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104 LORI RADULOVICH

The success of eBay and Amazon are built on similar customer-centric entrepreneur-
ial business models that focus on customer-driven value creation. Examination of the
strategies, business models, and customer benefits of eBay and Amazon reveals a common
emphasis on relationship value and customer-focused solutions. The focus of eBay’s busi-
ness strategy is to compete on price, product selection, and services. However, growth of
eBay has slowed and market share has declined in some segments. The Payments segment
competes against other online payment services and offline payment methods, such as
cash, check, money order, and established credit card merchants. The Communications
segment faces competition from local telephone or cable companies and other VoIP
providers. Furthermore, eBay anticipates the need for substantial resource investments in
technology and marketing in order to remain competitive.

Highlight: Marketplaces Competition
Competition is expected to increase in the future because barriers to entry in this segment
are low and new online sites can be launched at a nominal cost. Competitors include tradi-
tional department, warehouse, discount, and general merchandise stores, emerging online
retailers, online classified services, and other offline and online home shopping networks
such as Wal-Mart, Target, Sears, Macy’s, J.C. Penney, Costco, Office Depot, Staples,
OfficeMax, Sam’s Club, Amazon.com, Buy.com, AOL.com, Yahoo! Shopping, MSN,
QVC, and Home Shopping Network. Companies such as Google Base and Microsoft Live
Expo also offer similar online services and classified ads.

Highlight: Skype Competition
Competition is intense in communications services and subject to rapid technological
change. Traditional communications companies offer bundled services, such as cable or
satellite television, along with internet and voice communications services. The poten-
tial also exists for Skype technology to become obsolete. Lastly, the resources of exist-
ing competitor firms are larger and as a result, competitors could weather an economic
downturn.
Amazon.com (AMZN)
Amazon, a leading online retailer, reported net revenues of $19.2 billion as of year end
2008. From 2007 to 2008, sales grew at a rate of 29 percent (as indicated in Exhibit 2),
even in a declining economic environment. Amazon has initiated alliances with partners

EXHIBIT 2 Amazon Gross Profit by Region

Year Ended December 31
Gross Profit by Region: 2006 2007 2008
(in millions)

Gross Profit:
North America $ 1,525 $ 2,031 $ 2,495
International 931 1,322 1,775
Consolidated $ 2,456 $ 3,353 $ 4,270
Gross Profit Growth Rate:
North America 20% 33% 23%
International 21 42 34
Consolidated 20 37 27
Gross Margin:
North America 26.0% 25.1% 24.4%
International 19.2 19.6 19.9
Consolidated 22.9 22.6 22.3

Source: Amazon 10K SEC Filing; Amazon.com.