Ebay Customer Support Outsourcing

Case Study

eBay® Customer Support Outsourcing

SITUATIONAL ASSESSMENT

eBay, US based company, was founded in 1995 by Pierre Omidyar as pet project that allowed for an online meeting place on the web for seller and buyers to trade with each other (Newman, 2006). By 2004, eBay had the most number of buyers, sellers, and items to be sold than any other competitor with nearly 1.4 billion items listed on the site. The company has since then skyrocketed to occupying 92% of the US market share and 74% of the international market share of the domestic online auction business.

As eBay's customer base began to grow the company initially hired its first customer service staff from among eBay members who were highly involved in this online community. Gradually, in-house customer service personnel were hired to simplify management and improve quality of service. The customer support organization at eBay consisted of two units, General Support and Trust and Safety. Although emails were used as the major communication channel, phone calls and live chats were accessible to eBay's most profitable customers, the "PowerSellers", who comprised 7% of its users but generated 90% of the company's profit.

By 2004, eBay had outsourced about 40% of its General Support volume through Precision Response Corporation (PRC). This outsourced General Support volume consisted only of email support that for the most part, with the exception of a few complaints, was successful in reducing cost and avoiding capital outlay. Phone outsourcing of the Global Support volume was abandoned since a pilot study conducted in the Philippines in early 2004 determined issues with the accents and language comprehension of the agents. As a result, the option of exploring the outsourcing of live-chat was abandoned for the same reasons.

The Trust and Safety unit dealt with issues ensuring that the items listed on eBay were legitimate, did not pose any patented/copyright infringement issues, and were permissible within the company's policies (e.g., no tobacco, firearms, etc.). Thus, the major responsibility of this unit was to ensure that a safe and trusting 'trading' was created within eBay. The functions within this unit dealt with sensitive customer information and legal and procedural complexities between countries when dealing with issues of fraud. As such, a number of Executives at eBay believed that outsourcing functions within the Trust and Safety unit was not a viable option due to the high level of risk involved.

By July 2004, the operations director of Customer Support, Kathy Dalton, proposed an outsourcing strategy for eBay. Dalton proposed a three-tiered strategy that aimed to increase the total outsourcing volume from ~30% to 50%, which she projected would result in an incremental savings of $3.9 million a year. Dalton received an email from her boss, Wendy Moss who was the VP of Global Support In response to her three-tiered outsourcing strategy. The email read, "if we are to continue outsourcing, and even consider expanding it, why should we keep paying someone else to do what we can do for ourselves?" So in essence, why not cut out the middleman in order to allow for more cost savings?

OBJECTIVE

Dalton's objective was to develop an outsourcing strategy that lowers eBay's customer support costs.

OPTIONS TO ADDRESS THE OBJECTIVES

Dalton has 3 options to accomplish the objective of cost savings in the General Support department of eBay.

Option #1 - Build, Operate, and Transfer (BOT)

This option represents a hybrid of the aforementioned options. A third party vendor would be hired to acquire or build customer support operations in India and after a specified period of time would transfer ownership to eBay.

Option #2 - Incremental increase in outsourcing

This option involves increasing the volume of emails, phone call, and live chats that are outsourced by eBay. Currently eBay is outsourcing 30% of its customer support volume. Dalton has developed a three-tiered approach that would allow the increase of outsourced customer support from ~30% to 50%.

Option #3 - Eliminate outsourcing vendors

This option involves the elimination of the use of outsourced vendors by not renewing their contracts and the establishment of eBay customer support operations in india.

EVALUATION OF THE OPTIONS

Dalton prepared a spreadsheet that quantified the three alternatives (Figure 1). The figure compares the cost/hr/seat of each of the options discussed below.

Figure 1. A cost analysis of the three options available to eBay.

Option #1 - Build, Operate, and Transfer (BOT)

This option involves the eventual transitioning of eBay from using vendors for their outsourcing to eBay running its own customer support services directly in India. In essence, eBay would be cutting out the middleman. The plan would be to locate a third party vendor in India that will acquire or build an operations center. This vendor would also be responsible for the staffing and managing of the site. It is important for eBay to negotiate an appropriate level of management fees with the vendor.

There are a number of advantages to having a third party vendor handling the set up in India. First, there will be no up-front costs from eBay to build or acquire facilities. Second, eBay has no experience dealing with governmental compliance issues and no knowledge of the communications infrastructure in India so having a third party vendor with experience would be advantageous. Third, eBay has no experience with handling outsourcing let alone outsourcing in India. Once the third party vendor has the Indian facilities operational, then eBay can transfer full ownership of these operations within a year or two. Dalton estimated an average transfer cost per seat (i.e., per customer service representative) of $3,500 to $2,900.

Although the cost savings of this option are not as high as the savings generated from option #3 (Figure 1), there is one major advantage to this option that is lacking in option #3. The biggest advantage of this option is that the risk to eBay is limited since the vendor assumes the risk of building or acquiring