Unlock document.
This document is partially blurred.
Unlock all pages and 1 million more documents.
Get Access
Teaching Note: Case 20 – eBay
Case Objectives
1. To discuss the decisions and actions that a firm has to undertake to sustain a competitive
advantage, especially when pursuing international growth.
See the table below to determine where to use this case:
NOTE: There are both PRIMARY and Secondary chapters that can be used for this case. The
Teaching Note gives guidance for the PRIMARY use chapters, and provides suggestions if the
instructor wants to use the case to illustrate concepts from the optional Secondary chapters.
Chapter Use Key Concepts Additional Readings or
Exercises
PRIMARY
6: Corporate-Level
Strategy
Corporate strategy; synergy;
7: International
International expansion;
NOTE additional reading, web
SECONDARY
4: Intellectual
Assets
Human capital; intellectual
5: Business-Level
Strategy
Generic strategies
8: Entrepreneurial
Strategies
Opportunity recognition
11: Strategic
Leadership
Leadership
12: Managing
Innovation
Innovation; scope of innovation
Case Synopsis
Since its inception in 1995, eBay had enjoyed strong revenue growth, and was a dominant player
in the worldwide online auction industry. eBay’s business model was based on a person-to-
person marketplace on the Internet, where sellers conveniently listed items for sale, and
Despite eBay’s growth performance, achieved mainly through both foreign and
U.S. acquisitions, the company still faced a number of challenges. With traffic and sales slowing
As a growth strategy, eBay had targeted distinct market niches to distinguish itself from
competitors. eBay had successfully competed in certain international markets, including Europe
With intense competition in the online auction industry, eBay had tried to increase its market
share and revenue through acquisitions and partnerships in related and unrelated businesses.
However, activist investors, namely Carl Ichan, were pushing for strategy changes, while eBay
Teaching Plan
The eBay case is an investigation of a company that chose to pursue growth into an international
environment where it had little experience. In addition, corporate business strategies had proved
Before engaging in discussion, you might want to test student’s basic knowledge regarding the
Which statement is most true?
a. eBay makes most of its money from its auction marketplace.
b. Carl Icahn wants eBay to sell its PayPal business.
c. Amazon is eBay’s major competitor in the worldwide online auction market.
d. Meg Whitman was the first President of eBay.
ANSWER: b. Per Case Exhibit 6, most of eBay’s 2014 revenues came from the Payments
division, which is PayPal. Although eBay had already decided to spin out its PayPal online
payments service, Icahn owned 2.5 percent of the company and insisted that management think
Jeffery Skoll was eBay’s first president, and remained president until early 1998, when the
company hired Meg Whitman as president and CEO.
eBay founder Pierre Omidyar believed people basically just wanted to negotiate, or haggle, for a
good deal.
a. Yes
b. No
ANSWER: b. Omidyar believed people wanted to trust in a fair and open marketplace, and that
Summary of Discussion Questions
Here is a list of the suggested discussion questions. You can decide which questions to assign,
and also which additional readings or exercises to include to augment each discussion. Refer
back to the Case Objectives Table to identify any additional readings and/or exercises so they can
be assigned in advance.
Discussion Questions:
1. PRIMARY QUESTION: How did eBay pursue international growth?
2. SECONDARY QUESTION: What source of competitive advantage does eBay have, and
is that position supported by its resources and assets?
Discussion Questions and Responses
1. How did eBay pursue international growth?
Referencing Chapter 6: Corporate-Level Strategy
Corporate strategy focuses discussion on the questions of what businesses a corporation should
compete in and how the businesses should be managed so they can create “synergy” – creating
Diversification is the process of firms expanding their operations by entering new businesses. In
related diversification, a firm enters a different business in which it can benefit from leveraging
core competencies, sharing activities, or building market power. Some possibilities include:
●Mergers and acquisitions
●Strategic alliances
Whatever the choice, it should create value for all stakeholders – employees, suppliers,
When achieving synergy through diversification, a firm has two choices: related diversification
through horizontal relationships with related businesses, sharing tangible and intangible
Acquisition is the incorporation of one firm into another through purchase. It can be a means of
obtaining valuable resources that can help an organization expand its product offerings and
eBay had countered the intense competition in the online auction industry by engaging in
aggressive acquisitions of online businesses worldwide, and by forming joint venture
eBay also expanded into new markets by focusing on business-to-consumer in addition to
With increased competition from Yahoo, Amazon, and Alibaba Group and other major online
companies, eBay had to continue to diversify and provide depth in its product offerings to remain
competitive. In most cases, eBay expanded into new markets through acquisitions, and it slowly
Growth strategies should create value for all stakeholders: employees, strategic partners, and
owners. The choice of growth strategy should create synergy so all parties gain something they
An interesting example of a failed synergy was eBay’s acquisition of Skype, the online
communications software company. When eBay bought Skype, the thought was it would allow
Another attempt at streamlining the portfolio involved spinning off the Enterprise and the PayPal
businesses. With these being non-core components of its business, investors believed eBay was
better served by focusing on the online auction and fixed-price direct selling operations. With
Referencing Chapter 7: International Strategy
International expansion is a viable diversification strategy; however, before pursuing this, a firm
needs to determine why an industry in a given country is more (or less) successful than the same
In Asia Pacific, eBay’s management risks might have included:
●Language & culture
●Managing employees
There are two opposing forces that firms face when entering international markets: cost
eBay followed a global strategy. Advantages of a global strategy included a unified approach that
allowed users to conduct transactions in an online global community. Users could interact and
purchase or sell items with anyone in the world over a single platform. Having a single platform
eBay’s decision to use a single platform to provide online trading in all its markets had been
successful in most of its global communities. However, this decision appeared to have hindered
Because it uses mostly virtual assets, the worldwide online auction market is basically low-cost,
A multidomestic strategy, where the company could provide a standard product and meet specific
local needs, would be the optimal strategy for eBay to adopt for competing in the Asia Pacific
region. The company could achieve this strategy through its local acquisitions and realize further
Entry modes available for international expansion differ based on the extent of investment and
risk, and the degree of ownership and control. See Chapter 7, Exhibit 7.9. In order from low to
high, they include:
●Exporting
●Licensing
eBay’s entry mode choices for international expansion included: alliances, joint ventures, and
wholly owned subsidiaries. eBay’s joint venture with Tom Online had provided it local expertise,
but eBay’s past experience demonstrated the company’s inability to understand local business
With low entry barriers, many believed online companies would eventually consolidate to a few
dominating firms, ones containing the most traffic. While it was obvious eBay was trying to
acquire as much market share as possible, entering into the communication space allowed eBay
eBay’s decision to buy a joint venture stake in South Korea’s Gmarket was part of a similar
strategy to broaden eBay’s market coverage. However, Gmarket was a competitor, and had
NOTE - ADDITIONAL READING, WEB LINKS:
With global expansion a concern for almost all firms, what specific issues might affect eBay’s
global growth strategy?
eBay tried to expand in China with mixed results. Commentary about the differences between
eBay EachNet and major competitor Taobao in 2005 was that Taobao understood the local needs
In 2006 the situation was as follows regarding eBay’s EachNet’s inability to accommodate the
Chinese patron: - “This is a very unique market, and if eBay doesn’t learn how to properly
eBay’s joint venture with Tom Online was seen by some as “another failed attempt by a U.S.
behemoth to extend its dominance to Chinese cyberspace”:
http://www.businessweek.com/stories/2006-12-19/tom-online-ebays-last-china-
cardbusinessweek-business-news-stock-market-and-financial-advice
In Korea, the acquisition of Gmarket was completed in June 2009. Gmarket is said to operate “a
bit differently from eBay. For one thing, Gmarket places less emphasis on an open-auction
From 2013 here is a story about how eBay and others might not be able to gain market share in
China – it’s all about close personal relationships, or “swift guanxi,” “based on high-quality
social interactions and the reciprocal exchange of mutual benefits.…Customers on TaoBao spend
The Asia-Pacific environment is still volatile and the differences between this region’s consumer
shopping culture and the rest of eBay’s customer experience seem to have required significant
retooling. Do you think eBay will eventually be able to gain any significant share of the Asian
consumer-to-consumer market?
The above analysis indicates that eBay should have been well positioned with both resources and
a competitive strategy to deal effectively with its external environment, including its
2. SECONDARY QUESTION: What source of competitive advantage does eBay have,
and is that position supported by its resources and assets?
NOTE: No PowerPoint slides accompany this discussion.
Referencing Chapter 8: Entrepreneurial Strategy and Competitive Dynamics
Entrepreneurship involves the creation of new value by an existing organization or new venture
For an entrepreneurial venture to create new value, three factors must be present – an
entrepreneurial opportunity, the resources to pursue the opportunity, and an entrepreneur or
Entrepreneurs need to understand the concept of opportunity recognition: the process of
discovering and evaluating changes in the business environment, such as a new technology,
sociocultural trends, or shifts in consumer demand, that can be exploited. Changes in the external
Resources are an essential component of a successful entrepreneurial launch. The most important
resource is usually money, but human resources, strong and skilled management, is also an
Launching a competitive venture requires a special kind of leadership involving courage, belief
in one’s convictions, and having the energy to work hard. Three characteristics of entrepreneurial
leaders are:
●Vision
To achieve excellence, venture founders must understand the customer, provide quality products
eBay’s decision to expand into China was a huge opportunity, but it had been hard for leadership
to evaluate those opportunities. Although the demand was there, and, if executed properly, it
In addition, although CEO John Donahoe appeared to have the skills, and was willing to take
