Business, Management

eBay Five Forces Analysis (Porter Model) & Recommendations

Updated on Updated on by Christopher Mitchell
eBay Five Forces Analysis, Porter, competitors, bargaining power customers, suppliers, threat substitutes, new entrants, e-commerce
An eBay office in Toronto. This Five Forces analysis of eBay Inc. (Porter model) points to competition and customer power as the highest-intensity forces in the e-commerce industry environment. The company’s strategies must account for external factors identified in this Five Forces analysis. (Photo: Public Domain)

eBay Inc. is among the major players in the global e-commerce industry. The company’s success represents strategic effectiveness in solving challenges in the online business environment. Major challenges are identified in this Five Forces analysis of eBay’s online trading platform business. Michael E. Porter’s Five Forces analysis model is an external analysis tool that identifies competitive forces and their intensities linked to business performance in the industry environment. In this case, the Five Forces analysis of eBay Inc. encompasses the effects of competitive rivalry, the bargaining power of customers/buyers, the bargaining power of suppliers, the threat of substitutes/substitution, and the threat of new entry in the online marketplace industry environment. For example, the low cost of new entry is an external factor that threatens the company’s market share of buyers and sellers. eBay’s management must implement strategies that consider the external factors identified in this Five Forces analysis of the online business.

This Five Forces analysis of eBay Inc. informs managers and investors about pertinent external factors in the e-commerce industry environment. These external factors present issues that the company must strategically address. High-intensity competition may warrant changes in eBay’s marketing mix or 4Ps to attract and retain buyers and vendors. It is prudent that the company’s managers utilize the results of this external analysis to guide strategy formulation in the multinational business.

Summary & Recommendations: Five Forces Analysis of eBay Inc.

Summary. The results of this Five Forces analysis of eBay reveal that competition or competitive rivalry, and the bargaining power of customers or buyers are the most significant external forces in the e-commerce industry environment. The other forces moderately impact the multinational e-commerce business. Thus, all the five forces are major considerations in eBay’s strategic management decisions. The company has the capabilities to withstand these forces through the competitive advantages enumerated in the SWOT analysis of eBay Inc. However, strong competition can erode the company’s market share. It is essential that eBay’s generic strategy for competitive advantage and intensive strategies for growth address the external factors responsible for these forces. In summary, this Five Forces analysis establishes the following intensities of the forces that influence eBay’s external business environment:

  1. Competitive rivalry or competition: Strong force
  2. Bargaining power of buyers or customers: Strong force
  3. Bargaining power of suppliers: Moderate force
  4. Threat of substitutes or substitution: Moderate force
  5. Threat of new entrants or new entry: Moderate force

Recommendations. Based on the results of this analysis of eBay Inc. through Porter’s Five Forces analysis model, a recommendation is to build competitive advantages through innovation. Innovation enables companies to compete in the e-commerce industry. Effective innovation for product improvement or development can increase the market share and help fulfill eBay’s corporate mission statement and corporate vision statement. A higher innovation rate can increase the company’s online marketplace effectiveness. Another recommendation is to develop more strategic partnerships with third parties, such as courier companies. This recommendation addresses the strong bargaining power of customers by improving service reliability. Also, such strategic partnerships partly deal with the moderate bargaining power of suppliers identified in this external analysis. Furthermore, this Five Forces analysis of eBay Inc. requires that the company’s strategies address the threats of substitution and new entry. Continuing development of services is recommended to overcome these threats. For instance, a broader set of services can increase the attractiveness of eBay’s online marketplace.

Competition/Competitive Rivalry with eBay (Strong Force)

This aspect of Porter’s Five Forces analysis model assesses the degree of competition among firms in the industry. In the case of eBay Inc., the external analysis considers competitive rivalry with firms involved in e-commerce. These firms can hinder the company’s growth. The following external factors are the main contributors to the strong intensity of competition with eBay:

  • Large population of firms (strong force)
  • Low buyer switching costs (strong force)
  • Low platform differentiation in quality (strong force)

This Five Forces analysis considers the large population of firms in the industry. This factor leads to tough competition with eBay Inc. The company competes with e-commerce service providers, like Amazon, Walmart Marketplace, and Meta’s Facebook Marketplace. This external analysis also identifies low switching costs as an external factor that contributes to the strong intensity of competitive rivalry in eBay’s industry environment. Low switching costs are the low costs or barriers that customers (consumers and sellers) experience when they switch from one service provider to another, such as when they move from eBay to Amazon. This Five Forces analysis considers such an external factor as an intensifier of the force of competition in the online trading industry environment. In addition, low differentiation in quality reflects similarities among the quality levels of available online trading services. For instance, the quality of eBay’s e-commerce services is similar to the quality of competitors’ services. This condition makes it easy for customers to transfer from one firm to another, thereby strengthening the force of competitive rivalry. Thus, this aspect of the Five Forces analysis of eBay Inc. stresses the importance of competition in shaping strategic management for growing multinational e-commerce business operations.

Bargaining Power of eBay’s Customers/Buyers (Strong Force)

In this aspect of Porter’s Five Forces analysis model, the influence of customers on the e-commerce industry environment is examined. In eBay’s case, the customers are buyers/shoppers and sellers who use the company’s online trading websites and related services. Customers’ rate of use of such services affects the strategic management success of the company and its subsidiaries. eBay’s customers have strong bargaining power over the international business, based on the following external factors and their impact intensities:

  • Low buyer switching costs (strong force)
  • High price sensitivity of customers (strong force)
  • High quality of information (strong force)

The low switching costs in this Five Forces analysis represent customers’ bargaining power. Because of this external factor, buyers and vendors can easily use Amazon instead of eBay. This condition intensifies the bargaining power of customers. This external analysis also considers high price sensitivity, which is the degree of customers’ response to changes in prices. For example, if eBay increases the prices of its online marketplace services, customers are likely to consider using the services of Amazon or other prominent online trading platforms instead. This external factor contributes to the strong intensity of the bargaining power of customers in the industry environment. Moreover, access to high-quality information regarding online retail/auction services is identified in this Five Forces analysis as a contributor to customers’ strong bargaining power. This external factor is partly based on the availability of information through the Internet, as well as the technological trends enumerated in the PESTLE/PESTEL analysis of eBay Inc. Information empowers customers in shifting from the company to competitors. The combined effect of the external factors in this aspect of the Five Forces analysis creates the strong bargaining power of customers. eBay’s corporate social responsibility (CSR) strategy helps counteract this force by attracting customers through management approaches for enhancing the image of the global business.

Bargaining Power of eBay’s Suppliers (Moderate Force)

This aspect of Porter’s Five Forces analysis model considers suppliers’ impact on the industry environment. eBay’s strategic management, in this external analysis case, must account for how suppliers influence the multinational business through its supply chain. As an online trading service provider, the company’s supply chain involves information technologies used to maintain trading services. For example, online servers are among the technologies that eBay procures from its suppliers. Merchants/sellers who use the company’s websites provide goods, but they are customers and not suppliers because the company does not utilize such goods in providing online retail/auction services. In this Five Forces analysis, the moderate intensity of the bargaining power of eBay’s suppliers is based on the following external factors:

  • Suppliers’ moderate population (moderate force)
  • Suppliers’ low forward integration (weak force)
  • Small population of delivery service providers (moderate force)

Suppliers’ moderate population corresponds to the moderate intensity of their bargaining power in eBay’s industry environment. This external factor can limit business options in shifting from one supplier to another. Also, in the context of this Five Forces analysis, suppliers have a low level of forward integration, which reflects their weak control over the distribution of their products in the e-commerce industry. This external factor reduces the intensity of the bargaining power of suppliers over eBay. Moreover, this Five Forces analysis points to the moderate force that delivery service providers (courier companies) exert on the industry. For example, service providers can impose additional fees for package delivery involving eBay’s system. Delivery services complete the company’s offerings to the customers of its multinational marketplace business. Based on this aspect of the Five Forces analysis, the bargaining power of suppliers is a considerable but limited issue in strategic management, particularly in supply chain management as part of eBay’s operations management.

Threat of Substitutes/Substitution (Moderate Force)

In this aspect of Porter’s Five Forces analysis model, the influence of substitutes on the e-commerce industry environment is assessed. Substitution can reduce eBay’s revenues by attracting vendors and buyers to substitute services. For example, brick-and-mortar stores’ retail services are substitutes for eBay’s online marketplace services. In this Five Forces analysis, eBay’s strategic management variables must include the following external factors that contribute to the moderate intensity of the threat of substitution:

  • Large population of brick-and-mortar marketplaces/stores (strong force)
  • Moderate cost of substitution (moderate force)
  • Moderate performance-to-price ratio of substitutes (moderate force)

The large population of brick-and-mortar stores is considered in this Five Forces analysis as a strong contributor to the threat of substitution in eBay’s industry environment. This external factor represents brick-and-mortar stores’ competitiveness that influences online marketplace businesses. Also, this Five Forces analysis considers the moderate cost of substitution that exerts a moderate force on eBay’s international business. Customers are moderately likely to use substitutes because of such an external factor. In addition, this Five Forces analysis considers the moderate performance-to-price ratio of substitutes. Because of this factor, consumers and sellers/vendors are moderately likely to use substitutes. The performance of eBay’s online marketplace tends to have higher efficiency. The company’s information technologies ensure the efficiency of its e-commerce services. The external factors in this aspect of the Five Forces analysis make the threat of substitution a moderate issue affecting eBay’s strategic management. The company needs to compete with trading websites and brick-and-mortar stores.

Threat of New Entrants/New Entry (Moderate Force)

This aspect of Porter’s Five Forces analysis model examines the impact of new entry on the e-commerce industry environment. This external analysis case covers the effects of new online business operations that compete with eBay’s multinational marketplace business. New entrants can reduce the company’s market share and revenues. In this Five Forces analysis, the following external factors are relevant to the moderate intensity of the threat of new entry against eBay:

  • Low cost of entry (strong force)
  • Low switching costs (strong force)
  • Moderate cost of brand development (moderate force)
  • High economies of scale (weak force)
  • High economies of scope (weak force)

The low cost of entry exerts a strong force against eBay Inc. and its industry environment. This external factor represents the low capitalization needed to establish online operations, such as a retail/auction website. As a result, large and small companies can readily establish websites that compete with eBay’s business. This Five Forces analysis also points to low switching costs as an external factor that strengthens the intensity of the threat of new entry. For example, many customers experience minimal consequences in shifting from eBay to new entrants’ online marketplaces. The moderate cost of brand development is also included in this Five Forces analysis. Based on this external factor, new entrants need large funds to popularize their brands in the industry. In contrast, eBay Inc. already has a popular brand among shoppers and merchants.

High economies of scale give eBay Inc. an advantage in effectiveness and efficiency. The global scale of the company’s trading platform and e-commerce operations creates effectiveness and efficiencies that many new entrants find difficult to match. Moreover, high economies of scope are a factor that this Five Forces analysis links to the weakening of the threat of new entrants. For example, the scope of eBay’s operations (marketplace and related services) increases business performance through expertise development and human resource sharing within the organization. This external factor is a barrier to entry because new firms likely lack the operational scope to achieve such competitive advantages. This aspect of the Five Forces analysis of eBay Inc. reveals that new entry is a moderate strategic issue in managing the company.

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