EBay’s strategic decision on the acquisition of PayPal

8 August 2016

Aim of this report is to critically analyse EBay’s strategic decision on the acquisition of PayPal before it occurred. The report will analyse the company and its operating environment, this analysis will discuss the external and internal factors, of EBay and the implications of their environment in relation to the factors analysed. This in-depth analysis will be aided with analytical tools such as PESTLE, SWOT, and the use of rich picture. Subsequently with the analytical findings, suggested strategic options will be discussed which EBay may have opted to choose.

EBay’s History: EBay was established in September 1995 by Pierre Omidyar as an online auction website in the United States; by 1997 the site posted two million auctions creating the name EBay rather than AuctionWeb and branched out from collectibles into different goods within the market. EBay is now becoming the biggest online marketplace providing a facility for buyers and sellers to communicate, consequently generating millions of customers in foreign markets as well as the United States (eBay Inc).

EBay’s Internal and external environment When a company is faced with its external environment changing within its industry it provides the company with opportunities to reconsider its strategies to help maintain its competitiveness (Giesen et al 2010). Therefore analysing EBay’s environment before the acquisition of PayPal will help aid the understanding of this decision implemented, exploring and discussing both internal and external factors which may have had an influence upon EBay’s strategic decision.

The analytical tools of PESTLE and SWOT are going to be used as these methods helps decision making, planning, evaluating and the development of products or services due to the exploration of a company’s environment (Gorgenlander 2001). PESTLE analysis examines a company’s environment and helps identify possible market growth, potential strategic positioning and the possible direction of the organisation. SWOT is used after to measure and identify a company’s internal and external, strength, weaknesses, opportunities and threats (Henry, A 2008).

Each analytical tool is being used due their validity on providing an assessment of a company’s environment. Below are the factors most relevant to EBay when the company had to consider on its strategic route of direction. Looking at PESTLE appendix 1. 1 its states that one of EBay’s political factors were its operating and is expansion towards foreign markets. The expansion for EBay was to enter and penetrate merging markets in order to generate greater customer base and usage of the EBay service (eBay inc).

The implication of EBay trying to enter and expand into other markets, have some restrictions due to EBay being an online business, countries that EBay wants to enter into may have polices affecting the company, such as data protection. Data protection varies upon countries or political nations such E. U regulations on data protection and privacy; therefore EBay needs to consider the implications of government policies in support of or against online websites (Singh, 2010).

At the start of the dotcom era national governments had not intervened with the e-commerce industry, however the implications that EBay face are regulatory bodies and processes to ensure security, data protection and privacy are passed on web sites ensuring the development of customer security in countries are placed also enabling more cost for EBay (standard- smith, B. & Kidd, P. T. , 2000). The Economy in early 2000’s for emerging markets were developing again such as Asia, this meant that foreign markets had sustainable growth creating a demand of more people and businesses from different countries wanting to trade and spend.

This consequence allows EBay to enter these emerging markets and growing globally which they were reaching, within this period. The implication meant more consumers wanted easier means to communicate via EBay, which at the time seemed difficult due to EBay’s website providing the basic medium in promoting goods rather than establishing other facilities to interconnect when trading (EBay Inc). Analysing further in relation to social influence is that EBay was established and operating within the dotcom era, this period created the generation of digital users who had more access to technology and internet.

The influence of this meant that the generation had greater access to the world-wide-web. This implication affected the demand to become more connected world-wide, causing globalisation through these social influences. EBay fundamentally became successful through the shift in social stimulus on the usage of technology. Consumer spending habits also changed, where e-commerce started to become popular, this effect caused more demand for online spending, which EBay wanted to exploit (Li, F. , 2007). Consequence for this meant a merging demand for a link between networking with sellers and buyers globally in addition to online spending securely.

Connecting to social influence, technology aided the growth of internet usage. In 2002 an estimate of 587 million people had internet access which was growing faster indicating more people were having access to more technology, creating further demand upon the subject previously stated (Internet Growth Statistics). Legal influence for EBay is that it was rapidly growing parallel with the internet. EBay as an online website face issues of data protection globally ensuring personal information of customers are not breached or given.

This means EBay’s website needs to be secure via payments, accessing and hackers. Another legal subject is fraud and theft; due to e-commerce being popular and the nature of EBay’s business it faces consumer fraud and online money theft globally (Cyber Crime, 2013). The implication of this is as EBay is developing globally they need to consider further more consumer protection through e-commerce, due to these risks and factors, if achieved poorly, consumer confidence, brand image and usage are affected greatly. (Stanford-smith, B. , & Kidd, P. T, 2000) EBay’s SWOT

PESTLE analysis, enabled a SWOT analysis appendix 1. 2 Summarising, EBay’s successful brand image through its online auctioning and e-commerce sector, EBay has become financially successful. With these strengths EBay can do market leadership, helping EBay to maintain greater brand awareness and influence on the marketplace. For instance a firm would be in a superior position to defend itself from new entrants if they do market leadership furthermore with strong finances EBay has the freedom to acquire and merge with companies as well as invest in research and development.

Analysing the PESTLE previously EBay’s major weakness is fraudulent activities happening within the website. They were yet to provide more provisions of safer methods or alternative payment methods, creating lack of trust upon the website services and usage, developing a barrier. Opportunities through the PESTLE is global expansion for EBay to reach, this can be done through the increase use of internet usage globally providing EBay with the opportunity to enter foreign markets. However in order to

utilise globalisation another opportunity EBay can do is develop more services and accessibility where the demand to networking can be established, this could mean trying to make their website easier to use from money transfers, payments and communication with EBay users. The major threats are competition with other organisations such as Amazon and Yahoo, these companies can affect EBay’s sales and market share. However the ultimate impact of threat is online security and consumer confidence. Maintaining online security is vital to conserving consumer confidence.

EBay expanding causes increasing threats of security in relation to online shopping and fraudulent activities this subsequently affects brand image, sales and profits. This also collerates to its weaknesses on safer payment methods, causing barriers for EBay’s mission statement of”to provide a global online marketplace where practically anyone can trade practically anything, enabling economic opportunity around the world” with these weaknesses and threats EBay is unable to provide a safe or easier option to trade for both buyers and sellers effecting expansion (Corporate Mission Statement of eBay).

Defining the problem The key elements on system thinking is to define a problem and to see the system as a process of injury, Rich pictures are used to analyse a view of a problem situation, this is a soft system methodology which characterise a situation of distress for a company. A rich picture includes the influences that cause the problem that a formal method of analysis is unable to see. (Darzentas, Darzentas & Spyrou (1994). Rich pictures illustrate structure, process and the issue a firm faces that is related to the problem definition.

Appendix 1. 3 illustrates the rich picture drawn for EBay with the aid of PESTLE, SWOT and research on EBay. Within the rich picture it demonstrates that EBay has a lack of safe provisions for seller and buyers, exampling the lead to criminal activity and unsafe boundaries for buyers and seller to communicate which is EBay’s fundamental service. The rich picture analysis identifies further EBay’s consumers requirements are not being fulfilled in regards to safer trade and transactions.

The key defining problem illustrated is the overall security of EBay in result of growth globally and the complete band image of EBay being affected, due to these problems. Summaries findings from all the analysis, it is clear that EBay needed to tackle issues of security and the increase demand for easier and safer trade between consumers, which effects EBay’s global growth and company mission statement. This meant that EBay needed to look at strategic strategies in order to overcome these implications.

Below are few that EBay could have considered. Strategic options: EBay can invest in further research and development to create a facility to help the company’s security in terms of consumer transaction, safe and easier trading. EBay can merge with an established company, which specialises in web security or money security to provide a service for consumers. Can acquire a company that can help with overcoming these barriers. EBay can outsource a company in order to deal with these problems, whilst the company focuses on other company goals.

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