Head-to-Head Competition


Head-to-Head "Competition"

On March 30, 1999, Amazon.com announced that it was introducing Amazon.com Auctions [20]. This was a bold move on the part of Amazon to overthrow the large Internet auction house eBay.

The rationale for Amazon's entry into auctions was:

  • Cross-selling: Amazon wanted to leverage its large customer base and encourage them to become buyers or sellers on its auction service.

  • New markets: EBay's focus was almost exclusively on small businesses (e.g., antique dealers) and collectors. The thinking at that time was that Amazon might introduce new kinds of buyers and sellers leading to a different market dynamic.

  • Competition: At this point, variable price mechanisms such as auctions were being projected as the dominant form of e-commerce in the future. As a result, a number of companies introduced auctions. Consider the moves made by Amazon's competitors in March 1999: [21]

    • PriceLine.com, the reverse auctioneer went public on March 30, rocketing 57 to close at 70.

    • eBay forged a $75 million deal with America Online on March 25 to promote its eBay auctions on AOL.

    • Catalog retailer Sharper Image began offering online auctions of new and excess merchandise on March 1.

    • Computer e-tailer Cyberian Outpost launched a site on March 16.

How did Amazon's approach differ from previous efforts?

  • Amazon provided a money-back guarantee for purchases less than $250 [22]. Since seller-side fraud is a big issue with auctions, this was seen as a radical move.

  • In addition, Amazon invited a group of merchants to set up shop on its auction site.

The biggest challenge faced by the company in this arena was to topple the giant, eBay and offer something that it does not. It is also difficult to build a critical mass of buyers and sellers to survive in the long run. As shown in Table 1, it is safe to say that Amazon's auction venture was not very successful. Here, satisfaction rate refers to the average satisfaction score with max being 10. The conversion rate refers to the proportion of visitors who actually transacted on any particular site.

Table 1: Top Auction Sites Ranked by Revenue Share, May 2001 (U.S.)

Auction Site[*]

Revenue[***], $ million

Revenue Share

Satisfaction Rate

Conversion Rate

1.

eBay.com[**]

357.51

64.30%

8.42

22.50%

2.

uBid.com

81.73

14.70%

7.87

11.00%

3.

Egghead.com (Onsale.com)

22.24

4.00%

7.75

8.00%

4.

Yahoo! Auctions

13.34

2.40%

7.84

4.40%

5.

Amazon Auctions

11.12

2.00%

7.64

6.50%

Source: Nielsen/NetRatings & Harris Interactive eCommercePulse, May 2001

[*]Auction sites do not include travel related sites

[***]All revenue figures are for May 2001

[**]Figures for eBay.com do not include figures for Half.com

The embarrassing thing was that eBay did not have to do anything special to counteract Amazon.

What is even more troublesome for Amazon is that eBay now dominates it in every aspect. As shown in Table 2, as of January 2003, eBay has beaten Amazon in terms of unique visitors to the site. EBay always had a clear and dramatic edge over Amazon in terms of time spent at the site. This advantage continues.

Table 2: Amazon vs. eBay in January 2003

Home

Rank

Audience

Share

Time/Person

Amazon

7

25,930,103

21.21

0:15:25

eBay

5

28,430,707

23.25

1:36:29

Work

Rank

Audience

Share

Time/Person

Amazon

6

17,732,947

40

0:21:09

eBay

7

16,243,611

36.64

1:57:06

COMBINED

Audience

Amazon

43,663,050

eBay

44,674,318

Source: Nielsen Net Ratings

[20]http://www.businessweek.com/1999/99_15/b3624066.htm

[21]http://www.businessweek.com/1999/99_15/b3624066.htm

[22]http://news.cnet.com/news/0,10000,0-1007-200-340493,00.html




Intelligent Enterprises of the 21st Century
Intelligent Enterprises of the 21st Century
ISBN: 1591401607
EAN: 2147483647
Year: 2003
Pages: 195

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