General Principles for Two-sided Markets
The Case of eBay
By Xingchi Shao
The business model of online auction company, eBay, is discussed in this paper. Some
general principles are drawn from eBay’s case and similarities are found compared to
McDonald. Therefore, we will see these principles can be applied to other industries or
companies.
eBay is one of the most successful companies in online auction. It has provided a platform
for simply two players, sellers and buyers, to make deals by auction on the Internet. By
now, it also has expanded to include other services, such as standard online shopping “Buy
it Now”, and online money transfer via Paypal. Since its debut in the online auction market
in 1995, eBay has competed out latecomers such as Amazon and Yahoo!’s similar services.
As the first online auction website, eBay has enjoyed the most benefits from integration of
two sides because buyers want to go to the website with the most sellers and vice versa for
the sellers. The original and core mechanism is not complicated: buyers and sellers are
connected on eBay where sellers can list items for sale and buyers can bid the items of
interest. For each successful transaction, eBay charges about 7.9% of the final value from
the seller (eBay History and Business Model, 2012). In addition, a non-refundable fee is
charged for every item listed (eBay History and Business Model, 2012). These are
generally two ways eBay generates revenues.
In September 1995, eBay was founded in a living room in San Jose by Pierre Omidyar. It
