Week 8 questions - Online Auctions

Q1: eBay is one of the only major Internet "pure plays" to consistently make a profit from its inception. What is eBay's business model? Why has it been so successful?

Ebay as a broker is more or less a kind of distant third party in what goes on. It plays a very limited role in ensuring that buyer and seller come away satisfied. It simply brings the buyer and seller together and enables the transaction to occur ( Rappa, 2005).
Ebay has been so successful due to the way there business is run. Ebay doesn’t take possession of any goods, it doesn’t get in the middle of the transactions in any significant way beyond facilitating their occurrence, that it collects a fairly nice transaction fee, the current transaction revenue rate on each transaction is about 3.6 percent, it has, relatively speaking, low overcost when you compare it to somebody like an Amazon.com, which has warehouses and huge inventories and large numbers of people packing and shipping items, eBay is a relatively elegant and far less complex from a business logistics point of view business to operate, and their transaction processing expense rate is about 1.3 percent or so (Rappa, 2005).

Q2: Other major web sites, like Amazon.com and Yahoo!, have entered the auction marketplace with far less success than eBay. How has eBay been able to maintain its dominant position?

Ebay is perhaps the best known of the early web-based ecommerce sites that was profitable right from the beginning, just as a contrast to, for example, somebody like Amazon.com, which had to invest and invest and invest and took much, much longer to turn profitable. Ebay’s role as a broker is really quite appealing, because it really leverages the Internet in terms of what the Internet does best, that is, bringing large numbers of people together relatively easily and relatively inexpensively by doing it virtually (Rappa, 2005). Ebay is at the forefront of online auction technology, users can trust and rely on eBay from everyday purchases through to running a successful business.

Q3: What method does eBay use to reduce the potential for fraud among traders on its site? What kinds of fraud, if any, are eBay users most susceptible?

Even if only just 1 percent of the community acted in a disinterested way in terms of playing fair, or certainly if they acted in a fraudulent way, this would be seriously debilitating to the success of the eBay marketplace (Rappa, 2005).
The main method which eBay adopts to reduce fraud amongst its community is to allow both sellers and buyers to rate each others transaction process. This is done through a mechanism called ‘feedback’. Feedback gives other users a sense of their overall reliability, a sense of their reputation as a trader, by looking at the number of transactions they’ve entered into over a period of time from the most recent onward and looking at the ratings of whether those transactions met with the satisfaction of the other party or not, including some commenting and the like (Rappa, 2005).
Ebay does everything it can to work with local law enforcement in situations where there is systematic and large-scale fraud. But when we talk about down at the individual level, down at individual transactions in any given day or week or month, even though it’s a relatively small percentage of transactions which may end up going sour, one has to sort of look at the overall impact, the cumulative impact, of fraudulent behavior on people’s desire or willingness to enter into future transactions (Rappa, 2005).

Types of fraud eBay users are susceptible to are:
- Buyers pay for the item, and they never receive the item.
- The highest bidder never pays for the item they have won.
- When the buyer receives the item it may not match what was in the description, whether it be brand, model, a fake item or damaged.

Q4: eBay makes every effort to conceptualize its users as a community (as opposed to, say "customers" or "clients"). What is the purpose of this conceptual twist and does eBay gain something by doing it?

Ebay really seeks to promote the notion of community, that people are members of a community and that there are certain values and standards that as a member people buy into and act accordingly in terms of being a fair player in terms of whether they’re a buyer or a seller to a transaction. Ebay tries to make that community function in a healthy way, getting people to abide by a set of rules, to play fairly on a level playing field, these are very critical aspects for eBay to be successful. If people were distrustful of one another, if they fraudulently took advantage of each other, the whole model would break down (Rappa, 2005).


Q5: eBay has long been a marketplace for used goods and collectibles. Today, it is increasingly a place where major businesses come to auction their wares. Why would a brand name vendor set-up shop on eBay?
Brand name vendors have access to broad markets with relatively efficient marketing and distribution costs. They’re able to maximize their prices, so you have a situation where, at least in an auction format, the seller’s walking way, so long as there are a multitude of buyers, the seller can feel that they’re getting the best price they possibly can for the item that they’re selling. some businesses which were geographically bound in the past, moving to eBay offers up an opportunity to reach a much wider consumer audience and hopefully an opportunity to increase their sales (Rappa, 2005).