Founded in 1995 by Pierre Omidyar and Jeff Skoll, the eBay online marketplace was developed in order to provide individuals a place to sell goods and services. eBay became a phenomenon that attracted some 10 million auctions in its first three years. This success provided eBay the necessary foundation to complete an initial public offering (IPO) in 1998.
eBay’s online auction concept is relatively simple. Sellers register with eBay and use its suite of online tools to place nearly any item up for sale. Buyers navigate eBay’s vast array of categories or use search functionality to find goods or ...view middle of the document...
” A purely web-based business, eBay provides “an entertaining, intuitive, easy-to-use environment to browse, buy and sell an enormous variety of items.” With the acquisition of PayPal, the leading online payment service, President and CEO Meg Whitman, sees continued growth and focuses the company on strategic goals to “create, maintain, and expand the technological functionality, safety, ease of use, and reliability of the trading platform while at the same time supporting the growth and success of its community of users.” PayPal allows anyone with email to make or receive secure online payments, regardless of its relation to an eBay auction.
Augmented Porter’s Five Forces Analysis
Michael Porter’s Five Forces Model of Industry Competition contends that there are a set of five competitive forces that managers can use to analyze and assess the potential for firm success in a given industry and how to use these forces to formulate a proper strategy for the organization. The forces laid out by Porter include: 1) threat of new entrants; 2) intensity of rivalry; 3) threat of substitute products; 4) power of buyers; 5) power of sellers.
Slater and Olson expand on Porter’s Model by focusing not only on industry characteristics but also on market characteristics. None of Porter’s forces are eliminated from the augmented model, but rather they are modified to give a more current business environment analysis. Figure 1 shows the modified model.
Source: Slater, S. F. and Olson, E. M. (2002). “A fresh look at industry and market analysis.” Business Horizons, 15-22.
Augmented Porter’s Five Forces Analysis: eBay
|Composite Competitive Rivalry (combines internal rivalry, threat |Medium |
|of new entrants, and threat of substitute products) | |
|Complementors |Positive |
|Customer Power |Low |
|Supplier Power |Low |
|Market Turbulence |Medium |
|Market Growth |Positive |
Composite Competitive Rivalry: MEDIUM
Porter’s forces of internal rivalry, threat of new entrants, and threat of substitute products are combined into one force in the augmented model due to the nature of these forces and the way they are interrelated.
At this point in time, there is not much rivalry in the industry, due to eBay’s market share dominance. However, the threat of new entrants is high due to relatively low start-up costs, and the lightning quick nature of changing trends on the Internet. The model is easily copied (as shown by Amazon and Yahoo), however, eBay continues to dominate the segment due to its enormous user base,...