Ebay Outsourcing strategy Case Study Paper Follow the instruction to write 5pages case studyPlease go through the case very carefullyAll the work must be o

Ebay Outsourcing strategy Case Study Paper Follow the instruction to write 5pages case studyPlease go through the case very carefullyAll the work must be originalTurnitin report is required P A R T
Case 3-1: e-B a y ‘s O u t s o u r c i n g
Strategy*
_”If we are to continue outsourcing, and even consider expanding it, why should we keep paying someone else to
!fo what we can do for ourselves?”
Kathy Dalton leaned forward in her chair. She read
the message on her computer screen and let the words sink
in. Why haci she not anticipated that? After all, she was
‘~dept at asking insightful questions. She felt her heart rate
uicken.
She would have stared out her office window and
pondered thls question, but she didn’t have an office. In
keeping with a well,est~blished Silicon Valley tradition,
everyone at eBay, incl;_.ding CEO Meg Whitman, occupied
a, cubicle: Dalton, an attrac~ve, 38-year-old executive, had
joined eBay in late 2002 after years of. call center experi-
~ce _for major long distance carriers. Now, nearly two
.ears later, she couldn’! think of doing business any other
,vay. She liked being in the center gf the action. Sitting in
~ transparent cube, surrounded by hundreds of service
· preseniatives, added to her already high level of energy
d kept her in touch with eBay’s internal and external
____ustomers.
D.alton reflected on the e-mail she had just received
m her boss, }’.endy Moss, vice president of Global
Support.
She knew she would pick. up the phone.
‘ ustomer
.
.
.
lessors Scott Newman, Gary Grikscheit, and Rohit Verma and
Assisiant Vivek Malapati prepared this case sclely as the
· for class discussion. The information presented in this case is
on publicly available information and insights gained through
us interaq:ions between University of. Utah MBA_students,
.. ‘ faculty advisors, and local eBay managers during a field study
·roject (sponscred by the University of Utah and approved by
e eBay Salt Lake Gty Service Center). The case contains writerompiled, disguised information and is not intended to endorse and/
r :illustrate effective or ineffective service management practices.
er:tain sections pf the case study have been fabricated based on curt, service mapagement and customer service literature- to provide
,realistic and stimulating classroom experience. The numbers in
e ‘case are available from public information or estimates or are
ctitious. 1his case was the winner of the 2006 CIBER-Production and
erations Management Society futemational Case Competition.
soon, call Moss, and ask her clarifying questions about her
e-mail. Her mind raced through the details of the proposed
outsourcing strategy she had submitted to Moss last week.
She quizzed herself:
•
•
•
•
•
•
“Did my team and I make a strong enough case for proposing almost a 100 percent increase in the amount of
volume to be outsourced?”
“Will eBay management concur with our recommendation to begin outsourcing potentially sensitive riskrelated inquires for the first time?”
“How will senior management react to the addition of
a second outsourcing vendor?”
“Did we cover adequately the types of proposed volumes targeted and how these would be transitioned to
the outsourcing vendors?”
“In the event of a major vendor problem, systems issue, or natural disaster, how executable is our back-out
plan?”
“Will the data in our ‘proposal allay the growing concerns among executives about offshore outsourcing
altogether?”
She wondered, “How would eBay senior managers
react to our proposal to reorganize and, expand outsourcing in a new three-tiered approach? And would they even
consider expansion in light of recent headlines about companies reducing the amount of work outsourced to India
· becau~e of qu;ility issues?”
Titis last question had perplexed her for several
months. Not only was it a personal issue for Dalton-she
felt her job security at eBay depended largely on the company’s continuing commitment to offshore outsourcingbut one she recognized as a business practice whose ti.me
perhaps had come and gone. Several leading consultants
were claiming that offshoring had lost much of its cachet
in recent years as companies were coming to grips with the
real costs, logistics, management commitment, and service
quality associated with third-party partners in India, the
Philippines, and elsewhere. In her proposal, Dalton had
PC 3-2 Corporate Strategies
reinforced the benefits to eBay of continuing to outsource
outside the United States and had woven into her new
strategy more “nearshoring” alternatives as well.
Dalton was scheduled to fly to San Jose in just two
weeks to present her outsourcing strategy to Whitman and
her executive staff. Now, here was Moss’s e-.inail, question-
ing why she had not addressed the option of cutting out
the middleman and building eBay-owned outsourcing locations in other countries.
would be critical in building infrastructure and attra?
top-tier management to the company.
‘·/!
In early 1998, Omidyar and Skoll realized ;ij
needed.an experienced CEO to lead and develop an e'”
tive management team as well as to solidify the compai( ·
financial position with an !PO: In March of that>{~
Whitman accepted the position of president and ‘
A graduate of the Harvard Business School, Whitmaif:)l’
learned the importance of branding at companies suchf
Hasbro and Walt Disney. She hired senior staff from cfF
panies like Pepsico and Disney. She built a managenf
A Little History
team with an average of 20 years of business expenefi
per executive and _developed a strong vision for the ~(]~
eBay called itself “The World’s Online Marketplace.” For
the sale of goods and services by a diverse community of
pany. Whitman immediately understood that the eB
individuals and small businesses no venue was more appropriate. eBay’s mission was to provide a robust trading
busin¢ss model: A central tenant of eBay’s culture w ‘
captured in the phrase “The community was not built f
eBay, but eBay was built by and for the community.” Itw·’
not about just selling things on the Internet; it was aboJ
bonding people through the Web site.
platform where practically anyone could trade practically
anything. Sellers included individual collectors of the rare
and eclectic, as well as major corporations like Microsoft
community of users was the foundation of the cOmpait~”‘
and IBM. Items sold on eBay ranged from collectibles like
trading cards, antiques, dolls, and housewares to everyday
items like used cars, clothing, books, CDs, and electronics.
With 11 million or more items available on eBay at any one
time, it was the largest and most popular person-to-person
trading community on the Internet.
eBay came a long way from being a pet project for
founder Pierre Omidyar and holding its first auction on
Labor Day in September 1995. Omidyar developed a program and launched it on a Web site called Auction Web.
According to eBay legend, he was trying to help his wife
find other people with whom she could trade Pez dispensers. Omidyar found he was continually adding storage
space to handle the amount of e-mail generated, reflecting
the pent-up demand for an online meeting place for sellers
and buyers. The site soon began to outgrow his personal
Internet account.
Realizing the potential this Web service could have, he
quit his job as a services development engineer at General
Magic, a San Jose-based software company, and devoted
full-time attention to managing Auction Web. As traffic increased, he also began charging a fee of $0.25 per listing to
compensate for the cost involved in maintaining a business
Internet account.
In 1996, Jeff Skoll, a Stanford Business School graduate and friend of Omidyar’s, joined him to further develop
Auction Web. They changed the name to eBay, short for
East Bay Technologies. In mid-1997, a Menlo Park-based
venture capital firm invested $5 million for a 22 percent
stake in eBay. Omidyar knew that the venture capital
Business Model and Market Share
Unlike many companies that were born before the Interne
and then had to scramble to get online, eBay was born wi
the Net. Its transaction-based business model was per
fectly suited for the Internet. Sellers “listed” items for sal
on the Web site. Interested buyers could either bid high
than the previous bid in an auction format or use the “BU
It Now” feature and pay a predetermined price. The selle
and buyer worked out the shipping method. Payment wa
usually made through PayPal, the world’s leading onlin
payment company, which eBay acquired in 2002. Becaus
eBay never handled the items being sold, it did not inc
warehousing expense and, of course, did not hold any in
ventory. For a company with almost $8 billion in assets, no.
a single dollar was invested in inventory (Exhibit 1).
In 2004, eBay reported revenue of nearly $3.3 billion.
Revenue was mainly generated from two categories. The
first, called the Listing Fee, involved a nominal fee incurred
by the seller in posting an item for sale. This fee range
from $025 to $2.00. The second, the Fmal Value Fee, was
charged to the seller as a percentage of the final price when·
a sale was made. This amounted to between 1.25 percent
and 5 percent of the selling price, depending on the price of
the item. The Final Value Fee on a $4.00 Beanie Baby would
be $020, representing a 5 percent fee. The same fee on a
mainframe computer selling for $400,000.00 would be 1.25
percent, or $5,000.00.
Case 3-1: e-Bay’s Outsourcing Strategy
eBay’s Income Statement (In OOOs Dollars)
U/3V2004
U/3V2D03
U/3V2002
$ 3,271,309
$2,165,1)96
416,058
1,749,038
567,565
159,315
302,703
29,965
9,590
50,659
1,119,797
629,241
37,803
4,314
-1,230
$1,214,100
213,876
1,000,224
349,650
104,636
171,785
441,m
0.335
441,m
5,413
249,891
0213
249,891
46,049
25,455
36,401
159,003
5,492
7,832
76,576
5,953
130,638
1,230
91,237
3,781
7,784
1,324
-21,378
–54,583
-11,819
10,716
-1,195
8,134
Net revenues
Cost of net revenues
614,415
2,656,894
857,874
240,647
415,725
Gross profit (loss)
Sales and marketing expenses
Product development expenses
General and administrative expenses
Patent litigation expense
Payroll expense on employee stock options
Amortization of acquired Intangible assets
17,479
65,927
1,597,652
1,059,242
77,867
8,879
Total operating expenses
Income (loss) from operations
Interest and other income, net
Interest expense
Impairment of certain equity investments
Income before Income tax-United States
820,892
307,338
778,223
Income before Income tax-international
Net Income (loss)
Net income (loss) per share-diluted
Net income (loss)
Cumulative effect of accounting change
Provision for doubtful accounts and auth cred
Provision for transaction losses
Depredation and amortization
Stock-based compeosation
Amortization of unearned stock-based compens
Tax benefit on the exer of ~lay stock opts
Impairment of certain equity Investments
Minority interests
Minority .interest and other net income adj
Gain (loss) on sale of assets
Accounts receivable
Funds receivable from customers
Q57
778,223
90,942
50,459
253,690
5,832
261,983
4,015
15,941
646,027
354,197
49,209
1,492
-3,781
6,122
-105,540
–44,751
-312,756
Other current assets
-308
Other non-current assets
Deferred tax assets, net
Deferred tax liabilities, net
Accounts payable
Net cash flo~ .f!9I!l ~v_esting activities
Proceeds from 1ssuance of common stock, net
Proceeda (principal pmtB) on long-term obllga
Parinerahlp distributions
Net cash flows from financing activities
Eff of exch rate change on cash and cash equiva
,Net incr (deer) In cash and cash equivalents
Cash and cash equivalents, beginning of year
Caah and CBBh equivalents, end of year
Cash paid for Interest
Soun:t: Cosewrltera’ estimate!l”)compilations, l!lld
PC 3-3
28,652
-33,975
-2,013,220
650,638
-2,%9
647,669
28,768
–51,468
1,381,513
1,330,045
~,234
-153,373
-38,879
-13,133
-4,111
69,770
17,348
,-1,319,542
700,817
-11,951
14,631
-157,759
252,181
688,866
252,067
11,133
585,344
523,969
1,109,313
1,492
28,757
272,200
1,109,313
1,381,513
3,237
–64
–so
public records..

Being first to market in the e-commerce world was
frequently an insurmountable competitive edge. eBay capitalized on being the first online auction house. Early competition came from companies like OnSa!e, Auction Universe,
Amazon, Yahoo!, and Classified2000. These companies battled eBay on a number of fronts, mainly pricing, advertising
.

online, and attempting to Jure key eBay employees away
to join their ranks. eBay’s biggest and most formidable
competitive threat came from Amazon.com when it spent
more than $U million launchlng”‘ils’person-to-person auction service in 1999. eBay withstood all of these challenge;,.
Amazon’s efforts ultimately failed because it could not
PC }-4 Corporate Strategies
eBay
Yahoo!
Amazon
Overstock
uBid
All others
20~
2003
2002
2001
U.S.
Inf!
U.S.
. Inf!
U.S•
83%
7%
6%
N/A
1%
3%
41%
28%
10%
N/A
1%
20%
87%
6%
4%
1%
1%
1%
50%
25%
6%
1%
1%
15%
Inf!
U.S.
90o/o…
65%
92’Yo
4%
2%
2o/o
16%
5%
2o/q
3%
1%
2o/o
1%
lo/o
N/A
12%
1%
lo/a
2%,,,t
2%,t
11%’3I1
N/A,,_.•.•
_.·.·.
~
So~ Case writers’ estir:nates, compilations, and public I’KOI’ds.
if-!ii
generate enough site traffic. Auction buyers went where the
most items were available for sale, and sellers went where
the most buyers were found for their products. eBay had
more buyers, more sellers, and more items-more than 1.4
billion items were listed on the site In 20041 These numbers
dwarfed the nearest competitor by a factor of more than 50.
eBay enjoyed a dominant 92 percent market· share of the
domestic onllne auction business and a 74 percent share of
the international market (Exhibit 2).
Exhibit 3
eBay Organization Chart
SoUIU! Case writers’ compilations and public records.
eBay’s Customer Support
Organization
1
J
In December 2004, Dalton was an operations directq
In eBay’s Customer Support organization. She had sev
era! major responsibilities; the most critical one was
tomer support outsourcing. both domestic and offshoo
(Exhibit 3). This role occupied approximately 80 percen
“1
Case 3-1 : e-Bay’s Outsourcing Strategy
of her time. Upon joining the company, she had relocated
to Salt Lake City, Utah, the site of eBay’s largest customer
service,center. Utah’s four seasons and mountainous terrain suited her. She loved to ski knee-deep powder in the
winter- and navigate forest trails on her mountain bike
in summer. While thoughts of early season skiing had
entered her mind, she had in fact spent the past three
weekends in her cube and in conference rooms with her
managers hammering out the strategy she had passed on
to Mos.s for review.
Worldwide, eBay’s Custo”er Support staff consisted of an estimated 3,000 FIE, comprising roughly
two-thirds of the corporate w?rkfo’:”e. eBay operated major service centers in Salt Lake Oty, Omaha, Vancouver,
Berlin,’ and Dublin. Smaller company-owned Customer
Support groups were located in Sydney, Hong Kong,
London, and Seoul. The majority of these employees spent
their workdays responding to customer e-mails. In 2004,
eBay answered more than 30 million customer inquiries,
covering everything from questions about selling, bidding, product categories, billing, and pricing to thornier
issues involving illegal or prohibited listings and auction
secµrity (Exhibit 4).
The Customer Support organization was made up
of two major units: (1) General Support and (2) Trust
and Safety. Historically, most of the customer contacts
were handled by the General Support unit. The communications consisted of questions regarding bidding on
·2001.·
General Support
E-mail
Phone
Chat
· •Total
Trust and Safety
E-mail
Phone
Chat
Total
Comblned
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