Case study ebay

Since eBay obtains products from so many different sellers, mostly in small
quantity, it is not straightforward to negotiate favorable terms with each seller. eBay’s
approach was to create the PayPal network. PayPal allows eBay to emulate a credit
card provider and profit from the cash float between the buyer’s payment and the
seller’s reception of the goods. Floats are smaller and briefer than those enjoyed by,
say, Wal-Mart — but the cumulative cash float becomes great as transactions multiply.
Not only does the eBay model sell products that are not in the physical inventory
of the company, but it also outsources the virtual merchandizing of the product
listing to the seller. By providing user-friendly listing tools to create product Web
pages, eBay eliminates its own labor content in the listings, thereby increasing its
margins as the quantity of listings increases. eBay receives a listing payment when
the product goes up for auction and a sales commission when the sale transacts.
Bricks and mortar replaced by the virtual storefront. Ad layouts offloaded to the
seller. Financial and fulfillment quality of the sellers monitored and reported by the
buyers. Inventory owned and provided by the sellers. Product features determined
by an educated buyer without paid sales staff. The world’s largest flea market, eBay,
is brought to you online by technology that is transforming old methods to create
new and vibrant businesses.
The first three laws of techonomics combine to support the success of both
Amazon and eBay:
1. The Law of Ubiquitous Computing provides low-cost, high-performance
PCs for millions of homes and businesses. Buyers and sellers are equipped
in increasing numbers.
2. The Law of the Ubiquitous Network interconnects these computers, creating
a snowballing critical mass for buyers, sellers, and products. Buyers
and sellers are connected in increasing numbers.
3. The Law of Increasing Productivity shrinks the size of organizations as
transaction costs tend toward zero. Buyers have the tools to locate and execute the sale without any other human intervention, supporting an
amazing number of transactions per eBay employee.
Add in the economics of free cash flow by electronically controlling the transaction
in the timeliest and most cost-effective manner for the company, and you
have a new model for twenty-first-century business. The Franchise Effect (Chapter
5) is starting to grow around eBay as geographically distributed franchises build
upon the eBay infrastructure to facilitate the posting of items on to the virtual auction
site. Healthy organizations attract new partners into the expanding network of
twenty-first-century techonomics.