiji, launched in 2005 is an online classified advertising service for posting local ads. Kijiji is active in more than 300 cities in Canada, Italy, Hong Kong, and Taiwan. It was made accessible to chosen cities in the United States in 2007 but was renamed as eBay Classifieds in 2010.

There are different options to choose from while uploading an advertisement in Kijiji. Highlight ad, as the name says will highlight the advertisement so that it stands out among the other advertisements.  The urgent ad comes with an urgent sign so that users know the seller wishes to sell the product as fast as possible. Ads applied with the Top ad option gets automatically positioned in the top of each category. Bump ups option gives the seller ability to “bump” the ad up the listings in every category. Homepage gallery option posts the ad in the gallery available in the top of the page. Other ways revenue is generated are by allowing website URLs to be posted with the ads which require extra payment as well as posting complimentary third-party advertisements on the website.

The other main revenue generation subsidiaries of eBay include GittiGidiyor , a Turkish e-shopping mall. The URL of the company comes from the Turkish translation of “Going, going, gone”. Similar to the eBay marketplace, it offers different products on sale; eBay Enterprise , a multinational e-commerce corporation that specializes in building, developing and managing online shopping sites for  brick and mortar labels and retailers; and Corrigon , a visual search engine.

Two other companies which were under eBay but later split were PayPal and Skype . PayPal, which became a subsidiary of eBay on October 3, 2002, operates a worldwide online payments system that facilitates online money transfers and performs as an electronic alternative to traditional paper methods like checks or demand drafts. eBay on September 31, 2014, proclaimed the splitting of PayPal into an independent company. Skype, telecommunications software that excels in providing video and voice calls between mobile devices, computers tablets, smartwatches via the Internet, the Xbox One console and to regular telephones was acquired by eBay in October 2005. It was sold to Microsoft in May 2011 after eBay sold a majority stake in November 2009.

eBay Business Model vs Amazon Business Model

Both the business models of Amazon and eBay are different and unique from each other and provide the companies with the best and efficient way to generate revenue. While there are similarities between the business models, there are wide differences as well.

The biggest difference between eBay and Amazon business models is that eBay is also an auction house and the business entity directly facilitates the sale of products between third-party buyers and sellers. The buyers search the site for products they want and then bid on them through discrete auctions. The buyer who bids the highest at the end of the given time frame wins the product. The other option is the Buy It Now option. Meanwhile, Amazon inventories and provides goods directly and they are sold through a large network of Amazon warehouses. The price is fixed and there is no need for auctions.

Purchases on Amazon can be made using the ‘one-click buying option and unlike eBay, payment can be done without leaving the website. eBay has the option of customizing and personalizing the listings which makes it more appealing than the neutral listing of Amazon. This leads to more sales on eBay than Amazon.

Go On, Tell Us What You Think!

Did we miss something?  Come on! Tell us what you think about our article on eBay business model   in the comments section.

Rameez M Sydeek

A startup enthusiast who believes anything can be built if you do that required research and get the base ready.

Related Posts:

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eBay SWOT Analysis & Recommendations

eBay SWOT analysis, strengths, weaknesses, opportunities, threats, internal external factors, e-commerce business case study recommendations

This SWOT analysis of eBay Inc. showcases the strategic factors that influence the e-commerce business. In the SWOT analysis model, these factors are the strengths, weaknesses, opportunities, and threats (SWOT), which are internal and external influences on the trajectory of eBay’s global business. For example, strengths affect the company’s ability to respond to threats in the online auction and retail industry environment. The results of this SWOT analysis of eBay Inc. put the online trading platform business in context. The company’s performance relative to the SWOT variables sheds light on the challenges in providing online technologies for connecting buyers and sellers. eBay’s generic competitive strategies and intensive growth strategies are examples of managerial approaches to the factors shown in this SWOT analysis of the online business.

This SWOT analysis of eBay Inc. provides insights for managers regarding the internal factors (strengths and weaknesses) and external factors (opportunities and threats), and the degree of their influence on business strategies. For example, the analysis determines the level of impact of weaknesses on the competitiveness of the company’s online marketplace platform against Amazon , Walmart Marketplace , and Meta’s Facebook Marketplace . Thus, eBay’s strategic management must consider the factors in this SWOT analysis in improving the performance of the multinational online trading business.

eBay’s Strengths (Internal Strategic Factors)

This aspect of the SWOT analysis model enumerates the internal strategic factors that support business growth and global competitiveness. In this case of eBay Inc., the strengths enable growth and expansion in the e-commerce industry. The company can use these strengths to increase profitability and maintain a robust business. The following are eBay’s strengths:

  • Strong brand
  • Cost-effectiveness based on economies of scale
  • Region-specificity of operations
  • High effectiveness of service

eBay’s strong brand is one of its major competitive advantages. The company’s brand is easily recognizable among buyers and merchants. In the SWOT analysis model, this internal strategic factor makes the company competitive against other e-commerce firms. On the other hand, cost-effectiveness based on economies of scale is a strength that supports the fulfillment of eBay’s mission statement and vision statement . This internal factor contributes to the company’s prominence as one of the biggest players offering online marketplace services. Cost-effectiveness also enhances eBay’s operations management . Moreover, region-specific operations lead to flexibility and competitiveness in responding to challenges in regional online retail/auction markets. This strength is based on eBay’s organizational structure (company structure) , which involves geographical divisions that broadly group regional markets. Furthermore, the company’s trading websites attract buyers and sellers/vendors based on convenience and effectiveness. This internal factor is partly based on an organizational culture that encourages results-oriented excellence. The company’s management aims for strategies that capitalize on such strengths determined in this SWOT analysis.

eBay’s Weaknesses (Internal Strategic Factors)

In this aspect of the SWOT analysis model, the focus is on internal strategic factors that hinder business growth and development. In eBay’s case, these internal factors are the weaknesses that impose difficulties in improving the performance of the online auction/retail marketplace platform business. To improve competitiveness and performance, the company must overcome these weaknesses. The following are eBay’s weaknesses:

  • Limited emphasis on innovation
  • Limited flexibility to market variations
  • Imitable business model

Even though results-oriented excellence is the focus of eBay’s organizational culture (company culture) , technological innovation is not the top priority of the company. In the SWOT analysis context, this internal factor is a weakness that limits the growth and competitiveness of the global e-commerce corporation because innovation is a major growth driver in firms with trading websites or operations chiefly through the Internet. On the other hand, eBay’s organizational structure maintains strong centralized functional units, which is beneficial in some ways, but disadvantageous to the business. For example, strong centralized units support organizational cohesiveness and consistency. However, the same internal strategic factor limits management flexibility to geographic and business-type variations in the international market. Also, the imitable nature of the company’s business model is a weakness that contributes to competition, especially involving new entrants. eBay Inc.’s strategies must overcome or reduce the impact of these internal factors identified in this aspect of the SWOT analysis.

Opportunities for eBay (External Strategic Factors)

This aspect of the SWOT analysis model identifies the external strategic factors that facilitate or support business growth and improvement. In this case, eBay Inc. has growth opportunities based on external factors in the e-commerce industry. The company’s management must develop appropriate strategies that suit these opportunities. The following are eBay’s opportunities:

  • Expansion of operations to more markets
  • Improvement in innovation rate
  • Improvement in customer service quality
  • Diversification

eBay has an opportunity to expand its online operations to other markets. Currently, the company’s marketplace revenues are generated mainly in the United States and some European markets. In the SWOT analysis model, this external strategic factor can increase revenues in e-commerce markets. Such expansion should capitalize on rising online purchase rates and technological trends, such as the ones determined in the PESTEL/PESTLE analysis of eBay Inc . In relation, the company has an opportunity to improve its innovation for competitiveness through product development. For example, innovating new products for better user accessibility through the Internet can increase the company’s customer base. eBay’s marketing mix or 4P should reflect any such change. The opportunity to improve customer service quality is an external factor that requires strategies for improving customer satisfaction and managing customers’ expectations. These strategies add to eBay’s corporate social responsibility (CSR) strategy and enhance the attractiveness of the company’s trading websites. Moreover, the company can diversify to improve business resilience. Through this external strategic factor, the company can create new revenues streams aside from online retail/auction and other existing operations. In this aspect of the SWOT analysis of eBay Inc., the external factors present major opportunities for improved revenues, profitability, and competitiveness.

Threats Facing eBay (External Strategic Factors)

In this aspect of the SWOT analysis model, the emphasis is on the external strategic factors that have potential to reduce business performance. This case points to the possible decline in eBay’s performance due to such external factors in its business environment. The company must protect its business from these factors that threaten profitability and survival in the online trading industry. The following are the threats to eBay:

  • Strong competition
  • Potential industry disruption through new technologies

Strong competition is a major threat determined in the Five Forces analysis of eBay Inc . For example, the company faces rivalry with big e-commerce companies like Amazon, as well as smaller ones. In the SWOT analysis context, this external strategic factor is a growth barrier in the industry environment. On the other hand, imitation is a threat because other firms or new entrants can copy eBay’s business model using available technologies for website operations. Also, the company faces potential industry disruption, which is based on technological trends. This external factor can drastically change the company’s business performance. Managers must ensure continuous improvement of competitive advantages to address the external strategic factors in this aspect of the SWOT analysis.

Summary & Recommendations – SWOT Analysis of eBay Inc.

Summary . This SWOT analysis identifies the strengths of eBay Inc., such as the strong brand and effectiveness of service, which make the e-commerce business competitive. These internal strategic factors support the company in addressing competition and other challenges in the global industry environment. However, weaknesses and threats impose pressure on the business. For example, this SWOT analysis points out that the company’s imitable business model makes it vulnerable to competition. eBay’s strategies must protect its business from such challenges. These strategies can further benefit the online business by considering the opportunities identified among the external factors.

Recommendations . The recommendations in this case are intended to strategically respond to the internal factors and external factors in the industry environment. Based on the results of this SWOT analysis, it is recommended that eBay:

  • Increase its rate of innovation to address rapid changes in technologies, and to address the threat of imitation.
  • Increase its degree of decentralization to improve business flexibility to e-commerce market differences.
  • Expand operations internationally, building on economies of scale.
  • Benzaghta, M. A., Elwalda, A., Mousa, M. M., Erkan, I., & Rahman, M. (2021). SWOT analysis applications: An integrative literature review. Journal of Global Business Insights, 6 (1), 55-73.
  • eBay Inc.’s E-commerce Website .
  • eBay Inc. – Fast Facts .
  • eBay Inc. – Form 10-K .
  • Gupta, A., Pachar, N., Jain, A., Govindan, K., & Jha, P. C. (2023). Resource reallocation strategies for sustainable efficiency improvement of retail chains. Journal of Retailing and Consumer Services, 73 , 103309.
  • Namugenyi, C., Nimmagadda, S. L., & Reiners, T. (2019). Design of a SWOT analysis model and its evaluation in diverse digital business ecosystem contexts. Procedia Computer Science, 159 , 1145-1154.
  • Nosowitz, D. (2023, May 18). How eBay Helped Japan’s Most Famous Vintage Video Game Store Reach a Global Audience During the Pandemic .
  • U.S. Department of Commerce – International Trade Administration – Retail Trade Industry .
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Amazon vs. eBay: A Case Study in Business Models

On June 4, eBay Inc. (NASDAQ:EBAY) released a business update to make investors aware that the quarantine circumstances have caused their business to perform "significantly better than expectations," compared to their earnings report on April 29. Here is what it shared:

Warning! GuruFocus has detected 6 Warning Sign with EBAY. Click here to check it out.

EBAY 30-Year Financial Data

The intrinsic value of EBAY

Peter Lynch Chart of EBAY

Contrast this update with what the CEO of Amazon (NASDAQ:AMZN), Jeff Bezos, said about first-quarter results:

"Amazon expects to spend $4 billion or more -- the predicted operating profit for the company's entire coming quarter -- just on COVID-19-related expenses. In a quarterly earnings release today, Amazon CEO Jeff Bezos said the expenses will come from spending on personal protective equipment (PPE), cleaning for facilities, 'higher wages for hourly teams,' and expanding its own COVID-19 testing capabilities."

This got us thinking about business models and how profitable they can be. These companies are in e-commerce and have had the state governments of the U.S. shut down most of the physical locations of their competitors. The last three months were effectively two Christmas selling seasons spread from late winter into spring. Why is one of these business models responding so well to these circumstances? How profitable have these two platforms been in the past? Why does eBay sell for such a steep discount to Amazon?

To answer these questions, our Director of Research, Tony Scherrer, and I decided to become 28-year-old business school students at Harvard and do a case study. The study seeks to determine how profitable these business models have been over the last 20 years. To do this, we had to back out the GAAP profits Amazon received from Amazon Web Services (AWS) beginning in 2013. We then compared 20 years of e-commerce profits on a per-share basis.

Here is a snapshot of the last seven years on each:

Source: Amazon Annual Report, Bloomberg.

Source: eBay Annual Report, Bloomberg.

There are several obvious contrasts. First, eBay has generated more cumulative earnings per share for its shareholders over the last 20 years than Amazon has, sans its cloud business. Amazon's e-commerce business boasted 8 times more in revenue than eBay has over the last 20 years, but eBay was able to generate $25 in earnings per share from its revenue versus the $23 per share that Amazon could bring to its bottom line. Second, the operating margins on eBay have averaged 24%, versus Amazon's without AWS of less than 1% over the last seven years. Third, the average annual earnings growth for the past decade has been 4.4% for eBay versus 12.8% for Amazon (ex-AWS). It's notable that eBay has shrunk its share count by 35% since 2013 versus Amazon increasing its by 8%. The cash flow generated by eBay has allowed it to buy back ample amounts of its own stock.

Ben Inker, of Grantham Mayo Van Otterloo, has done strong work in showing that high price-earnings (P/E) stocks do a great job in predicting what companies will generate high earnings growth over the next 12 months. Unfortunately, it also shows that these same highly valued stocks are inversely related to forward stock price performance.

The eBay versus Amazon comparison may be a case in point for Inker's work. Current consensus opinion on Amazon's future long-term earnings growth rates is 26% per annum, consolidated. This compares to eBay's consensus of 12%. Benjamin Graham, in his revised formula for valuation published in " The Intelligent Investor" gives credit for high-growth companies. Using the forward expected GAAP earnings of $3.50 for eBay, Graham's formula implies intrinsic value of $91 per share versus its current price of $47.69 per share as of June 15. Using forward GAAP expectations of $18.86 for Amazon implies $927 per share intrinsic value against its current $2,550 trading level.

Over the last 20 years, eBay's consolidated e-commerce model has produced more earnings than Amazon's, but is a distinctly different business model. EBay is a virtual exchange where buyers and sellers meet. There is no membership fee, no inventory, no logistics and no grief. The industry analysts have 2020 consensus estimates for them to earn $3.50 after-tax profit per share, which means eBay trades at just over 14 times this year's profit. They are preparing to sell the classified advertising business for $8 billion to $10 billion and eBay has a market capitalization of $40 billion. They have $3 billion in cash and $7 billion of existing debt, while gushing copious free cash flow.

Amazon has two main components, AWS and e-commerce. It has a market cap of $1.27 trillion. Using a very healthy multiple compared to other high-growth digital behemoths, we estimate that AWS would be worth about $350 billion at 50 times after-tax profits. Readers can insert their own multiples here in picking whatever number they think is realistic. Remember, we are a couple of hypothetical 28-year-old business students at Harvard. If AWS is worth $500 billion, or around $1,000 per share of Amazon, then the stock market (Mr. Market) is pricing the e-commerce/fly wheel side of Amazon at $1,550 per share and putting a price-earnings multiple of 188 times on its 2019 GAAP earnings. Is eBay's business, which has produced the most e-commerce profit in the last 20 years, really worth that much less than the one which is adored by investors?

EBay has a business model far different from Amazon, which is drastically easier to run and maintain. It does not have to own and operate warehouses, delivery trucks, fleets of long-haul trailers or airplanes. EBay does not have to fight the ever-increasing call of antitrust and is not continually working against its own sellers as it develops and increases its own private-label brands. This may explain why eBay shrank its headcount from 17,700 a decade ago to 13,300 today versus Amazon's 24,300 headcount in 2000, which has exploded to today's eye-popping 798,000. Accordingly, eBay does not have any costs associated with Covid issues for warehouse workers, wage-creep or the other labor-oriented issues that Amazon has had to deal with lately. Therefore, Amazon's e-commerce business model is doomed to low profit margins as they pursue massive totally addressable markets.

We have been thrilled to own eBay for 12 years and like its prospects for the future. We are comfortable owning businesses based on free cash flow and profit growth. We will leave the Amazon stock in the "too hard" pile and tip our caps to those who it makes wealthy despite these contrasts.

Disclosure: The information contained in this missive represents Smead Capital Management's opinions and should not be construed as personalized or individualized investment advice and are subject to change. Past performance is no guarantee of future results. Bill Smead, chief investment officer, and Tony Scherrer, CFA, director of research and portfolio manager, wrote this article. It should not be assumed that investing in any securities mentioned above will or will not be profitable. Portfolio composition is subject to change at any time and references to specific securities, industries and sectors in this letter are not recommendations to purchase or sell any particular security. Current and future portfolio holdings are subject to risk. In preparing this document, SCM has relied upon and assumed, without independent verification, the accuracy and completeness of all information available from public sources. A list of all recommendations made by Smead Capital Management within the past twelve-month period is available upon request.

(C)2020 Smead Capital Management, Inc. All rights reserved.

This Missive and others are available at www.smeadcap.com.

Not a Premium Member of GuruFocus? Sign up for a free 7-day trial here .

This article first appeared on GuruFocus .

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Meg Whitman and eBay – Leadership Case Study

January 8, 2010

Case Study Contents

Introduction – ebay ceo meg whitman plans to retire, meg whitman – early years and career growth.

  • Meg Whitman and Leading eBay
  • Hiring the right people
  • Quickly understanding the new business model
  • Leading eBay’s IPO – a hands-on approach
  • Changing eBay’s policy
  • Building one of the most powerful e-commerce systems in the world
  • Focus on Metrics
  • Customer Focus – ‘Voice of the Customer’ program
  • Strategic Decision Making
  • Exhibit I: eBay stock performance graph
  • Exhibit II – Quick Facts/Key Information on eBay
  • Exhibit III – Awards Received By Whitman
  • Exhibit IV – Major Awards Received By eBay

       

Case Study Abstract

“ In the beginning, I was certainly not an entrepreneur who came up with the idea, but I think I was fairly entrepreneurial in trying to figure out how to bring that idea to life and build a backbone for the company that could take it to the next level. ” – Whitman commenting on her journey from a novice to a leader in the dotcom world.

At the beginning of the year 2008, Margaret Whitman (Whitman), the chief executive (CEO) of eBay, announced plans to retire so as to breathe fresh life into the company and also provide a much needed radical reinvention of eBay. By March 2008, Ms. Whitman, 51, had served in the position for 10 years. Whitman joined eBay as chief executive in 1998. She was popularly known as Meg Whitman and ‘darling of the Internet’ . In 2007, she accepted the Lifetime Achievement Award for the community of buyers and sellers that make up eBay. Whitman ranked 22nd on Forbes.com’s list of the world’s most powerful women . In October 2002, Fortune Magazine ranked Whitman, as the world’s third most powerful women in business, after Carly Fiorina and Oprah Winfrey.

However, some analysts called Whitman old-fashioned, a low-key manager and a ‘slow-footed CEO’ because even during the dotcom boom, she avoided risk and focused on financial fundamentals. Some felt that she did not possess the ‘star quality’ of Carly Fiorina, CEO of Hewlett-Packard, or the electric energy and charisma of Jeff Bezos, the founder of Amazon.com. But the performance of eBay silenced her critics. When many dotcom businesses crashed in the late 1990s and early 2000s, Whitman steered eBay towards success. EBay was the only Internet Company that had registered continuous growth and profits since its inception in 1995. Under her leadership, eBay’s revenues and profits had doubled every year. With her strong belief in eBay’s business model and its customers, revenues increased from $4 million to $1 billion by late 2002. She truly succeeded where many had failed.

Margaret C. Whitman, the youngest child of a Wall Street executive and popularly known as Meg Whitman was born in August 1956. She grew up in Long Island, New York. She was smart, studious and academically oriented since childhood. She graduated in Economics from Princeton University. Her penchant for business was evident when she had The Wall Street Journal delivered to her dormitory at Princeton University – unusual during the disco era of the 1970s. The business inclination took her to Harvard University, where she received her Masters in Business Administration.

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Case Study Keywords: eBay, Meg Whitman, Leadership case study, Internet auction market, darling of the Internet, powerful women in business, entrepreneurship, eBay’s business model, Pierre Omidyar, eBay’s IPO and policy decisions, metrics and measuring performance, Customer Focus – ‘Voice of the Customer’ program, ‘Buy It Now’ feature, iBazar, PowerSeller program, regional auctions, eBay Motors

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