eBay – can an e-commerce giant reinvent itself?

eBay was the original goliath in the e-commerce marketplace. How did Amazon overcome such a powerful incumbent and how can eBay compete going forward?

History and Business Model

eBay was founded in September 1995 as an auction-format marketplace platform using online solutions to bring together buyers and sellers. In November 2000, the company first deviated from the auction format with the launch of the website’s “Buy It Now” button. At this time, revenues were doubling almost every year as new innovations, like eBay stores, helped to strengthen the platform. The company’s strategy also relied on purchasing complementors and competitors like StubHub, PayPal and GSI Commerce.

eBay is a true platform, enabling e-commerce transactions through its marketplace for a fee and holding no inventory itself. As such, eBay’s 2015 net revenue of $9 billion is a small percentage of its total gross merchandise value (GMV) of $82 billion (compared to Amazon’s product revenue of $79 billion). This business model is also highly profitable and geographically diversified. In 2015, eBay’s gross margin was 80%, while operating margin was 34% (Amazon’s operating margin is only 2%, but is growing at a much faster pace). In 2015, 58% of eBay’s net revenue was from international sources, while larger peers are tied to specific geographies (e.g. Amazon is largely U.S. focused while Alibaba is China-centric) [1].

New Entrants – Overcoming Network Effects

In 20015, eBay’s market capitalization was three times that of Amazons, as Wall Street loved its asset-light business model and high profitability [2]. So, how did Amazon successfully take over this market when competing with a formidable incumbent?

To compete with the goliath in the industry, Jeff Bezos focused on product differentiation. Since Amazon’s infancy, Bezos envisioned the marketplace as an easy, efficient portal for all of one’s shopping needs. While eBay was focused on hitting quarterly analyst estimates, Amazon was willing to take short-term hits to profitability in return for long-term gains in share. Amazon spent hundreds of millions of dollars building its brand, from hiring customer service representatives to refunding unhappy customers, in order to secure its reputation as a trusted retailer [2].

In order to amass a product offering, Amazon courted eBay’s sellers and even offered to waive some fees as an incentive to join the platform. Sellers were happy to oblige as there is no downside to multi-homing (for them) in this industry. Finally, Amazon created greater control over the customer experience by selling products directly and integrating small merchants onto its site through ‘Fulfillment by Amazon’, whereby Amazon stores and ships retailer’s inventory for a larger fee [2].

As eBay’s control of everyday goods slipped, smaller niche competitors have been attacking from the other side. For example, Etsy has emerged as a marketplace for homemade or vintage goods like art, jewelry and clothing – competing directly with eBay’s product offering [3].

Why didn’t eBay fight back?

With such competitive positioning, eBay continuously failed to recognize the importance of reorienting its core business.  Despite evidence that the auction model was hampering growth, many senior executives believed the brand was tied up in the excitement of auctions and a fundamental shift would alienate core customers and sellers. And, instead of focusing on fixes to its slowing business model, eBay turned to acquisitions in high-growth segments like StubHub and Skype to maintain growth [2].

Finally, with such a large base, the company did not realize the importance of focusing on the customer experience. Long delays between ship times, a difficult to navigate user interface and little use of structured data (to generate reviews, link to relevant items, optimize search, etc.) made it easy for Amazon to improve on the experience and attract customers – despite ingrained indirect network effects.

Looking Forward

eBay CEO Devin Wenig believes that, as e-commerce is still in its infancy, there is room for multiple marketplace competitors. Wenig sees eBay as ‘the anti-Amazon’ in the future and wants to avoid competing directly with Amazon for lost share. Instead of focusing on everyday merchandise (where eBay’s slower shipping model cannot compete), Wenig wants help customers discover new products in an online bazaar setting, making shopping enjoyable and encouraging impulse purchases [4]. The company has also launched several initiatives to improve its user interface – including improvements in structured data, search engine optimization, reviews, etc.

However, eBay’s biggest obstacle at this point is overcoming its brand image in the market. Despite the fact that 84% of its sales are now transacted at a fix price, most people still view eBay as predominantly an auction house or the world’s largest garage sale [5]. eBay’s success will ultimately depend on the success of these newly launched initiatives in shaping customer perception. However, the bigger question remains – is there room for two players in this industry or do strong indirect network effects suggest it will be winner take all?


[1] Initiating Coverage of EBAY with LT Buy Rating; Hilliard Lyons, Jeffrey Turner. August 30,2016.

[2] http://www.nytimes.com/2008/10/12/business/12giants.html?hp=&pagewanted=all

[3] Modest Expectations, Strong FCF and Capital Returns, Initiate Positive; Susquehanna Financial Group, Shyam Patil. January 14, 2016.

[4] https://www.bloomberg.com/news/articles/2016-09-19/how-ebay-s-ceo-plans-to-take-on-amazon

[5] http://www.nytimes.com/2013/12/22/magazine/ebays-strategy-for-taking-on-amazon.html


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Student comments on eBay – can an e-commerce giant reinvent itself?

  1. hi daniella great post – i was so excited to read through it. you’ve nailed a lot of the issues that ebay is working through right now, particularly in regards to its fundamental model – what needs to be changed and what should be preserved? spinning off paypal due to market pressure has added a lot of pressure to the business model because a loss of top-line growth / revenue as well as control / power with sellers.

    you’d be surprised how important the heritage auctions part of the business really is, especially in niche verticals such as antiques, collectibles, and art. the live auctions market alone, for example, is a significant business opportunity that resides in the margins of what ebay has to offer. but at what point does that drive ebay into irrelevance or else cannibalize our image as a modern ecomm player?

    the real question we’ve struggled with lately is what you touched upon – the issue of buy it new / buy it now. my current boss, devin, was convinced that that buy it now was the best strategy for ebay about 4 years ago. we launched a huge initiative that involved partnering with retailers (the anti-amazon contingent), seeking out n-1 inventory (new, last-season inventory, or else liquidation) and using these efforts to supplement the buy it now program.

    the truth is, it was a huge disaster. ebay’s brand reset was confusing to the customer and ignored what ebay was fundamentally good at – surprising at delighting a “treasure hunter” buyer rather than appealing to the run-of-the-mill eComm shopper. in those few moments, we lost our way.

    devin’s now focused on selection and breadth and i think that’s the key to ebay’s future. we dont see amazon as a competitor at all, and rather, are focused on providing the best and most comprehensive selection possible for our buyers

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