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1. What source of competitive advantage does eBay have, and is that position supported
by its resources and assets? Does eBay deal effectively with its external environment in
Asia?
In order to fully appreciate eBay’s difficulties with its growth strategies in Asia, it may help if
students can step back and consider eBay’s need for a strategic analysis and formulation. eBay
Referencing Chapter 5: Business-Level Strategy
In order to achieve a sustainable competitive advantage, eBay had to assess its ability to contend
with other online auctioneers. The question of how to compete in a given business to attain
competitive advantage requires an assessment of the types of competitive strategies, including
the three generic strategies that are used to overcome the five forces and achieve a competitive
advantage:
●Overall cost leadership
oLow-cost-position relative to a firm’s peers
●Differentiation
oCreate products and/or services that are unique and valued
●Focus strategy
oNarrow product lines, buyer segments, or targeted geographic markets
Ask the students which strategy they think eBay pursued, and why. Their answers may include
some of the following points:
eBay competed by creating customer options that were uniquely different from those of its
competitors. It also targeted distinct market niches. Because of its reputation and longevity in
Regarding its competitive strategy in Asia, in order to maintain control over costs, eBay had kept
central management control in the U.S. Although this centralized decision structure allowed
Referencing Chapter 3: Analyzing the Internal Environment of the Firm
To answer the question of how to support a competitive strategy, it’s important to consider the
concept of the resource-based view of the firm, and the three key types of resources: tangible
resources, intangible resources, and organizational capabilities. Determining whether the internal
resources are valuable, rare, difficult to imitate, or difficult to substitute (VRIN) can help a firm
sustain a competitive advantage. See Chapter 3, Exhibit 3.6. eBay’s profile might look like this:
Tangible Resources:
Financial – strong financial growth
Intangible Resources:
Organizational – centralized decision making worked well except in Asia
Human – based on the commitment and loyalty of ex-CEO Whitman & current CEO Donahoe,
Innovation – major strength
Reputation – another major strength – essential in this service business
Organizational Capabilities:
Competencies – eBay had the critical strengths in its human, technological, innovative and
Referencing Chapter 4: Intellectual Capital
See the concepts of intellectual capital, human capita,l and social capital, all of which are
intangible assets that a company such as eBay needs to have in order to compete successfully.
Intellectual capital is a measure of the value of a firm’s intangible assets, its reputation, employee
loyalty and commitment, customer relationships, company values, brand names, and the
Both Meg Whitman and John Donahoe were examples of the dedication, experience and skills of
eBay’s intellectual capital. Since eBay was in the knowledge business, the capabilities of its
employees and managers were essential assets. However, especially in Asia, social capital was
It appeared possible that eBay had not yet understood how to leverage social capital in Asia. A
telling comment was rival Alibaba.com’s CEO Jack Ma’s observation that eBay moved too
Contrasting eBay with Yahoo, when Yahoo chose to partner with Taobao and Gmarket, both
Taobao and GMarket had an in-depth understanding of the Asian culture and local market needs.
They allowed users to conveniently interact with each other by offering alternate communication
Referencing Chapter 2: Analyzing the External Environment of the Firm
Regarding the general external environment, eBay must consider the political/legal, economic
and global, sociocultural and demographic, and technological forces that might affect the ability
of the firm to deliver its services and sustain its business. See which factors in the general
environment students might pick that have a significant impact on the online auction industry.
Students might respond as follows:
Political-Legal – trade and tariff issues, local and national regulations
Economic – currency fluctuations
Demographic – population growth outside of North America; Asia & Africa had the most
Sociocultural – people worldwide paying increasing attention to social issues, global poverty,
Technological – Internet users had increasing concerns with online privacy, fraud
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
NOTE – ADDITIONAL READING, WEB LINKS, EMBEDDED VIDEO:
Use the tools available at this link to examine the performance of eBay’s stock over the last five
years: http://finance.yahoo.com/q?s=ebay
In 2013, eBay’s revenue forecast showed weakness in Europe and Asia, sending the stock down
to its lowest levels since August of 2011. CEO John Donahoe noted that online commerce
growth in Germany, UK, and Korea was slowing. PayPal revenue, however, was strong:
http://www.bloomberg.com/news/2013-07-17/ebay-revenue-forecast-misses-as-growth-abroad-
slows.html?cmpid=yhoo
Analyst’s opinion in July 2013 was that eBay was successfully competing against competitors
such as Amazon, primarily because of its PayPal digital payments business, its cross-border
trade/international business, and its mobile connection platform. However, eBay was still not
competitive in China: http://www.insidermonkey.com/blog/ebay-inc-ebay-it%E2%80%99s-time-
to-stop-worrying-about-this-e-commerce-giant-202137/
What do you believe explains the stock’s performance? Would you expect the current trend to
continue? Why or why not?
Here is a video reportedly produced for eBay’s employees in 2005 on the occasion of its tenth
anniversary. It interviews eBay users from different perspectives, one of whom is a Chinese
seller using Eachnet.
Focus is on making eBay “easier and safer to shop.” Changes were announced regarding product
and pricing. Some eBay patrons have been getting increasingly upset with eBay policies. See, for
instance, the following series of blogs from Australia starting in 2008. Sellers are upset that they
have to use PayPal exclusively:
http://www.bloggernews.net/115079
and sellers are upset that eBay has prevented them from leaving bad feedback about buyers. The
implication is that buyers are more important than sellers, at least in eBay Australia:
See the bloggers’ comments in the U.S.:
In the attempt to make it safer for buyers to shop, has eBay alienated the sellers?
How successful do you expect eBay to be going forward in its auction and direct marketplace
segment?
Increasingly, eBay is focusing on the transaction part of its business. From a story in April of
2013, CEO John Donahoe explains how eBay has expanded into retail logistics and services with
the 2011 acquisition of GSI Commerce, and is now “targeting the $10 trillion total commerce
market, which includes brick-and-mortar, traditional retail chains and their forays into online and
From 2013, here’s specific information about eBay’s acquisition of GSI Commerce, the
“enterprise” solution for retailers. For retailers and brands, eBay Enterprise represents a one-stop
shop for enterprise commerce technology, commerce services, marketing services and
Although this may certainly improve eBay’s ability to diversify into a growing business area,
how does this apply to its international prospects?
Referencing Chapter 11: Strategic Leadership
See the concept of leadership, the process of transforming organizations from what they are to
what the leader would have them become. Leadership is proactive, goal oriented, and focused on
the creation and implementation of the creative vision. This definition implies dissatisfaction
with the status quo, a vision of what should be, and suggests a process for bringing about change.
Leaders are change agents whose success is measured by how effectively they formulate and
implement a strategic vision and mission. See Exhibit 11.1. This involves:
●Setting a direction
The interdependent nature of these three activities is self-evident. Consider an organization with
a great mission and a superb organizational structure, but a culture that implicitly encourages
Leaders need to set the direction for the organization by continually scanning the environment to
develop knowledge of all stakeholders, as well as knowledge of salient environmental trends and
Leaders are responsible for designing the organization: a strategic leadership activity of building
structures, teams, systems, and organizational processes that facilitate the implementation of the
Leaders play a key role in changing, developing, and sustaining an organization’s culture. An
excellent and ethical organizational culture is an organizational culture focused on core
In nurturing a culture dedicated to excellence and ethical behavior, managers and top executives
must accept personal responsibility for developing and strengthening appropriate behavior;
consistently demonstrate that such behavior is central to the vision and mission; develop and
eBay CEO John Donahoe did appear skillful at scanning the external environment to identify the
However, by failing to anticipate how the single global platform might not be appropriate for all
EBay CEO John Donahoe appeared capable of nurturing a culture that allowed the company to
Referencing Chapter 12: Managing Innovation & Fostering Corporate Entrepreneurship
Innovation involves using new knowledge to transform organizational processes or create
commercially viable products and services using the latest technology, experimentation, creative
Before proceeding, firms must first define the scope of the innovation efforts, and must ensure
A strategic envelope defines the range of acceptable projects. Strategic envelope means a firm-
specific view of innovation that defines how a firm can create new knowledge and learn from an
innovation initiative even if the project fails. The strategic envelope also gives direction to a
firm’s innovation efforts, which helps separate seeds from weeds and builds internal capabilities.
In defining the innovation scope, a firm should answer several questions:
●How much will the innovation cost?
●How likely is it to actually become commercially viable?
●How much value will it add; that is, what will it be worth if it works?
●What will be learned if it does not pan out?
The challenges of innovation involve:
●Choosing when and how to continue to innovate
●The scope and pace of future innovation
eBay was in a global industry with competitors on multiple continents. eBay had to innovate in
both product and process arenas simultaneously. Therefore, the scope of innovation would be
critical. The scope of any innovation investment must be carefully assessed to make sure it
doesn’t strain the firm’s ability to utilize its existing resources – how much will it cost, and will
we be able to learn something useful if it doesn’t work? Does the firm have the needed
capabilities? Where can eBay get access to the needed skills and expertise? Has eBay learned
enough from its mistakes to succeed in the future?
eBay must continue to reassess its internal and external environment in order to build its
