A case study focusing on eBay strategy
This case study summarizes the strategic approach used by eBay to take advantage of increased consumer adoption of the Internet. We have created it as an update for students and professional using Dave Chaffey's books which feature this case study. In this article we summarise eBay's objectives, strategy and proposition and key risks. At the end of the article we give sources to find the latest approaches used by eBay.
Updates will be added at the top of the case study
2018 update: Over 50% of purchases on eBay in the UK from mobile
At the end of 2017 eBay had 168 million 12-month active buyers, an increase from 90 million active in 2010. Nearly two-thirds of transactions are now international. The challenge of growing the business can be seen by the near static GMV in the last three years. Globally 58% of GMV is now transacted on smartphone.
Updating eBay brand positioning using traditional media
In an interview with eBay UK marketing director Gareth Jones, explained that:
“We don’t want to be defined by that online car boot sale reputation anymore. We need to get people to consider eBay in a completely different way. The UK is the petri dish for testing a new approach to rebuilding the brand globally. It is all about a shift away from the marketplace and over to being the ultimate shop”.
He is candid that a past focus on prioritising digital channels has had a “small impact” on changing eBay’s perception. Despite stating we’re in an age of digital-based marketing, he believes TV is the best channel for brand building. This is based on regional tests that proved TV is the best place to get people to reap-praise eBay as a brand:
“TV is still on fire and a wonderful medium to get neurons into people’s brands in order to rewire their perceptions. If you ask someone where they are shopping on Black Friday then TV is the best place to put eBay at the front of their consideration set.”
It’s hard to believe that one of the most celebrated dot-coms has now been established nearly 20 years. Pierre Omidyar, a 28-year-old French-born Software Engineer living in California coded the site while working for another company, eventually launching the site for business on Monday, 4 September 1995 with the more direct name ‘Auction Web’.
Legend reports that the site attracted no visitors in its first 24 hours. The site became eBay in 1997 and by 2012, it had 112 million active users globally defined as users who have bid, bought or listed an item during the preceding 12 month period, with the total worth of goods sold on eBay $60 billion, which is equivalent to $2,000 every second. Total revenue was $8.7 billion.
eBay describes its purpose as to ‘pioneer new communities around the world built on commerce, sustained by trust, and inspired by opportunity’.
eBay’s 2016 report describes the company’s view on current marketing approaches of exploiting Big Data and Artificial Intelligence.
To deliver the most relevant shopping experience, we continue our efforts to better understand, organize and leverage eBay’s inventory.
With our structured data initiative, we are able to begin organizing our vast inventory around products rather than listings and aggregate insights into supply and demand. We continue to broaden the coverage of structured data, which enables us to create and start rolling out new consumer experiences that are modern, simple and differentiated.
One of our goals is to deliver a more personalized shopping experience by determining what products to show our consumers and highlight the incredible price and selection advantages that eBay often provides across categories.
eBay's Revenue model
The vast majority of eBay’s revenue is for the listing and commission on completed sales. While it is best-known for auctions, 80% of UK sales now coming through new items of which the majority are fixed price. UK marketing director Gareth Jones told Marketing Week he wants to focus on top-of-the-funnel consideration: "it wants British consumers to see it as the first choice for buying new items as opposed to its historic online car boot sale reputation".
For PayPal purchases an additional commission fee is charged.
Margin on each transaction is phenomenal since once the infrastructure is built, incremental costs on each transaction are tiny – all eBay is doing is transmitting bits and bytes between buyers and sellers.
The eBay marketplace is well known for its core service which enables sellers to list items for sale on an auction or fixed-price basis giving buyers the opportunity to bid for and purchase items of interest. Software tools are provided, particularly for frequent traders, including Turbo Lister, Seller’s Assistant, Selling Manager and Selling Manager Pro, which help automate the selling process, plus the Shipping Calculator, Reporting tools, etc.
Today over 60% of listings are facilitated by software, showing the value of automating posting for frequent trading.
An example of a new Shopper feature which is part of its OVP is the eBay ShopBot on Facebook Messenger.
This uses artificial intelligence to provide a personalized shopping assistant that helps people find the best deals from eBay’s one billion listings.
According to the SEC filing, eBay summarises the core messages to define its proposition as follows:
In 2007, eBay introduced Neighbourhoods where groups can discuss brands and products they have a high involvement with.
- Access to broad global markets
- Efficient marketing and distribution
- Opportunity to increase sales.
In January 2008, eBay announced significant changes to its marketplaces business in three major areas: fee structure, seller incentives and standards, and feedback. These changes have been controversial with some sellers, but are aimed at improving the quality of experience.
Detailed Seller Ratings (DSRs) enable sellers to be reviewed in four areas: (1) item as described, (2) communication, (3) delivery time and (4) postage and packaging charges. This is part of a move to help increase conversion rate by increasing positive shopping experiences.
For example, by including more accurate descriptions with better pictures and avoiding excessive shipping charges. Power sellers with positive DSRs will be featured more favourably in the search results pages and will gain additional discounts.
Fraud is a significant risk factor for eBay. BBC (2005) reported that around 1 in 10,000 transactions within the UK were fraudulent; 0.0001% is a small percentage, but scaling this up across the number of transactions, this is a significant volume.
To counter this, eBay has developed 'Trust and Safety Programs’ which are particularly important to reassure customers since online services are prone to fraud.
For example, the eBay feedback forum can help establish credentials of sellers and buyers. Every registered user has a feedback profile that may contain compliments, criticisms and/or other comments by users who have conducted business with that user. The Feedback Forum requires feedback to be related to specific transactions and Top Seller status was introduced in 2010 to increase trust in the service.
There is also a Safe Harbor data protection method and a standard purchase protection system.
The fees model that eBay uses is often changed and this can cause problems with users, but the impact is calculated that it does not affect overall sales. In their 2012 SEC filing eBay note: 'We regularly announce changes to our Marketplaces business intended to drive more sales and improve seller efficiency and buyer experiences and trust. Some of the changes that we have announced to date have been controversial with, and led to dissatisfaction among, our sellers, and additional changes that we announce in the future may also be negatively received by some of our sellers. This may not only impact the supply of items listed on our websites, but because many sellers also buy from our sites, it may adversely impact demand as well'.
In common with other global platforms like Amazon, Facebook and Google, eBay note the potential threat of the shift to tablet and smartphone platforms noting that one risk factor is: 'Our ability to manage the rapid shift from online commerce and payments to mobile and multi-channel commerce and payments'.
There is also the common risk factors for online pureplays of retaining an active user base, attracting new users, and encouraging existing users to list items for sale, especially when consumer spending is weak.
Although there are now few direct competitors of online auction services in many countries, there are many indirect competitors. SEC (2012) describes competing channels as including online and offline retailers, distributors, liquidators, import and export companies, auctioneers, catalogue and mail order companies, classifieds, directories, search engines, products of search engines, virtually all online and offline commerce participants and online and offline shopping channels and networks. In their SEC filing, eBay states that the principal competitive factorsfor the Marketplaces business include the following:
- ability to attract, retain and engage buyers and sellers;
- volume of transactions and price and selection of goods;
- trust in the seller and the transaction;
- customer service; and brand recognition.
Amazon is one of the biggest competitors since it also has marketplace sellers integrated into its products listings. It’s latest SEC filing notes: Consumers and merchants who might use our sites to sell goods also have many alternatives, including general ecommerce sites, such as Amazon and Alibaba, and more specialized sites, such as Etsy.
Competitive factors today are listed as:
- ability to attract, retain and engage buyers and sellers;
- volume of transactions and price and selection of goods;
- trust in the seller and the transaction;
- customer service;
- brand recognition;
- community cohesion, interaction and size;
- website, mobile platform and application ease-of-use and accessibility;
- system reliability and security;
- reliability of delivery and payment, including customer preference for fast delivery and free shipping and returns;
- level of service fees; and
- quality of search tools.
Before the advent of online auctions, competitors in the collectables space included antique shops, car boot sales and charity shops. Anecdotal evidence suggests that all of these are now suffering. Some have taken the attitude of ‘if you can’t beat ’em, join ’em’. Many smaller traders who have previously run antique or car boot sales are now eBayers. Even charities such as Oxfam now have an eBay service where they sell high-value items contributed by donors. Other retailers such as Vodafone have used eBay as a means to distribute certain products within their range.
Objectives and strategy of eBay
The overall eBay aims are to increase the gross merchandise volume and net revenues from the eBay marketplace. More detailed objectives are defined to achieve these aims, with strategies focusing on:
- 1 Acquisition – increasing the number of newly registered users on the eBay marketplace.
- 2 Activation – increasing the number of registered users that become active bidders, buyers or sellers on the eBay marketplace.
- 3 Activity – increasing the volume and value of transactions that are conducted by each active user on the eBay marketplace.
The focus on each of these three areas will vary according to strategic priorities in particular local markets. eBay marketplace growth was driven by defining approaches to improve performance in these areas.
- First, category growth was achieved by increasing the number and size of categories within the marketplace, for example Antiques, Art, Books, and Business and Industrial.
- Second, formats for interaction. eBay Stores was developed to enable sellers with a wider range of products to showcase their products in a more traditional retail format including the traditional ‘Buy-It-Now’ fixed-price format.
eBay has constantly explored new formats, often through acquisition of other companies, for example through the acquisition in 2004 of mobile.de in Germany and Marktplaats.nl in the Netherlands, as well as investment in craigslist, the US-based classified ad format. Another acquisition is Rent.com, which enables expansion into the online housing and apartment rental category. In 2007, eBay acquired StubHub, an online ticket marketplace, and it also owns comparison marketplace Shopping.com.
Finally, marketplace growth is achieved through delivering specific sites localized for different geographies as follows.
You can see there is still potential for greater localization, for example in parts of Scandinavia, Eastern Europe and Asia. Localized eBay marketplaces:
- South Korea
- Hong Kong
- New Zealand
- United Kingdom
- United States
In addition, eBay has a presence in Latin America through its investment in MercadoLibre.
eBay’s growth strategy
In its SEC filing, success factors eBay believes are important to enable it to compete in its market include:
- ability to attract buyers and sellers;
- volume of transactions and price and selection of goods;
- customer service; and brand recognition.
This implies that eBay believes it has optimized these factors, but its competitors still have opportunities for improving performance in these areas which will make the market more competitive. According to its 2010 SEC filing: Our growth strategy is focused on reinvesting in our customers by improving the buyer experience and seller economics by enhancing our products and services, improving trust and safety and customer support, extending our product offerings into new formats, categories and geographies, and implementing innovative pricing and buyer retention strategies.
Updates on eBay case's study information
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Analyzing eBay’s and Amazon’s Marketplace Strategies
eBay has been in the financial news a lot lately — and not in a good way. The company announced plans to cut 2,400 jobs, plans to spin off its heavily-hyped Enterprise segment, and plans to spin off its most rapidly growing unit — PayPal. Despite the negative news, eBay’s stock price is actually up, even though its overall earnings are below investors’ expectations, as it has taken these actions that positively impact short-term profitability and helped successful units like PayPal cut weight from under-performing units.
Somewhere, Jeff Bezos is cackling an evil laugh and stroking a cat as he slowly swivels around in his chair.
Leading for the Long Term
Jeff Bezos, CEO and founder of eBay-rival Amazon.com, is famous for his general disdain and disregard for the fluctuations of Amazon’s stock price. He has, during his tenure, trained investors to see profit loss quarters as signs of future growth — rather than a cause for concern. In fact, it’s frankly rare for Amazon to have a quarter with remarkable profits. What is not rare, however, is Amazon crushing overall growth goals. Regardless of net-profit losses, Harvard Business Review named Bezos “The Best Performing CEO” in 2014 by a wide margin. Why? Because, powered by Amazon’s overall growth, Bezos has delivered the best overall returns for shareholders over the long term (a staggering 15,189 percent return).
Why is Amazon so focused on growth? Because Bezos knows that e-commerce is still a startup industry, so he’s leading Amazon like it’s still a startup. The massive growth numbers in e-commerce spending by consumers, between 15 percent and 20 percent YOY, and the rapidly growing market for B2B e-commerce are not indicative of a market where companies should stop investing in growth and start solving for profitability. The e-commerce market is still in a land grab, as more and more consumers shift their spending habits online and new technologies change the way consumers access and buy products — and no company is safe.
For what it’s worth, I actually agree with eBay’s decision to split off business units whose future isn’t tied to marketplace. Over-diversifying your attention is the bane of all startups. Let PayPal be PayPal, let Enterprise be Enterprise, and let Marketplace fanatically obsess over solving for the customer and solving for the seller.
Customer-Centric Unit Economics
In 2011, Matt Lauzon, founder and then-CEO of Boston e-commerce company Gemvara, made an offhand remark that transformed my perceptions of the e-commerce industry. When I asked him how e-commerce companies could possibly remain price competitive with margins being slashed over and over as price aggregators and marketplaces brought individual products as close as they’ve ever been to a market of pure competition, Lauzon said simply, “In the future, I think that e-commerce companies will sort of need to start thinking like SaaS companies.”
He didn’t actually elaborate beyond that, but it clicked nonetheless. Working at a SaaS (Software as a Service) company, I’ve done research around e-commerce, and I have a deep understanding of both SaaS and traditional B2C economics. However, like most B2C analysts and marketers at the time, I hadn’t really combined the two models.
The defining characteristic of SaaS (and any recurring revenue) models are customer-centric unit economics. “Customer centricity,” perhaps the most over-used jargon term of 2014, doesn’t mean “the customer is always right.” What it means is that, instead of focusing on transactional economics (such as marketing costs-per-sale and product margin), companies obsess over the costs to acquire a customer and the customer’s lifetime value.
I’ll use Kissmetrics’ Starbucks case study as an example of how this changes your focus. According to the study, Starbucks has an average order value (AOV) of about $5.90 and an average profit margin of 21.3 percent for a net profit of about $1.26 per sale. Traditional e-commerce marketing wisdom would say that that means that you could spend, for example, no more than $0.06 per click on a pay-per-click (PPC) advertising campaign to drive a sale (assuming you have a generous 50 percent visit-to-contact conversion rate and a 10 percent contact-to-customer conversion rate on your website).
However, according to this case study, the average Starbucks customer has an average LTV of $14,099! So as a customer-centric B2C marketer at Starbucks, you don’t look at your marketing funnel as a static, transactional model where you’re trying to spend less than $1.26 to sell a $5.90 order of coffee and food, you’re trying to acquire and retain a $14,000 customer.
Solving for this ratio opens up a whole new world of growth for e-commerce and other B2C companies. Partially, this is because recurring revenue models are willing to lose money to acquire a customer (meaning that they spend more on sales and marketing per customer than the customer spends in their first transaction). This is because a recurring subscription gives the business enough confidence for future revenue that it can accept a future “time-to-payback.”
A SaaS company for example, billing $200/month with 50 percen profit margins, can actually spend $200, $500, or even $1,200 to acquire a customer and be confident that if the customer sticks around they’ll make their money back in two, five, or 12 months and then bank the future of the customer’s subscription as profit.
What this method of analyzing your business does is split your company growth into a simple guiding metric: CLTV (Customer Life Time Value) to COCA (Cost Of Acquiring a Customer). Actual acronyms may differ depending on where your CFO went to business school, but essentially this ratio shows that for every $X you put into acquiring a customer, your business gets $Y out. To use my simple math from earlier as an example, if you have a $200 monthly-recurring-revenue (MRR) customer, a 50 percent margin, and your company has an average of 10 percent MRR churn (meaning that 10 percent of your revenue cancels in a given month), your CLTV is ($200 x 50 percent)/10 percent or $1,000. If you’re spending $500 to acquire a customer, you have a CLTV:COCA ratio of $1,000:$500 or 2:1 and your time-to-payback is five months.
What makes a good ratio? Well, that depends. Greater than 1, of course, because otherwise you’re losing money on every customer. However, you don’t necessarily want your ratio to be too high (such as 100:1) because that means that you’re probably not investing as heavily as you could in customer acquisition (unless you’re in a magical market where you already have 100 percent market share). Nailing the actual targets is a complex strategic and financial question, and therein lies part of the value in great business leaders.
As an e-commerce business, this changes the traditional focus from lower transaction acquisition costs to raising CLTV, primarily through customer marketing. Recurring revenue models can afford a loss on the first transaction because the recurring revenue means that they’re confident that a given customer will give them more revenue. Transactional B2C marketers haven’t looked at their models this way, in part, because they haven’t been investing in customer retention enough to be confident that a given customer cohort would continue spending with them. Once you do, an e-commerce company can afford to take a break-even or even negative value on the first transaction a customer makes and out-spend its competitors in sales and marketing investments for customer acquisition. Like Amazon does to eBay.
eBay, of course, knows all of this. The company has smart people who understand the damage that customer churn has on their business. “It’s the infrequent shopper that comes two, three, four times a year,” eBay CEO John Donahoe told USA Today. “They didn’t come back at the rate we thought.” This is a strange ailment for the company that invented the online shopping addiction. What’s changed?
Solve for the Customer
The beautiful thing about customer-centric unit economics is that it quickly and clearly illustrates that not all customers are created equal. Anyone who’s ever worked at an e-commerce company has noticed that some customers are far more valuable than others. They order more and order more frequently. Conversely, we’ve all also worked with customers and thought to ourselves, “This person has to be costing me money.” When you use a customer-centric model, you can easily segment your customers into profitability cohorts and then use your marketing analytics to find out not only which campaigns drive the most traffic or sales, but which campaigns attract and influence the best customers.
In the Starbucks case study, for example, a marketer doing a buyer persona analysis of my colleagues at my company would find that the LTV:COCA ratio for tech startup employees is even more favorable than the average consumer. We drink a lot of coffee, and often spend hours in Starbucks when, say, we’re writing an article for the ERA Blog!
Once you’ve defined your desirable buyer persona cohorts, you can have your marketing teams focus on campaigns that attract and convert these specific types of customers. You should have specific marketing teams own the LTV:COCA for each type of buyer persona. If possible, hire or leverage passionate volunteer customers from these cohorts to create and test your marketing.
This method also helps prevent marketers from chasing high revenue but low-growth buyer personas. Tech startup employees may be worth twice as much to Starbucks when the LTV calculation is done (say, $28,000). Looking at that, you might think it’s worth just parking a barista in our front office! However, that would raise the COCA so much that it might not be worth it because the same costs would be distributed across a smaller number of more valuable customers. If your normal customer is worth $14,000 and you spend $2,000 to acquire and retain them, your ratio is 7:1. If a tech startup employee is worth twice as much ($28,000) but it costs $7,000 to acquire and retain them (because a barista is a fixed cost of sales and marketing but you’re getting less customers) then your ratio is a less-attractive 4:1.
By looking at it as a ratio instead of absolute values, e-commerce companies can determine which buyer personas lead to growth and avoid chasing high-value targets that are lower profitability long term. This is a consistent mistake with startups that over-invest early on in going after high-dollar sales instead of focusing on growth personas.
For less profitable (or even negatively profitable cohorts), you may even want to “fire them” by excluding them from your customer marketing efforts or even stop selling to them entirely.
It’s an attractive proposition to try and be everything to everybody, but it rarely works out. eBay should identify its most valuable buyer personas and obsessively solve for its experience. Invest not only in battering customers with catalog depth, which can often create confusion and actually lowersales, but in creating experiences that attract and help the company make decisions. As I’ll discuss later in the article, over-invest in customer acquisition for these cohorts and over-invest in customer retention and happiness for these cohorts — even to the exclusion of less profitable buyer personas. Amazon is famous for this — obsessing over delivering value and experience for the customer — and it’s helped the company lure customers away from other marketplaces like eBay.
Find the Sellers That Bring the Best Buyers
A two-sided marketplace strategy requires, of course, two participants. Amazon isn’t exactly famous for thrilling its sellers with a great experience, but neither is eBay. And unlike eBay, Amazon has done a better job of driving sales for sellers through new customer acquisition and customer retention (meaning sellers can’t afford to leave), as well as selling products itself (meaning when sellers leave, Amazon can often still offer that product to customers).
Another unique advantage of customer centricity is that, instead of looking at seller relations from the perspective of industry or product line, eBay can identify the sellers that attract and convert its best buyer personas. People aren’t isolated into silos of product lines. However, a specific buyer persona will often have a range of products that they find most appealing and buy online.
Two-sided marketplaces have a classic chicken-and-the-egg problem: You need sellers to attract buyers, and you need buyers to attract sellers. The solution, usually, is that the marketplace will subsidize the acquisition of one side of the market (usually the supply side) and monetize through the attraction of the other side (usually the demand side).
While, again, you can’t make everyone happy, eBay should identify sellers (both existing eBay sellers as well as those not currently on the marketplace) in the best customer cohorts and over-invest in attracting and retaining them on the marketplace. eBay already has a seller protection program, by expanding this and really focusing on sellers in the best persona cohorts, eBay can ensure that the products that its most valuable customers are looking for are available at competitive prices on the site.
Once identified, eBay should heavily invest in acquiring and retaining these sellers on its marketplace. “eBay needs to get out of the sellers’ way,” says John Lawson, eBay power-seller and founder of ColderICE. “They need to provide a platform for the sellers to create their own following, like they did in the past. They need to think about how to empower the seller voice again.”
As obsessively as eBay should focus on customer happiness, it should refocus on seller success and satisfaction.
Marketing Automation and Personalization
Much of e-commerce marketing is focused on acquiring new customers. This causes e-commerce companies to invest heavily in marketing activities like SEO and PPC. However, as eBay CEO John Donahue indicated in his comment to USA Today, the largest leverage is often in customer retentionrather than acquisition. Customer marketing is an activity powered primarily by email marketing automation, content personalization, and social media.
Email marketing automation allows e-commerce companies to send an email to a specific customer at a specific time with a specific offering that’s highly relevant to them, rather than sending generic campaigns with a large number of product choices hoping that something will attract the interest of the customer.
Generic emails with multiple offerings to customers are damaging for several reasons. First, by offering a large number of options e-commerce marketers can actually lower the probability that someone will buy something by inflicting “decision paralysis” on them.
Second, by sending consumers a regular barrage of mostly irrelevant emails, you’re actually training them to ignore you. Then, when you actually have a product or promotion that’s highly relevant to them, you’ve cried “Sale!” so many times that the customer can often ignore your email marketing entirely. In addition, untargeted emails that get ignored can actually negatively impact your overall email marketing deliverability, as ISPs look at email engagement as a variable in determining what domains do and do not get delivered to inboxes.
Content Mergers and Acquisitions
This is a fairly new concept, but one that I expect will grow over the next several years. Traditionally, businesses engaging in mergers and acquisitions activities focus on acquiring companies with significant revenue or market positioning. However, with the increased importance of content in e-commerce marketing — both in attracting new customers as well as customer marketing that helps people make decisions and keeps them engaged with the brand — companies like eBay should continue looking at acquiring excellent content sites that are popular with their most valuable persona cohorts.
The barriers to entry for launching a content site have become essentially non-existent now (for example, my wife made a website in a day where she writes stories about Legos). This has led to an explosion in content creation for interests of all varieties and niches. Many of these sites are casual activities by the authors or are small businesses, monetizing primarily through advertising (whose profitability is far worse than e-commerce).
eCommerce companies like eBay have an opportunity to acqui-hire great content sites and creators to turn the experience of the eBay website from one of price-browsing to one of community and content. It may find that it gets a much better return on excellent content acquisitions (lower cost and higher leverage) than traditional technology and market acquisitions.
eBay has actually tried this in the past without obvious success with its fashion blog and even afashion-oriented Tumblr. Both, however, have had very little interaction or social sharing. Without being able to see the metrics behind its success in driving traffic and customer acquisition (blogging and content creation heavily influences search engine rankings), we can only assume that eBay did this because it sees fashion-oriented shoppers as a profitable buyer persona. To enhance the strategy, this content should be focused around helping move customers through the decision-making process and be used in marketing automation. They should also test content acqui-hires for other profitable buyer cohorts to see if they can drive greater engagement.
Buyer Protection Marketing
eBay actually has good protection for buyers, but it’s not generally known. In fact, getting something other than what you expected while shopping on eBay has become somewhat of a cultural cliché(watch this clip from the popular TV series The Big Bang Theory).
Compare this to the growth of e-commerce companies like Zappos, which overcame consumer concerns with an absurdly generous return policy for buyer protection (free shipping both ways up to a year after purchase, and up to four years later during leap years). Particularly for the valuable buyer personas identified earlier, eBay should create and prominently promote policies that solve for any potential perceptions of risk for consumers. Sometimes, a ridiculous reassurance is what’s needed to regain confidence once lost.
Balancing Platform Strategy With Seller Satisfaction
Amazon’s platform strategy is diabolically genius. In software, platform strategy refers to the ability to allow other developers to create applications that augments the experience for users on your platform (think Facebook or WordPress). This allows software companies to see what features are valuable to users without actually having to invest in building them themselves. Of course, if a particular feature turns out to be valuable enough, the core product team can absorb that functionality into the core software (leaving the original application developer to compete with the core company — a difficult proposition at best).
In e-commerce, platform strategy refers to the unique ability of marketplaces to sell products that they don’t have to have in stock or handle the pricing and fulfillment challenges for. If a product turns out to be particularly popular or profitable, the e-commerce site can then decide to carry it itself. Since the marketplace usually takes a percentage of sales, it has a built-in price advantage. Also, since marketplaces like eBay have much more buying power than the sellers on its site, the company can usually get lower unit costs that let it undersell any other providers (including the original sellers that it used to test the economics of the product line).
Diabolical? Yes. But it’s the massive advantage of being the platform instead of being on the platform.
eBay should focus on attracting and nurturing sellers in product lines that it doesn’t have core competence in, but that matter to its valuable buyer personas, and leverage the learnings from those sellers into a direct selling experience that solves for the customer.
Mobile, Social, and More
There is, of course, a great deal more that eBay could do to innovate and thrive. Doubling down on mobile, already part of its plan, could help drive sales, especially if it gets creative with barcode-scanners or location-based notifications. Social-curation interfaces like Pinterest could be a completely new model for how eBay could innovate around the traditional Site > Category > Product user experience.
Not all of these suggestions may work for eBay, nor are they a good fit for every e-commerce company. The first step, however, is to focus in on specific buyer personas and maniacally solving for growth through customer acquisition and (most importantly) customer retention, even at the short-term expense of being an Everything Store.