Ebay Structures Its Bid For Change

eBay Structures Its Bid for Change

Please read the following case description of "eBay Structures Its Bid for Change". After reading this case, you should prepare your analysis following the guidelines I have provided. The purpose of this assignment is for you to demonstrate that you can apply the concepts, principles, and theories presented in the course readings. Your analysis must employ only the facts presented in the case description below. You must resist the temptation to introduce facts not in evidence in the case description by searching the internet for updated information.

The company’s present situation is not necessarily the ideal solution that could be derived from a careful analysis of the facts as presented here. This assignment is worth 80 points. Please post your completed case analysis under the "Assignments" tab. eBay Structures Its Bid for Change In 1995, 28-year-old computer programmer Pierre Omidyar started an online business to answer the kind of question that might interest both microeconomists and entrepreneurs: “He launched eBay,†we’re now told on eBay’s website, “to experiment with how equal access to information and opportunities would affect the efficiency of the marketplace.†Enthusiastic response to preliminary efforts had convinced Omidyar that somewhere there was a buyer for every item that a seller might put up for sale.

The next step in Omidyar’s experiment consisted of a weekend spent writing software code that would support online auctions. He launched a website called AuctionWatch in 1995, and two years later changed the company’s named to eBay. Originally, Omidyar structured his company using the functional design typical of small businesses. He set up the usual functional areas such as operations, finance, legal, human resources, etc., and eventually gave each unit a company president; however, he introduced a twist in the usual functional configuration by integrating a System4 design based on the behavioral model of organizational design that emphasizes the importance of group and other interpersonal processes.

Omidyar’s personal values favored creating a company the structure of which sidestepped big business altogether and permitted individuals, wherever they might be, to function as buyers and sellers. Today, people commonly refer to eBay as “an online auction and shopping site,†but Omidyar envisioned his site as much more than an auction space. He intended eBay to create an online community—something like a small town in cyberspace—and, for that, he needed an organizational model that did away with bureaucracy and fostered democratic decision making, decentralization, open communication and interaction, and relationships of trust; after all, the entire business model depended upon two strangers trusting one another.

Omidyar stepped down as CEO in 1998, although he retained his position as chairman of the board. He was replaced by Meg Whitman, a former management consultant and a veteran of such venerable firms as Procter & Gamble and Disney. In that same year, eBay went public, raising $60 million and committing itself to much greater pressure to realize its profit-making potential. Over the next several years, eBay became wildly popular and grew rapidly. Under Whitman, revenues increased steadily, averaging 70% annual growth in the period , before year-over-year growth began to slow down to a sustainable level.

Revenues for 1999 totaled $224.7 million, up a whopping 161% over 1998 and, by 2007, revenues had grown to $7.7 billion. Like many companies, however, eBay did not have a good year in 2008 (the first full year of the so-called Great Recession). In the fourth quarter, revenues dropped 6.6% from 2007, the first quarterly shrinkage in revenue in the company’s history, and profits were down 31%. “Clearly,†said new CEO John Donahoe, “we’ve been operating in an almost unprecedented external environment,†but analysts have been quick to point out other, potentially long-term, factors in eBay’s sluggish performance. “Part of the problem,†agreed CNNMoney’s Michael V. Copeland, “is that no one is spending money . . . at the moment, but compounding the issue for eBay is that a lot of people aren’t hassling with auctions anymore.†A big reason for eBay’s problems, he adds, “is that virtually no one cares about eBay’s original business, the online auction.†Copeland goes on to argue that eBay’s online business, its Marketplace unit, “is dragging down the rest of what are pretty solid businesses that eBay owns, chiefly online payments service PayPal and Internet calling company Skype.†For the fourth quarter of 2008, revenue for Skype was up by 5%, while PayPal’s revenue was up by 23%. Through 2007, the core Marketplace unit, through which all the goods trading at eBay takes place, contributed about 70% of the company’s revenues, but in March 2009, while announcing a three-year growth plan, eBay projected a much different distribution of its future income.

Donahoe announced projected revenues of $10 billion to $12 billion by 2011, which is up from 2008’s $8.5 billion. If that increase doesn’t seem like much, remember that the company will probably have to make up more lost ground from 2009, for which analysts have projected another drop in revenue of 6%. The company expects its future revenues to be distributed as follows: • PayPal will generate between $4 billion and $5 billion, up from $2.4 billion in 2008; • Skype will contribute $1 billion, up from roughly $500 million in 2008; and, • Marketplace will contribute from $5 to $7 billion, up slightly from $4.7 billion in 2008. Not surprisingly, the meteoric rise in its financial fortunes that began in earnest with the 1998 IPO has already had a profound impact on both the organizational structure and the operations of eBay.

One of its first major post-IPO moves was the acquisition in April 1999 of Butterfield & Butterfield, one of the world’s largest and most prestigious auction houses. Butterfield was folded into eBay’s auction operations and served to open up a new marketplace category for goods selling for $500 and up. A year later, eBay purchased Half.com, an online shopping site specializing in the sale of books and media products in a non-auction, or fixed-price, format. The purpose of the acquisition was to expand not only the parent company’s inventory but its format options as well. The original plan to roll Half.com into eBay.com stalled in 2002, when users objected to the pace of the changes at Half.com and, as of this writing, it is still an independent site.

Both Butterfield’s auction operations and Half.com’s independent fixed-price operations are managed by a unit called eBay North America, whose president reports to a president of eBay Marketplace who, in turn, reports to the CEO. Since the Half.com acquisition, eBay has purchased several other online-auction companies, most of them overseas start-ups that have been used to gain entry into foreign markets. Today, there’s a unit called Marketplace Operations, the president of which oversees operations at all of the company’s global sites in North America, Europe, and the Asia-Pacific region. This president is one of three presidents in charge of e-Bay’s three divisional units, all of whom report directly to CEO Donahoe.

The other two divisional units, interestingly enough, are PayPal and Skype, both of which have been built around the acquisition of independent firms, and both of which focus on activities outside of eBay’s core Marketplace activities. eBay purchased PayPal in 2002 for $1.5 billion. Essentially, PayPal is a system that allows payments and money transfers to be made through the Internet, and eBay has developed into the number-one payments system for e-commerce in general (only direct credit card transactions transfer more money). Skype was added to the eBay portfolio in 2005, at a cost of $2.6 billion. It was originally developed as a VoIP (Voice-over-Internet-Protocol) service, a transmission technology for sending voice communications over networks like the Internet, but eBay wanted to turn it into a communications hub over which its buyers and sellers can transact business by voice.

As discussed above, both PayPal and Skype have emerged as important revenue generators, and figure prominently in eBay’s plans for the future. Needless to say, eBay has undergone a good deal of organizational change in its relatively brief existence. Back in 2004, when she could still refer to eBay as a “unique blend of commerce and community,†former CEO Whitman (who stepped down in March 2008) admitted that perhaps the pace of change at the company was a little too brisk for some members of the community. “The community right now,†she said, “has seen a lot of change. We probably need to slow down that pace just a tad.

It’s hard for folks to adapt to so much change.†Nevertheless, investor pressure to sustain profit levels, coupled with increased competition from such sources as Amazon, Google, and Yahoo!, continued to force change, much of it in the form of rules and regulations instituted in order to deal with ever-increasing numbers of buyers and sellers. Recent changes, coupled with certain details of the announced three-year plan, suggest that the company also wants to alter its strategic focus. In January 2008, for example, a month after Amazon surpassed it in total U.S. traffic for the first time ever, eBay announced a change in its fee structure. Fees for listing items were slashed by up to 50%, but commissions for items that sold went up.

Increases in commissions for low-end items, especially goods selling for less than $25, were particularly steep at 67%. Some eBay sellers were understandably unhappy about the change in fee structure. “It looks like what they are trying to do with the fees,†surmised one user, “is make it more difficult and expensive to sell low-end items.†Many observers agreed with this assessment, adding that eBay was shifting its emphasis to higher-priced items, especially used, off-season, end-of-life-cycle, and open-box products supplied by business sellers. In a similar move, eBay stipulated that, beginning in March 2008, all sellers who had received less-than-100%-favorable feedback ratings would be required to use PayPal for all transactions.

This requirement followed several stipulations regarding PayPal that had been put in place in 2007. As of January 2007, for instance, all transactions in certain categories, including “Computer/Software,†“Consumer Electronics/MP3 Players,†and “Mobile and Home Phones,†had to be paid through PayPal. Other categories were added in August of the same year, and included “Video Games†and “Health & Beauty. Such changes were clearly intended to leverage the revenue potential of PayPal which, in March 2009, CEO Donahoe referred to as a “second core business†for eBay. So far, the strategic effort to synergize its Marketplace and PayPal operations has been less than successful. Beginning in June 2008, for example, eBay required that all transactions involving Australian buyers and sellers use PayPal as the only payment option, except for cash on delivery.

Within a month of that announcement, however, the company was forced to rescind the policy when the Australian government, acting upon a groundswell of complaints from users and petitions from bankers, informed eBay that its policy would have “an anti-competitive effect†on online commerce. eBay had promoted PayPal as a means for improving security in online transactions, but the Australian government was also unconvinced by this argument, finding “no evidence to suggest that the relative frequency of online fraud for PayPal online transactions is any less than that found in general online transactions.†The Australian Competition and Consumer Commission also noted that its PayPal-only plan would allow eBay to raise its fees by 45.7%. At this juncture, the result of the plan seems to be a few thousand annoyed users in Australia and a few thousand more in the U.S., where users are not convinced by the company’s assurances that it is not planning a similar policy for its largest marketplace.

Paper For Above instruction

In contemporary organizational management, especially within rapidly evolving sectors such as e-commerce, structural design plays a pivotal role in determining a company's ability to adapt, innovate, and sustain growth. eBay’s journey from its inception as a small startup to a global marketplace giant exemplifies how organizational structures must evolve in tandem with strategic objectives, external environmental pressures, and technological advancements. This essay analyzes eBay’s current organizational structure, evaluates the modifications it has implemented over time, and offers strategic recommendations for future structural configuration, particularly considering its international expansion ambitions.

Evolution of eBay’s Organizational Structure

Initially, eBay employed a functional structure typical of small businesses, with distinct units such as operations, finance, legal, and human resources, each led by a company president. Omidyar’s emphasis on behavioral organizational models fostered a culture emphasizing interpersonal processes and egalitarian communication, aligning with his vision of a community-driven enterprise. As eBay expanded rapidly after its IPO in 1998, the company faced the challenge of balancing its grassroots community ethos with the demands of a publicly traded corporation seeking profitability and competitive agility.

The acquisition strategy, including Butterfield & Butterfield, Half.com, and various overseas startups, prompted the development of a divisional structure. The creation of distinct units like eBay North America, Marketplace Operations, PayPal, and Skype reflects a move towards a divisional (or multidivisional) organizational form that supports product-line and geographic differentiation. This structure allows eBay to tailor its strategies and operational tactics to specific markets and product categories, facilitating local responsiveness and innovation.

Nevertheless, the integration of these units has not been seamless. The core Marketplace division, which originally encompassed auctions and fixed-price sales, still accounts for the majority of revenue, but its decline amidst changing consumer behaviors and competitive pressures necessitated a strategic pivot. As a result, eBay’s organizational change has been characterized by increased complexity, with multiple units and geographic subsidiaries, which can lead to coordination challenges and potential redundancy.

Impact of Organizational Changes and Future Directions

eBay’s venture into international markets, through acquisitions and regional operations, underscores the importance of a flexible yet coherent organizational design. The current structure, with a Marketplace Operations unit overseeing global sites and separate units for PayPal and Skype, facilitates focused strategic development for each segment but risks siloed decision-making. For future growth, especially with ambitious revenue targets and global expansion, a more integrated model emphasizing synergy and streamlined communication is advisable.

Recommendations include adopting a hybrid organizational structure that combines elements of a matrix and a network organization. Such a model would foster cross-functional collaboration, optimize resource sharing, and enhance responsiveness to local market needs. In the context of international expansion, establishing regional hubs with dedicated leadership, supported by centralized strategic coordination, can be beneficial. This arrangement would allow eBay to adapt to diverse regulatory environments, cultural differences, and technological infrastructures while maintaining a unified corporate vision.

The impact on existing functional units—finance, human resources, and legal—must be carefully considered. As international expansion accelerates, these units will need to develop global policies, standardized procedures, and compliance mechanisms to navigate varying legal and regulatory frameworks. For finance, implementing multinational financial management systems will be necessary to ensure transparency and efficiency. Human resources must focus on multicultural talent acquisition, training, and retention to support regional operations. The legal department must handle diverse jurisdictions, intellectual property rights, and consumer protection laws, requiring specialized expertise and proactive compliance strategies.

Conclusion

Through its considerable evolution, eBay has transitioned from a simple functional design to a complex multidivisional structure geared toward market responsiveness and diversification. However, to sustain long-term growth and effectively manage international expansion, the company should consider adopting a more integrated, flexible organizational design—such as a hybrid matrix structure—that enhances collaboration, reduces bureaucratic silos, and aligns corporate strategies across regions and segments. By refining its organizational architecture, eBay can better respond to external environmental changes, leverage synergies among its business units, and sustain its competitive advantage in the global e-commerce landscape.

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