How does eBay make Money & Understanding eBay Business Model – Unicorn Economy Analysis
eBay Business Model is the base of many known business model examples that we see today. It is one of the first marketplaces to be born on the face of planet earth and probably it will be one of the first (big ones) to be wiped off as well. How does eBay make money even though it has lost its sheen from its yesteryears when it used to command the major market share in revenue terms as well as mind share terms. Even Flipkart’s position is better these days since eBay’s India unit is being merged with Flipkart.
P.S. I know I haven’t been regular with posts 🙂 Now on you will get to read these every day at 9:00 PM ! Cheers and Stay Tuned !
About eBay, Funders, Founders and Facts
eBay Inc. is a MNC focussing on online consumer-to-consumer (c2C) and business-to-consumer (B2C) sales. It is headquartered in San Jose, California and became one of the surviving stories of the dot-com bubble. Today it is a multibillion-dollar business with operations in about 30 countries.
The company manages eBay.com (and other regional TLDs), an online auction and shopping website in which people and businesses buy and sell a broad variety of goods and services worldwide. In addition to its auction-style sales, the website has since expanded to include “Buy It Now” shopping; online classified advertisements (via Kijiji or eBay Classifieds); online event ticket trading (via StubHub); and other services. It previously offered online money transfers (via PayPal), which was then spun off from the main business sometime in 2015.
eBay Founders: eBay was founded by Pierre Omidyar (does this sound familiar?? ) – The same person whose wealth is now being managed by Omidyar Network VC Fund. BTW when eBay listed eBay Business model made Pierre Omidyar and his first employee both turned immediate Billionaires ($4 Billion+ Wealth).
eBay Funding: The company received $6.7 million (Yes, Everyone else please bow your heads in shame for such a stupid eBay Business Model of making money 🙂 ) in funding from venture capital fund Benchmark Capital. From there it went on to be listed on NYSE (within first 3 years of operation).
eBay Business Model
eBay Business Model is comprised of 4 things – The revenue from the Market Place Business, The revenue from Subsidiaries, The revenue from Branding Solutions and The revenue from its Advertising Business (Primarily CPC).
eBay Business Model via Marketplace Business
Business Model of eBay or for that matter how does eBay make Money or any other marketplace is pretty clear: Seller lists the product and when the buyer buys it successfully the intermediary marketplace makes a pre-determined commission on the sale value pre-tax.
The marketplace operations are classified into the following types:
- C2C Marketplace Operations: The owner of the goods normally has 1-2 units of the same SKU either from non-usage at home or something else and they put it up for sale on “Buy it Now” business model of eBay. The fees here is 2 fold: Listing fee (0.1$ to 0.3$ per item) and then up to a 10% commission on the total sale value pre-tax including shipping. [Read a Contrary B2B Business Model: Alibaba Business Model]
- B2C Marketplace Operations: The owner of the goods normally has many units of the same SKU either from manufacturing on their own or buying from the somewhere else and they put it up for sale on the “Buy it Now” business model of eBay. The fees here is 2 fold: Listing fee (0.1$ to 0.3$ per item) and then up to a 10% commission on the total sale value pre-tax including shipping.
- Auction: Collectors of rare items post the item on Auction / Bid business model of eBay and then bidders place their bid on the item. The revenue here is also a combination of listing fees and commission.
- DropShipping: Sellers don’t have to stock the goods on their own, when they receive the order from the buyer, they actually pass on the details to the shipping company who then takes care of the entire logistical process involved in delivering it to the customer. The fees for eBay is listing+commission and the shipping partner has a fixed fee or floating commission based on the type of the good.
eBay Business Model from Subsidiaries
eBay Business Model had to evolve into aligned business lines and thus over the years eBay has got hold of some really valuable and money making companies like PayPal, StubHub (Stub is for Ticket Stub, Hub is a place to buy them, something similar to BookMyShow), Skype etc.
Just consider this: eBay 2015 Revenue $8 Billion Dollars out of which $2.5 Billion contributed by PayPal so it made sense for this to be spun off into a different entity altogether. I have already analyzed PayPal Business Model earlier and you can view the same for better clarity. Skype (bought over by MicroSoft) and CraigsList (became independent) were also at some point of time part / full owned by eBay and you can read about them as well. Rest of the subsidiaries are discussed here in brief.
How does eBay make Money
How does eBay make money from subsidiaries has a direct relation to their business model because unlike PayPal or skype these are not independent companies and are contributing to the overall top line of the company. The major subsidiaries contributing to the top line are discussed below.
How does eBay make Money from StubHub
StubHub is the BookMyShow of the west 🙂 or rather BookMyShow has been copied from StubHub 😀 .
StubHub ran about $500 million in revenues in 2015. Out of eBay’s $8 Billion, though StubHubs business model contributes fairly less than 8% of the company’s revenue it still is the force in eBay’s kitty to reckon with. It operates in major leagues, major movie ticket distribution platforms, major events, you name it they have it ! The fee structure is flat convenience fee-based model and advertising related model where they advertise a potential event to a befitting audience.
How does eBay make Money from eBay Classifieds
eBay classifieds works in an exactly similar way as that of CraigsList and make money of paid listings, promoted listings etc. This is a very small part of the overall top line.
How does eBay Work with Brands / Advertisers
eBay makes money from Brands via giving them sweet ad spots on the home page or any other form of advertisements with measurable RoI. All of these spots are charged for brands who are looking to better engage with their customer and/or retargeting them.
The CPC-based ads are often called as promoted products or promoted posts for which the advertiser only pays for the sale happened anytime during the 30 day period from the date of the customer clicking on the promoted ad.
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