Dot-com histories: e-Bay and Amazon

e-Commerce turnkey solutions

e-Commerce, 03 and 10 February 2015

Prof. Dr. Julia Maintz

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1.1 Dot.com survivor e-Bay

• Founded: Fall 1995 by Pierre Omidyar eBay headquarters,

• Original name: “Auction Web“ San José, Silicon Valley

• Omidyar later renamed Auction Web “eBay“ – short for Echo Bay,
the consulting firm he ran at that time
• Initial focus on connecting individual buyers and sellers
• Place for people to buy and see used and collectible merchandise

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 Dot.com survivor e-Bay

• In the early years, concentration on online auction concept

• Company went public in 1998
• In 2002, eBay purchased PayPal – so it could include PayPal fees
as part of its revenue stream

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 e-Bay‘s auction concept

• A seller lists an item for sale at a minimum bid price

• Potential buyers start bidding on the item, starting from that
minimum price and going upward from there
• At the end of the auction (typically 7 days), the user with the highest
bid wins the auction and buys the item

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 e-Bay
• First decade of e-Bay‘s existence: Strong support of the seller
community: continually introduced new services intended to
support its sellers and make the selling process easier, hosting of
local seminars and educational sessions plus e-Bay Live yearly
event
• Since 2007, eBay faced slowing growth of its auction business
► had to find new ways to increase its revenues

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 e-Bay‘s strategy change

• Attracting large professional retailers

• Incentivising a more professional shopping experience:
► consistent, affordable, and fast shipping
► professional customer communications
► money-back return policies
• Encouraging a shift to a traditional fixed-price retailing site rather
than the traditional auction site

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 e-Bay‘s strategy change: steps taken

• Change of fee structure

► reduction of fixed-price listing fees and not of listing fees of auction
items
► discounts for largest sellers with high customer ratings on their
final value fees of between 5% and 20%
► to obtain a fee discount, seller must be a member of eBay‘s
PowerSeller program and maintain a high seller rating (regarding
the quality of transactions)

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 e-Bay‘s strategy change: steps taken/ 2

• Since October 2008: no longer can sellers accept personal checks

or money orders as payments for their transactions
• Instead, all sellers must offer some form of credit card payment
• For small and medium sellers, that means using PayPal for all their
sales transactions
• Larger sellers who have their own credic card payment services can
use them instead of PayPal

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 e-Bay‘s strategy change: steps taken/ 3

• Altering of feedback policies: negative feedback about buyers not

possible anymore, only positive feedback
• Altering of search ranking criteria of eBay‘s Best Match system in
September 2007:
► emphasize sellers with high feedback ratings
► favors sellers who offer free shopping and handling of their items
(more common among larger sellers than smaller ones)

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 Disadvantages of the auction concept

• Reasonable concept for used, rare, or collectible items

• However inefficient process for commodity products
• Commodity buyers prefer faster purchase opportunities than the 7-
day bidding procedure

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 eBays‘s alternatives to the auction concept

eBay established two alternatives to its auction sales:

1. Buy it Now option -- fixed price on item listed for auction

→ buyer can opt to skip the bidding and end the auction by paying
the fixed price
2. Traditional fixed-price listing: item not listed for auctions

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 Implications for sellers

• Small sellers: relevant implications of new fee structure on prices

and of new search ranking logic on small sellers‘ competitiveness

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 eBay: Fees

• Listing fee = insertion fee

• Final value fee (when items sells)
• PayPal fees: percentage of product price and transaction fee

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 eBay shops

• “Basic Shop“ – selling up to 49 different products/ month

• “Top Shop“ – selling more than 50 different products/ month
• “Premium-Shop“ – for high-volume merchants
• Additional product listing and final value fees – however reduced -
apply

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 eBay Shops

• Storebuilding

• How to sell on e-Bay video, first steps (research items and

descriptions)

• e-Bay - List items video

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 E-Bay ProStores

• No e-Bay branding: access through a URL unique to the seller

• Items on ProStore sites will sell at fixed prices only
• Items can also be listed on the eBay Marketplace in either the
auction or fixed price formats

• ProStores 10 Demo

• PageBuilder Demo

• Pricing – eBay ProStores

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 1.2 Dot.com Survivor Amazon

• Originally founded as an online bookseller in 1994 by Jeffrey P.

Bezos: original name: “Cadabra“
• Amazon has since diversified to its product range
• Major player in virtually every major product category
• Moreover: Marketplace for third-party sellers!
• Amazon lets third-party sellers compete with itself on its own
products pages
• Amazon takes percentages of third-party sales on its site

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Amazon plus third-party product display & ordering on Amazon site

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 Third-party purchases on Amazon site

• Third-party purchases are added to Amazon shopping cart

• Customers pay for the purchases through Amazon‘s normal
checkout system
• Item ships from third-party seller or Amazon warehouse
• Buyer protection and returns: integrated in the Amazon system

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Amazon.de: Selling up to 35 articles/ month

• 1.14 Euro/ sold article + product fee for sold article

• Selling of products already available in Amazon‘s listings is possible
• No fee for credit card processing or online payment fees – all
payments handled through Amazon‘s built-in payment system

Amazon.de: Selling more than 35 articles/ month

• 44.85 Euro monthly fee (39 Euro for vendors exempt of value
added tax) + product fee for sold article
• Selling of products not yet available in Amazon‘s listings
• No fee for credit card processing or online payment fees

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Amazon.de:
Product fees for sold articles – books, music, videos, DVDs

• 17.25% (15% for vendors exempt of value added tax) of product

price (excluding shipping fee)
• Plus variable closing fee – depending on product category and
shipping destination

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 Other product category fees

• In the case of electronics, music instruments/ DJ equipment,

software/ video games, food, jewelry, etc., product fees, but no
additional closing fees apply

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 Amazon‘s warehousing and shipping services

• Fulfillment by Amazon program will distribute the inventory for sales

on the Amazon site or for sales on other sites
• You send your inventory to Amazon, retain ownership of that
inventory
• Amazon handles all the warehousing and filfillment, and provides
the related customer service

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 Amazon warehousing fees

• January to September: 12,50E/ cubic meter/ month

• October to December: 18,00 E/cubic meter/ month

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Fulfillment fees (for orders on Amazon site)
Order fee + Pick & pack fee + weight fee/ unit

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Fulfillment fees (regarding orders of distribution channels other
than Amazon)

Pick & pack + weight fee/ unit

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 Pros of selling on Amazon

• Easy listing process - upload of only product name/ number and

price, no detailed product description or photo
• Exposure to large customer base
• Easy and trusted payment for customers – Amazon checkout!
• Optional use of fulfillment services – a service that e-Bay doesn‘t
offer
• Instant credibility by selling on Amazon

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 Selling on Amazon - Cons

• No individual seller identity – no individual storefront, Amazon

customers see you as another purchasing option
► difficult to establish a base of loyal customers
• Listings are displayed alongside those of competitors – intense price
competition!
• Competing with Amazon itself – in terms of pricing and reputation

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 Amazon versus eBay

• For many types of items, selling on Amazon is more profitable than

selling on eBay – esp. due to the lack of payment service fees
• Amazon: less effort for sellers (only text listings, optional fulfillment
services)
• Books, CDs, DVDs: higher average sales prices for these products
on Amazon plus higher sell-through rates
• Larger and more expensive items usually sell better on eBay
• Collectibles and antiques – best suited for eBay‘s auction format –
collectors would search for these items on eBay, not Amazon

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 Amazon versus eBay/ 2

• eBay/ PayPal funds: reception within 3-5 days of closing the

transaction
• Payment by Amazon: 14 days after the item sale

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 1.3 Turnkey e-commerce solutions

• Alternative to developing own e-commerce solution (knowledge of

HTML programming, Java, Flash, potentially other programming
languages and software-based website design tools required, plus
time investment)
• e-commerce turnkey solutions by major service providers affording
no programming knowledge
• Easy-to-use tools and professionally designed templates to
effortless design and publish websites
• Low start-up costs

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 Turnkey e-commerce solutions/ 2

• Solutions include the tools needed to accept orders and credit card
payments for these orders
• Highly functional e-commerce websites capable of handling secure
transactions
• Website hosting services available
• Setting up of costly credit card merchant account with a local bank
or financial institution thus optional, which would be alternativeley
used to process credit card or debit card payments
• Store owner needs to create and insert text and photos/ graphic
elements regarding offered products

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 Turnkey e-commerce solutions: Pros

• Low start-up costs

• One company provides the development tools for the website itself
and secure website hosting services
• For an additional fee, the same company will allow you to accept
multiple forms of online payments, including major credit cards,
Google Checkout, and/ or PayPals‘s Express Checkout
• No programming required
• Technical support services provided
• Design and launch a basic site in less than a week

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 Turnkey e-commerce solutions: Pros/ 2

• Choose from dozens or even hundreds of prefessional-looking

website templates
• Then customize the favorite template to give the site a unique look
• Alternatively: E-commerce functions can be easily incorporated into
a website using the provided develoment tools
• Many turnkey solutions offer modules for maintaining a customer
database, managing inventory, keeping detailed order shipment
records including the ability to print shipping labels and track
packages, e.g. shipped via DHL

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 Turnkey e-commerce solutions: Pros/ 3

• Resources offered to market and promote the online business

• Using the same suite of online tools, design, publish, maintain, and
promote a site, track traffic to the site and synchronize sales data to
financial software applications
• Ability to integrate the order and customer data with accounting,
spreadsheet, and/ or order management software

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 Turnkey e-commerce solutions: Cons

• Dependency regarding the chosen service provider

• Exposure to price policy of the chosen service provider
• Scalability – depending on the provider‘s offers

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 Online payment options: Merchant account

• Own merchant account allowing you to accept credit and debit cards
• Offered by banks
• Fees vary – comparison of prices recommended
• Merchant account provider needs to provide credit card processing
compatible with your website, so credit card orders can be
processed securely and in real time online
• Costs: application fee, monthly fees, per-transaction fees, plus a
percentage of each credit card sale (called the “discount rate“)
• Potential additional fees: for purchase or leasing of credit card
processing equipment and/ or software

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 Online payment options: Merchant account/ 2

• Check of level of customer service and technical support

• Check of transaction processing speed
• Speed of depositing from incoming credit card sales in the own the
credit card account (may vary between a few hours to several days)

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 Online payment options: Merchant account through website
hosting company

• Most hosting companies already have partnerships with merchant

account providers
• If the case, paying an additional fee for a merchant account will be
an option
• However, overall costs (or regarding a specific credit card) may be
higher than the results of own negotiations regarding a merchant
account, depending on the offer

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Online payment options: PayPal or Google Checkout

• Online payment options that are easy for online business operators
to register for
• These services allow registered members to pay for their purchases
using a major credit card or debit card
• However, only accepting these forms of payment, instead of major
credit cards, restricts the potential customer base to only those who
are members of the PayPal or Google Checkout services

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 PayPal

• Allows website operators to add an express checkout feature onto

their sites, which can speed up the process of placing an order for
the customers

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 Security considerations

• Implemetation of adequate online security measures to protect the

own business as well as customers
• Website hosting service, e-commerce turnkey solution provider, and/
or the credit card merchant account provider can assist in integrating
online security measures in own website, in order to prevent credit
card fraud and other security-related problems
• Deficient security precautions may lead to legal problems and
decrease the own credibility among potential customers

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 Security considerations/ 2

• E-commerce website should offer secure transactions using the

Secure Electronic Transaction (SET) protocol, the Secure Socket
Layer (SSL) protocol, or another form of encryption
• Protects credit card information and personal data
• In the case of a turnkey solution, chances are high that the
necessary security is already built in or available at an additional fee
• E.g., VeriSign is a SSL Certificate provider

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 E-Commerce Platform Magento

• E-Store on Magento – Magento Go: hosted solution for small and

emerging businesses, as a monthly service
• Magento professional edition (starts at 3,000 USD/ year)
• Magento enterprise edition (starts at 13,000 USD/year)
• Magento mobile

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Magento: Features

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 Magento: Features

Open Source competitor systems: OS- Commerce or xt:Commerce

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 References
Miller, Michael (2009). Selling online 2.0: Migrating from eBay to
Amazon, craigslist, and your own e-commerce website. Indianapolis,
Pearson: 7-18, 153-191, 269-291.
Rich, Jason R. (2008). Design and launch an online e-commerce
business in a week. Entrepreneur Press.

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