A Case Study On

EBay Inc. - 2009

Submitted to the Faculty of

School of Business and Governance
Business and Management Department
Ateneo de Davao University

In Partial Fulfillment of
Requirements in MGT 426 : Strategic Management
First Semester of Academic Year 2016-2017

Submitted by:
Pamela Denise B. Rufila

Submitted to:
Dr. Emmanuel C. Aznar
August 5, 2016
INTRODUCTION

EBay is the first virtual online business community. It encourages aspiring entrepreneurs
to become e-commerce business owners. It is a community of buyers and sellers that interact
24/7 in a secure and trusted global marketplace. It has three business segments: (1) Marketplaces,
(2) Payments, and (3) Communications.
The time setting for this case is in the year 2009. During this time, eBay Inc. formed a
partnership with General Motors enabling hundreds of GM dealers in California to help
consumers negotiate purchase of new GM cars and trucks through the eBay online marketplace.
Nearly all of Californias 250 GM dealers took part in the program so consumers could visit Web
pages like gm.ebay.com and chevy.ebay.com to browse new 2008 and 2009 GM vehicles, ask
dealers questions, and figure out financing. This program marked a shift for San Jose, Californiabased eBay, since most of the vehicles sold on eBay Motorsa site that sells various types of
vehicles and auto parts had historically been used.
Brief History
The idea of selling anything to anyone, anytime, anywhere started with Pez candy. Pierre
Omidyar, the founder of eBay, created an online auction in the form of a sole proprietorship
business to solve his and his wifes problem of contacting with other Pez collectors. Pierre, a
computer programmer, devised a code that enabled and ran the eBay auction Website from his
home computer during the Labor Day weekend. Later in May 1996, eBay was incorporated in
California and became public on September 24, 1998. The first eBay auction was also conducted
on Labor Day. EBay has a 14 percent share of global e-commerce with 86.3 million active users
as of 2008.
EBay also acquired other companies. In 2002, eBay acquired PayPal, which was founded
in December 1998. Skype, founded in 2003, was acquired in the year 2005. Three years later,
Bill Me Later was acquired.
Marketplaces Segment
EBay Inc.s Marketplaces platforms and services segment includes eBay.com, StubHub,
Online Classifieds, Online Advertising, Shopping.com, and Rent.com. The Marketplaces
segment generates revenues from listings and fees paid by sellers.
Payments Segment
The Payments segment revenues are generated from fees paid by merchants for payment
processing services through PayPal and Bill Me Later. PayPal is a recognized global leader in
online payment solutions with 70 million active accounts. PayPal is available to any online or
offline individual or business with an e-mail address and allows members to securely send and
receive payments online securely without sharing sensitive financial information. Bill Me Later
offers consumers instant credit at the point of sale through over 1000 online U.S. merchants.
Retailers that offer the Bill Me Later service include: Borders, Continental Airlines, Fujitsu,
JetBlue, Overstock, QVC, Toshiba, Toys R Us, and Walmart.com. Because Bill Me Later is not
a chartered financial institution, an arrangement with CIT Bank allows Bill Me Later to extend
credit to customers. When a consumer makes a purchase on credit, CIT Bank initiates a
consumer loan at the point of sale. Bill Me Later then purchases the consumers loan from CIT

Bank. Bill Me Later earns revenues from interest on the outstanding balances, late fees, and
transaction fees.
Communications Segment
The Communications segment is composed of Skype. It is the worlds fastest-growing
Internet communication software platform. The Communications segment generates usage
revenues from Skype VoIP for connection to traditional fixed and mobile telephones under
eBays subsidiary Skype Technologies S.A. Communications fees are assessed either on a
subscription basis or per minute charge for SkypeOut minutes. Skype revenue is earned
through premium services such as making/receiving domestic or international calls to and from
landline and mobile phones, voicemail, call forwarding, and personalization, such as ringtones.
Vision and Mission
The following statements can be found in eBays yearly annual reports:
We intend to achieve our mission of creating the worlds online marketplace by
improving and expanding across three main areas: categories, formats, and geographies (2005
Annual Report)
We intend to achieve our mission of creating the worlds leading e-commerce franchise
by building upon our core Marketplaces business and building our adjacent businesses. (2006
Annual Report)
We intend to continue to work toward our mission of creating the worlds leading
ecommerce franchise by investing in our core Marketplaces segment and continuing to build our
adjacent Marketplaces businesses. (2007 Annual Report)
According to eBay Inc.s 2009 Annual Report:
As a global e-commerce company, our mission is to connect buyers and sellers. To us,
this is both an opportunity and a responsibility weve seen first-hand how individual actions
can make a positive difference in the world.

Ebays Organizational Chart

Source: eBay.com.

OBJECTIVE OF THE STUDY

This study seeks to provide alternative courses of action to help the company achieve its
objectives:
1. To expand the Marketplaces segment.
2. To become the number-one online payment solution.
3. To implement a customer management program that emphasizes acquiring new
users and upgrading current Skype users to premium products.
STATEMENT OF THE PROBLEM
EBay experienced a downward trend in revenues, ending the 2008 year with an
unimpressive performance.
Table 1. EBay Inc.s Trend in Net Revenues
Segment

Net Revenue Increase

2006 - 2007

Net Revenue Increase

2007 - 2008

Decrease in
Net Revenue Growth

Marketplaces

24%

4%

20%

Payments

34%

25%

9%

Communications

96%

44%

52%

Total Net
Revenues

29%

11%

18%

For the second quarter of 2009, eBays profit fell 29 percent and revenue declined 4
percent as the company continued its turnaround strategy in a harsh climate for consumer
spending. For the quarter ending July 30, 2009, eBays Marketplaces division reported $1.26
billion in revenue, a 14 percent year-over-year decline. The revenue drop was attributable to the
impact of the stronger dollar and the lingering weak economy with high unemployment. EBays
core segment, the Marketplaces segment is struggling on fulfilling its mission to become the
worlds leading ecommerce franchise due to some external factors. What can eBay do to improve
its operations while avoiding the threats?

AREAS OF CONSIDERATION
Internal Assessment
Strengths:
1. EBay.com offers a sense of community to buyers and sellers that is sustained by
communication and high transaction rates on a wide selection of goods/services.
2. EBay provides a faster, easier, safer online commerce experience.
3. EBay offers millions of items for trade through auction-style and fixed-price
trading in 39 markets and boasts 86.3 million active global users as of 2008.
4. By 2009, eBay has attained customized local site across four major areas of the
world: Asia Pacific, Europe, North America and Latin America.
5. EBay provides goods and services to buyers and sellers in a secure, trusted, and
efficient commerce environment.
6. Ebay user support
7. Ebays Marketplaces platform bring buyers and sellers through fully automated
online Websites 24/7.
8. PayPal is a recognized global leader in online payment solutions with 70 million
active accounts.
9. PayPal is accepted both online and offline in 190 markets worldwide and process
payments in 19 currencies.
10. Skype is the worlds fastest-growing Internet communication software platform.
11. Skype had approximately 405.3 million registered users worldwide as of 2008.
12. Skype is available in 28 languages in over 225 countries.
13. Nearly 11 million Skype downloads are to mobile devices.
14. Nice growth in both their PayPal and Skype business segments in the second
quarter of 2009.
Weaknesses:
1. Labor reduction in response to the weak economy.
2. Reduction of Ebays available line of credit as a result of the global financial
crisis.
3. Increase of its fee structure for its Marketplaces business.

4. Lack of policing trade and infringement on trademarks and copyrights for the sale
of not for resale and counterfeit items on eBays Web sites.
5. Illegal listings of counterfeit and stolen goods.
6. Significant strain on management, operations, and financial resources due to
expansion of eBay both in the United States and internationally.
7. Less user-friendly Web site due to growth in the number of products and Web site
features.
8. Requires additional expensive investments in hardware, software, and personnel
due to increased volume and greater complexity.
9. More difficult transaction-processing and revenue collection becomes as the
number of transactions increase and consumers default on loans.
10. Customer support is challenged from greater trade activity and an increased
number of users.
11. Decline in their Marketplaces business segment for the second quarter of 2009.
12. To date, eBay has never paid a cash dividend on stock and specifically states that
there are no anticipated cash dividends forthcoming in the future.
13. The stock price for 2005 through 2009 ranged from a high around $60 per share
to a low near $10.
Table 2 Internal Factor Evaluation (IFE) Matrix
Key Internal Factors

Weight

Rating

Weighted
Score

1. Wide selection of goods/services

0.05

0.20

2. Faster, easier, safer online commerce experience

0.03

0.12

3. Offers millions of items for trade in 39 markets and

boasts 86.3 million active global users as of 2008

0.05

0.20

4. Customized local site across four major areas of the

world

0.05

0.20

5. Secure, trusted, and efficient commerce environment

0.03

0.12

6. Ebay user support

0.01

0.03

7. Automated online Websites 24/7

0.04

0.16

8. PayPal - recognized global leader in online payment

solutions

0.05

0.20

9. PayPal - 190 markets worldwide and process

payments in 19 currencies

0.05

0.20

Strengths

10. Skype - worlds fastest-growing

communication software platform

Internet

0.03

0.12

11. Skype - 405.3 million registered users worldwide as

of 2008

0.05

0.20

12. Skype is available in 28 languages in over 225

countries

0.04

0.16

13. Nearly 11 million Skype downloads are to mobile

devices

0.04

0.16

14. Nice growth in both their PayPal and Skype business

segments in the second quarter of 2009

0.02

0.06

15. Labor reduction

0.04

0.04

16. Reduction of Ebays available line of credit

0.03

0.06

17. Increase of its fee structure for its Marketplaces

business

0.03

0.06

18. Lack of policing trade and infringement on

trademarks and copyrights

0.04

0.04

19. Illegal listings of counterfeit and stolen goods

0.04

0.04

20. Significant strain on management, operations, and

financial resources

0.04

0.04

21. Less user-friendly Web site

0.02

0.04

22. Requires additional expensive investments in

hardware, software, and personnel

0.03

0.06

23. More difficult transaction-processing and revenue

collection

0.02

0.04

24. Customer support is challenged

0.02

0.04

25. Decline in their Marketplaces business segment for

the second quarter of 2009

0.05

0.10

26. To date, eBay has never paid a cash dividend on

stock

0.05

0.05

27. Decrease in stock price

0.05

0.05

Weaknesses

Total

1.00

2.75

Where:
Weight
0.0 = not important
1.0 = all important
Rating

1 = major weakness
2 = minor weakness
3 = minor strength
4 = major strength

The total weighted score of 2.75, which is above 2.50, indicates a good internal position,
but eBay Inc. should still improve internally.
External Assessment
Opportunities:
1. Consumers are shopping more and more via their mobile phones (2009 Annual
Report).
2. New and emerging markets in different countries.
3. Potential consumers in current markets that have yet to discover the benefits of
online auctions.
Threats:
1. Strong growth and satisfied customer base pose of Amazon
2. Low barriers to entry in the marketplaces segment and new online sites can be
launched at a nominal cost
3. Rapid technological change
4. Potential for Skype technology to become obsolete
5. Weak global economic conditions
6. Mortgage and worldwide credit-related financial crisis.
7. Fluctuations of currency exchange rates
8. EBays Bill Me Later has significant exposure to consumers potential default on
loans.
9. New legislation that requires collection of taxes beginning after December 31,
2010.
10. Recent litigations with Tiffany & Co., Rolex, Louis Vuitton, Christian Dior,
LOreal, and Lancme
11. Rise of breaches in data security
Table 3 External Factor Evaluation (EFE) Matrix
Key External Factors

Weight

Rating

Weighted

Score
Opportunities
1. Consumers are shopping more and more via their
mobile phones.

0.10

0.20

2. New and emerging markets in different countries.

0.11

0.33

3. Potential consumers in current markets that have yet

to discover the benefits of online auctions.

0.10

0.30

4. Strong growth and satisfied customer base pose of

Amazon

0.10

0.20

5. Low barriers to entry in the marketplaces segment

0.06

0.18

6. Rapid technological change

0.05

0.10

7. Potential for Skype technology to become obsolete

0.07

0.21

8. Weak global economic conditions

0.04

0.12

9. Mortgage and worldwide credit-related financial crisis

0.04

0.12

10. Fluctuations of currency exchange rates

0.06

0.12

11. Consumers potential default on loans

0.06

0.24

12. New legislation

0.04

0.08

13. Recent litigations

0.09

0.27

14. Rise of breaches in data security

0.08

0.24

Threats

Total

1.00

2.71

Where:
Weight
0.0 = not important
1.0 = very important
Rating - indicate how effectively the firms current strategies respond to the factor
1 = the response is poor
2 = the response is average
3 = the response is above average
4 = the response is superior

The total weighted score of 2.71 is above the average (midpoint) of 2.5, so Yahoo! Inc. is
doing well in taking advantage of the external opportunities and avoiding the threats facing the
firm. However, the total weighted score of 2.71 also indicates that there is still a lot of room for
improvement because the highest total weighted score would be 4.0.
Table 4 Strengths-Weaknesses-Opportunities-Threats (SWOT) Matrix
Strengths

Weaknesses

1.
Wide
selection
of
goods/services.
2. Faster, easier, safer online
commerce experience
3. Offers millions of items for
trade in 39 markets and boasts
86.3 million active global
users as of 2008.
4. Customized local site
across four major areas of the
world
5. Secure, trusted, and
efficient
commerce
environment.
6. Ebay user support
7. Marketplaces platform
bring buyers and sellers
through fully automated
online Websites 24/7.
8. PayPal is a recognized
global leader in online
payment solutions
9. PayPal - 190 markets
worldwide
and
process
payments in 19 currencies.
10. Skype - worlds fastestgrowing
Internet
communication
software
platform.
11. Skype - 405.3 million
registered users worldwide as
of 2008.
12. Skype is available in 28
languages in over 225
countries.

1. Labor reduction
2. Reduction of Ebays
available line of credit
3. Increase of its fee structure
for its Marketplaces business.
4. Lack of policing trade and
infringement on trademarks
and copyrights
5.
Illegal
listings
of
counterfeit and stolen goods.
6. Significant strain on
management, operations, and
financial resources
7. Less user-friendly Web site
8.
Requires
additional
expensive investments in
hardware,
software,
and
personnel
9. More difficult transactionprocessing
and
revenue
collection
10. Customer support is
challenged
11.
Decline
in
their
Marketplaces
business
segment for the second
quarter of 2009.
12. To date, eBay has never
paid a cash dividend on stock
13. Decrease in stock price

13. Nearly 11 million Skype

downloads are to mobile
devices.
14. Nice growth in both their
PayPal and Skype business
segments in the second
quarter of 2009.
Opportunities
1. Consumers are shopping
more and more via their
mobile phones.
2. New and emerging markets
in different countries.
3. Potential consumers in
current markets that have yet
to discover the benefits of
online auctions.
Threats
1. Strong growth and satisfied
customer base pose of
Amazon
2. Low barriers to entry in the
marketplaces segment
3. Rapid technological change
4. Potential for Skype
technology to become
obsolete
5. Weak global economic
conditions
6. Mortgage and worldwide
credit-related financial crisis.
7. Fluctuations of currency
exchange rates
8. Consumers potential
default on loans.
9. New legislation
10. Recent litigations
11. Rise of breaches in data
security

Strengths-Opportunities
(S4, S9, O2) Expand into
international markets and
more currencies.

Weaknesses-Opportunities
(W7, O1) Improve eBays
mobile app.

(S3, O3) Penetrate the current

markets by putting more
effort on advertising eBay.

Strengths-Threats

Weaknesses-Threats

(S11, S13, T4) Improve

Skype mobile app.

(W2, T7, T8) Sell Bill Me

Later.

(S8, T1, T2) Integrate PayPal

with Amazon and other
Marketplaces businesses.

(W8, T11) Invest in additional

hardware, software and
personnel to fix technical and
security errors.

ALTERNATIVE COURSES OF ACTION

Alternative 1: EBay Inc. should expand into international markets and more currencies
(Market Development).
Advantages
Revenues from Marketplaces segment will increase.
Revenues from Payments segment will also increase since PayPal
is integrated with eBay.
EBay Inc. will create more jobs and help address the problem of
high unemployment.
Disadvantages:
It needs more capital.
Introducing present products or services into new geographic areas
is risky.
Alternative 2: EBay Inc. should sell Bill Me Later (Divestiture).
Advantages
It will eliminate the significant risk of consumers potential default
on loans.
It will reduce the risk of incurring losses on foreign exchange rates.
This would let eBay focus more on the remaining segments.
Disadvantages
Consolidated revenues will decrease.
Future opportunities that Bill Me Later can provide will be lost.
A number of employees will be laid off and restructuring costs will
be incurred.
Alternative 3: EBay Inc. should improve their Skype mobile app (Product Development).
Advantages:
This will help eBay recoup the $1.4 billion goodwill associated
with the purchase of Skype.
This will increase users and downloads.
It will prevent Skype technology from deteriorating.
Disadvantages:
This will require product development costs.
It takes a lot of effort.
Alternative 4: EBay Inc. should do all three courses of action.
Advantages:
It will accomplish the companys three objectives.
Revenues from Marketplaces and Communications Segment will
increase.
Disadvantages:
It needs intensive management of resources.

 The companys focus on implementing strategies will be divided

among the the three courses of action.
Future opportunities that Bill Me Later can provide will be lost.

Table 5 Quantitative Strategic Planning Matrix (QSPM)

STRATEGIC ALTERNATIVES
1

Market
Developmen
t

Divestiture

Product
Developmen
t

Weight

AS

TAS

AS

TAS

AS

TAS

AS

TAS

1. Consumers are shopping

more and more via their
mobile phones.

0.10

0.30

0.10

0.20

0.40

2. New
markets

0.11

0.44

0.11

0.22

0.33

Key Factors

4
Do all 3.

Opportunities

and
in

emerging
different

countries
3. Potential consumers in
current markets that have
yet to discover the benefit of
online auctions

0.10

0.40

0.10

0.20

0.30

1. Strong growth and

satisfied customer base pose
of Amazon

0.10

0.40

0.10

0.20

0.30

2. Low barriers to entry in

0.06

0.24

0.06

0.12

0.18

3. Rapid technological
change

0.05

0.10

0.05

0.15

0.20

4. Potential for Skype

technology
to
become
obsolete

0.07

0.14

0.07

0.28

0.21

5. Weak global economic

conditions

0.04

0.08

0.12

0.04

0.16

6. Mortgage and worldwide

credit-related financial crisis

0.04

0.08

0.16

0.04

0.12

7. Fluctuations of currency
exchange rates

0.06

0.12

0.24

0.06

0.18

8. Consumers
default on loans

0.06

0.12

0.24

0.06

0.18

9. New legislation

0.04

0.12

0.04

0.08

0.16

10. Recent litigations

0.09

0.36

0.09

0.18

0.27

11. Rise of breaches in data

security

0.08

0.16

0.32

0.08

0.24

Threats

the marketplaces segment

potential

Subtotal

1.00

3.06

1.80

1.91

3.23

Strengths
1. Wide selection
goods/services

of

0.05

0.20

0.05

0.10

0.15

2. Faster, easier, safer online

commerce experience

0.03

0.12

0.03

0.06

0.09

3. Offers millions of items

for trade in 39 markets and
boasts 86.3 million active
global users as of 2008

0.05

0.20

0.10

0.05

0.15

4. Customized local site

across four major areas of
the world

0.05

0.20

0.10

0.05

0.15

5. Secure,
efficient
environment

0.03

0.12

0.06

0.03

0.09

0.01

online

0.04

8. PayPal - recognized
global leader in online
payment solutions

0.05

0.10

0.20

0.05

0.15

9. PayPal - 190 markets

worldwide and process
payments in 19 currencies

0.05

0.10

0.20

0.05

0.15

10. Skype - worlds fastestgrowing

Internet
communication
software
platform

0.03

0.03

0.06

0.12

0.09

11. Skype - 405.3 million

registered users worldwide
as of 2008

0.05

0.10

0.05

0.20

0.15

12. Skype is available in 28

languages in over 225
countries

0.04

0.08

0.04

0.16

0.12

13. Nearly 11 million Skype

downloads are to mobile
devices

0.04

0.08

0.04

0.16

0.12

trusted, and
commerce

6. Ebay user support

7.
Automated
Websites 24/7

14. Nice growth in both their

PayPal and Skype business
segments in the second
quarter of 2009

0.02

0.02

0.08

0.12

0.04

1. Labor reduction

0.04

0.08

0.12

0.04

0.16

2. Reduction of Ebays
available line of credit

0.03

0.09

0.12

0.03

0.06

3. Increase of its
structure
for
Marketplaces business

fee
its

0.03

0.12

0.06

0.03

0.09

4. Lack of policing trade and

infringement on trademarks
and copyrights

0.04

5.
Illegal
listings
of
counterfeit and stolen goods

0.04

0.16

0.08

0.04

0.12

6.
Significant strain on
management,
operations,
and financial resources

0.04

0.12

0.08

0.04

0.16

7. Less user-friendly Web

site

0.02

0.06

0.02

0.08

0.04

8.
Requires
additional
expensive investments in
hardware, software, and
personnel

0.03

0.09

0.03

0.12

0.06

9. More difficult transactionprocessing and revenue

collection

0.02

0.06

0.08

0.02

0.04

10. Customer support is

challenged

0.02

11.
Decline
in
their
Marketplaces
business
segment for the second
quarter of 2009

0.05

Weaknesses

0.20

0.10

0.05

0.15

12. To date, eBay has never

paid a cash dividend on
stock

0.05

0.15

0.10

0.05

0.20

13. Decrease in stock price

0.05

0.15

0.10

0.05

0.20

Subtotal
Grand Total

1.00

2.63

1.90

1.70

2.73

5.69

3.70

3.61

5.96

Where:
Weight
0.0 = not important
1.0 = all important
AS = Attractiveness Score
1 = not attractive
2 = somewhat attractive
3 = reasonably attractive
4 = highly attractive
TAS = Total Attractiveness Score = Weight x AS
The sum total attractiveness score of 5.96 versus 5.69, 3.70 and 3.61 indicates the fourth
alternative (do all three courses of action) is the most attractive.
RECOMMENDATIONS
Considering the facts of the case and its findings, this study recommends to do the three
actions. EBay Inc. is a really big company since they operate worldwide as well as their acquired
segments. Hence, it is not enough to choose only one course of action. Expanding into
international markets and improving the Skype mobile app need a lot of capital, but some of the
needed capital will be financed by the proceeds from selling Bill Me Later. Due to limited
resources, eBay Inc. can do all of the three courses of action one at a time. The company can first
sell and liquidate Bill Me Later so that they can have the financial resources to do the other two
actions. Next, eBay can now choose either of the two actions. If the proceeds of the sale of Bill
Me Later is not enough, they can finance the other costs through debt financing. EBay can pay
the loan when they have already achieved their objectives.
CONCLUSION
Based on the foregoing findings and recommendations, this study concludes that first,
eBay should expand the Marketplaces segment to other countries. This can help them achieve
their mission. Second, the company can become the number-one online payment solution by
selling Bill Me Later. This segment has a huge exposure to threats like fluctuations in currency
rates and potential default of customers on loans. By eliminating Bill Me Later, eBay can focus
to PayPal, making it the number-one online payment solution. Lastly, in order to provide Skype

users with premium services, eBay should enhance the the Skype mobile app since more users
are communicating in the Internet through their mobile devices.

REFERENCES
David, F. R. (2014). Strategic Management Concepts and Cases: A Competitive
Advantage Approach (Philippine Edition, Fourteenth ed.). Singapore: Pearson Education
South Asia Pte. Ltd.
Donahoe, J., DePaul, P.,..., Swan, R. (2010, February). EBay Annual Report 2009
[Letter written February 17, 2010 to Shareholders]. In EBay - Annual Report and Proxy
Statement. Retrieved July 25, 2016, from
http://files.shareholder.com/downloads/ebay/923940436x0x361552/b45137ee-aa41-4c2c94ca-d72d5b0844be/eBay_77655_BANNERLESS.pdf
EBay SWOT - Marketing Teacher. (2014). Retrieved July 25, 2016, from
http://www.marketingteacher.com/ebay-swot/