Case Study
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eB ay
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CASE STUDY
Evol ves
F
ounded in 1995 as an offbeat, quirky place to buy and sell almost anything
via online auctions, eBay now derives the majority of its revenue from
traditional e-commerce. Over the past ten years, the company has steadily
transformed its business model away from its initial auction-based model
and toward the fixed-price model popularized by Amazon.
After rapid early growth, eBay struggled from 2007 to 2009. For many buyers, the
novelty of online auctions had worn off, and they began to prefer the simplicity of
buying goods from Amazon and other fixed-price retailers, which, by comparison, had
steady growth during the same time period. Search engines and comparison shopping
sites were also taking away some of eBay’s auction business by making items easier to
find on the Web.
Former CEO John Donahoe instituted an ambitious revival plan that moved eBay
away from its origins as an online flea market, partnering with retail chains to serve as
another channel for current merchandise. Today, 80% of eBay’s listings are new items,
and eBay has over 1 billion live listings and 25 million marketplace sellers.
© Iain Masterton / Alamy Stock Photo
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SOURCES: “eBay, Inc. Reports
First Quarter 2020 Results and
Provides Covid-19 Business
Update,” eBay, Inc., April 29, 2020;
“Ebay Names Walmart Executive
as Its New CEO,” by Sebastian
Herrera and Colin Kellaher, Wall
Street Journal, April 13, 2020; “Buy
eBay Stock Because Small Business
Is Moving Online, Analyst Says,” by
Eric Savitz, Barrons.com, April 6,
2020; “How Changes in Marketing
Spend, Increased Seller Fees Are
Affecting eBay,” by Rimma Kats,
eMarketer.com, March 16, 2020;
“eBay, Inc. 10-K for the Fiscal Year
Ended December 31, 2019,” filed
with the Securities and Exchange
Commission, January 31, 2020;
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The small sellers who had driven eBay’s early growth were encouraged to shift away
from the auction format and move toward the fixed-price sales model. eBay adjusted
its fees and revamped its search engine to incentivize fixed-price sales, and rather than
displaying auctions close to finishing at the top of search results, eBay tweaked its search
tool to account for price and seller reputation so that highly rated merchants appeared
first and received more exposure. The hundreds of thousands of people who supported
themselves by selling on eBay and many millions more who used eBay to supplement
their income were unhappy with the change, and analysts’ faith in eBay's transition
dwindled as its stock continued to drop.
However, eBay’s purchase of PayPal in 2002 helped it survive these lean years,
with PayPal accounting for as much as 40% of eBay’s revenues in some years. eBay
also positioned itself well for the future with its early embrace of the mobile platform,
even before the iPhone hit the market. This prescience resulted in eBay achieving its
100 millionth app download and 100 millionth mobile listing very early, in 2012. eBay
has also been quick to develop apps for wearable devices, including an app for the Apple
Watch that allows users to see an overview of their notifications and bid statuses and a
version of its Marketplace app for Android Wear devices. Over 60% of eBay’s business
now involves a mobile device, and the company continues to make improvements to
the mobile experience on many platforms and across all of its different services. In 2018,
eBay integrated “progressive app” features into its existing mobile infrastructure, which
makes it function more like a native app, requiring less data to operate and allowing
users to access many features even while offline. In 2019, eBay launched an all-new native
app for eBay Motors, built with cutting-edge technology, including artificial intelligence,
machine learning and Flutter, an open source, cross-platform development platform.
In 2018, the company continued the process of modernizing its platform with
analytical tools. Beginning in 2016, eBay began to convert its catalog of items from
its traditional unstructured “listing” format, where two identical items can appear
totally different to shoppers, to a structured data format. This allows eBay to more
easily gain information about different items and about purchasing trends, and also
helps its product pages perform better in Google searches. eBay is also using machine
learning to customize, update, and generally improve its product pages, as well as to
fine-tune its search capability beyond simply matching search terms with keywords
and tags. To support these efforts, the company purchased machine-learning startup
SalesPredict, whose technology helps businesses predict consumer buying behavior
and sales conversion. The company’s revamped Seller Hub also offers many of these
analytical tools and metrics to individual sellers, including inventory, order, and listing
management, performance insights, and streamlined business process management.
In 2018, eBay launched its Interests feature, which allows customers to answer
a quick questionnaire about their passions and hobbies, resulting in the complete
transformation of the eBay home page. Shoppers can build a home page that reflects
their eclectic interests in different areas, including gaming, technology, particular
movie and TV series, music genres, sports teams, fashion, and outdoor activities. eBay
has also redesigned its website's interface to emphasize images over text and to allow
users to perform visual searches for the items they are interested in. eBay offers two
types of image search, one where you can take a picture or upload a picture from a
smartphone to find items that match those seen in the photo, and the other, called
Find it on eBay, which allows users to do the same type of search with images found
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Case Study
online. Machine learning powers and improves both forms of visual search, and eBay
expects that its image search capability will become more and more accurate as more
shoppers use the service to find products. In 2018, eBay reported that improvements to
both traditional and visual search spurred by machine learning were responsible for $1
billion in sales. In 2020, it introduced Image Clean-Up, a new feature that uses computer
vision technology to create a more consistent-looking buyer experience, replacing the
background of the seller’s listing photo with a white background. The feature optimizes
the listing for Google Shopping on both Android and iOS devices. Since launch, more
than one-third of sellers are using this new tool.
eBay has also incorporated similar AI and machine learning techniques in other
areas of its business, including its ShopBot, a personalized shopping assistant that
allows customers to text, talk, or provide a picture of a desired item. ShopBot asks users
questions and then generates what eBay hopes will be highly accurate recommendations.
Prospective buyers of an item can also ask questions that other purchasers of that item
can answer, similarly to Amazon. eBay uses machine learning to algorithmically identify
experienced buyers who are best able to answer the question, and as more questions are
asked, the system will improve at prioritizing good questions and finding appropriate
people to answer them. eBay has also dramatically improved the accessibility of its website,
which can now be navigated without a mouse and is far easier to use with screen-reading
software used by visually impaired shoppers. It has also added augmented reality features
that allow customers to see how variations to a product would look, such as new wheels
on a car, as well as to visualize the correct box size to package a product by overlaying a
graphic of the box over the image of an item. eBay has also opened up its API to developers
so that they can better use eBay’s back-end technology, including providing better access
to its Image Search and Machine Translation tools. By the end of 2019, usage by third-party
developers of eBay’s APIs had driven over $1 billion in gross merchandise purchased.
eBay has cracked down on fraud on the part of both buyers and sellers, one of
the most common concerns about using eBay. To limit seller fraud, eBay is now
authenticating items that are commonly counterfeited, such as handbags, footwear, and
jewelry. Sellers can pay for the authentication service to increase their appeal to buyers,
and buyers can pay to guarantee that their purchase will be voided if the product turns
out to be counterfeit. Sellers are also hoping that the company will do more to prevent
buyer fraud in the near future.
In 2015, eBay elected to spin off PayPal as its own separate company, leaving eBay
with its Marketplaces segment, its StubHub ticket sales segment, and a handful of other
business units. Although eBay’s leadership had resisted a spinoff for years, the move
was prompted by PayPal's desire to become more agile within the rapidly developing
marketplace of online payments. As part of the split, eBay agreed to initially route 80%
of its sales through PayPal, and continue to use PayPal as its back-end payment provider.
However, eBay announced in 2018 that it would end that agreement, instead using Dutch
payments company Adyen for its back-end payment service. While PayPal will still be
a payment option for eBay customers, eBay will now have far more control over the
checkout process, the way Amazon and Chinese e-commerce giant Alibaba do, and eBay
will be able to charge seller fees that have traditionally been collected by PayPal, which is
expected to add $2 billion in revenue to eBay’s bottom line. eBay also added Apple Pay as
a payment option for its customers in 2018, its first new payment service since spinning
off PayPal, and in 2019, added Google Pay as an option.
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“eBay Marketplace Q4 2019 Fast
Facts,” Ebayinc.com, January 2020;
“Buy or Sell a Car via Mobile with
the New eBay Motors App,” by
eBay News Team, Ebayinc.com,
December 12, 2019; “eBay's
Buy APIs Hit $1B in GMB,” by
Gail Frederick, tech.ebayinc.com,
December 10, 2019; “Ayden Says
It's Ready to Take on the Majority
of eBay's Volume Next Year,” by John
Stewart, Digitaltransactions.com,
August 23, 2019; “Artificial
Intelligence and Marketplaces:
Who's Doing It, Why, and How,” by
AIM Group, Aimgroup.com, July 9,
2019; “How eBay Plans to Nearly
Triple Its Active User Base,” by Zak
Stambor, Digitalcommerce360.com,
August 24, 2018; “eBay Ramps up
Developer Strategy with Series of
API Updates,” by Natalie Gagliordi,
Zdnet.com, August 14, 2018;
“EBay Selects Apple Pay As Its First
Post-PayPal Payment Option,” by
Jake Krol, Mashable.com, July 24,
2018; “EBay Counters Prime
Day with Its Own Sale,” by April
Berthene, Digitalcommerce360
.com, July 6, 2018; “EBay Amps
Up Its Price-Match Guarantee
Program,” by Stephanie Crets,
Digitalcommerce360.com, June 27,
2018; “Want to Understand
What Ails the Modern Internet?
Look at eBay,” by John Herrman,
New York Times, June 20, 2018;
“We Tried Out eBay’s Newest
Personalization Feature—and It
Should Have Amazon Terrified,”
by Emily Rella, Aol.com, May 24,
2018; “EBay Wants to Know
Shoppers’ Interests with New
Personalization Tool,” by Stephanie
Crets, Digitalcommerce360.com,
May 17, 2018; “EBay Is Exploring
Offline Access with a Progressive
Web App,” by Paul Sawers,
Venturebeat.com, May 10, 2018;
“EBay Looks to Drive Shopper
Engagement with Augmented
Reality Tools,” Digitalcommerce360
.com, February 13, 2018; “eBay
is Dropping PayPal; If You’re a
Customer, Here’s What You Need
to Know,” by Brett Molina, USA
Today, February 1, 2018; Jason
Del Rey, “After 15 Years, eBay
Plans to Cut Off PayPal as Its Main
Payments Processor,” Recode.
net, January 31, 2018; “How
eBay Offers a Personalized Mobile
Experience with AI,” by Daniela
Forte, Multichannelmerchant.com,
August 22, 2017; “eBay to
Launch Visual Search Tools for
Finding Products Using Photos
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from Your Phone or Web,” by
Sarah Perez, Techcrunch.com,
July 26, 2017; “For eBay, AI Is Ride
or Die,” Venturebeat.com, July 8,
2017; “Ebay’s Homepage Is for
Everyone,” Ebayinc.com, June 28,
2017; “Ebay Accused of Failing
Its Sellers As Fraudulent Buyers
Manipulate the System,” by Anna
Tims, The Guardian, May 21, 2017;
“eBay’s New High-End Furniture
Shop, eBay Collective, Includes a
Visual Search Engine,” by Sarah
Perez, Techcrunch.com, October 17,
2016; “eBay Acquires Visual
Search Engine Corrigon for Less
Than $30M,” by Ingrid Lunden,
Techcrunch.com, October 5, 2016;
“What eBay’s Machine Learning
Advances Can Teach IT Professionals,”
by Charles Babcock, Information
Week, September 6, 2016; “At
eBay, Machine Learning Is Driving
Innovative New Approaches to
Search Experiences,” by Sebastian
Rupley, Ebayinc.com, August 22,
2016; “EBay Completes the
Acquisition of SalesPredict,”
Ebayinc.com, July 22, 2016; “One
Year In, Building eBay for the
Future,” by Devin Wenig, Ebayinc
.com, July 20, 2016; “Replatforming
eBay: How We Are Delivering the
Shopping Destination of Choice,”
by Steve Fisher, Ebayinc.com,
July 14, 2015; “Here’s Why
eBay Is Acquiring SalesPredict,”
Forbes, July 14, 2016; “How eBay
is Advancing New Shopping,
Browsing Models,” by Sebastian
Rupley, Ebayinc.com, March 28,
2016; “eBay Hits 100m Mobile
App Download Mark,” by Dervedia
Thomas, Dailydealmedia.com,
September 29, 2012; “eBay:
We Need to Behave More Like
a Retailer,” by Sarah Shearman,
Tamebay.com, September 25,
2012; “Behind eBay’s Comeback,”
by James B. Stewart, New
York Times, July 27, 2012.
eBay’s international operations are an important part of its business. In 2019,
international operations delivered 60% (almost $6.5 billion) of its $10.8 billion in net
revenues. During 2019, eBay acquired Motors.co.uk, a U.K.-classified site, adding it to
stable of international online classifieds platforms. eBay also invested $160 million in
Paytm Mall, an e-commerce marketplace in India. Paytm Mall uses eBay’s Buy APIs to
give its 130 million active users and 12 million registered merchants access to a wide
selection of global inventory.
Although Amazon is the dominant force in online retail, eBay remains one of the most
trusted online brands and e-commerce leaders, and it has worked hard to offer services
that compete with Amazon, such as its eBay Plus program in Germany, which functions
similarly to Amazon Prime, as well as its Guaranteed Delivery program, which ensures that
20 million of its top selling products will be delivered in three days or less or the buyer will
receive coupons or full refunds. eBay also has its own version of Amazon’s Prime Day, a
weeklong sale in July advertised as being available to all customers without needing to sign
up for a subscription like Amazon Prime, and instituted a price match guarantee program
for 100,000 products that will allow shoppers to receive a refund equal to the difference
between eBay’s price and a competitor’s price, plus an additional 10%, if they can find a
better price offered by Amazon, Walmart, Target, or other leading e-commerce retailers.
However, in 2020, eBay faces both challenges and potential opportunities. In 2019,
Walmart jumped over eBay to become the nation’s second-largest online retailer by share
of online retail sales. Even prior to the Covid-19 pandemic, analysts were predicting that
the value of goods sold through eBay’s marketplace would drop in 2020 compared to the
previous year, as a result of lower marketing investment, increases in some seller fees,
and new Internet sales tax laws. However, on a more positive note, in February 2020,
eBay completed the sale of its StubHub sports and entertainment ticket marketplace
for $4 billion, which in light of the significant anticipated downturn in events due to the
Covid-19 pandemic, was a fortuitous transaction. In addition, eBay is well positioned to
support the shift of small businesses to online platforms in the wake of the pandemic. For
instance, in response to the pandemic, eBay launched a program providing a free eBay
store for three months and waiving selling fees. Although these efforts will reduce eBay’s
results in the short-term, it believes it will pay long-term dividends. In April 2020, eBay
selected Jamie Iannone, previously chief operating officer for Walmart’s e-commerce
division, as its new chief executive officer, replacing Devin Wenig, who had stepped down
from his position in November 2019 due to disagreements with eBay’s Board of Directions
over sales of assets. Investors hope that Iannone will bring innovation and new ideas to
eBay as he takes the lead through what is likely to be a tumultuous period.
Case Study Questions
1. Contrast eBay’s original business model with its current business model.
2. What are the problems that eBay is currently facing? How is eBay trying to solve
these problems?
3. Are the solutions eBay is seeking to implement good solutions? Why or why not?
Are there any other solutions that eBay should consider?
4. Who are eBay’s top competitors online, and how will eBay’s strategy help it compete?
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