Summary of the case facts The eBay auction site was started in 1995 under the name Auction web. Auction Web made no guarantees; there were no fees, no security, and very few items. The site changed drastically when the creator posted the site listing on the National Center for Supercomputing Applications’ What’s Cool list. After the posting on the list, traffic began to increase and the business turned a profit in 1996. By 1998 the Auction Web site had taken on the name eBay and it went public. Constant growth in the following years has made eBay the gateway for many shoppers, collectors, and sellers to all exchange consideration. In 2000, users listed more than 265 million items on the site, a 104% increase from 1999. Ebay provides a portal for peer-to-peer selling where the seller can set a fixed price, using the “buy it now” feature, or they can opt to have the item available to the highest bidder. The seller can also set a “reserve price” so they can be exempt from fulfilling the order if the bidding does not meet their desired minimum revenue. In a time where the economy has become weak and many retail segments have suffered losses, eBay has continued to grow at a rapid rate. Unlike in a retail store, regardless of the item, all buyers and sellers must be eighteen to bid on or list items. The reason for this is that each transaction is basically nothing more than a contract between two private parties. The buyer and seller agree upon and arrange for payment and shipping. While eBay cannot force the buyers and sellers into completing transactions, they can ban both parties from trading on eBay in the future. EBay generates revenues from fees that the sellers are charged for listing and selling items through the site, users can bid for free. With the exception of a weekly maintenance, eBay operates twenty-four hours per day, seven days per week.
Ebay has begun expanding their business in the past several years by refining their services. A recent movement toward encouraging electronic payment, via an alliance with paypal.com, has made transactions faster and easier for buyers and sellers and cut down turnover times significantly. In 2000, eBay entered four new markets: Japan, France, Australia, and Canada. They also announced the acquisition of iBazar, a European auction site, launching sites in many European countries and eastern regions. Other expansions include the acquisition of Half.com, a fixed price peer-to-peer trading site. The launch of eBay Motor was also done in an alliance with AutoTrader.com. A strong emphasis has also been placed on the aforementioned “buy it now” feature, allowing sellers to offer a fixed price amount for buyers to skip the hassle of competitive bidding. By focusing on this fixed price aspect, eBay is attracting a group of customers who may have showed hesitation towards the site, this option gives a more mainstream appeal. The business model is strong and growth for eBay shows no signs of slowing down. A poor economy is likely also to be beneficial for eBay in the sense it may drive unemployed persons to start their own entrepreneurial venture on eBay. The market entry price to be a seller on eBay is virtually non-existent since your fees are low in relation to sales and also are collected after the item sale is made. While many people are looking to make extra income by conducting a yard-sale, eBay serves as an online yard for these people and the neighborhood buyers are located worldwide.

Statement of the Problems Ebay relies on the community of buyers and sellers to police their own behavior. The feature in place that allows users to establish reputations is the feedback forum. Often times a buyer will research a seller’s feedback data to survey the satisfaction of previous customers. Buyers would most likely avoid a seller who has a significant amount of negative feedback. While this seems like a fair system on the surface, often times it can be difficult to predict the behavior of an individual. Part of the problem with eBay is that there is always a risk because many sellers are individuals that are merely getting rid of their old belongings. There is always the possibility that the description of an item will be slightly exaggerated in terms of condition to generate higher bids. While sellers are aware of their feedback data and many do everything they can to satisfy their customers, there is the simple fact that this system is based on honesty and it is unpredictable. While eBay has a strong online store, the fact remains that all they have is an online store. The business model is un-diversified in the sense that they have no retail stores and no other significant ventures other than the auction site. Although the basket is profitable, they have effectively put all their eggs in one basket. Another problem relates to the fact that they have no formal mission statement. While their goals may be clear to themselves, they have not made an effort to state their goals clearly. EBay has experienced rapid growth with very little marketing and advertising. They could benefit by identifying people with a need for their service and attempting to convey their services to this audience. Ebay also is in a peculiar situation in regards to their tax liability. With these types of transactions it is evident that eventually the government will attempt to impose a tax structure for the sellers or buyers of items. Currently, since eBay does not physically hold and ship any items, they do not collect sales tax associated with transactions. Also the threat of other future legal proceedings is always present with the rapid growth. More growth equates to a greater number of people or organizations that may file suit for infringement claims as the number of services and direct competitors grow.

Causes of the Manager’s Problem: Causes of the problems relate mainly to the uncertainty of human nature. Allowing users to feel a sense of community and police themselves is extremely unpredictable. Fraud is difficult to prevent in any private transaction and this is a risk that users assume when they register for the service. It is currently a “buyer beware” system where the buyer is responsible to use his or her own judgment to weigh the amount of negative feedback in relation to the amount of positive. No matter how honest or consistent a seller is with their eBay online store, it is impossible to satisfy everyone and even the best sellers will incur negative feedback at one point due to overly high expectations of the buyer. When a seller has a high volume of sales, it can often equate to a greater probability of incurring a negative feedback. If Fed-Ex or UPS makes a shipping error the seller incurs the negative feedback, this is a flaw in the feedback system that most likely cannot be rectified. To allow strangers to make transactions online, without being able to see the product and touch it, leaves a large amount of room for miscommunication and dissatisfaction. In the issue of their sales tax liability the cause is unclear. It would be foolish for eBay to pay un-required taxes because the do not physically house the products. The cause could be pointed towards the government for leaving the structure incomplete. When the government decides the structure is when eBay will incur the tax liability.

Solution, method, and the manager’s Rationale: Ebay has made many strategic alliances and has conducted a unique business. Competitors have emerged but have not found success when combating eBay. Focus on innovation and expansion should not cease because competitors are likely to arise in the future. One area that could be focused on is the factors surrounding fraud and controlling the transactions. While eBay has developed several things, such as The safe Harbor program to assist in customer/seller disputes, they can always make further efforts to increase satisfaction. While eBay understands that they may be unable to prevent unlawful activity on their site, they must monitor it extensively. If by some chance someone obtained illegal substances or weapons on the site there is a strong chance that they would come under heavy litigation and negative media scrutiny.