Thursday, 6 October 2011

Week Eight.

OK so this week we are looking at online auctions and in particular eBay.

Q1: eBay is one of the only major Internet "pure plays" to consistently make a profit from its inception. What is eBay's business model? Why has it been so successful?

eBay's business model is a broker. One of the major reasons for its success is eBay's diversity. Over the past decade it has branched out into all different facets of facilitating transactions. eBay now offers listings at a fixed price, it has become involved with payment processing with the acquisition of paypal, it facilitates person to person communication with the acquisition of Skye and is also moving into the classified market with a 25% share of Craigslist (Rapper, 2008). eBay has not allowed it's self to become stagnate and has moved and grown with the demand for its service.

Q2: Other major web sites, like and Yahoo!, have entered the auction marketplace with far less success than eBay. How has eBay been able to maintain its dominant position?

eBay was one of the few sites to be profitable right from the start. The company has managed to maintain its dominant position by using the Internet to bring large numbers of people together at a low cost. had to invest and invest before it became profitable and has to continue to invest constantly. Amazon has much higher overheads that eBay. These include huge inventory costs, warehousing, staff and dispatch costs. eBay on the other hand has very few overheads, it takes no possession of goods and simply charges a fee. I think eBay is also very clever in the way it makes its money, it charges you at every chance it gets, when you sell, when you buy and now with the acquisition of pay pal it charges you when you pay. Yet because the amounts are quite small this does not put people off. When you consider the fact that eBay has very little to do with each transaction and there are 68 million active users (Rapper, 2008), it is a very successful money making machine. 
Q3: What method does eBay use to reduce the potential for fraud among traders on its site? What kinds of fraud, if any, are eBay users most susceptible?

Through their security center eBay offers tutorials on safety procedures such as, identity safety, computer safety and how to avoid fraud. This center has a reporting tab where users can report fraud it also has a link that security software developers can click on and inform eBay if they have identified a security vulnerability.
Another method used is the Feed Back and rating system, this system allows users to leave comments and rate other users on their performance as a buyer of seller. This is a very useful tool and allows users to benefit from the past experiences of other users.  

Q4: eBay makes every effort to conceptualize its users as a community (as opposed to, say "customers" or "clients"). What is the purpose of this conceptual twist and does eBay gain something by doing it?

eBay promotes the community concept because for the site to be successful it needs it's customers (both buyers and sellers) to participate in a manner that recognises a shared interest. Rapper (2008) states that "both buyers and sellers must take a vested interest in the overall soundness of eBay as a broker." The reason that this is so important to eBay is because of the company's limited ability to grantee satisfaction. eBay's success is largely based on the overall success of it's community of users.   

Q5: eBay has long been a marketplace for used goods and collectibles. Today, it is increasingly a place where major businesses come to auction their wares. Why would a brand name vendor set-up shop on eBay?

The attraction of eBay for all types of sellers including brand name vendors include:
  • The ability to maximise prices and achieve the highest possible price.
  • The obvious benefits that come with the global exposure to 168 million registered users (Rapper, 2008).
  • The ability to reach a wider audience or market than that which is geographically possible.
  • The relative low overheads that are associated with any online  business, as opposed to a bricks and mortar outlet.
  • The fact that eBay has such sound and proven systems in place to handle the transaction, this is much easier than trying to reinvent the wheel.
Q6. I have a few businesses, and I have used eBay for about 12 years on and off. Currently I have about 600 books listed on eBay (seller name ozrural). I stopped selling on eBay for a few years but they changed the rules this July and it is viable again (for me). What do you think changed?

In July eBay changed the way it charges for listing books and music. From what I understand the fee system is now a fixed system that takes less from the seller and makes it more viable for a seller to sell items that are sold at a lower cost.

Additional (optional) task: If not already a member, join eBay and explore the functions of the site (optional). Consider making a purchase, or perhaps try your hand at selling. Auctions are impacting on all aspects of business so it is useful to understand how they work.

I have up until recently had nothing to do with eBay. But actually, after the lecture where Ian Knox came in and chatted to us about his son's online business I decided to give it a go. I remember thinking about what Ian said about not necessarily needing to come up with a new idea. I did some research on what people were selling on eBay and what I could buy from other sites such as Ali express. The thing I came up with that was selling well and that I could purchase at the right price was leather IPhone 4 cases. I purchased a package of 50 cases from China that worked out to cost $2 each. I have put them on eBay at a buy now price of $6.50 inc postage and I also have put some on auction (I have put in a screen shot of my sale page rather than a link to the sale as I figured it would not work once the sale finished). It has been an interesting experiment but hardly one that is going to make me rich. I have found it is a very difficult market to break into and that the margins are very low. It is difficult to get your product to come up high in the consumer search with out paying for the privilege, and if you do pay for it then you loose the majority of your profit. I am sure that the more you did this the better you would become at it and that you would learn the tricks that help maximise your profitability. For now I think I'll stick to my day job. and try to think of another use for a heap of leather IPhone cases, on that note if there was anyone who wanted a leather case for their IPhone, get in quick, I only have about 48 left and with the release of the IPhone 5 any day now these will be a collectors item in no time........ (yes, I am being sarcastic).


Rapper, M. (2008). CASE STUDY: EBAY. On Managing the digital enterprise [web audio]. North Carolina, USA:


  1. Thanks for the post, I've been looking for more information on Secure Payment Processing systems for my new business.