'According to the E-Bay Case report, two issues were found by the CEO. Also explain in a few minutes how these 2 issues were resolved

Chapter 3: Achieving Competitive Advantage with Information Systems 111 BUSINESS PROBLEM-SOLVING CASE EBay Fine-Tunes Its Strategy Since its inception, eBay has been synonymous with Internet auctions. The company has been the rst and by far the most successful Internet auction business, mush- rooming into a gigantic electronic marketplace hosting 25 million sellers all over the world. Founded in 1995 by Pierre Omidyar and originally known as AuctionWeb, eBay has come a long way from its rst sale, a broken laser pointer. The company now sells a staggeringly diverse array of goods and is one of the world's most easily recognizable and well-known Web sites. In 1998, eBay had revenues of $4.8 million in the United States. A decade later in 2008, eBay's market places generated over $8.5 billion in revenue worldwide from selling $60 billion in merchandise. Hundreds of thousands of people support themselves by selling on eBay and many millions more use eBay to supplement their income. During the 2008 holiday season, eBay was the most visited site on the Web, with 85.4 million active visitors. But while impressive at rst glance, eBay's numbers have been slowing down for years. In the very same quarter in which eBay logged 85.4 million visitors, the company's revenue shrank for the rst time in the com- pany's history. The biggest cause for eBay's weakening outlook is the same area of the company that propelled it to stardom: its online auction business. Consumers have indicated a strong preference for xed-price bulk retailers, like Amazon, which has sus- tained steady growth despite the economic downturn. For many buyers, the novelty of online auctions has worn off, and these buyers have returned to the easier and simpler method of buying xedprice goods. Search engines and comparisonshopping sites have also taken away some of eBay's auction business by making items easier to nd on other Web sites. Although the company was slow to diagnose this trend, eBay's leadership has begun taking the necessary steps to meet the shift in demand by consumers from auctions to xed-price goods. The company unveiled a three-year revival plan in which the overall goal was to create a comprehensive array of marketplaces concen- trated in one central online location. Bidding on auc- tions, clicking on ads, scanning classieds, and making outright purchases will all be possible from the agship eBay site and its afliates. CEO John Donahoe wants to focus eBay's business on the \"secondary market,\" which includes overstock and out-ofseason items as well as the used and antique items that eBay has been known for. He wants the eBay buying experience to emulate that of a lowprice bulk retailer such as Costco, where \"the inventory is somewhat uid, but everything they've got is a great dea .\" To that end, Donahoe is trying to move eBay away from auctions and toward xedprice listings. Although this move has appealed to investors, it angered many of the smaller sellers of unique goods that have come to symbolize the company's success. Some longtime sellers chose to move their business elsewhere. EBay has traditionally derived the bulk of its revenue from fees and commissions associated with its sales transactions. A portion of eBay's revenue comes from direct advertising on the site, and some comes from end- to-end service providers such as PayPal, which increase the ease and speed of eBay transactions. The site imposes several types of fees on sellers, including post- ing fees for listing items as well as a collection fee on sold items. Traditionally, eBay was seen as a favorable proposition for smaller sellers to nd markets for rare goods, or goods that are otherwise difcult to value. In order to provide more incentive for bulk sellers of xedprice goods to post their items on the site, eBay signicantly adjusted its fee structure as part of its revival plan. The company reduced posting fees for adding an item online and increased the collection fee for sold items. For example, the fee to list a $25 auction item dropped to $1.00 from $1.20, but eBay's sales commission on the same item rose from 5.75 percent to 8.75 percent. In August 2008, eBay lowered its listing fees for all sellers offering xedpriced items under its \"Buy It Now\" format. For bulk sellers, this was a boon. Prior to the change, posting large quantities of items was an expensive under taking, since only a fraction of those posted items actually sold. Paying these posting fees represented the majority of bulk sellers' se expenditures. But for smaller sellers of unique, expensive items, increasing collection fee percentages meant that they would make signi cantly less per sale. EBay also adjusted its search ordering system so that highly rated merchants appear rst and receive more exposure. Previously, the rst items to be displayed were those for which an auction was about to end. EBay's new search system uses a complicated formula that takes into account an item's price and how well that item's seller ranks in customer satisfaction. At rst glance, this adjustment doesn't benet any particular group of sellers more than the rest. But eBay also rolled out a rating system that made acquiring a high rating a much more time-consuming undertaking, 112 Part 1: Information Systems in the Digital Age favoring larger sellers with the time and energy to build pany also acquired the ticket-reselling Web site a favorable rating. The company also removed the ability StubHub, bought a 25 percent stake in classified ad site of sellers to assign negative ratings to buyers, a feature Craigslist, and purchased Kurant (now ProStores), which many sellers felt protected them against late or whose technology helps users set up online stores. Some non-payment on the part of buyers. The company's rea- analysts report that while many of eBay's individual soning for this change was to stop sellers from rating acquisitions appear to have been successful, they haven't buyers poorly as revenge for poor customer satisfaction created the synergy that was intended, and diversifica ratings. Smaller sellers were incensed, claiming that the tion has detracted from eBay's core business, auctions. company was unnecessarily mistreating the group that But that might be what eBay has intended all along. spurred them to market dominance. Mom and pop dealers have objected vociferously to Not long ago, eBay's growth strategy focused on most of eBay's recent changes. Donahoe regularly expansion in geography and scope and on continuing appears on lists of "disliked CEOs," and sellers have innovation to enhance the variety and appeal of products voiced their discontent via online forums and share- on its sites. EBay has always been active in developing holder meetings. But Donahoe and the rest of eBay's and acquiring new products and services that encompass management maintains that hosting fixed-price sales by all the activities people perform on the Internet. Earlier reliable retailers makes shopping more customer- this decade, the company fashioned a diversified portfo- friendly and predictable. Will cultivating large sellers lio of companies with a hand in each of the Internet's big dilute eBay's brand and reputation as a dynamic flea cash pots: shopping, communicating, search, and enter- market? Or will it steer eBay toward the fastest part of tainment. They are now realizing that some of these e-commerce growth? acquisitions were not good fits with their core business. Reports from 2009 appear promising. Despite the PayPal, whose service enables the exchange of money unfavorable economic climate, eBay's stock has rallied between individuals over the Internet, brings additional from lows early in the year, gaining 71%. However, transaction-based fee revenue, and has been a significant eBay's site traffic is continuing to slowly erode as bright spot for eBay's future prospects. EBay is banking consumers gravitate towards Amazon and other similar on PayPal becoming the standard payment method for sites. EBay still has a way to go to recoup its dot-com online transactions. The service already receives 40 per- boom glory days. Can the Web's most prominent online cent of its business from payment transactions that are auction site change course so dramatically from the not associated with eBay. Management is using PayPal, formula that made it successful? a high-growth area, to help refocus the business and Sources: "Is John Donahoe Finally Turning eBay Around?" Kevin Kelleher, jump-start stagnant growth. www.gigaom.com, June 14, 2009; " Peter Burrows, "EBay Outlines Three-Year In 2005, eBay acquired Shopping.com, an online Revival Plan," Business Week, March 12, 2009; Geoffrey A. Fowler, "Auctions Fade in shopping comparison site, and Skype Technologies, eBay's Bid for Growth," The Wall Street Journal, May 26, 2009, "EBay Retreats in Web Retailing," The Wall Street Journal, March 12, 2009, and "EBay to Unload Skype which provides a service for free or low-cost voice calls in IPO, Citing Poor Fit," The Wall Street Journal, April 15, 2009; Geoffrey A. Fowler over the Internet. Markets that eBay traditionally had and Evan Ramstad, "EBay Looks Abroad for Growth," The Wall Street Journal, April trouble penetrating, such as real estate, travel, new-car 15, 2009; and Brad Stone, "EBay's New Leader Moves Swiftly on a Revamping," The New York Times, January 24, 2008. sales, and expensive collectibles, require more commu- nication among buyers and sellers than eBay currently Case Study Questions offers, and Skype provides voice communication ser- 1. Apply the value chain and competitive forces model vices to help. to eBay. But in 2009, eBay announced its plans to unload Skype, 2. What is eBay's business model and business strat- admitting its mistake in acquiring the company. EBay egy? How successful has it been? assumed that buyers and sellers would use Skype to com- 3. What are the problems that eBay is currently facing? municate about transactions, but the feature never caught How is eBay trying to solve these problems? on as expected. Skype cost eBay $2.6 billion, and eBay 4. Are these good solutions? Why or why not? Are stands to recoup only a portion of that initial sum. there any other solutions that eBay should consider? Investors had urged the company to rid itself of Skype and 5. What people, organization, and technology factors channel the funds they receive into new growth initiatives. play a role in eBay's response to its problems? Despite its mistake in acquiring Skype, eBay is still 6. Will eBay be successful in the long run? Why or why trying to expand the business via acquisitions. The com- not