eBay, Inc. and Amazon.com A Its a collision in the making with an impact that could ripple far beyond which pioneer will lead the E-commerce revolution-and which will follow. Business Week, May 1999i More than a decade after BusinessWeek devoted its cover story to eBay vs. Amazon-a competitive battle it labeled a defining moment for e-commerce-Amazon had established itself as the market leader.2 At the end of 2010, the companys share price had grown at a compound annual growth rate (CAGR) of 37% since 2001-more than six times eBays 6% growth over the same period (see Exhibit 1 for a comparison of their stock performance, 2002-2010). Over the past five years in particular, Amazons revenue, operating income, and net income had, on average, grown at robust rates of 32%, 27%, and 26%, respectively (see Exhibit 2 for Amazons summary financial data). On the other hand, eBay had grown these indicators at rates of 15%, 14%, and 21%. Notably, its core Marketplaces business grew its revenue at a CAGR of 10% per year from 2005 to 2010 (see Exhibit 3 for eBays summary financial data). eBay had not always lagged behind its competitor. In 1999, at the time of the BusinessWeek story, eBay offered more than 2 million items for auction daily, expected its annual gross merchandise volume (GMV) to quadruple to nearly $3 billion, and maintained 3.8 million registered users, which had grown 75% from. the prior year.3 Amazon, meanwhile, which touted itself for offering Earths biggest selection at 16 million items for sale, expected annual sales to more than double to $1.4 billion and boasted 8.4 million cumulative customer accounts-up 250% versus the prior year.4 As Business Week summarized: Indeed, the budding behemoths present a fundamental choice for consumers in the Internet Age: Will most people gravitate toward fixed prices at the likes of Amazons clean, well- lighted superstore, with its familiar brand-name retail sheen? Or will the masses take a shine to dynamic pricing, the fluid give-and-take on eBays friendly, funky swap meet cyber charged into a global bazaar? The companies, it seems, did not opt to wait for consumers to make a choice. A few months before the publication of the BusinessWeek article-and one day after eBay announced plans to make a $1.1 billion secondary stock offering-Amazon launched its own auction site to much fanfare, clearly designed as an assault on eBays business model.6 Soon afterward, in 2000, eBay expanded beyond its core auctions business, introducing fixed-price trading with the acquisition of retail site Half.com and adding a Buy-It-Now feature to its traditional business, thereby enabling buyers to instantly win an auction at a sellers pre-established price. A year later, eBay appeared to have the momentum, as its share of online auction spending rose from 58% in 2000 to 64% in 2001, while Amazons share fell from 3% to just 2%.8 While Amazon quietly scaled back its struggling auction business, eBays fixed- price initiatives were contributing more than 19% of its GMV by the end of the year.9 At the end of 2001, eBays shares had risen 749% since its IPO in September 1998, while Amazons shares were down 36% over the same period (see Exhibit 4 for a comparison of their stock price performance, 1998-2001). As the company entered 2011, eBay had to determine which strategy it should pursue to regain the upper hand. Should it maintain its groundbreaking platform business model and attract more buyers and sellers by, for example, cutting prices on fees or improving its search capabilities? Alternatively, should eBay transform its model and expand into areas such as services for its sellers, even including fulfillment and marketing? eBays decision would set the tone for its battle with Amazon into the next decade. eBays Business Model Auctions Marketplace Pierre Omidyar launched eBay in 1995, with the aim of giving the power of the market back to individuals, not just large corporations. The companys stated goal was to pioneer new communities around the world built on commerce, sustained by trust and inspired by opportunity. eBays primary offerings were online marketplaces for the sale of goods and services, supplemented by other e-commerce platforms and online payment solutions. In 2011, eBay operated three primary business segments-Marketplaces, Payments, and Communications-with the core Marketplaces business and PayPal fees earned on eBay sites constituting the majority of the companys overall revenue. At its core, eBay offered a marketplace that connects buyers and sellers. With a stated goal of facilitating communities-not selling them products-the company primarily generated revenue from sellers through fees for listing items and commission fees pay