strategic-management

to gains sales by referring customers to Amazon.com through several other online marketing
channels such as: (1) syndicated store programs, (2) sponsored searches, (3) portal
advertising, and (4) e-mail campaigns (Amazon.com, 2006, p. 37). Amazon also generates
fees from online auctions and web hosting for business e-commerce. Amazon states
their success is based on: the ability to attract buyers and sellers; the volume of transactions,
price, and selection of goods; customer service; brand recognition, community
cohesion, interaction, and size; system reliability; delivery and payment reliability; Web
site convenience and accessibility; level of service fees; and quality of search tools
(eBay, 2006).
Economic Climate
Weak global economic conditions, in addition to the mortgage and worldwide creditrelated
financial crisis, are expected to limit revenue growth, particularly in the
Marketplaces segment, which is closely tied to consumer purchase patterns.
Given that eBay conducts approximately 45 percent of its business outside the
United States, profitability is also affected by currency exchange rates. Specifically, PayPal
uses fixed exchange rate conversions and holds assets in foreign currency denominations.
If the U.S. dollar weakens against foreign currencies, transactions conducted in foreign
currency denominations will increase and inflate revenues, operating expenses, and net
income. Alternatively, financial measures will be negatively impacted by a rise in the value
of the U.S. dollar.
In response to the weak economy, eBay undertook a 10 percent reduction in its
workforce with the elimination of 1,000 jobs in 2008 and incurred $49,000 in restructuring
costs. In the same year, eBay acquired Bill Me Later and announced an anticipated second
acquisition of a vehicle classified ad site, eBay Motors.
Bill Me Later Risk
Although Bill Me Later accounts are funded by CIT Bank, Bill Me Later is responsible
for all functions related to the account. Bill Me Later initially funds consumers’ loans
using cash from business activities and a line of credit. As a result of the global financial
crisis, eBay’s available line of credit was reduced. If credit availability is further reduced,
Bill Me Later may not be able to extend credit to customers. Future profitability depends
on the ability to manage credit while attracting new profitable consumers. EBay’s Bill Me
Later has significant exposure to consumers’ potential default on loans.
Political and Legal Environment
Sales Tax and Other Taxes
EBay Inc. does not collect taxes on the sale of goods or services. However, legislation is in
effect which requires collection of taxes beginning after December 31, 2010. This new
legislation may cause a reduction in trading activity that would negatively affect several
business segments. In addition, tax compliance will increase costs.
Long-term Contractual Obligations
EBay is involved in long-term contractual agreements with firms that provide marketing, customer
support, and technology. If revenue significantly declines, eBay may not be able to meet
contractual obligations. EBay recently increased its fee structure for its Marketplaces business,
which may negatively impact the number of new customers and revenue from existing
users. Any reduction in trading would also spillover to a reduction in PayPal revenues.
Pirated or Counterfeit Items
EBay has recently been involved in litigation with Tiffany & Co., Rolex, Louis Vuitton,
Christian Dior, L’Oréal, and Lancôme for a lack of policing trade and infringement on trademarks
and copyrights for the sale of “not for resale” and counterfeit items on eBay’s Web
sites. In June 2008, eBay Inc. was found liable for damages in the amount of €38.6 million
Euro payable to the Louis Vuitton and Christian Dior firms. Pending lawsuits may adversely
affect future profitability if eBay is found liable. The German Federal Supreme Court has also
CASE 10 • EBAY INC. — 2009 105