A Global Analysis of eBay - Amazon S3s3.amazonaws.com/zanran_storage/ · A Global Analysis of eBay...

A Global Analysis of eBay

Contents

Introduction ....................................................................... 2

Executive Summary.......................................................... 3

Key Facts.......................................................................... 4

A Brief History of eBay ..................................................... 5

eBay by the Numbers ....................................................... 7

eBay International: Where the Action Is ........................... 9

eBay Europe: Is the UK the “The Next Germany”?........ 10

eBay Asia: The Future Is China (Not Japan?) ............... 12

Kijiji: eBay Quietly Returns to Japan .............................. 13

PayPal: eBay’s Secret Weapon .....................................16

Web Site Analysis: Room for Improvement ................... 18

Business Analysis: Not Growing Fast Enough............... 22

Looking Ahead: Three Predictions ................................. 23

Five Lessons for Companies Going Global.................... 24

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© 2005 Byte Level Research (www.bytelevel.com) - 2 -

Introduction

This report provides a uniquely global analysis of eBay’s current businessstrategy, Web site, and its plans for continued growth. In addition, the reportdraws lessons from eBay that may benefit other companies looking to expandinto global markets.

Is eBay going global quickly enough?

Founded just 10 years ago, eBay is now a $3 billion company, and growing,serving more than 130 million registered users in 32 countries. However,eBay’s growth is slowing in the US, putting pressure on non-US sites toaccelerate their growth. While we believe that eBay is wisely betting onglobal markets, specifically China, we believe eBay should be expandinginto more markets more quickly.

eBay Home Page

Source: eBay


Executive Summary

eBay is one of the great Internet success stories and a bellwether for the stateof global ecommerce. As countries around the world have embracedecommerce, eBay has flourished. But eBay has also stumbled along the way,and there is plenty of room for improving the Web site.

Here are the key takeaways from this report:

∑ In 2004, the number of non-US-registered users surpassed thenumber of US-registered users.

∑ By 2006, possibly earlier, non-US revenues will surpass USrevenues.

∑ eBay is investing $100 million in China with a more localizedstrategy, including customer support and television advertising.We believe mobile commerce, via PayPal, is not far behind.

∑ While we’re sure the people within eBay feel they are moving asquickly as they can to expand their global footprint, we think moreshould be done, and more quickly. The opportunity cost ofignoring markets could result in a repeat of eBay’s failure to beatYahoo! to Japan. Although eBay withdrew from Japan in 2002, webelieve that eBay’s recent launch of the international classifiedad portal, Kijiji, represents eBay’s quiet return to thisvaluable market.

∑ The eBay Web site has wisely evolved into a mostly consistentglobal template across all locales. eBay is developing asophisticated approach to globalization workflow and marketing,which results in more culturally relevant and financially successfulWeb sites. However, global navigation remains a weak spot.

∑ eBay mistakenly equates “.com” with US, both in its Web siteand its operational units. This may seem like a trivial detail, butthis reflects eBay’s failure to do a better job of directing non-USusers away from its US Web site to local Web sites. Globalnavigation needs improving.

∑ Companies can learn much from eBay’s globalization efforts, suchas how to select new markets for growth and how to localizemarketing strategies based on each market’s specific business andcultural challenges.


Key Facts

eBay, Incwww.ebay.com

Nasdaq: EBAYNumber of Employees 5,200Fiscal Year Ending Date 12/31/042004 Sales $3.27 billion

Key ExecutivesMeg Whitman President and CEOJeff Jordan President, PayPalWilliam C. Cobb President, eBay North AmericaMatt Bannick President, eBay International

Headquarters2145 Hamilton AvenueSan Jose, CA 95125

eBay Revenues, 2000 to 2006

Source: Byte Level Research

$0

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A Brief History of eBay

eBay began in 1995 as an online portal for buying and selling collectibles. Asits popularity grew, so the did the number of buyers and sellers who visitedthe site, as well as the variety of goods sold on the site.

Over the years, eBay has dramatically expanded its focus to includeeverything from office supplies to automobiles. It has also greatly expandedits geographic focus.

In 1999, eBay entered Australia, Germany, and the UK. A year later, thecompany entered Japan, Canada, France, and Austria.

eBay’s Global Footprint

Source: eBay

Today, the company has localized Web sites in 23 countries, as follows:

1. Australia2. Austria3. Belgium4. Canada5. China6. France7. Germany8. Hong Kong9. India


10. Ireland11. Italy12. Malaysia13. The Netherlands14. New Zealand15. The Philippines16. Singapore17. South Korea18. Spain19. Sweden20. Switzerland21. Taiwan22. United Kingdom23. United States

Its most recent additions include India and the Philippines. The India siteresulted from the acquisition of Baazee.com, which became final in August2004. eBay also has a presence in Latin America through its investment inMercadoLibre.com.

The MercadoLibre Global Gateway

Source: MercadoLibre

In the years ahead, we believe that eBay will expand into new marketsprimarily via acquisition rather than organic growth. The longer it waits toenter certain markets, the more likely it will have to purchase market share.


eBay by the Numbers

First, there are the registered users. eBay claims more than 130 million usersaround the world, a truly staggering number. To give you an idea of how thisnumber stacks up against similar consumer-oriented companies, thefollowing exhibit compares the number of registered US users with other UScompanies.

eBay Registered Users in Context

Source: eBay


eBay calls itself the “The World’s Online Marketplace.” The companyofficially lived up to this slogan in 2004, when the number of internationallyregistered users surpassed the number of US-registered users.

International Users Surpassed US Users in 2004


In 2004, eBay surpassed the $3 billion revenue mark, putting it on atrajectory to achieve $10 billion by 2010. It will reach that mark morequickly if its investments in international markets pay off. As US growthcontinues to slow, with every passing year eBay will become moredependent on international markets to continue hitting its aggressive growthtargets.

International revenues will surpass US revenues; it is merely a question ofwhen. The safe bet is on 2006, although we would not be surprised to seeinternational revenues surpass US revenues in the fourth quarter of 2005.

International Revenues Will Surpass US Revenues by 2006


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US net revenues International net revenues


eBay International: Where the Action Is

eBay brought in just $6 million in international revenues in 2000; in 2004,the company brought in nearly $1 billion in revenues. This is trulyremarkable.

To maintain this momentum, eBay needs to further penetrate its currentmarkets; it has plenty of room to grow. The company estimates that by 2007the potential for non-US ecommerce will be three times as great as it is in theUS. In many respects, eBay has no choice but to invest in foreign markets, asthis is where the long-term growth is.

The company is focused on six strategic markets:

Europe∑ Germany∑ UK∑ France∑ Italy

Asia∑ Korea∑ China

Matt Bannick recently re-joined eBay International as president after havingmanaged PayPal for the past few years. His experience with PayPal puts himin an excellent position to grow eBay International, since payment processingis a major obstacle for users in markets where credit cards are not dominantand ecommerce is still a novelty.


eBay Europe: Is the UK “The Next Germany”?

eBay believes it has “cracked the code” in Europe; that is, it has succeeded inmarkets where other ecommerce companies have failed. However, with theexception of Germany, success has been a long time coming.

Consider the UK. Launched in 1999, the site is only now reaching the pointwhere eBay believes it is primed to follow Germany’s growth curve. PayPalwas recently launching in the UK and is expected to give a big boost todomestic sales. More important, eBay has broken through the Internet clutterin the UK to gain critical consumer awareness. A great deal of press over thepast year has increased traffic while decreasing customer resistance totrusting yet another ecommerce site.

As illustrated in the following exhibit, eBay understands that Europe may belargely united by a currency, but the similarities end there. To the far right inthe exhibit are the four markets that eBay has prioritized based on a numberof factors. After the UK, eBay believes that Italy and France, combined, willresult in the next European success story.

How eBay Views Europe

Source: eBay

Creating a market development “template”Although every country poses numerous strategic, competitive, and culturaldifferences, to the extent that eBay can avoid having to “reinvent the wheel”with each market, it will save money and increase odds of success.


As a result, eBay has identified patterns among the markets it has enteredthus far, patterns that the company can draw upon not just to avoid repeatingmistakes but to make the best use of marketing dollars. These patterns mayapply to markets and to individuals.

As shown below, four markets are following a relatively similar growthcurve in regard to merchandise volume.

eBay Country Growth Curve

NOTE: GMW stands for Gross Merchandise Volume.Source: eBay

Notice how Korea, despite having little in common with the other markets, isfollowing in their footsteps. Korea has become eBay’s first success story toemerge from Asia.


eBay Asia: The Future Is China (Not Japan?)

In eBay’s most recent analyst meeting, management raved about the potentialof China and Korea yet made little mention of Japan, still the region’s largestmarket.

This is because Japan represents eBay’s largest strategic blunder outside ofthe US. eBay was late into Japan and never managed to gain ground onYahoo!. eBay withdrew from Japan in 2002. It is estimated that more than90% of Japanese Internet users currently use the Yahoo! commerce portal,resulting in more than $5 billion in transactions annually. Japan happens tobe Yahoo!’s most successful international market and it will be interesting tosee what, if anything, eBay does to become competitive in this market again.

Given a market of this size, we believe that eBay is making a mistake by nothaving a presence in the market. Assuming that eBay is wildly successful inChina, given the increased level of trade between the two countries, eBaywill ultimately be compelled to put more money into Japan to gain a largershare of cross-border trade.

We think it is wiser to launch a Japan site now, albeit with low expectations,to increase cross-border trade between Japan and China. And, in aroundabout way, eBay is doing just that with Kijiji.


Kijiji: eBay Quietly Returns to Japan

On February 28th 2005, eBay launched Kijiji (www.kijiji.com), aninternational classified ads/community portal. Currently, the portal supportssix markets: Canada, China, France, Germany, Italy, and Japan.

What’s most interesting about the site is that it represents eBay’s return toJapan. It also represents a challenge to the popular classified ads portalCraigslist (which eBay has a 25% stake in). While Craigslist has alreadytargeted a number of non-US markets, it has yet to offer any translatedcontent within these markets. With Kijiji, eBay is attempting to leapfrogCraigslist into international markets.

Kijiji Home Page

Source: Kijiji

Kijiji is experimental at this point and eBay has no timetable for when, or if,the site will be expanded or integrated within eBay. That said, we suspectthat Kijiji is prelude to eBay making another concerted effort at winningJapan.


eBay KoreaAs it does with Europe, eBay looks at each market within Asia according tofactors such as population and Internet penetration. Korea shows the greatestnear-term potential.

eBay’s View of Asia

Source: eBay

Korea has been a good success for eBay. More important, Korea sets in placea template for growth that may be applied to China. What’s interesting aboutKorea is that 80% of the goods sold in the country are classified as “in-season retail” goods and not the conventional eBay fare such as collectibles.What this means is that eBay in Korea is capitalizing on marketinefficiencies and is viewed by consumers as more of an online Wal-Martrather than simply a place to sell junk from the attic. It will be interesting tosee if consumer behavior in Korea is replicated in China.


Betting Big on ChinaeBay is betting $100 million on succeeding in China. And for good reason.China already has a larger online population than Germany and the UKcombined. There are 70 million middle class households today, expected togrow to 170 million by 2010. Meg Whitman said at eBay’s 2005 analystbriefing that in the next five to 10 years, market leadership in China will bea defining characteristic of leadership globally. In other words, if youhaven’t made it in China, you haven’t made it yet.

China got a jump start thanks to the acquisition of the Chinese Web siteEachNet. In September, eBay moved EachNet over to the eBay’s platform,along with the eBay logo.

We agree that China will become eBay’s largest market, but user acceptancemay take much longer than eBay management anticipates. That’s why werecommend that eBay branch into additional emerging markets sooner ratherthan later. By “seeding” more markets today, eBay will be doing its best toensure continued growth tomorrow.


PayPal: eBay’s Secret Weapon

Over the past two years, eBay invested heavily in internationalizing itsPayPal engine for rapid localization. When we heard Meg Whitman use thewords “internationalization” and “UTF-8” in the same sentence during ananalyst call, we knew that Web globalization is truly a high-level priority atthe company.

PayPal is localized for 10 markets, eight of which were launched over thepast year. It’s important to stress that localizing PayPal is probably morechallenging than eBay in many respects, due to the complex regulatory andbanking hurdles in each market.

PayPal Global Gateway Page

Source: PayPal

eBay stresses that its efforts will be rewarded down the road because theregulatory hurdles will slow down competition.

How Big Will Cross-Border Transactions Grow?Even though eBay is local in 23 markets, it does business in 32 marketsthanks to cross-border transactions (CBT) and its support for six currencies.What’s nice about tracking CBT is that they tell eBay management whatcountries should have localized Web sites sooner than others. Simply bystudying CBT transactions, eBay can launch a Web site for a new marketalready knowing a given percentage of users will be ready and waiting to usethe site.


Consumers can take advantage of currency fluctuations to make the most oftheir money and eBay is taking advantage of such scenarios by assisting withshipping. PayPal claims to handle 51% of eBay’s cross-border transactionsand is in fact driving the growth of this segment.


Web Site Analysis: Room for Improvement

Although eBay is an ecommerce leader, its Web site is not one we wouldconsider “best of breed.” It does a number of things well, but we believe itneeds to make a number of improvements before it is on par with the likes ofGoogle and HP.

The Back End: A Large Investment in InternationalizationIn 2002, eBay invested a great deal of resources into finding and purchasingsoftware to help it better manage content across its increasing number oflocal Web sites and languages.

Idiom’s WorldServer (www.idiominc.com) package was selected and it iscurrengly being used by eBay to streamline the content globalization process.Managing the input and output of content and translations becomesincreasingly critical as the Web site scales; the Idiom solution allowed eBayto give more people access to the content through user-friendly interfaceswithout putting the underlying code at risk.

PayPal recently underwent a significant internationalization process. Such aproject can take well over a year and cost millions of dollars. Yetinternationalization is the most important foundation a company can build toensure that it scales quickly and efficiently to all the world’s markets.

Design Template: Consistent and FlexibleOver the years eBay has improved its design a great deal. Just four years agothe design was “overweight” due to excessive and needless graphics. Theresult was a Web page that displayed slowly, resulting in slow-loading Webpages in markets where dial-up was the dominant Internet access technology.Today, the Web site has made strides in cutting the fat and is more consistentglobally. Consistency is key to promoting cross-border transactions.


Yet eBay’s design remains flexible enough to allow for on-the-flypromotions in each market, as shown below, with China’s timely promotion:

eBay China Celebrates Year of the Rooster

Source: eBay


Global Navigation: Not ScalableOur greatest criticism of the eBay site involves global navigation. Currently,the Web site buries its global gateway well down the left-hand column.Furthermore, the gateway is a pull-down menu, which does not scale well tohandle the growing number of markets.

eBay Gateway Today

Source: eBay

Just two years ago, eBay used simple text links. This is a better approachbecause it saves the user the trouble of scrolling down a pull-down menu.However, it too does not scale well, particularly since screen real estate is sovaluable.

eBay Gateway 2003

Source: eBay


At a minimum, we recommend that eBay relocate its global gateway to the“sweet spot” of the Web page – the upper right corner. We also recommendthat eBay add a globe icon next to the pull-down menu to ensure that usersunderstand the purpose of the pull-down, regardless of what language theyspeak.

In addition, we recommend that eBay should test the value of using a globalgateway splash page for all first-time visitors. This gateway will ensure thatvisitors arrive at their Web sites of choice without any room for error. Toprevent users from having to click through the splash page on subsequentvisits, the user’s country preference should be saved. The use of a splashpage does not eliminate the need for a permanent global gateway at the top ofevery Web page, but it does aid significantly in ensuring that first-time eBayvisitors arrive at their local sites successfully.


Business Analysis: Not Growing Quickly Enough

There is no disputing that eBay has done remarkably well overall inexpanding outside the US. Revenues have grown dramatically, and the“network effect” now appears to be at work in many of these markets.

Nevertheless, our primary concern about eBay is that it is not expanding intonew markets quickly enough. With Japan, the company experienced theresults of losing first-mover advantage. But instead of accelerating itsinternational expansion, it is moving at a measured pace. While 23 local Websites may seem like a lot, Google offers more than 100 local Web interfaces.

Number of Local Web Sites Supported


Granted, the potential of markets such as Russia, Vietnam, or Brazil pale incomparison to the UK. But it took six years for eBay to become a trusted andpopular name in the UK; should other markets require a similar evolution,eBay needs to be more aggressive in expanding into new markets.

There is an intangible value to having a history in a market. eBay can waituntil a market has reached a certain degree of Internet penetration or GDP,but it still has to gain trust within that market once it has entered. It behooveseBay to enter potential markets early so it gains the first-mover advantage.

By waiting to enter markets, eBay will likely be forced into moreacquisitions at a greater cost than organic growth. eBay has a template forlocalization, and we would like to see it apply this template to 15 marketsover the next two years.

0 20 40 60 80 100 120

Number of local Web sites

Amazon

Salesforce.com

Starbucks

eBay

MSN

HP

Google


Looking Ahead: Three Predictions

We don’t believe a company is truly “global” until more than half of theirrevenues are generated outside its domestic market. That said, eBay shouldbecome a truly global company late this year.

eBay RussiaRegardless of concerns over fraud emanating from Russia, which is anongoing challenge globally, we expect eBay to offer a local Russian sitewithin the next 18 months, either through acquisition or launch. We alsoexpect to see eBay test the waters in Japan again by 2006.

eBay en EspañolWe also expect to see an eBay site launched for Spanish speakers in the USwithin the next 12 months. With more than 30 million native-Spanishspeakers in the US, eBay would be wise to target this market.

Launching Mobile Commerce in AsiaeBay already offers tools for software developers to create applications thatallow users to bid for and purchase items via their mobile phones. But givenChina’s reliance on cellular phones and its limited PC penetration, eBay(specifically PayPal) will further invest in mobile commerce. While the near-term opportunity is in Korea, where mobile commerce is already in fullswing, the more-significant opportunity is in China. The investment ofresources will be well spent, because the US has also rapidly embraced morecomplex wireless applications. Applications and processes developed inChina and Korea can be exported back to the US.

Entering The Translation IndustryWe believe that eBay will test the feasibility of offering translation servicesto sellers who wish to market their products in different languages. Theimplications of the such a program, should it succeed, will threaten thebusinesses of established translation portals such as Aquarius and Proz.There is also opportunity for individual translators and small translationfirms to provide translation services to eBay’s sellers.


Five Lessons for Companies Going Global

Although eBay has carved out a highly unique business, it provides a numberof valuable insights for other companies expanding globally.

1. Create a global template for growthWhen taking Web sites global, it is best to first create a global designtemplate that can be applied across all local Web sites. The globaltemplate saves a company from having to start from scratch wheneach new local Web site is launched. It provides a framework thatnot only presents the company consistently around the world but alsosaves considerable resources in developing and maintaining localWeb sites.

Just as a global design template benefits Web globalization efforts, aglobal growth template will benefit business globalization efforts.For example, eBay has since developed expectations for how amarket will develop over time based on its experiences in previousmarkets. This knowledge should be captured and shared with allcountry managers to ensure that the company continually improvesits ability to expand into new markets quickly and with few mistakes.

2. Know when to deviate from the templateThe template is only a guide, and every country and culture will poseunique challenges. For example, eBay is spending heavily on TVadverting and customer support in China much earlier than it hasdone so in other markets. Why? Because eBay determined that theculture in China is such that many people are still hesitant to dobusiness without face-to-face interaction. By providing extra phonesupport, the company hopes to quickly overcome these concerns.Second, eBay is spending heavily on TV advertising because itbelieves that television advertising plays a large role in China inlending credibility to the advertiser, further easing buyer and sellerconcerns.

3. Know how to select your next marketThe management at eBay cites three metrics used to determine whichmarkets deserve the greatest near-term investment:

1. Population2. Internet penetration3. Ecommerce spending

For most companies, these three factors will lay the foundation fordeciding whether or not to enter a market. eBay has an additionalmetric that it can base its decision on: cross-border transactions. If,for example, eBay sees a rise in sales emanating from Greece, it


knows that it has a base of customers who will happily greet alocalized Web site.

4. Share Knowledge Across BordersWhen Bill Cobb, president of eBay US, was in charge of eBayinternational, he saw eBay Germany have success with a loweredinsertion fee for placing items up for sale. When he became presidentof eBay US, he said he decided to lower the insertion fee here basedon that knowledge. Although he was also under pressure from eBaysellers to lower prices, he does make an important point aboutsharing lessons across borders.

Not every success story can be carried across borders with success,but every organization should establish the structure for such ideas tobe shared. It is critical that executives across all markets be expectedto interact with one another so that a global growth template canreadily evolve.

5. Recognize that localization is the easy part; innovation is thehard parteBay executives speak frequently about innovating across allgeographic segments. They understand localization is but one step ina journey that requires innovation along the way. The power ofcreating localized Web sites and business is that you multiply thepotential for your company to implement new ideas and businessstrategies. When eBay had just one Web site, there was only so muchtesting that Web site could undertake at a given time; with 23 Websites, eBay has expanded its potential to be innovative on a globalscale. Managed effectively, this gives eBay an edge over even thelocal competition.


Copyright © 2005 Byte Level Research, Inc. All rights reserved.

No material contained this report may be reproduced in whole

or in part without the prior written permission of the publisher.

The information contained in this report has been obtained from

sources we believe to be reliable, but neither its completeness

nor accuracy can be guaranteed. Opinions expressed are based

on our interpretation of available information and are subject

to change.

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