Do you really want to be an e-Bay case study

Do You Really Want to Be an

eBay ?

Structuring your business as a marketplace may seem attractive, but it’s often a recipe for failure.

- Andrei Hagiu & Julian Wright

Most companies serve as intermediaries between buyers and sellers

They face a fundamental strategy decision – Act as Multisided Platforms (MSP) ? Act as Resellers ? Act as a blend of both models ?

STRATEGY DECISION

THREE SALES MODELS

MSP

HybridReseller

MULTISIDED PLATFORMS (MSP)

Connects buyers and

sellers Non Proprietor

Low cost & high

margins

RESELLERS

High demand products Acquire and

resell products

High cost & low

margins

HYBRID

MSP for low demand products Reseller for

high demand products

Low cost and high profits

CHOOSING RIGHT SALES MODEL Aim is to create maximum value Determining whether more or less control is

required over buyer-seller transaction, depends on

1. Scale Effects2. Aggregation Effects3. Buyer and Seller Experiences4. Market Failures

Large reseller sells high demand products more efficiently than small resellers

Resellers capitalize on economies of scale in –Purchasing, infrastructure investment, delivery etc.

These advantages don’t apply to low-demand products

Some companies operate as MSP – low demand products Reseller – high demand products

SCALE EFFECTS

Resellers do better than MSPs when products get higher value when bought together

AGGREGATION EFFECTS

American DTH

service

Exploit complimentary relationship between products

Different sales model within a company

Contd.

MSP Reseller

App Store iTunes

MSPs create value by matching buyer with seller

Resellers are preferable if one side doesn’t want to deal with multiple agents

There is a need for good seller experienceThis leads to shift in sales model

BUYER & SELLER EXPERIENCE

Example

• Heavily reliant on shoe manufacturers that stored inventory and fulfilled customer orders

• Buyers wanted to come back if offered good retail experience

• This led Zappos to build own warehouses and interact with customers directly

Marketplaces collapse because of – Product quality uncertainty Reliability between sellers and buyers

Many MSPs have solved this problemFeedback system instituted for sellers and

buyersSuch mechanisms are however insufficientMove closer to Reseller model to have control

over transactions.

MARKET FAILURES

Platform where house and apartment

owners rent rooms to complete strangers

MSPs cant address cases when one side has bargaining advantage over the other.

Hence weaker party doesn’t participateReseller model can help solve this issueE.g. IV sells patents from universities/small

companies to large companies

Contd.

•CATCH-22 PROBLEM•LIMITED CAPITAL

START-UP & GROWTH

Starting out as Resellers is a good option even if MSP model is the best for your start-up

Because ‘Buyers will not join your marketplace if you don’t have enough sellers and vice-versa’

CATCH-22 PROBLEM

Examples

Attracted independent

sellers

Established buyer and consumer

base

Started as a Book

reseller

LIMITED CAPITAL

• Reseller model is aim• Capital is an issue

Limited Capital

• Good interim solution• Low capital & operating

cost Operate as MSP

• When capital is enough to operate as a Reseller

Transform into

Reseller

China’s largest electronics retailer

DISRUPTION & DISINTERMEDIATION

Emerging marketplaces are displacing Resellers

MSPs have become powerful with rise of internet

Easy for buyers and sellers to interacteBay are replacing collectible storesAmazon’s Kindle is challenging book

publishersAll resellers are not disrupted by MSPs, e.g.

Li & Fung Limited

DISRUPTION

• World’s leading middleman for fabric apparel

• Functioning as a Reseller since 1906

Company

• Power to obtain lower prices from suppliers

• Make faster deliveries• Help suppliers utilize

their capacity

Advantages over

MSP

Resellers are challenging established MSPs

Established MSPs create opportunities for Resellers to aggregate demand and supply in specific markets

Offer better experience for a segment on either side of market

REVERSE DISRUPTION

MSPs have emerged as most powerful business model

Don’t overestimate its attractiveness over Resellers

Carefully choose the sales model

CONCLUSION

MSP Reseller

THANK YOU !!