- eBay Inc. (EBAY) was the first global marketplace connecting private buyers and sellers.
- The company is one of the largest online marketplaces and a competitor to Amazon and large ecommerce stores.
- eBay makes money by charging transaction fees and fees for marketing services.
Pierre Morad Omidyar, a French-born Iranian-American billionaire, founded eBay in 1995. The company was an early competitor in the ecommerce market, providing a marketplace connecting private buyers and sellers.
The company is listed on the Nasdaq, with its IPO in September 1998. The platform offers new consumer goods, and it hosts a thriving secondary market for used goods.
eBay launched in the mid-90s as a marketplace designed to connect private sellers and buyers. It was an innovative business model and the first e-tailer to reach the global market at its launch. The company grew its footprint in the market through several strategic acquisitions.
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What does eBay do?
eBay offers a retail-to-consumer and consumer-to-consumer marketplace. The company operates internationally, with marketplaces in most countries throughout the world.
eBay is one of the few techy companies surviving the dot-com bubble crash of 2000, and it continues to remain a sought-after marketplace for buyers and sellers online.
The company diversified its holdings by acquiring investments in several leading tech firms involved with its business model.
How does eBay work?
It’s easy for users to set up seller or buyer accounts, with the company charging fees to the sell-side only. Buyers don’t have to spend anything on fees.
After activating an account, users can buy, sell, and communicate with sellers, leaving feedback for the transaction.
eBay has one of the best reputations for an online marketplace. It operates differently from Amazon, using a consumer-to-consumer model.
The platform also allows online retailers to use it as a secondary sales channel.
Users can search for products in their local area or internationally. Sellers create listings for their offers, uploading descriptions, photos, prices, and shipping options.
eBay was the first online marketplace to utilize an “auction” system where the highest bidder on an item wins. Many sellers also offer a “buy it now” function, allowing users to circumvent the auction process and pay for the product immediately.
Users can open an account for free, and you can register as a buyer or seller, or both. Seller accounts must pay listing fees and commissions on every sale they make through the platform.
How eBay makes money
eBay makes money by generating revenue through transactions on its platform and from marketing services like advertisements and classified listings.
Sellers are charged a fee for listing a product for sale. eBay also charge transaction fees based on the final sale value of the item.
The eBay business model divides revenues into two categories, net transaction revenues, and marketing services.
Let’s look at the model in detail.
Transaction and listing fees
eBay dominates the consumer-to-consumer online marketplace.
The company charges sellers an 11% fee for listings up to $1,000 in value.
It charges 2.35% on the additional value of the sale over $1,000.
Sellers are willing to pay these high fees due to the exposure they receive for their listings, with eBay having nearly 200-million registered users around the globe.
eBay also charges a transaction fee to the seller after completing the sale. eBay keeps 12.9% of the sale price, depending on the listing category, and $0.30 per transaction.
eBay also charges for marketing products on its site.
The company continues to see growth in its marketing revenues of 5% to 10% per year, making it a profitable revenue stream.
The marketing services include classified ads and direct advertising on the platform partnering with big brands.
Future growth engine
eBay sees focusing on enhancing and improving its user experience as the future growth engine of the platform.
The company aims to reduce friction on the buyer side by adding new methods for consumers to compare prices and search for unique products on the site.
The company intends to offer sellers new tools and additional data points to help them grow their business on the platform.
eBay still dominates the consumer-to-consumer marketplace.
However, it has stiff competitors operating in different niches.
Some of its toughest competition include the following online marketplaces and ecommerce platforms.