Business Model: Amazon versus eBay Essay

A company’s business model is the activities it uses to create and capture value through its offerings to the market. Modelling helps firms develop business visions and strategies, redesign and align business operations, share knowledge about the business and its vision and ensure the acceptance of business decisions through committing stakeholders to the decisions made (Persson & Stirna , 2001). Amazon and eBay both share space in the retail industry of e-retail and e-commerce services. The two companies have found success by conducting business using the internet by providing products, services, and information to consumers. Although, B2C (business to customer) strategies have helped both companies to achieve success they have sustained and dominated the market through evolving business models that capitalize on value creation to the consumer. eBay’s business model is based on creating an online trading community where the company provides an auctioning platform that brings sellers and buyers together. Thousands of items are listed in catalog form according to topic and category. eBay at no time takes possession of any item which leaves shipping costs details between the buyer and seller. However, it does offer secure payment methods free of charge. On the other hand, Amazon incorporates a long tail retail business model which assumes that products that are in low demand or have low sales volume can collectively make up a market share that rivals or exceeds the relatively few current bestsellers and blockbusters, but only if the store or distribution channel is large enough (Investopedia, 2014). By offering a large variety of products on its sites for sell inventory is kept in what the company terms as fulfilment centers. Whereas when merchandise is selected and paid for through Amazon’s e-commerce site it is shipped free or at little cost to the buyer. The value creation does not end once the exchanges of goods have taken place for both eBay and Amazon they have extended the transaction process by incorporating feedback forums. For example eBay depends on the integrity of others in making person to person ethical transactions; there is a feedback forum where the seller and buyer can comment on the process. Amazon in turn has created customer value and loyalty by offering a comment section where buyers can rate experience on a star system, and provide reviews. The seller is tracked by Amazon using a  metric system based on number of reviews and ratings in percentages telling how much positive feedback a seller has received in a specific time. heavily and leverages its fixed assets to and On the other hand, Amazon beginning as an online book seller utilizing B2C strategy quickly redefined its retail strategy to include large varieties of products that are stored in what it The company in compensation charges listing fees or insertion fee to promote the product, and a final sales price fee of 7.9% once the final bid is accepted. Through these activities eBay creates value to the consumer by providing a vast listing of items for sale in one location, ease of use, and security in financial payment methods. Although, eBay’s business model is built around its core competencies of on-line person to person auctioning Amazon has taken a more innovative approach by redefining its business model and creating entirely new markets. Amazon begi nning as an online book seller utilizing B2C strategy quickly redefined its retail strategy to include large varieties of products. While incorporating a long tail retail business model which assumes that products that are in low demand or have low sales volume can collectively make up a market share that rivals or exceeds the relatively few current bestsellers and blockbusters, but only if the store or distribution channel is large enough (Investopedia, 2014). Hence Amazon dumps short term profits for long term investments often making the company appear not profitable in its financial statements. Amazon through business model innovation (BMI) evolves by thinking long term continues to fill the white space by focusing and then capitalizing on the unmet needs of consumers. The company since inception in 1995 Amazon started off by focusing on Business-to-Consumer relationships between itself and its customers, and Business-to-Business relationships between itself and its suppliers but it then moved to incorporate Customer-to-Business transactions as it realized the value of customer reviews as part of the product descriptions. t is when an online company earns its revenues mainly by selling a broad selection of products.