Ebay Value Chain

The auction juggernaut EBay is continuing to make the world smaller with its unique communication portal. The system takes advantage of social computing technologies which helps EBay display the most relevant information. Their business model allows a 1% to 5% fee for each item sold. Over the past decade they have connected millions of buyers and sellers, but the company is not without threats. During the first quarter of 2002 they noticed a drop in revenues due to an apparent loss of confidence between buyers and sellers. To remedy this EBay created a system that enables customers to rate their sellers. This step helped to improve consumer comfort, which is a key factor in e-procurement strategies. Although more recently EBay has had to compete with free alternatives and merchant seller backlash they still have the most recognized name in internet auctions. Additionally they continue to have an advantage over the standard brick and mortar firms. "In the real world, retailers have to deal with thieves, rent payments and regulations. The virtual world has fewer obstacles to doing business." (Lorek, 2002)

EBay dominates the auction market because of the experiential curve and significant cost of market entry. However, each year the cost to create such advanced internet technologies drops due to Moore's law. That law states that approximately every 18 months computing storage and speed doubles. How can increased computing power damage EBay? In short the answer is craigslist.com. As computing power increases the cost to store data falls, which opens up the doorway for competition. Competition is not what scares EBay it is the paradigm shift to free that scares them. Since operating costs keep falling new web entrepreneurs have started using free as a business model looking for income through non-traditional side door sources.

Craigslist.com for example is a free online classified service that connects millions of people. Their strategy is to let...