Part I: eBay’s Strategic Process
eBay's mission is to provide a global trading platform where practically anyone can trade practically anything.
On an average day, there are millions of items listed on eBay. People come to the eBay marketplace to buy and sell items in thousands of categories including antiques and art, books, business & industrial, cars & other vehicles, clothing & accessories, coins, collectibles, crafts, dolls & bears, electronics & computers, home furnishings, jewelry & watches, movies & DVDs, music, musical instruments, pottery & glass, real estate, sporting goods & memorabilia, stamps, tickets, toys & hobbies and travel.
Members from all over the world buy and sell on eBay. Currently, eBay has local sites that serve Australia, Austria, Belgium, Canada, France, Germany, Ireland, Italy, Korea, the Netherlands, New Zealand, Singapore, Spain, Sweden, Switzerland, Taiwan and the United Kingdom. In addition, eBay has a presence in Latin America and China through its investments in MercadoLibre.com and EachNet, respectively.
eBay offers a wide variety of features and services that enable members to buy and sell on the site quickly and conveniently. Buyers have the option to purchase items in auction-style format or items can be purchased at fixed price through a feature called Buy-It-Now. In addition, items at fixed price are also available Half.com, an eBay company.
eBay is dedicated to its community of members, and has numerous services which enhance the trading experience. Our marketplace services include: online payments by PayPal; a wide array of Buyer and Seller tools; and the Developers Program for community members who would like to develop their own solutions.
eBay is committed to conducting its business in a way that minimizes the impact on the environment. We recognize that a responsible approach to environmental issues is critical to our continuing success and is important to our shareholders, stakeholders, employees and users.
Although eBay's business activities have a negligible impact on the environment, we constantly evaluate new ways of conserving energy and reducing waste in operating our business.
eBay will closely monitor and comply with all applicable environmental legislative and regulatory requirements particular to our business. To ensure that we continue to minimize our environmental impact, eBay will address a number of key areas in a sustained manner based on best practice:
eBay is committed to the continuous improvement of its environmental practices by monitoring the environmental impact of all of its business activities and measuring the benefits of its environmental policies and procedures.
eBay’s Business Model
Management believed that eBay’s business model had six specific elements that were key to the company’s success:
eBay’s Strategy and Vision in 2002
Heading into 2002, eBay’s strategy revolved around on five key action initiatives:
eBay’s mission is to provide the global community with a user-friendly Internet platform where its customers are able to trade anything with one another. The firm’s mission is specific in that they are the middlemen in a global auction, which caters to six categories of customers; bargain hunters, hobbyist/collector buyers, professional buyers, casual sellers, hobbyist/collector sellers, and power and corporate sellers.
eBay has numerous visions of its future as a business, however, each vision ties in with the main vision of the firm, which is to become a global leader in online auction markets. An analysis of eBay’s vision also includes the characteristic of having a strong value system on part of both the users of eBay’s services as well as the firm itself. They believe that the integrity of both will help push eBay to achieving its goal of becoming a global leader in online auctions with a fully integrated and compelling system.
eBay’s strategic question is not how to become a global leader in the business of online auctions since it is already a leader in this particular industry. However, the question that eBay must ask itself is how to maintain and improve its leadership ability in the online auction industry. eBay must ask itself what services it can improve to continue to attract more customers and further compete with other competitors such as Yahoo’s auction marketplace. Another part of this question that will be addressed is what innovations the company can work on to maximize the use of the new technologies that are now presented with the Internet. This central question is very important to eBay’s strategy, for the reason that it will further eBay’s successes and ability to continue its leadership role in the global online auction marketplace.
Part II: Management Perspectives from Team
Information Systems Management Perspective of eBay
The major factor for an online retail store, like eBay, is to attract customers to their site and keep them coming back. For example, advertising on websites. Once an online retailer gets the customer to their site they have to assure them that their credit card numbers and personal information are secure. After you get customers to your site and assure them they are secure, they need to have features that will keep the customers interested and get them to return. For instance, an online retailer could have special features other sites do not provide.
In 2002, eBay had five key objectives it wanted to meet. How eBay manages its information systems determined if some of these objectives were met. These objectives are:
1. Broadening the existing trading platform.
2. Develop an eBay community that is vibrant and loyal.
3. Enhance features and functionality.
4. Expand value-added services.
5. Developing U.S. and international markets.
The management of information systems varied between each object. Nevertheless, technology changes helped eBay obtain the objectives.
Broadening the existing trading platform
To broaden its platform, eBay developed specialty sites. Listed below are the specialties developed:
· LiveAuctions gave customers the opportunity to place bids on items at live auctions.
· Professional Services let customers post projects and allow professionals to bid on it.
Develop an eBay community that is vibrant and loyal
For eBay to develop the community they desired, they implemented a program called SafeHarbor. This would make sure all members were trust worthy. To make the customers loyal, eBay provided technology features other online retail sites didn’t.
Enhance features and functionality
The management of information systems plays a big part in achieving this objective. eBay developers used technology to make it easy for customers to buy and sell. In addition, they used technology to improve the performance of the site and to avoid intruders from hacking into the site.
Expand value added services
For this objective to be reached, eBay wanted to make its service easy to use and convenient to access. In an attempt to do this they formed alliances with other companies.
Developing U.S. and international markets
eBay wanted to expand its current market. The majority of eBay’s business came from customers in the U.S., but they want to expand their markets into Canada, Asia, and Germany. In doing this, they developed customized home pages for users in these countries. They would also get involved in these markets by acquisition of other online retailers that were big in those countries.
eBay relies on its information system and here are so many things eBay can do with it to improve the experience for customers. It all depends on how much resources they want to put towards improving their technology. In conclusion, eBay is not headed in the wrong direction, but there are things they can do to better the company.
Finance Management Perspective of eBay
It probably does not require a finance degree to know that eBay is a strong company with some outstanding prospects. It is important, however, to examine eBay from a financial perspective in order quantitatively measure its composition and performance. To do so, we will examine eBay’s capital structure and fundamental ratios, some recent operating data, and make an assessment of eBay’s soundness for investment.
eBay’s capital structure as of March of 2004 includes $126 million of total debt, which is roughly 0.2% of the market value of its equity. Considering that only $1.3 million of total debt is long term debt, eBay’s debt-to-equity ratio, for practical purposes, is zero. eBay is essentially so successful that it generates enough cash flow from operations that it has no need to take on any considerable amount of debt.
Operating data also released in March shows that the number of registered users and the number of listed items both increased by approximately 50% over the last year. In fact, nearly all recent data suggests that eBay’s operations have increased by at least 50% over the last year, including the gross dollar value of merchandise sales, and the number of active users as well. eBay’s online payment subsidiary, PayPal, released operating data that says registered accounts are up by 67% from one year earlier and that total payment volume is up 64% over the same period. Finally, PayPal revenue rates are higher than ever while expense rates are lower than ever.
eBay’s business success is unquestionable; however, one question does remain: From the point of view of an investor, is eBay still an attractive stock to own? This question might also be asked in a different manner: Does eBay’s current share price fairly represent the value of the firm? If the share price significantly undervalues expected future free cash flows, or qualitatively, if the share price undervalues the true value of the firm, then investors willing to assume risk commensurate with eBay’s historical volatility should invest. Above we discovered some very persuasive evidence of eBay’s strength as a company, but as greater numbers of investors purchase shares based on the strength of eBay’s performance, the price-to-earnings ratio increases. If we think of this ratio as a measure of how much the market believes the company can grow, then clearly the market believes that the eBay can continue its remarkable growth, as eBay’s current P/E is 132 (the S&P 500 current P/E is roughly 18). It is possible, however, as happened in the late 1990s, for investors to get swept up in the moment and bid up the share price of firms to levels that are beyond reason. Ultimately, I believe that for a high-growth company like eBay, its future stock movements, and hence, investment-worthiness depends greatly on the firm’s ability to maintain its strong earnings growth rates. For a long-term buy and hold investor, eBay would make a good choice for an addition to a diversified stock portfolio. However, speculators searching for short-terms gains would be advised to look elsewhere, as eBay is most likely fairly priced or over priced, based on currently available information.
Accounting Management Perspective of eBay
Just by looking at the progression of EBay’s financial statements you can see that the company has made remarkable improvements over the last years. I will provide a small analysis of the financial statements and bring up an interesting accounting situation that has taking place. This situation has just been brought to the attention of the business world by the Financial Accounting Standards Board.
The company has very strong financial statements. Their Net Income is continually growing. They accrue many different liabilities. Most of them are current. This is good because it means that they are paying off their debt at a good rate. The more long-term liabilities a company has the more in debt it will be in the future. The statements seem to be in perfect order. This case seems to show that EBay is one of the top e-commerce companies around. I decided to take a look into any problems that I could find wrong with the situation. The company has also declared that PricewaterhouseCoopers will be their auditors for the year 2004.
After much research I have come to the conclusion that EBay is on the right track. But, it may need to be careful of some of the decisions that its top management has made. The problem has to do with How EBay record’s some of their earnings.
First I should explain that there are two different varieties of pro forma earnings. Let's call them GAAP pro forma earnings and non-GAAP pro forma earnings. Both types of pro forma earnings are "as if" earnings; in other words, pro forma earnings equal the corporate earnings if the company measured income in this or that manner. This or that matter means that it either has a FASB to account for the earnings or it does not. GAAP pro forma earnings are the earnings of the company when the earnings are measured according to some method that an accounting standards-setting body designed. For example, APB Statement No. 3 issued in 1969 did not require but allowed firms to restate financial statements for general price-level changes. If an entity did prepare such statements, it would refer to them as pro forma earnings.
Non-GAAP pro-forma earnings are not tied to any accounting pronouncement. Rather managers fabricated these earnings out of desire. This is pretty much the company’s earnings minus anything that looks bad. What happened is that EBay stated a certain amount of these earnings prior to 2002. In their annual report in 2002 they change these disclosures and did not call attention to the restatement. The auditors found a misstatement of 127 million dollars in 2002. The way to correct this is to go back to the previous year and to restate your earnings. They should have stated this error in an 8-K form. Here is a quote from an auditor that reviewed their books. “Transparency is very important today. When somebody doesn't reveal something, I assume the worst. When somebody reveals a problem but does it in a subtle way that can be easily missed, then I assume that managers wanted me to overlook the disclosures. In those cases, I become skeptical of management's intentions. The good news is that eBay corrected the errors. The bad news is they weren't transparent enough in making these corrections.”
This is one example how a company needs strong leaders to handle the decision making process. I have also learned that another example of pro forma earnings is the way that a company expenses their stock options. Because of the way that EBay and other e-commerce business have been disclosing options it may cause FASB to make a new standard. Current FASB rules have been that you have to disclose option grant for employees in the foot notes. The FASB is proposing that employee stock options should be included in the income statements starting in 2005. This would greatly cut the reported profits of EBay and other technology companies. The standard has not been passed and EBay has voted against this. EBay is a very string company, one of the top in its field. But, there is always room for improvement. Te key to a surviving business is string leadership. I wonder about some of the decisions that EBay’s top officers have made. Coming from an Accounting perspective the two situations that I have talked about are not good. Not disclosing is like telling a lie.
Part III. Coverage of Issues Relevant to eBay and its Industry.
The Internet Industry, and more specifically, the Internet Retail Industry, seems to have recovered from its bout with the “irrational exuberance” of the late 1990s. Due to a rebounding economy, today there is renewed hope for growth across Internet-based companies of all types, including business-to-business and business-to-consumer. As the economy recovers, both businesses and consumers will have extra cash on hand to spend towards products for growth or personal consumption, respectively. The industry, then, must be prepared to act in response to these changes, in order to best deliver value to shareholders. Some of the general trends observed recently include an up-tick in the rate and size of mergers and acquisitions activity, increased competition from new firms, and the “shake-down” of some highly competitive industries in which many firms, both new and established, are battling to establish footholds.
The Internet Retail Industry, part of the arena in eBay competes, is currently experiencing some of the developments listed above. While many firms with non-materializing projected profits were forced to bankruptcy in the late 1990s, those that carried on found the field so much less crowded that for a time, they were able to raise prices. Some large brick-and-mortar firms evolved their online sales, while others formed strategic partnerships with existing Internet firms. In order to continue to thrive today, Internet merchants must understand that the threat of competition still exists, and firms must seek to differentiate their products or services from others while seeking to compete globally, to what extent it is feasible.
Starting from scratch, eBay grew in nine short years to become a $60 billion (by market capitalization) powerhouse. One might attempt to measure eBay’s strength in any number of ways; it has Web sites in over 20 countries; twelve of its product categories now distribute over $1 billion in annual sales; over 100 million persons are eBay registered members. Additionally, eBay is on course to list over one billion items this year, and hosts over 145,000 e-retail stores worldwide. A company as unique and large as eBay is due to face equally large challenges, both unique and standard to the business world. Speaking generally, eBay’s current challenges include: to find ways to continue growth; to implement the most efficient technological and organizational strategies to support growth; to create growth in such a manner that it does not alienate existing members.
Early eBay investors seeking growth have been well-rewarded. As a result, investors hold eBay to a high standard of expected return on invested capital. In an effort to maximize shareholder wealth, eBay has made persistent efforts over the years to innovate. To create growth today, eBay is focusing on both global and domestic expansion. On the global front, 22 countries outside the U.S. currently have eBay Websites. In the eBay mindset, that leaves about another 160 countries (some of which do not yet have the Internet) to go. Many of these sites were created by eBay specifically for the country they represent, though recently a growing number are the result of acquisition. A sign of things to come may be found in PayPal, a service (now owned by eBay) that allows individuals or businesses to send and receive payments by email. PayPal is currently available for use in 38 countries. Both domestically and globally, the most obvious measurement of growth is the number of registered users. In March of this year, there were 105 million registered users, a 52% increase from one year earlier.
The challenge of being a firm as enormous as eBay, of course, is that it becomes increasingly difficult to maintain past growth rates. In order to stay on top, eBay must continuously improve efficiency, in order to avoid being “weighed down” by the amount of business it does. Increasing amounts of technology and the employment of qualified personnel (even if it’s outsourced) to manage new technology are an increasing expense. As membership continues to increase, greater demand is placed on the underlying technology that runs eBay. Furthermore, as membership increases, even brief service outages can cost the firm a great deal of money. Moreover, today’s Internet environment finds hackers increasingly talented and malicious, as though operating a 24-hour-per-day electronic marketplace is not hard enough as it is. One way the firm has handled its expansion in the past has been by instituting rules over all types of user interactions with eBay. Early on, rules were usually put in effect to prevent various items from being traded, such as hate-speech-related paraphernalia, firearms, or fraudulent items. Just as in real life, however, the rules require increasing levels of enforcement. Despite that fact that eBay formed its own online “police” force to search and expel fraudulent sellers, counterfeit and fake items still may be found. Just over a week ago, as of this writing, luxury jeweler Tiffany & Co. filed suit against eBay for providing a marketplace in which fraudulent Tiffany jewelry is traded. Tiffany contends that “sales of shoddy counterfeit merchandise with the Tiffany name harms Tiffany's reputation,” and that eBay is in part responsible for that harm.
The mounting need for self-regulation and constant focus on growth produces a third challenge: How to do so while maintaining the “sense of community” and fostering confidence among individual sellers? The most oft-used word in eBay vocabulary is “community.” eBay is an open society of buyers and sellers, without whom there would be no eBay. The sellers, in particular derive a sense of ownership in their community, so as eBay has evolved, the sellers have been forced to evolve (or occasionally revolt) in response. A number of conflicting forces peaceably (for the most part) co-exist at eBay. First is the balance between new sellers and power sellers. First-time sellers are not likely to need many of the extra options and tools available to seasoned eBay veterans. So eBay’s seller interface must remain easy enough to use for eBay initiates, yet be powerful enough for more experienced members. Another set of needs to be balanced is that of buyers and sellers. Each must be receive fair treatment during transactions. Failure to ensure fairness will drive out either supply or demand in the market. Finally, as eBay partnered with many corporate sellers to provide a market for liquidating inventory, some of the small-volume individual sellers felt as though eBay had “sold out.” Although eBay took action to make some corporate sales separate from individual sellers (by creating Half.com, and eBay Stores), there is a constant effort to preserve a level playing field for all sellers.
Part IV: Application of Major Strategic Concepts to eBay
Forces of Competition
There are many competitors in the industry with eBay. Some of these are flea markets, newspaper ads, and garage sales. These competitors do not reach the whole world like eBay through the Internet. The internet has seen a huge increase in the number of sellers of merchandise. The advantage that they have is that they sell anything. The fact that it is an auction appeals to many different people because they have an opportunity to get the product for cheaper. Some of there competitors are Amazon.com, Dell auctions, and uBid. I would say competition is moderate. The potential for new entry is very high. Anyone has the power to set up a website. The internet has changed the whole way the world works. If is very easy for another company to get started. But eBay has established a very strong name and market share. There really aren’t any substitute products just substitute auction sites. This does not really affect eBay structure.
The pressures from buyer- seller are moderate. The buyer and seller take care of the shipping process. EBay does not have anything to do on this situation. They have set up a rating program where you rate the experience that you had with either the buyer or seller. You can also check the past history of a buyer or seller. The relation between the supplier and seller is that they are the same person. EBay just provides the site the seller and supplier are the same person.
EBay has many different strengths when it comes to selling products. There ability to direct new and old customers to their website is very crucial for success. They do this very well. I receive an e-mail from them at least once a week. That is the way that I was introduced to their website. Also, the website is very user friendly. The first time I was on the site it was a step by step process to get registered. I understood each part of the registration that is one reason I still buy off their website. Also the security issue is a very strong reason that they succeed. The development of a very secure site that has five or six different ways to pay for products makes customer's feel safe.
The weaknesses that I found are the inability for top management to make the right decisions. Through my research I have found four questionable decisions that management has made. They are still very profitable and are growing in earnings.
The opportunity that they have is to expand. They need to expand into other market places. They have made a good name for themselves why not get involved with another company. They also do a great job advertising. They should get involved with a sport’s station.
The threats that eBay should worry about is their market share. They need to hold a big chunk of the market and keep customers satisfied. Is that their website will become out dated. They need to keep their website updated with the fastest internet possible and the newest technology. The Internet is every changing and they can not get left behind.
Competitive Analysis and Strategy
EBay’s Competitive strategy consists of many parts. I think the major two are low-cost provider and broad differentiation strategy. The broad differentiation means that they appeal to a broad spectrum of customers. This is very true for eBay because they try to get customers all over the world. They can achieve this through the Internet. They also have made customer categories so they know how to market to each. A couple examples are professional buyers and bargain hunters. Bargain hunters are the people who will spend all day looking for the deal, while professional buyers are the people who seek unique items but they use to go to stores to buy. EBay’s strategy is to hit all of these customers with as much advertisement as possible. The low-cost part is that because of the site being an auction they offer low prices if bought the right way. It also involves some excitement for the buyer.
The main lesson to take away from the e-merchant Internet services market is that size matters, and it is quite possible to build a profitable business from servicing e-merchants, as shown by eBay. Let’s take a look at the competition. In today's economic environment only large, profitable companies have the resources to challenge eBay in terms of momentum, technology, market reach, branding, and customer service. The most obvious challengers to eBay are AOL, Microsoft, Yahoo, Oracle, Amazon, and Intuit. I will look at one of these companies compared to EBay. Yahoo, for instance, has been in the e-merchant and auction business since 1998, and it is apparent that its numbers are not growing at the same rate as other service providers. eBay has consistently eroded Yahoo's share of online auction transactions, despite eBay increasing their fees where Yahoo Auctions still permits free transactions. Full content aggregation and searching is supported in Yahoo Stores, but the e-merchant content created there does not seem to be adequately distributed throughout the Yahoo network of web properties. Yahoo's most realistic competitor is actually Amazon.com, who has considerably more sophisticated e-commerce and customer service technology but an even smaller e-merchant market share than Yahoo.
Part V: Importance of Presented Data to eBay’s Strategic Situation
The first step in analyzing eBay’s strategic situation is to examine eBay’s mission and clearly define eBay’s strategy for achieving its mission.
eBay’s mission is to provide a global trading platform where practically anyone can trade practically anything. The company’s mission was clearly stated throughout the case as the core of all company activity. eBay’s mission/core is also clearly stated in the company overview section of Ebay.com.
eBay’s strategy for achieving its mission consists of six factors; Expand and embrace scope of geographic coverage, Collaborate partnerships and strategic alliances, Quickly respond and react to changing conditions in the macro environment, industry and competitive conditions, Plan proactive moves to out compete rivals, Strategize to build competitive advantage and bring together key functional strategies including; financial, accounting, and information systems, to build competitively valuable resource strengths and capabilities.
The impact of each factor listed above is directly relative to the company’s strategic situation. Each factor and its corresponding impact are analyzed below.
Because eBay is an Internet based company, its geographic scope of coverage is immense. eBay is currently operating local sites in eighteen countries.
Through the use of collaborative partnership and strategic alliance with MBNA, Providian National Bank, eBay introduced a new MasterCard, credit card that rewards “eBay Anything Points,” on October 2, 2003. MBNA is the world’s largest independent credit card issuer. eBay Anything Points can be spent on anything listed on any of its sites. Each Anything Point earns buyers $.01. “Providian’s ability to issue credit cards to people across a broad credit spectrum complements MBNA, allowing more eBay users to carry the eBay credit card and earn eBay Anything Points.”(Investor.ebay.com, release 119257)
eBay also derives benefit from its collaboration with PayPal. “PayPal, an eBay company, is a leading online payment service used by buyers and sellers around the world both on eBay and off.”(Investor.ebay.com, release 118264) PayPal allows individual and business users with an active e-mail account to send and receive secure online payments. On September 16, 2003, eBay and PayPal announced the opening of their Dublin, Ireland facility. The Dublin facility is now PayPal’s European headquarters and is in control of European customer service and fraud prevention. Dublin is also home of PayPal’s European management team. EBay’s president Jim Weber stated that, “This new facility in Dublin allows us to continue to deliver on our commitment to our community members, especially those in Europe.” (Investor.ebay.com, release 118264) eBay is dedicated to helping its buyers and sellers become and remain increasingly successful on each of its sites.
As previously stated, eBay quickly responds and reacts to changing conditions in macro and industry environments. On February 10, 2004, eBay announced the expansion of its web services software development kit. eBay’s platform integration encourages creative development and seamless connectivity. “The program is enabling businesses to integrate with the eBay platform, and create a rich array of productivities solutions that will help buyers and sellers in our marketplace.” (Investor.ebay.com, release 130975)
For example, “SuperPawn, a leader and pioneer in reselling pre-owned merchandise with 46 company and franchised stores nationwide, developed an application that linked its point-of-sale system to eBay. The application streamlined the process of listing, categorizing and fulfilling merchandise. The application is so efficient and effective that SuperPawn created a second company, ztradingpost.com, to resell this application now called AuctionMonitor- to other retail businesses.” (Investor.ebay.com, release 130975)
Business buying doubled between 2002 and 2003, from $1 billion to $2 billion respectively. Small business selling also increased over time. To accommodate the rapidly growing small business market, eBay has added resources that aid small businesses with improving cash flow, hiring and shipping processes. “New services include: equipment leasing and financing provided by Direct Capital, employment services through Monster.com, and greater integrated shipping solutions through the U.S. Postal Service. These new services complement existing ones such as PayPal, which provides secure and cost-effective online payment solutions for small business.” (Investor.ebay.com, release 130974) While increasing competitive advantage, eBay, for many users has become a fundamental part of starting, operating and growing their individual small business.
eBay’s proactive approach to trust, safety, and privacy are each competitively valuable resources. eBay invented the industries first electronic information exchange exclusive one-to-one trading- the Feedback Forum. Through the forum, users can comment on their dealings with each other. eBay has also implemented SafeHarbor. SafeHarbor is a 24 hour a day seven day a week, via e-mail or live-real time via chat room, customer support department. eBay is also a founding member of the Online Privacy Association, which is an industry coalition which protects consumer privacy on the internet.
Each précis above demonstrates a major impact on eBay’s strategic situation. Each highlights proactive moves to out compete rivals, and the strategies used to build competitive advantage. eBay’s blend of key functional strategies including; financial, accounting, and information systems, to build competitively valuable resource strengths and capabilities, were also displayed.
Part VI: Presentation and Cost-Benefit Analysis of Alternative Solutions
Although eBay is the current leader in the online auction industry and has a great strategy, we have two suggestions. Acquire existing online auction companies and go the route of Google.
By acquiring other companies, such as uBid or Yahoo! Auctions, eBay could attract current customers of the acquired company. This would allow eBay to control a much larger percentage of the industry than it currently does. By acquiring other companies, eBay would also inherit any niche markets. If, for example, Yahoo! Auctions dominates the market for baseball memorabilia, eBay would gain that niche market. Converting current technology to eBay’s systems and moving users over would be very expensive for eBay. This would need to be done transparently to the end user, except for the name change.
The second option is to go the route of Google. Google started as a search engine and they now sell their search technology built into servers. The servers have an initial cost and two year license cost. Google supports the server for each two years bought. eBay could do this with the online auction business. Currently eBay allows 3rd party sites to list relevant auctions on their sites. The Google approach would mean eBay either developing a server to sell and license, or hosting auctions for a fee. Either way is an incentive for innovation in the online auction industry. However, eBay could lose traders to 3rd party sites. This may not be a major concern in the long run as eBay recovers costs of hosting. New revenue on top of the hosting revenue could be earned through charging a percentage of each trade through an eBay server. This may prove to be too aggressive a strategy however.
Acquisition of other companies: