® 2006, Tony Gauvin, UMFK 1 EBay A Case Study In Strategic Management Tony Gauvin, UMFK April 2006

® 2006, Tony Gauvin, UMFK 2 Some Acknowledgements Graphics and some Data for presentation taken from investor.ebay.cominvestor.ebay.com The analysis is based in part on the case study prepared by the following students in Spring of 2005 –Corey Daigle, Megan Foreman, and Seth Fraser Other material was provided by the authors of the Case –Marcelo De Mattos and Forest David

® 2006, Tony Gauvin, UMFK 3 Overview Some Cool Facts Who we are, What we sell, Where we are Mission and Vision Internal Assessment - Financial Condition - IFE Matrix ?? External Assessment - EFE Matrix - CPM Matrix Strategy Formulation - SWOT Matrix - Space Matrix - IE Matrix - Grand Strategy Matrix - QSPM Matrix - Matrix Analysis Strategic Planning for the Future EPS/EBIT Decisions/Implementation/Eval uation 2004&05 Financials eBay press releases

® 2006, Tony Gauvin, UMFK 4 eBay is evolution 1996 – 1998: US only, collectibles only –Started by Pierre Omidyar to assist his girl friend in collecting Pez Dispensers 1999 – Moving beyond collectibles 1999 – Going global 2000 – Introducing Fixed Price and eBay Stores 2002 – PayPal: removing friction and building a huge new business 2004 – 2005: Creating other marketplaces → Marktplaats, Mobile, Rent.com, Shopping.com, Kijiji, ProStores Common theme – expanding our vision, our market and our opportunity Aspirational goal of growing faster than e-commerce

® 2006, Tony Gauvin, UMFK 5 High performance company Years since started

® 2006, Tony Gauvin, UMFK 6 Registered users

® 2006, Tony Gauvin, UMFK 7 Gross merchandise volume

® 2006, Tony Gauvin, UMFK 8 Total PayPal Accounts

® 2006, Tony Gauvin, UMFK 9 PayPal Payment Growth

® 2006, Tony Gauvin, UMFK 10 Who we Are Founded in September 1995, eBay is The World's Online Marketplace® for the sale of goods and services by a diverse community of individuals and small businesses. Today, the eBay community includes more than a hundred million registered members from around the world. People spend more time on eBay than any other online site, making it the most popular shopping destination on the Internet.

® 2006, Tony Gauvin, UMFK 11 What we Sell On an average day, there are millions of items listed on eBay. People come to eBay to buy and sell items in thousands of categories from collectibles like trading cards, antiques, dolls, and house wares to practical items like used cars, clothing, books and CDs, and electronics. Buyers have the option to purchase items in an auction-style format or items can be purchased at a fixed price through a feature called Buy It Now.

® 2006, Tony Gauvin, UMFK 12 Where we Are People from all over the world buy and sell on eBay. Currently, eBay has local sites that serve Australia, Austria, Belgium, Canada, China, France, Germany, Hong Kong, India, Ireland, Italy, Malaysia, the Netherlands, New Zealand, the Philippines, Singapore, South Korea, Spain, Sweden, Switzerland, Taiwan, the United Kingdom, and the United States. In addition, eBay has a presence in Latin America through its investment MercadoLibre.com.

® 2006, Tony Gauvin, UMFK 13 eBay’s Community Values eBay is a community that encourages open and honest communication among all its members. Our community is guided by five fundamental values: –We believe people are basically good. –We believe everyone has something to contribute. –We believe that an honest, open environment can bring out the best in people. –We recognize and respect everyone as a unique individual. –We encourage you to treat others the way you want to be treated.

® 2006, Tony Gauvin, UMFK 14 eBay's mission is to provide a global trading platform where practically anyone can trade practically anything. 1 eBay’s Mission Statement

® 2006, Tony Gauvin, UMFK 15 Proposed Mission Statement eBay’s mission is to be the world’s most utilized and profitable “trading post.” Having bright and talented employees that are dedicated to serving both customers and communities, eBay provides the most technologically advanced, reliable, and secure trading platform available to anyone, anywhere, while always doing business in a highly ethical manner. 1

® 2006, Tony Gauvin, UMFK 16 Our vision at eBay is provide an online business to enable anyone to auction practically anything. 1 Proposed Vision Statement

® 2006, Tony Gauvin, UMFK 17 External Audit

® 2006, Tony Gauvin, UMFK 18 2 Opportunities

® 2006, Tony Gauvin, UMFK 19 Threats

® 2006, Tony Gauvin, UMFK 20 3 EFE Matrix

® 2006, Tony Gauvin, UMFK 21 EFE Matrix

® 2006, Tony Gauvin, UMFK 22 CPM 4

® 2006, Tony Gauvin, UMFK 23 Internal Audit

® 2006, Tony Gauvin, UMFK 24 Organizational Team Beth Axelrod, Senior Vice President, Human ResourcesBeth Axelrod Matt Bannick, President, eBay InternationalMatt Bannick William C. Cobb, President, eBay North AmericaWilliam C. Cobb John Donahoe, President, eBay MarketplaceJohn Donahoe Michael Jacobson, Senior Vice President and General CounselMichael Jacobson Jeff Jordan, President, PayPalJeff Jordan Pierre Omidyar, Founder and Chairman of the BoardPierre Omidyar Bob Swan, Senior Vice President, Finance and Chief Financial OfficerBob Swan Maynard Webb, Chief Operating OfficerMaynard Webb Meg Whitman, President and CEOMeg Whitman

® 2006, Tony Gauvin, UMFK 25 Key Financials End of year 2003 –Net Income grew to $442 million, up 77% –Resulted in record operating cash flows of $874 million, up 82% –Year end Balance Sheet $5.8 billion in total assets $2.7 billion in cash and investments

® 2006, Tony Gauvin, UMFK 26 Key Financial Ratios Company Industry Sector S&P 500 Valuation Ratios P/E Ratio (TTM) Beta Growth Rates % Sales - 5 Yr Growth Rate EPS (MRQ) vs Qtr 1 Yr Ago EPS (TTM) vs TTM 1 Yr Ago EPS - 5 Yr Growth Rate Financial Strength Quick Ratio (MRQ) Total Debt to Equity (MRQ)

® 2006, Tony Gauvin, UMFK 27 Key Financial Ratios Company Industry Sector S&P 500 Profitability Ratios % Gross Margin (TTM) Gross Margin - 5 Yr Avg Operating Margin (TTM) Operating Margin - 5 Yr Avg Net Profit Margin (TTM) Net Profit Margin - 5 Yr Avg Management Effectiveness % Return on Assets (TTM) Return on Investment (TTM) Return on Equity (TTM)

® 2006, Tony Gauvin, UMFK 28 eBay Stock Information

® 2006, Tony Gauvin, UMFK 29 eBay as an Investment

® 2006, Tony Gauvin, UMFK 30 Strengths 1. eBay is the most well known online auction company in the world. 2. Strong auction community of loyal customers. 3. Excellent financial situation. 4. Have a fair payment system that encourages merchants to list products. 5. Strong presence in strategic global markets. 6. Experienced management team. 7. eBay has very little inventory since they do not actually take position of items sold on their site. 8. Strong customer service. 9. Percent of revenue in international markets increasing significantly.

® 2006, Tony Gauvin, UMFK 31 Weaknesses 1.Weak promotional and marketing activities 2.eBay does not pay dividends on their stock. 3.Some customers feel the website is cluttered 4.eBay’s position in the business to business (B2B) market is weak. 5.eBay has very little debt, therefore the company is not taking advantage of low interest rates to expand. 6.eBay has a higher tax rate since they do not take advantage of depreciation as well as other companies. 7.The company relies too much on word of mouth advertising, assuming everyone already knows about eBay. 8.The company does not do enough to convince leery potential customers that Internet business is financially safe. 9.Longer transaction times, since many merchants will not receive payment until a buyers check clears. 10.eBay is mainly a cash business.

® 2006, Tony Gauvin, UMFK 32 IFE Matrix

® 2006, Tony Gauvin, UMFK 33 The Analysis

® 2006, Tony Gauvin, UMFK 34 SWOT Matrix 7 SO StrategiesWO Strategies Expand operations into Asia (S 1,2 &5; 0 1,3 & 8) Start B2B operations in Asia (W 4,5,&10, O 4,7 & 9) Increase advertising (1 1,6,7 & 10; 0 1,3,4,6 & 8) ST StrategiesWT Strategies Lobby to keep Internet sales tax free (S 1&3; T 1) Increase Fraud Awareness (S 1,4 & 8; T 3) Use extra Cash to educate all customers that Internet Transactions are safe (W 8; T 4&10)

® 2006, Tony Gauvin, UMFK 35 SPACE Matrix

® 2006, Tony Gauvin, UMFK 36 SPACE Matrix

® 2006, Tony Gauvin, UMFK 37 IE Matrix 4.0IIIIII High 3.0IVVVI The EFE Total Medium eBay Weighted Scores DomesticInternational 2.0VIIVIIIIX Low 1.0 Strong Average Weak 4.0 to to to 1.0 The Total IFE Weighted Scores 24% 76% 24% 76% 11

® 2006, Tony Gauvin, UMFK 38 Grand Strategy Matrix Rapid Market Growth Quadrant IIQuadrant I Strong Competitive Position Slow Market Growth Weak Competitive Position Quadrant IIIQuadrant IV 10

® 2006, Tony Gauvin, UMFK 39 QSPM

® 2006, Tony Gauvin, UMFK 40 QSPM

® 2006, Tony Gauvin, UMFK 41 QSPM

® 2006, Tony Gauvin, UMFK 42 QSPM

® 2006, Tony Gauvin, UMFK 43 Suggestion/Recommendations New Strategies –E–Expand to all countries of the world »C»Cost: $500, ,000,000.00(advertising) –A–Advance in security of personal information »1»1,000, –I–Increase in Industry »N»N/A –I–Increase revenues by capturing more customers »N»N/A –L–Look into new pay system or create own (PayPal only in 38 countries) »M»Millions

® 2006, Tony Gauvin, UMFK 44 We believe that our continued profitability at historical levels will depend in large part on our ability to do the following: attract new users and keep existing users active on our websites; manage the costs of our business, including the costs associated with maintaining and developing our websites, customer support, transaction and chargeback rates, and international and product expansion; maintain sufficient transaction volume to attract buyers and sellers; increase the awareness of our brands; and provide our customers with superior community, customer support, and trading experiences. eBay’s Thoughts From 2003 annual report

® 2006, Tony Gauvin, UMFK 45 EPS/EBIT Analysis $Amount Needed: $1,500 Stock Price $45 Tax Rate 80/162=40% Interest Rate 5% # Shares Outstanding

® 2006, Tony Gauvin, UMFK 46 EPS/EBIT Analysis

® 2006, Tony Gauvin, UMFK 47 Decisions Primary: Expand aggressively into China Secondary: Increase business to business operations Increase marketing campaigns in Asia

® 2006, Tony Gauvin, UMFK 48 Implementation Objectives: Create a fully translated Chinese eBay site Increase sales by 35% Increase number of registered users

® 2006, Tony Gauvin, UMFK 49 Evaluation Quarterly & Yearly Financial Statements Annual strategic meetings of division management and corporate management

® 2006, Tony Gauvin, UMFK Financial Information More than million registered users million items More than $8 billion in gross merchandise sales * All from first quarter of 2004

® 2006, Tony Gauvin, UMFK Highlights

® 2006, Tony Gauvin, UMFK 52 We have an incredible set of assets

® 2006, Tony Gauvin, UMFK 53 Increased marketing

® 2006, Tony Gauvin, UMFK 54 eBay International;

® 2006, Tony Gauvin, UMFK 55 CHINA

® 2006, Tony Gauvin, UMFK 56 eBay in the News March 30, 2006 eBay Statement on Supreme Court Oral Argument and MercExchange Patent Reexamination eBay Statement on Supreme Court Oral Argument and MercExchange Patent Reexamination March 6, 2006 eBay Announces Matt Bannick To Head Efforts in Corporate Philanthropy and the Developing World eBay Announces Matt Bannick To Head Efforts in Corporate Philanthropy and the Developing World February 27, 2006 eBay Community To Gather in Las Vegas for 5th Annual eBay Live! Conference eBay Community To Gather in Las Vegas for 5th Annual eBay Live! Conference February 24, 2006 Celebrities Turn to eBay for Academy Awards Looks Celebrities Turn to eBay for Academy Awards Looks December 21, 2005 Matt Carey Named Chief Technology Officer for eBay Marketplaces Matt Carey Named Chief Technology Officer for eBay Marketplaces November 3, 2005 Star Wars LEGO Sets and Thomas the Tank Engine Top eBay's 2005 Hot New Toys List Star Wars LEGO Sets and Thomas the Tank Engine Top eBay's 2005 Hot New Toys List October 14, 2005 eBay Completes Acquisition of Skype eBay Completes Acquisition of Skype

® 2006, Tony Gauvin, UMFK 57 Questions