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Chapter 1 Introduction to e-business and e-commerce 43

Revenue model In 2007, as part of the social media revolution eBay intro-
duced Neighbourhoods (http://neighborhoods.ebay.com)
The vast majority of eBay’s revenue is for the listing and
where groups can discuss brands and products they
commission on completed sales. For PayPal purchases
have a high involvement with.
an additional commission fee is charged. Margin on
each transaction is phenomenal since once the infra- For sellers:
structure is built, incremental costs on each transaction
Access to broad markets
are tiny – all eBay is doing is transmitting bits and bytes Cost-effective marketing and distribution
between buyers and sellers. Access to large buyer base
Advertising and other non-transaction net revenues Good conversion rates.
represent a relatively small proportion of total net
In January 2008, eBay announced significant changes to
revenues and the strategy is that this should remain the
its marketplaces business in three major areas: fee struc-
case. Advertising and other net revenues totalled $94.3
ture, seller incentives and standards, and feedback. These
million in 2004 (just 3% of net revenue).
changes have been controversial with some sellers, but
Proposition are aimed at improving the quality of experience. Detailed
Seller Ratings (DSRs) enable sellers to be reviewed in four
The eBay marketplace is well known for its core service areas: (1) item as described, (2) communication,
which enables sellers to list items for sale on an auction (3) delivery time and (4) postage and packaging charges.
or fixed-price basis giving buyers the opportunity to bid This is part of a move to help increase conversion rate by
for and purchase items of interest. At the end of 2007, increasing positive shopping experiences, for example by
there were over 532,000 online storefronts established including more accurate descriptions with better pictures
by users in locations around the world. and avoiding excessive shipping charges. Power sellers
Software tools are provided, particularly for frequent with positive DSRs will be featured more favourably in the
traders including Turbo Lister, Seller’s Assistant, Selling search results pages and will gain additional discounts.
Manager and Selling Manager Pro, which help automate
the selling process; the Shipping Calculator, Reporting Competition
tools, etc. Today over sixty per cent of listings are facil-
Although there are now few direct competitors of online
itated by software, showing the value of automating
auction services in many countries, there are many indirect
posting for frequent trading.
competitors. SEC (2008) describes competing channels as
Fraud is a significant risk factor for eBay. BBC (2005)
including online and offline retailers, distributors, liquidators,
reported that around 1 in 10,000 transactions within the
import and export companies, auctioneers, catalogue
UK were fraudulent. 0.0001% is a small percentage, but
and mail-order companies, classifieds, directories, search
scaling this up across the number of transactions, this is
engines, products of search engines, virtually all online and
a significant volume. offline commerce participants (consumer-to-consumer,
eBay has developed ‘Trust and Safety Programs’ business-to-consumer and business-to-business) and
which are particularly important to reassure customers online and offline shopping channels and networks.

since online services are prone to fraud. For example, BBC (2005) reports that eBay is not complacent
the eBay feedback forum can help establish credentials about competition. It has already pulled out of Japan
of sellers and buyers. Every registered user has a feed- due to competition from Yahoo! and within Asia and
back profile that may contain compliments, criticisms China is also facing tough competition by Yahoo! which
and/or other comments by users who have conducted has a portal with a broader range of services more likely
business with that user. The Feedback Forum requires to attract subscribers.
feedback to be related to specific transactions There is Before the advent of online auctions, competitors in
also a Safe Harbor data protection method and a stan- the collectables space included antique shops, car boot
dard purchase protection system. sales and charity shops. Anecdotal evidence suggests
According to the SEC filing, eBay summarizes the that all of these are now suffering at the hands of eBay.
core messages to define its proposition as follows: Some have taken the attitude of ‘if you can’t beat ‘em,
join ‘em’. Many smaller traders who have previously run
For buyers:
antique or car boot sales are now eBayers. Even chari-
Selection ties such as Oxfam now have an eBay service where
Value they sell high-value items contributed by donors. Other
Convenience retailers such as Vodafone have used eBay as a means
Entertainment. to distribute certain products within their range.