Amazon & Ebay Case Analysis

Professor Ed Hubbard

                Amazon & eBay case analysis

Team 8

Yang Gao

Jingwei Zhang

Shen Wang

Xichun Han

Amazon and eBay were both the giants in the E-commerce market in 2000s, However, while Amazon hits its new highest market capitalization few days ago, eBay is still struggling as its shopper departs. Amazon and eBay are both founded in the middle of the 1990s. Back then, eBay primary offered online marketplaces for the sale of goods and service with a special auction system. They had a great first mover advantage, launched auction system, PayPal and BuyitNow. Unfortunately, eBay’s business model was not hard to copy from its competitor’s perspective, many of the new entrants crashed into the E-commerce market, they imitated eBay’s business model and took its leading market share. Amazon was one of the new entrants, they were an online book store which extended their business to the E-commerce market. In contrast to eBay, Amazon made a strategic action to build a vast infrastructure system, which includes facilities and distribution channel. The well-developed infrastructure system supported Amazon to launch Prime service and Fulfillment by Amazon, and those services built Amazon unique advantage to become the market leader.

With the development of Internet at the end of 20th century and at the beginning of 21st century, a growing number of companies joined e-commerce industry. The industry seems to be very competitive. In fact, it is. There are low barriers to entry ecommerce business, because an entrepreneur with as less as $5000 can build a website with market functionality. The most important three elements in ecommerce business are customer acquisition, low bounce rate of product and distribution channel. Therefore, you may need large capital to invest in marketing, adverting and building distribution channel. As a result, the threat of new entries should be considering as low. The bargaining power of suppler is low in ecommerce business, because there is low product differentiation among the ecommerce companies. They tend to have low power the drive up price. Moreover, the bargaining power of buyer is high, because buyer have many options with low switching cost. Therefore, buyer have high power of driving down price. The threat of substitute products and service is high in ecommerce industry. Buyers have options to go to retail stores or to go to different websites to get the product. Consequently, the threat of substitute products and service is high. Since there are many companies in this industry, the intensity of rivalry is high. In general, according to Porter’s five forces model, the attractiveness of ecommerce business is low.

Amazon extended its product line from single bookstore to a large-scale retailer marketplace during past ten years. Because of the change of market positioning, Amazon becomes more attractive for both sellers and buyers. Abundant product categories enable Amazon to increase its market shares. Amazon takes advantages on investing in supply chain and distribution network, which allow Amazon not rely on third-party logistics. Moreover, having own distribution network and warehouse, which decrease both delivery cost and stocking cost in the long run. This is essential for Amazon to gain advantage in price competition. Through those resource advantages, Amazon create its core competency; thus, highly decrease the threats of new entrants and substitutes. Furthermore, Amazon has some creative ideas to achieve a better customer service. For example, they invested in a large-scale editorial team to promote most helpful reviews and maintained a recommendation engine for its customers, which increase the sales of products remarkable. Amazon also launched “prime” membership, which basically people could enjoy two-day free shipping.  These strategies increased the switching cost for customers, because customer could not enjoy these advantage if they go to the other competitors. Thus, Amazon reduced the bargaining power of customer, and increased the customer loyalty. Furthermore, due to Amazon’s large scale retailer business model, they could take advantage on large scale procurement to reduce bargaining power of supplier. In conclusion, Amazon’s business model is high capital needs, very unique and efficiency, which is hard to copy and compete.