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Online businesses

Each model is implemented in various ways by the online businesses, whereas some of them may combine two or more business models in their benefit. As professor Michael Rappa defines, ‘brokers are market-makers: they bring buyers and sellers together and facilitate transactions. Brokers play a frequent role in business-to-business (B2B), business-to-consumer (B2C), or consumer-to-consumer (C2C) markets. Usually a broker charges a fee or commission for each transaction it enables. The formula for fees can vary’. Following Rappa’s business model, eBay belongs to the brokerage category, in particular it is an auction broker who ‘conducts auctions for sellers(individuals or merchants)’.

Figure 1: Summary of transactions alternatives between businesses and customers Source: E-Business Models www.soc.napier.ac.uk/module According to the above graph, eBay belongs to the C2C category as it is an online market place run from customers (sellers) to customers (buyers). Another approach was given by Alt and Zimmermann presenting six generic elements of business model found in most definitions implicitly or explicitly. Alt and Zimmermann’s elements are the following: Mission: High-level understanding of the corporation’s overall vision, its value proposition and its strategic goals. As Stepanek mentioned ‘what distinguishes many of the most Web-savvy companies is not their technical prowess, but their imagination. In the case of eBay,

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it was created entirely new transactions that did not exist even in the offline world (Vickers 2000, p.59).

Structure of the organisation demonstrates which roles and actors constitute a Business Community, the customers and its products and the focus of the industry. Processes demonstrates a further and more detailed description on the structure and mission of the business model, including eMarket and eBusiness processes. Revenues of the company, I.e. sources of revenue and investments necessary to be made should carefully be examined, not only in the short term but long term as well. Complementary dimensions Legal issues need to be taken into consideration as an overall aspect of the business model. They can influence the decision on structures of value creation systems, revenue models and processes of value creation I.e. privacy laws.

Technology is can act simultaneously as an enabler and a constraint for information technology based business models. Decision makers have to take into account the technological developments evolving and their impact on the design of the business model. Figure 2: Generic elements of business model Source: Business Models by Alt & Zimmermann This case study will follow the Alt & Zimmermann approach for business models, where the mission, structure, processes, revenues, legal issues and technology of eBay will be examined in a more detailed way. The above figure outlines the main issues of the six elements of Alt & Zimmermann’s business model which will be used in this case study.

Mission The value proposition of eBay is to provide a virtual world-wide market for sellers and buyers so that profit will be made through transactions as they take place. As mention earlier, eBay relies on its customers (buyers and sellers), as the customers are the product-development team, merchandise and security department and sales and marketing experts. Structure Employees in eBay are around 5,000 of which half are in customer support and one fifth in technology section.

In eBay a key role is held by category managers, who direct the major and subcategories ranging from jet-planes to jewellery and sports gear. The company receives feedback from its customers for free, avoiding what other organisations have to pay for getting this feedback from their customers. Governance in eBay comes from inside and outside the corporation. In the case where someone is trying to sell illegal or commit a fraud then the seller is banned and seller’s sale items are immediately withdrawn. Furthermore, an automatic security control occurs in eBay’s system, where buyers and sellers can rate each other on each transaction, creating rules and regulations for the company.

Processes Sellers and buyers are registered online to eBay site, creating their account and virtual profile. Sellers must first complete a sell your item form, track their item and then decide and sort the payment and the shipping of their listed item. Buyers from another hand, when they register to the site, they have the chance to access the various categories of the products, to select the product they are interested for, and place their bid amount. In the case where their bid is the maximum then they are able to buy the product. Sellers are responsible for promoting and marketing their products, so as to attract as much buyers as possible.

Revenues In eBay revenues come from transactions among buyers and sellers. Every time a transaction has been made, eBay receives a commission from 1.25% to 5%, the more expensive the item sold, the more the revenue for eBay will be. Moreover, eBay charges a small fee for listing an item on the site, usually from 30c to 4.00 $. The more items are listed, the more the revenues for eBay company. Sellers add around 3.6 million items every day, making profits on listing extremely high.

Legal Issues As transactions are being made, legal conflict increases. According to customer reports, four out of ten buyers report that they faced some problems with their transactions although eBay has taken several courses of action to avoid misuse of the site. In 2000, the Federal Trade Commission (FTC) received around 25,000 complaints for auction fraud in online companies. EBay is an online market known for its freedom and its openness to customers, and tries to maintain a balance between this freedom and the safety regulations obliged to made.

Some kind of fraud is faced in the case when a person creates a double account on eBay, one as a seller and another as a buyer. When an honest buyer bid an item to a certain price, then the seller logs in from its buyer’s account to bid to a higher price. Furthermore, eBay has also faced with situations of sales of illegal or restricted items such as pirated work of any kind, weapons, drugs and Nazi memorabilia. What eBay does in such situations, is to blacklist those items and to restrict seller’s access, although a negative impact on the site remains to people’s mind.

Technology An online marketplace, eBay, is ‘built of leading edge technology platform (V3) facilitating interaction over a wide range of product types’ (eBusiness Lecture 3, Dr. Paul Devadoss, Lancaster University). Moreover, according to Shepherd (2007) eBay is ‘arguable the first web 2.0 company’. Technology for IT-based business models is both a constraint and an enabler. Here, we have to take into account the technological developments and their impact on eBay’s business model.

Strategic choices and collaborations The collaboration of eBay with Skype was a big step at a cost of 900 million $ to come to reality. Buyers and sellers can communicate online through Skype to talk live about further details perhaps they would like to know. This makes communication more trustful and gives a feeling of further security of transactions. According to eBay’s management team, they ‘saw great potential in using Skype’s peer-to-peer voice over IP technology to connect buyers and sellers in the eBay marketplace’.

In fact there were plans from eBay’s side to integrate their PayPal payment system with Skype’s VOIP network. However, most of the people using Skype make calls from Skype-to-Skype which are free. This fact didn’t satisfy eBay compared with the amount eBay have spent for this collaboration. In addition to eBay’s collaboration with Skype, eBay lunched in 2007 a new website which allows investors to invest in improving conditions of the world’s poorest countries by buying securities online (www.micro place.com). The site allows people to give as little as $100 for supporting the website’s aims (Reuters, eBay site lets people finance the world’s poor / Online Article).

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