EBay, Inc. and Amazon.com
Problem definition and historical context
In broad spectrum, the case of eBay and Amazon explores the strategic interaction between the two organizations as they embrace different business models. This case considers how competitors in the market can successfully challenge the rival in highly competitive market where business is defined by strong network effects and fluctuating costs. The audiences in this case are given a chance to assess the merits and the demerits of the business platform utilized by eBay in contrast to Amazon’s online based retail model (Harvard business school, 2012). In addition, the case allows those interested to evaluate business performance in the event of looping value because of the indirect interactions in the two industries. The case offers a vivid exploration and analysis of how Amazon expanded its business in the competitive environment as well as discussing how eBay responded and the strategies they can adopt to lower the difference in earnings between the two. All this is done through an in-depth analysis of acquisition of GSI commerce by eBay in 2011. Briefly, business competition is the main issue in this case.
Business competition between the two corporations rapidly grew in 2011, ten years after a story by “Businessweek’ labeled eBay vs. Amazon was released. The publication by Businessweek clearly depicted that between the two, the company that would win the biggest market share would probably dominate the future of internet-based business. By the time of this publication, Amazon was leading in all aspects of online transactions. Inherently, the history of the two corporations is based on Royal battle. The rivalry between the two companies is very high. Actually, Amazon and eBay are the biggest firms in online business. They are competitors of each other. Despite being in the same business, the two corporations have been operating by taking different business approaches. In terms of financial growth, Amazon had established itself as the market leader. Its financial aspects had grown by 37% as compared to eBay’s 6% (Harvard business school, 2012). Moreover, eBay specializes in focusing on being a facilitator in internet business while Amazon focuses on becoming a one-stop platform. It is in the is respect that the case establishes that Amazon in the long-run will outrun eBay in the online stage. The two companies expand their markets by merging with other related companies.
EBay Company offers a market place where both retailers and buyers interact. The company aims at enabling both buyers and sellers to agree at a neutral price that can be referred to as action price. Similar to Amazon, e bay offers its clients with variety of products where they can choose on what to buy or sell. Both companies deal with used good but strictly dealing with e commerce as mode of payment.
Generic Strategies Grid (2 char. per axis)
291909541338500 The generic strategies are mostly applied in analyzing competitive advantage of the business environment of both companies.
Cost leadership Differentiation
Cost focus Differentiation focus
This chart articulates ways how e Bay company can gain competitive advantage over the other viable competitors.
Five Forces Model
In business context, Five Forces Model is paramount as they help then businesses analyze their competitive advantage. It is paramount to understand both internal and external business environment so in order to develop viable strategies to remain in the competitive edge. In reference to the case study, the Five Forces Model will greatly help to analyze the intense competition between Amazon.com and e Bay. More importantly, Five Forces Model is a viable tool to help both companies to plan in ways such as coming up with new products needed by the customers. Supplier Power is the first element that deals with suppliers and prices of the commodities (Harvard business school, 2012). With the intense competition as witnessed in the case study, each company is striving with best ways how they can demand the prices of commodities to lower. Indeed, E bay has collaborated with many suppliers by offering clients with variety of products ranging from different prices.
Buyer Power is the second element in the Five Forces Model. Ultimately, this element is concerned on how best the buyers can bring down prices of commodities. Quite different from Amazon, E bay has offered their customers with a direct linkage with their suppliers with an urge to bring down cost of goods. Competitive Rivalry is another model vital to understand all potential competitors around the business. As noted in the case study, potential competitors in this industry include newspapers cites, music or video shops and personal homepages among others. Threat of Substitution is less as both companies have a strong CRM hence making it difficult for other companies to displace them in the market. Lastly, the companies face intense competion from Threat of New Entry companies such as yahoo among others.
Value chain analysis
Value chain analysis entails analysis of the manner in which companies ensure value creation to their customers with the use of their resources and strategies. In relation to eBay, the company ensures value creation to their customers through price cutting, enhancing its customer search capabilities and ensuring its new business model. The company’s inbound logistics are well-built. EBay is tight-lipped in regard to their approach to payment processing, communications, website operations and more importantly customer support. With respect to its operations, the company does not restrict the maintenance of a marketplace and this resulted to it entering new markets outside U.S.A in 2011 (Harvard business school, 2012). Evidently, eBay unlike Amazon is depicted a powerful in relation to its operations. With the introduction of its core business segments, that is communications, payments and marketplaces, eBay aimed to maintain the trust and opportunity by developing new business communities globally with the help of e- business. In this case, the company compared to Amazon generated much revenue and increased its popularity around the world.
Project risk model
Project risk management aims to measure the company’s capabilities and risks and the most effective measures it adopts to prevent various risks as it conducts business. With respect to project risk model, eBay is depicted as one with clear project risk management process. On the other hand, Amazon also has a well established project risk model to address company’s capabilities and risks.
The business model assumed by eBay that is auctions marketplace is depicted by the article and paramount in ensuring the success of the company especially in the competitive business environment. The model provides effective and efficient means of payments, communication and means of entering new markets. Based on the article, the business model assumed by the company connects buyers and sellers in such a way that it ensures value creation. The model is also portrayed as effective as it improved the revenue of the company in the year in 1999 (Harvard business school, 2012).
Alternatives flow from strategic models
To ensure its competitive, eBay according to the article used groundbreaking business platforms and models to attract more customers globally. However, the article depicts that the company should also focus on expanding and transforming its business and project risk models in areas such as marketing and services to its customers. In this case, the company should be in a position to compete with competitors such as Amazon.
Technology and costs
Technological changes are occurring drastically hence citing the need why the companies should be at par with these innovations. The technology used by both companies is effective to enhance the search catalog and ability to retrieve information at ease hence cutting operational cost. Use of AWS has huge benefits, as it is not only reliable but also secure. Another advantage of this technology in relation to cost is that it is simple in scalability. Use of superior technology such as AWS, S3, catalogue and EC2 enhances the company to reduce fixed prices of commodities (Harvard business school, 2012).
Competition between the two corporations is high and specifically eBay should adopt several strategies to minimize the available gap. For instance, eBay should embrace better advertisement strategies and search for better advertisement partners. This will help attract some of the Amazons customers to their side. Secondly, to ensure that they stand a chance to reduce the business gap, eBay should focus on its strengths. Getting into the digital media sales should be another area to strategize on. In terms of internet technology, eBay should ensure better internet search as well ensuring improved tagging approaches. Lastly, it is of importance for eBay to reduce the PayPal fees to entice and attract more clients. On the other hand, Amazon should materialize on making their products better besides competing with their close competitor on price.
Harvard business school.(2012). Bay, Inc. and Amazon.com (A) and (B).