Value Creation:
Who does it best?
A closer look at three industry giants
Alibaba, Amazon and
eBay
What is value creation?
Economic value is
created “when
worthwhile things
that did not exist before are created
.”
value
is created “only when[creating] ‘something novel’ is deemed
worthwhile by someone else
.”
Formal
analysis of added
value:
The
total value created in
any
transaction
is
the difference between
customer
willingness to pay and supplier
opportunity cost. (TVC)
Supplier
opportunity cost is the minimum amount
of money
suppliers are willing to accept to provide
a
firm with
its
needed resources
. (SOC)
Customer
willingness to pay is the
maximum amount
of money the firm’s customers are ready to spend in order to
obtain the firm’s product
. (CWP)
Firm
cost is the actual amount of money the firm disbursed to acquire the resources needed to create its product or service
.
TVC = CWP - SOC
Creating value in competitive industries
Creating value in a competitive environment is no small feat. However three of the best in their industries has done exactly that.
Alibaba: the “middleman”
Amazon: the “one-stop shop”
eBay, Inc.: the “auctioneer”
How do these companies create value? added value?
Alibaba
creates value by acting a “middleman”
It is an
actual “market place” where buyers meet several
sellers.
However, Alibaba does not sell any product itself and doesn’t hold inventories.
Amazon
creates value by being a “one-stop shop”
It provides easy access and shopping experience for customers
eBay
creates value by being an “auctioneer”
Sellers can post their item and others can bid on its price
Alibaba
The “middleman”
Alibaba was
founded in 1999 by 18 people led by Jack Ma.
Alibaba
went public
on the New York Stock Exchange in Sep. 2014
Alibaba
is a
collection of companies operating under different business models and with different revenue sources.
Amazon
The “one-stop shop”
Amazon was founded
in
1994
as a bookstore
Amazon opened
its virtual doors
on
July
1995 and issued its IPO
on May 15,
1997
Amazon is well-known as an online shopping center, but it also offers web hosting and content
d
istribution
e
B
ay, Inc.
The “auctioneer”
eBay Inc. was formed as a sole proprietorship in September 1995 and was incorporated in California in May 1996.
In
April 1998,
it reincorporated in
Delaware,
and became a public corporation
in September
1998.
eBay Inc. is comprised of three business units with their
own
brand:
eBay where
individuals and business
buy
and sell online;
PayPal where
individuals and businesses
send
and receive digital payments;
and
eBay
Enterprise
which enables
commerce, retailing and digital marketing for merchants.
Mutual Competition
Alibaba like Amazon and eBay
is a trading
platform. It links
Chinese businesses to international businesses that need Chinese inventory or manufacturers.
Alibaba, Amazon and eBay are similar in
that
they
matches buyers and
sellers through a marketplaces.
All three companies allows buyers to purchase from different sellers
They all charge sellers commissions on their sales
Because of their similarities, there is fierce competition among them
Unique
offerings & Comparative Advantages
Alibaba is unique because it is a collection
of companies operating under different business models and with different revenue sources.
eBay’s uniqueness is from the different entities such as PayPal which serves a payment process service independent of and also eBay Enterprise which serves only businesses.
Amazon’s uniqueness is linked to how is serves its customers such as using a proficient
ordering
system in order to lower
the number of wrong orders.
Future of each company –what's next?
Alibaba
Future of each company –what's next?
Amazon:
On
May 5, 2014 Amazon unveiled a partnership with
Twitter
.
Twitter
users can link their accounts to an Amazon account and automatically add items to their shopping carts by responding to any tweet with an Amazon product link bearing the hashtag #
AmazonCart
.
Customers
never leave the Twitter feed, and the product is waiting for them when they go to the Amazon website.
Future of each company –what's next?
eBay
On September 30, 2014,
eBay’s Board
of
Directors
approved a plan to separate PayPal (consisting of our Payments segment) into an independent publicly traded company.
It is expected to complete the transaction as
a tax-free spin-off in the second half of
2015
Who is most innovative
?
Space for New Entity?
