The eBay Business Model

In September 1995, Pierre Omidyar created the online auction conglomerate known as eBay. Omidyar’s vision was to create a virtual marketplace for the sale of goods and services for and by individuals.

To

get the business off the ground, Omidyar and cofounder Jeff Skoll enlisted the help of Meg Whitman, branding guru and Harvard Business graduate. Whitman, who formed her management team with senior level executives from industry leaders like Pepsico and Disney, helped create a strong mission for eBay, which was to be in the business of connecting people — not selling products to them. Rather, they've created a person-to-person marketplace on the Internet, where sellers list items for sale and interested buyers bid on these items.

When eBay first launched, the site immediately became a popular channel for auctioning collectibles, but it soon segued into other markets such as automobiles, business and industrial equipment, and consumer electronics, where the average sales price (ASP) is higher. Increasing the ASP was a critical component of increasing sales for eBay, as eBay's transaction fees are based on a percentage of sales. The higher the ASP, the more money eBay makes on each of the million transactions it facilitates.