eBay is the second most influential online marketplace 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 or 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 freely available to 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 auctions, 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 of how does eBay work and makes money.
In order to understand the business model of eBay, we must perform business analysis and find out how the platform functions to make a mark in the industry. So, let’s get started.
Initially, eBay was just an online auction platform where sellers listed their items for bidding, with the highest bidder acquiring the items. However, it changed over time and the answer to how does eBay work lies in its present business model.
Over the years, eBay has evolved into an online 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, a description, the price and shipping details. Products up for bidding are listed with a minimum bidding price, available payment methods and the duration of the bidding window.
Sellers receive a few free listings in a month after which they need to pay a fixed price 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 an easy-to-navigate online retail website that offers a wide range of products and services. Buyers can simply log on to the website or visit the mobile app and search for the desired product or service. They can compare the prices of similar products or services from various sellers and select the most suitable option.
To get an idea of eBay’s customer segment, the value proposition it offers, and its cost and revenue streams – have a look at eBay Business Model Canvas:
A simple click or touch helps customers select parameters like product condition (new or used) and delivery options (free or chargeable international shipping). Customers can search for 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 focuses on enhancing customer loyalty with features like daily deals and prompt and easy monetary transactions.
So, that was all about how does eBay work, its customer segment and its value propositions. Now that you know it all, let’s have a look at the secret ingredient behind the success enjoyed by the eCommerce giant.
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, which is to:
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 was first in line to use the idea in a strategic manner.
eBay owes its long and highly successful track record to a number of factors. This includes its global reach, transparent and trustworthy transactions, and most importantly, 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 get the best offers. On the other end, collectors found a platform where they could shop for 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 and used electronic goods, the modern-day eBay marketplace offers a wonderful variety in all that and plenty more.
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 transaction completed.
At present, ebay.com, eBay’s US-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 its inception, it’s grown from its auction-centric business facilitator roots to become one of the best all-rounded online marketplaces. Today, the company has expanded its operations to more than 2 dozen nations that make up a sizeable addition to its earnings.
What makes eBay stand out from the popular alternatives is the company’s marketplace platforms. With their far-out reach and an enormous customer base, eBay marketplaces offer local businesses and people immediate access to products. 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 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 customer 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 confidence in them.
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 efforts in protecting customers against fraud 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.
A brilliant idea, good execution, and the willingness 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. It is a shining example for startups of how to embrace change without letting go of their core competencies!
Q 1. How Does eBay Work When Buying?
eBay allows its customers to buy products in two ways. They can either buy the product instantly for a fixed price or can bid for it to get it for a lower price and save money. The bidding feature on eBay makes it different from its competitors and also gives it an edge.
Q 2. How Does eBay Work as a Seller?
That’s not much complicated. On eBay, sellers can list a product to sell, add photos and a description, and select a selling price. Buyers can either buy the item instantly or bid for it. When a deal closes, the buyer can make payment via any of his/her preferred payment options, and the seller ships it.
Q 3. How Does eBay Work with Shipping?
Whenever a buyer purchases an item on eBay, he/she pays the shipping charges. Selecting the shipping method is the seller’s decision, however. The seller prints the shipping label on the item and pays from his account.
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