How Does eBay Work: Business and Revenue Model Explained

How Does eBay Work – Business Model, Strategies, Key-Facts, Funding and Success Secrets

3089 Views | 5 min | November 13, 2019
eBay Revenue Model

eBay is the second most influential online market place in the United States in terms of gross merchandise value and the fifth all over the world.  According to Forbes, eBay’s net revenue surged by 19.7 percent from 2016 to 2018. But, how does eBay work and brings money to the table? Let’s find out.

eBay started out as AuctionWeb, an online auction portal that allowed interpersonal transactions. It was a first of its kind – a platform business model that generated revenue by drawing a transaction fee from the people and businesses that used the website for selling/buying products and services.

Today, eBay is a multibillion-dollar e-commerce platform linking millions of buyers and sellers across the globe. It allows consumer to consumer and business to consumer transactions. The platform is free of charge for buyers. The sellers receive a pre-determined number of free listings and are charged a fee for subsequent listings. eBay also generates revenue from the commission gained from product sales.

eBay currently operates across 30 different countries, serving as a traditional online shopping website (ebay.com) with thousands of different products in addition to offering services like online auction, event ticket trading (stubhub.com) and online classified ads.

Let’s have a look at some of the stats and facts to get an idea on how eBay does eBay work and brings money to the table.

eBay Stats and Facts – Funding and Major Milestones

  • Founded:September 3, 1995
  • Founder: Pierre Omidyar
  • Headquarters:San Jose, California, U.S.A.
  • Estimated Market Value: $33.5 Billion (as of September 2019)
eBay Success Timeline

How Does eBay Work: Business Model Explained

eBay was initially just an online auction platform where sellers listed their items for bidding, with the highest bidder acquiring the items. But the answer to how does eBay work lies in its present business model.

Over the years, eBay has evolved into a real marketplace.  Sellers can now list fixed priced items for sale and have the option of opening their own stores on the website.

In eBay’s present version, sellers list the products for sale with product images, description, price and shipping details. Products up for bidding are listed with a minimum bidding price, available payment options and the duration of the bidding window.

Sellers receive a selected number of free listings in a month after which they’re required to pay a fixed charge to eBay for every subsequent listing. eBay also draws commission from each sale, both from free and paid listings. Sellers registered with eBay enjoy a reduced final value fee on every successful sales transaction.

For buyers, eBay remains easy to navigate online retail website that offers a wide range of products and services. Buyers can simply log on to the company’s website or visit the mobile app and search the desired product or service to compare the prices from various sellers and select the most suitable deal.

To get an idea of ebay’s customer segment, value proposition it offers and its cost and revenue streams – have a look at eBay Business Model Canvas.

eBay Business Model Canvas

A simple click or touch helps customers select parameters like product condition (new/used), delivery options (free or chargeable international shipping). Customers can search a product on eBay, and then choose products listed under the “Buy it Now” section. There’s a separate Deals option that directly leads to all the deals active on the given day.

Both buyers and sellers have a feedback option available to them where they can rate their respective transaction experiences. These ratings are reflected in the profiles of both buyers and sellers and have an obvious impact on people’s perception of a buyer or seller.

eBay has strict guidelines in place to protect the interests of both parties involved in a transaction. These may vary depending on the type of product or service. eBay is known for its focus on enhancing user loyalty with features like daily deals, prompt and easy monetary transactions.

So, that was all about how does eBay work, its customer segment and value propositions. Now that you know it all, let’s have a look on the secret ingredient behind eBay’s success.

Also Read: How Much Will It Cost to Make e-Commerce MarketPlace Apps like OfferUp Or LetGo?

The Secret Sauce Behind eBay’s Success

eBay is one of the oldest surviving online businesses ever and it’s enjoying a highly successful run throughout, with profitable returns in almost every quarter since it became operational.

How has eBay achieved all that?

The answer lies in the unique business idea that the company was built around – earn a nominal commission from businesses and people auctioning off new or used products. Back then, no other business in the world had thought of it, eBay alone used the idea in a strategic manner.

eBay owes its long and highly successful track record to a number of factors – its global reach, transparent and trustworthy transactions, but the most important ingredient is its inventory. eBay’s inventory is filled with thousands of exclusive products. It’s a literal cave of wonders for people who’re interested in vintage items, collectibles, used and out-of-season products as well as the latest arrivals in electronics and appliances.

eBay was one of the first big businesses to focus on toys and toy collectors. The company’s auction format was influential in the huge surge in the prices of toys and other collectible items.

With eBay’s auction listings service, people in possession of rare and collectible items discovered a place to invite the best offers and collectors found a platform where they could shop items that they could not gain access to at the traditional marketplaces.

Over the years, eBay has succeeded in keeping the trend going, creating a flourishing marketplace for hobbyists and collectors as well as sellers and seekers of items of day to day utility. From one of a kind art pieces, limited-edition figurines and rare photographs to end-of-life or used electronic goods, eBay’s modern-day marketplace offers a wonderful variety in all that and plenty more.

How does eBay Work

 

How eBay Makes Money –Revenue Model Explained

eBay draws its earnings from a fee levied on listing products and features along with the sale of various services. In addition, the company charges a final value fee to the sellers for every sales transaction completed.

At present, ebay.com, eBay’s U.S. based online store levies an insertion fee of $0.35 for basic listings. The final value fee ranges from 10 to 12 percent of the product’s selling amount (inclusive of shipping costs). This fee structure is identical across all eBay websites, with varied cost charges for different markets.

eBay draws considerable revenue from international trade. The company has always been committed to evolution and expansion. Since inception, it’s grown from its auction centric business facilitator roots to become one of the best-rounded online market places around. Today, the company has expanded its operations to more than 2 dozen nations which make for a noteworthy addition to its earnings.

eBay’s Competition and What Sets It Apart?

What makes eBay stand out from the popular alternatives is the company’s marketplace platforms. With their far-out reach and enormous exiting customer base, eBay marketplaces allow local businesses and people immediate access to potential buyers. eBay appeals to and engages sellers across diverse demographics, resulting in rich, vibrant marketplaces that in turn draw buyers who’re aware they won’t find the same products or deals at any other place in the world.

Interestingly, one of the eBay’s biggest challenges stems from one of its greatest assets – the number of new, often obscure sellers on the company’s websites. While seasoned eBay sellers have past customer reviews and ratings to boost the customers’ trust, new sellers don’t have similar track records to rely on. eBay makes up for it with programs and policies to safeguard the interests of buyers and instill them with confidence.

Features like eBay’s money-back guarantee, SafeHarbor program, eBay Top Rated Seller (eTRS) and Verified Rights Owner Program are examples of the company’s conscious effort in protecting the customers against frauds and enhancing customer experience and brand loyalty. The company’s stellar return and exchange policy seller rating system and feedback forum have struck a chord with global customers, giving it a large, loyal customer base that’s been crucial to its success over the years.

Also Read: Why 99 Dresses – an eCommerce Business with a Brilliant Idea Failed?

Wrapping Up

Brilliant idea, good execution and the readiness to evolve have led eBay to its current position – the top tier of international online retailers.

Despite venturing into direct retail, eBay’s continued focus on the things that brought it the most success (auctions, listings and, customers’ trust) has enabled the company to remain adrift even when in troubled waters. eBay is a true success story, a shining example for startups of the day on how to embrace change without letting go of their core competencies!

eBay Business Model

 

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