eBay Business Model | How Does eBay Make Money?
Founded in the living room of Pierre Omidyar in 1995, eBay is the pioneer of marketplaces for consumer-to-consumer and business-to-consumer vending. Even though it started off as a platform to auction collectables, eBay business model has drastically shifted its focus and is now a leading e-marketplace, a classified service as well as an online ticket vendor.
eBay Business Model
eBay’s approach is that it places a substantial prominence on the first-mover advantage and has been constantly reinventing itself since the beginning. The business model of eBay can be reported as service differentiation with the pivot on the user experience of both buyers and sellers.
How Does eBay Make Money?
eBay is among the pioneers of online trading. It digitized the people-to-people trading which usually used to take place at flea markets, garage sales, etc. eBay, just like any other marketplace, is a platform to buy and sell things online. However, trading on this platform can happen either as an auction or a fixed-price sale. One being a buyer’s auction where buyers bid for a single product and the other being a seller auction where different sellers bid their fixed price for a single product and buyer chooses the best offer for him.
The company has also introduced features such as SafeHarbor Program, eBay Top Rated Seller Program, Feedback Forum, Verified Rights Owner Program, eBay Money Back Guarantee etc as well as loyalty programs for both sellers and buyers to let the customers feel safe in trading with undisclosed partners.
The simplest way to trade on eBay is Buy It Now. Buy It Now is the method used by most of the marketplaces over the internet. There are three different options in Buy It Now:
- In the Auction-style listings with a Buy It Now option the customer can either bid in the auction or purchase it directly. The difference is that the Buy It Now price will be at least 30% higher than the starting price of the auctions.
- In the Reserve price auctions with a Buy It Now option, the option is shown only after the reserve price is met.
- The third option is Buy It Now without bidding. This is like every other e-commerce company where customers buy products for the given price.
While most of the features provided to the buyers are free of cost or included in the final price sold, the sellers are charged the following charges:
Every seller on eBay is charged an insertion (listing) fee for listing their article on the platform. The fee is charged per listing and vary as per the category of the item listed.
Nevertheless, every seller is provided with few (50) free listings every month. After the first 50 free listings, eBay charges a fee for every extra listing from the sellers. It is 5 cents for fixed-price Books, Movies, DVDs, Music and Video Games. If it is any other category, it is 30 cents per every extra listing.
Final Value Fee
eBay also charges a commission on every sale made by the seller on the platform. This commission is charged by the name of Final Value Fee and ranges from 3.5% to 10% depending on the category of the product.
Advanced Listing Upgrade Fees
eBay also provides options to promote, highlight, relist the item on the platform. The features are available for both the fixed price and auction-style trading and involve certain predetermined charges as well.
eBay lent its original objective of local trading to its subsidiary Close5 when it shifted its business model to become a full-fledged marketplace. The business and revenue model of close5 is very similar to Letgo’s business model & Craigslist’s business model where the company earns revenue through promoted posts.
StubHub was taken over by eBay on January 2007. It is an online ticket exchange enterprise which provides a platform for buying and selling theatre, sports, concerts and other live entertainment events tickets. From being the largest secondary-market ticket marketplace in the United States, it rose to become the world’s largest ticket marketplace.
There are no fees for the sellers to list their tickets but they are charged 15% of the cost of the tickets if they get sold while the buyers are charged 10% of the fees. Depending on how much tickets are sold by a seller, the fees could get reduced up to 10% as well.
Kijiji or eBay Classifieds
Kijiji, launched in 2005 is an online classified advertising service for posting local ads. Kijiji is active in more than 300 cities in Canada, Italy, Hong Kong, and Taiwan. It was made accessible to chosen cities in the United States in 2007 but was renamed as eBay Classifieds in 2010.
There are different options to choose from while uploading an advertisement in Kijiji. Highlight ad, as the name says will highlight the advertisement so that it stands out among the other advertisements. The urgent ad comes with an urgent sign so that users know the seller wishes to sell the product as fast as possible. Ads applied with the Top ad option gets automatically positioned in the top of each category. Bump ups option gives the seller ability to “bump” the ad up the listings in every category. Homepage gallery option posts the ad in the gallery available in the top of the page. Other ways revenue is generated are by allowing website URLs to be posted with the ads which require extra payment as well as posting complimentary third-party advertisements on the website.
The other main revenue generation subsidiaries of eBay include GittiGidiyor, a Turkish e-shopping mall. The URL of the company comes from the Turkish translation of “Going, going, gone”. Similar to the eBay marketplace, it offers different products on sale; eBay Enterprise, a multinational e-commerce corporation that specializes in building, developing and managing online shopping sites for brick and mortar labels and retailers; and Corrigon, a visual search engine.
Two other companies which were under eBay but later split were PayPal and Skype. PayPal, which became a subsidiary of eBay on October 3, 2002, operates a worldwide online payments system that facilitates online money transfers and performs as an electronic alternative to traditional paper methods like checks or demand drafts. eBay on September 31, 2014, proclaimed the splitting of PayPal into an independent company. Skype, telecommunications software that excels in providing video and voice calls between mobile devices, computers tablets, smartwatches via the Internet, the Xbox One console and to regular telephones was acquired by eBay in October 2005. It was sold to Microsoft in May 2011 after eBay sold a majority stake in November 2009.
eBay Business Model vs Amazon Business Model
Both the business models of Amazon and eBay are different and unique from each other and provide the companies with the best and efficient way to generate revenue. While there are similarities between the business models, there are wide differences as well.
The biggest difference between eBay and Amazon business models is that eBay is also an auction house and the business entity directly facilitates the sale of products between third-party buyers and sellers. The buyers search the site for products they want and then bid on them through discrete auctions. The buyer who bids the highest at the end of the given time frame wins the product. The other option is the Buy It Now option. Meanwhile, Amazon inventories and provides goods directly and they are sold through a large network of Amazon warehouses. The price is fixed and there is no need for auctions.
Purchases on Amazon can be made using the ‘one-click buying option and unlike eBay, payment can be done without leaving the website. eBay has the option of customizing and personalizing the listings which makes it more appealing than the neutral listing of Amazon. This leads to more sales on eBay than Amazon.
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