Posted: October 20th, 2022

A COMPARATIVE STUDY OF MERGERS, ACQUISITIONS AND STRATEGIC ALLIANCES IN E-COMMERCE: AMAZON AND EBAY

A COMPARATIVE STUDY OF MERGERS, ACQUISITIONS AND STRATEGIC ALLIANCES IN E-COMMERCE: AMAZON AND EBAY

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Table of Content
1. INTRODUCTION 3
1.1. Background 3
1.2. Statement of the Problem 6
1.3. Objectives 7
1.4. Research questions 7
2. LITERATURE REVIEW 8
2.1. Introduction 8
2.2. The Main aspects of the M&As in E-commerce (eBay and Amazon) 9
2.3. Various types of M&As and what is their significance 12
2.4. Main reasons why Firms Get into M&As 15
2.5. The Level of Success in M&As in the General Economy and E-Commerce Sector 16
3. METHODOLOGY 18
4. RESULTS AND ANALYSIS 19
5. DISCUSSION 24
6. CONCLUSIONS AND RECOMMENDATIONS 25

1. INTRODUCTION
1.1. Background
Globalization has reduced the importance of national and regional boundaries, bringing the world closer and closer to one large economy. This has its advantages in that a specific company can gain a large percentage of the global market as its clientele (Bairstow & Young 2012). This increases the potential size in which a company can grow. On the other hand, this has the effect of increasing the level of a competition that a company may face. Globalization means that all the companies in the global market within the same industry can be brought into direct competition. The competition can come in the form of prices, technology, and cost of labor, corporate knowledge and technology among others (Brown & Goolsbee, 2000). As a result, companies have been faced with an increasing need to develop and obtain a competitive advantage. Competitive advantage refers to a resource or an attribute that enables a company and its products to be given preferential treatment by consumers (Barnes & Hunt 2013). This means that in a normal situation, consumers would consider products made by one company over those made by others. One company may have a competitive advantage over others in terms of producing better quality, lower prices or better appearance among others. In general terms, a competitive advantage enables firms to produce to compete better and survive.
In the current global economy, firms need to develop and maintain a competitive advantage to enhance their chances of growth and survival (Karat, Blom & Karat 2004). One way through which firms achieve this is by mergers and acquisitions (M&As) and/or strategic alliances (Bairstow & Young 2012). A merger occurs when two companies combine their resources, liabilities and even markets to become one. Acquisitions take place when one company buys the resources, liabilities and takes over the market share of another company. Alliances on the other hand occur when two companies make mutual agreements concerning various factors of production and the market to enhance their chances of survival. Through M&As, two or more firms are able to pool their corporate knowledge and other sources in order to become more competitive (Brown & Goolsbee, 2000). In other instances, capital is pooled together or risk is distributed to enhance profitability. Tactical alliances may also become strategically important in oligopolistic market structures to reduce instances of detrimental price wars (Brown & Goolsbee, 2000).
The e-commerce sector has been an important frontier for economic growth and investment since the late 90s (Barnes & Hunt 2013). In those years, there were only a handful of online sellers, and the growth was limited (Barnes & Hunt 2013). This has dramatically changed, the small companies that were engaged in online selling, such as Amazon, eBay and Alibaba Group, have now grown to become multi-billion dollar companies. Due to stiff competition between these online sellers, each of the companies has seen an urgent need to develop a competitive advantage to secure their markets and continue to grow. M&As and calculated alliances have become options that are closely considered by these firms. The focus of this paper will be to examine M&As in the e-commerce industry with specific attention paid towards to American retail giants, eBay and Amazon.
M&As have been seen as an effective way of developing the synergistic effects of the competitive advantages possessed by firms, which increases their combined competitiveness in the local as well as the global markets. This has prompted many business organizations to enter into strategic alliances, mergers or even acquisition agreements. In some instances, M&As results in larger organizations that then gain the advantages of economies of scale. In other instances, unrelated firms come together to reduce the effects of market volatility in given industries. As a result, these firms spread their risks across many industries. This means that they can always take advantage of the profitable industry, at each particular time. It also Helps firms entering into such agreements to reduce competitions by consolidating their market share. For these reasons, M&As as well as strategic alliances can be utilized to consolidate the largely fragmented e-commerce sector and has a potential to enhance this sectors growth and boost its success.
E-commerce has been, and continues to be the fasted expanding industry in the global market. Nonetheless, the global online market remains largely unexploited, especially in less developed and the emerging markets. The global market is in the initial stages of growing into a well-integrated e-economy (Cartwright & Cooper 1996). Innovators in various markets are developing initial internet- and mobile-based solutions in order to increase market efficiency. Developing and emerging markets are laying out the requisite infrastructure to support e-commerce and m-commerce.
E-commerce and m-commerce can greatly increase the efficiency of markets by enabling free movement of market information and availing knowledge needed to produce better quality of products. The growth and coverage needed by e-commerce firms can be achieved at a faster rate using M&As as well as strategic alliances. The number M&A transactions have been growing in recent years. On the other hand, this may have undesirable consequences. Additionally, companies are not always eager to relinquish their assets; corporate knowledge and market share unless they feel there is a strategic reason to do this. In spite of this, e-commerce has been growing steadily. This has been fueled by its convenience as well as increase with the number of computers and devices that can access via an internet connection. Around 3 billion citizens around the globe can access the internet, a number that is steadily growing.
1.2. Statement of the Problem
In existence for only 20 years, M&As in e-commerce and m-commerce is still a new concept. The effects of M&As in other sectors are well understood but their effects in e-commerce, which is in essence an aid to trade, needs to be studied and better understood (Gomes, Weber, Brown & Tarba 2011). This is important to clearly understand its potential benefits, shortfalls, opportunities and risks associated. This is because of the relative importance that e-commerce has on the economy. Success in e-commerce may translate to more efficient trade and increased economic growth. On the other hand, failure in e-commerce may potentially slow down economic growth.
For this reason, there is a need to study and understand the potential repercussion of the recent growth in M&A in e-commerce. In other sectors of economy, about 50% of M&As fail for various reasons which may include trust issues, incongruous cultures and consolidation of power among others. Conversely, about 1/3 of M&As are constructive in nature while slightly over half of all M&A are destructive in that they lead to loss of value in terms of equity among others (Cartwright & Cooper 1996). The outcomes of M&As are not fully understood since this is a relatively new field. There is therefore a need to conduct research work to find out if the forecast of M&As in e-commerce is similar to that in other sectors.
In many instance, many, companies across various industries get into M&As or form strategic alliances. The motivations behind such moves have always varied: the result of such undertakings depend on various factors such as the market forces, the fiscal issues as well as management challenges. Despite the fact that M&As may follow similar procedures and have similar results, their outcomes may slightly vary according to the market, the economic times as well as the specific industries and sectors. M&As in Tradition/old sectors of the economic have been researched and their effects have been clearly understood. However, this is not the case with new sectors of the economy, such as the ecommerce sector. As seen earlier in the paragraph, the performance and the results of M&A processes may vary across various sectors of the economy. This creates a need to clearly look into the processes and factors that affect M&As in the ecommerce industry. Additionally, the effects of M&As in this sector also need to be understood in order to find out how they relate with those in other sectors of the economy
1.3. Importance of the Study
Merger, acquisitions and strategic alliances have become popular in various sectors of the economy. This has been a global trend in that both the number of transactions and the average value of each transaction have been increasing across all sectors. The ecommerce sector, which is only a few decades old, has also seen an increase in the number of mergers and acquisitions in the recent times.
With M&As gaining popularity in the e-commerce industry, companies are faced with the challenge of ensuring that their M&As are a success. As a result, the findings presented in the current research will offer crucial insights regarding the nature and motives of M&As in the e-commerce sector, which will be used for developing a framework that can help ensure success in M&As in the e-commerce industry. Additionally, the study contributes to the scanty literature covering the issue of M&As in the e-commerce sector.
1.4. Objectives
The main objective of this research is to investigate the main aspects of M&As in e-commerce using the cases of eBay and Amazon e-commerce companies. This paper will examine the types and features of M&As in this crucial sector of the economy. To achieve this, the types of M&As in this sector will be profiled with respect to product extension, vertical, market extension, horizontal, and conglomerate mergers. A vertical M&A is characterized by two or more organizations operating at various levels of the sector’s supply chain, merging their operations. Product extension M&A involves two or more organizations dealing with related products and operating the same market in order to group their products to facilitate greater access to customers. Market extension M&A involves two firms dealing in similar products, albeit in different markets. Horizontal M&A involves corporations in the same sector and takes the form of consolidation. Conglomerate M&A occurs between companies engaging in unrelated activities. Secondly, this paper will look into the reasons for the M&As in the e-commerce sector. Finally, this paper will survey the level of success of M&A in this sector.
1.5. Research questions
What are the main aspects of M&As in the e-commerce sector in relation to eBay and Amazon?
What are the various types of M&As and what is their significance?
What are the main reasons for why firms engage in M&As?
What is the level of success in M&As in general economy and in e-commerce sector?
2. LITERATURE REVIEW
2.1. Introduction
The issue of M&As has fascinated researchers, scholars and institutions. The areas that are looked into closely include reasons for M&As, the process, as well as the outcome. Additionally, there several reasons why some companies choose not to merge. These may include secrecy laws, competition as well as maintaining their firm’s culture. For these reasons, some researchers are interested in finding out what persuades firms to choose M&As. On the other hand, the success of this process is not guaranteed, which also attracts another class of researchers who are interested in finding out why such processes fail and how they may be can be improved. On the other hand, the process of strategic alliances between firms also attracts the attention among researchers, scholars and institutions.
E-commerce has become a very crucial aid to trade. This is because it improves efficiency, and convenience of buyers as well as sellers. Since the end of the 1990s and the beginning of the 21st century, the e-commerce industry has been developing rapidly (Escoffier, La, Speser & Satinsky 2016). As these firms develop and begin to effectively compete, various dynamics have developed as well. These include the need to increase efficiency, lower costs, and product differentiation among others that are intended to increase profits. The industry has also attracted the attention of scholars, specialists and learning institutions. Various materials have been compiled and published about various aspects of this industry. These materials have been concerned with various aspects which include comparisons of this sector with the older sectors of the economy. US-based EBay and Amazon are among the largest e-commerce companies in the world. As a result, much of the debate about e-commerce invariably involves these firms due to their size of the market share in this industry. These two companies have a significant amount of market share in various categories in the US and also have a significant presence in the market.
This section of this paper will review materials that have been compiled and published concerning the subject of this research. This review will involve books, articles, and internet resources among others. This review will look into factors such as the main aspects of M&As as well as strategic alliances with a particular focus on eBay and Amazon. The review will also look into various types of M&As as well as the significance of each to this research. The review will examine the main reasons for why firms involve themselves in M&As and the level of success of these processes in the economy as well as in the e-commerce.
2.2. The Main aspects of the M&As in E-commerce (eBay and Amazon)
There are various reasons why firms engage in mergers and acquisitions. Among these reasons include increasing market share, reducing competition and increasing competitive advantage among others (Escoffier, La, Speser & Satinsky 2016). Firms also involve themselves in M&A to venture into new areas of the market or even to have a larger access to capital (Cartwright & Cooper 1996). In other instances, firms that have not been performing well also seek to be acquired by other companies. M&A is a complex process that involves lots of negotiations and strategies. It can be a particularly challenging task to put two or more companies that were previously independent under one unified management. It is also important to note that companies going through an M&A process may have very different organizational cultures and may have problems harmonizing them (Escoffier, La, Speser & Satinsky 2016). Power relations are also other factors that may affect the success of the process. Markets also become another challenge in the M&A process in that the resultant entity may not have the combined Image of the previous firms. In most cases, firms are unable to combine the advantages of their constituent firms (Cartwright & Cooper 1996).
E-commerce is only a few decades old. As a result, the effects of mergers and acquisitions in this sector are not clearly understood as of yet in terms of their success, how to effectively undertake the process or their potential pitfalls. However, M&As in this sector are seen to be caused by factors that result in these process in the other sectors of the economy. For instance, since the inception of Amazon, the firm has acquired several firms (Carrington 2015). These acquisitions were driven by the firm’s need to expand its market. In 1998 for instance, Amazon acquired Internet Movie Data Base (IMBD) in its attempt to enter the film and TV market (Escoffier, La, Speser & Satinsky 2016). Amazon was able to venture into this market segment after acquisition. A year later, the company acquired Alexa, a firm that specializes in analyzing internet users’ browsing habits (Escoffier, La, Speser & Satinsky 2016). The company has been developing methods for assessing the attractiveness of websites among internet users. Amazon was able to effectively able to enter this market through this acquisition (Brian 2016).
Amazon proceeded to acquire Audible.com, DPReview, Abe Books, Box Office Mojo, and Twitch.tv among others (Amazon’s acquisition spree should strengthen its web services business 2016). The latest of its acquisition is Double Helix Games, which it purchased in 2014 (Amazon’s acquisition spree should strengthen its web services business 2016). The major motive of these acquisitions has been to allow the company to expand into new markets. In other words, the company looks for firms that have developed a unique market category with high potential for growth and then buys them. As a result, it is able to sell to these categories or even develop new products/market process and hence expand its sales. This in turn increases the company’s worth and its attractiveness to investors. This reason for M&As is also seen in the other, older sectors of the economy. The firm has also acquired firms in other markets which has enabled it to expand its global reach. An example is the 2016 acquisition of Indian payment online company named Emvantage Payments PVT. limited. With this acquisition, the firm will be able to penetrate the Indian market. EBay, the second largest e-commerce company globally has also acquired several firms throughout its existence (Joyner 2007). Such companies that have been acquired include Expertmaker, Twice and Cargigi. These are much smaller than eBay but were acquired so that the firm could expand its market share by engaging in new industries.
Amazon and eBay both launched more than two decades ago and have managed to remain largely competitive throughout their history. Amazon, which was founded in 1994 in Seattle, Washington, is the largest e-commerce company in the US specializing in online market and cloud computing. As of mid-2016 company has a stock price of about $717 and has purchased and established several subsidiaries (Zacks 2016 “Why Amazon”). On the other hand, eBay was established a year later in California and has since maintained great success (D’Andrea 2004). However, the firm has struggled in the recent past and its stock price has fallen from its all-time high of $66.29 in July 2015 to about $24 as of May 2016 (Escoffier, La, Speser & Satinsky 2016). As of the end of 2015, Amazon had equity of $13.4 billion while eBay’s was at $6.6 billion: the main competitors to these firms are Craiglist.org worth $2.17 billion, and Ebid org worth $1.8 billion (Escoffier, La, Speser & Satinsky 2016). As seen in these figures, these firms are significantly bigger than other firms in this sector, especially their direct competitors. For this reason, whenever they engage in M&As, they are mostly the ones acquiring other firms. None of them have entered into a merger in recent history. However, these two firms are performing very differently in the market. Amazon has experienced a lot of growth in the market share and equity and has achieved retail sales that even exceed that of Wal-Mart (Escoffier, La, Speser & Satinsky 2016). As a result, it is effectively the largest retailer in the US. On the other hand, eBay has not been performing as well and has lost much of its value in recent times (Escoffier, La, Speser & Satinsky 2016).
One of the most important factors of acquisition as seen earlier is that one firm must be significantly bigger than the other such that the acquisition can take place. If this is not possible, firms may resort instead to signing strategic alliances with each other. In the case of Amazon and eBay, Amazon may be unable to buy eBay entirely and still remain afloat. For this reason, it might only choose buy a certain percentage of its shares. On the other hand, each of the firm in the M&A process carries out in-depth analysis to establish if the process has any strategic advantage for both firms. If either of the firms is not convinced that the process is strategically advantageous, it might opt not to engage in it.
2.3. Various types of M&As and what is their significance
When it comes to M&As, firms chose options that are most advantageous for their current and strategic needs (Brueller, Carmeli & Drori 2014). This is influenced by factors such as the amount of capital a company is willing to relinquish or acquire the projected outcome in terms of the output, the market share and corporate knowledge among others. Companies do not engage in M&As if they do not conclude that such a procedure will result in any tangible advantage in terms of competitiveness (Escoffier, La, Speser & Satinsky 2016). This is also the case with strategic alliances in that companies only engage in them if they project strategic benefits in doing so. These benefits may include reductions in cost, increases in market share, and gaining corporate knowledge of accessing some strategically important technology. There are several types of M&As, according to the varying needs of firms.
One of the most important forms of M&As is product extension (Brueller, Carmeli & Drori 2014). In this form, the merging firms are usually not competitors but use similar or related distribution channels. Additionally, they could also be using similar production processes and means of marketing their products. As a result, the merger means that the two firms can gain expanded channels of distribution, and well as means of production and marketing. As a result, their products can have a greater market share and be produced or sold more efficiently. This form of M&As is very common in the e-commerce sector. The two large firms, Amazon and eBay, have been very keen on acquiring firms that market or sell their products using the internet channels. They also commonly engage in M&A with firms that offer online based services. This gives them a great opportunity to design new combination of products, marketing strategies as well as distribution channels. This form of M&As increases the firm’s options for products (Brueller, Carmeli & Drori 2014).
A vertical M&As denotes a case where the firms engaging in M&A are at a different level of the supply chain. For instance, a firm that deals with the extraction of raw materials may propose an M&A with a firm that engages in processing, manufacturing or even transportation. As a result, these two firms at various levels can harness a higher amount of value by saving on costs. This may translate into lower costs of a firm’s product which allows them to have flexibility when setting market prices. Vertical M&As involve a combination of processes that are used to make the final product. In e-commerce, this process can be complicated as the companies involved are the market places themselves (Brueller, Carmeli & Drori 2014). However, Amazon and eBay have purchased several internet-based companies. This can be seen as their expansion of their markets by the inclusion of various processes that allow them to deal with a wider range of products. This form of M&As would not be considered vertical.
The market extension M&As occurs when one or both of the firms wish to gain access into a new market. To achieve this, one firm acquires another that is already well established in such a market. As a result, the firm has greater access into the market. During the merging process, both firms transform into one larger firm with each knowable to access a market that it could not before the process was finalized. The firms are therefore able to access a larger market and with a bigger clientele. When this is done well, they can increase their sales and hence their margins. A good example of this is the M&A between Amazon and Emvantage Payments PVT. Limited. As a result of this process, Amazon gained access to the Indian market. On the other hand, Emvantage Payments PVT. Limited’s clients in India can now pay for goods made in the US using this company’s services (Ganesh & Agarwal 2014). Another example is eBay’s acquisition of the UK-based Shutl. Shutl is an online retailer that works closely with providers of courier services to ensure the fast delivery of goods to consumers (Ellis 2009). This M&A arrangement between eBay and Shutl gives eBay greater access to the UK market.
A horizontal merger involves two firms are at the same level in the supply chain. In this form of M&A arrangement, the firms’ involved are initially competitors in the same industry. In this case, the merger reduces competition and provides the firms with synergies in terms of knowledge/technology, raw materials and a larger access to capital among advantages. Importantly, this also gives the firms a good opportunity to exploit the economies of scale in that the two firms have a larger market. They can therefore acquire raw materials in larger quantities among other means of exploiting the economies of scale.
In the conglomeration form of M&As, firms that operate in unrelated fields come together (Brueller, Carmeli & Drori 2014). Along with engaging in different industries, they generally operate at different levels of supply chains. The conglomeration in M&A may be done for reasons such as product extension, market extension, and access to new markets as well as economies of scale. However, among the most crucial reason for the conglomeration of firms is to allow restructuring and diversification such that firms are able to handle various shocks whenever they take place in the market. Conglomeration is rather common in the general economy but is less usual in the e-commerce sector.
2.4. Main reasons why Firms Get into M&As
In most cases M&As are premeditated moves. Firms’ respective management teams spend a lot time planning in advance before going through the process (Lau, Liao, Wong & Chiu 2012). In other instances, firms are forced by circumstances to get into such arrangement to either expand or even to continue surviving. As a strategic move, most firms plan carefully on how to get into M&As, the terming as well as projected benefits. When all circumstances are conducive, firms weigh the potential benefits against shortcomings as well as find ways to militate against those potential shortcomings. On the other hand, when firms are pushed by market forces to participate in M&As, a lot of factors are considered such as whether the firm in question can get a deal that it considers fair. It also considers other firms that it can make M&A arrangements with (Escoffier, La, Speser & Satinsky 2016).
The main reasons why firms get into M&A arrangements are to gain and/or maintain a competitive advantage (Lau, Liao, Wong & Chiu 2012). This is obtained through one or a combination of the following factors. The most important one is to create synergy; the firms getting into M&A procedures are able to select the best materials, practices and market attributes from both firms. As a result, they are able to reduce costs, and increase efficiency among other benefits. Secondly, firms get into M&As for the purpose of diversification (Escoffier, La, Speser & Satinsky 2016). When firms get into conglomerate relations, it means that one firm has an opportunity to produce a new product and use new processes. This enables firms to be in a better position to distribute risk and increase income. Thirdly, M&A allows firms to have a greater market share (Escoffier, La, Speser & Satinsky 2016). This is achieved through product extension and market extension. As a result, the firm may end up offering another product or a better developed market structure. This is important for increasing a firm’s sales and profitability. M&As also leads to reduced competition when the two firms involved are competitors. Fourth, in vertical mergers, some steps/links in the supply chain are eliminated (Escoffier, La, Speser & Satinsky2016). For instance, when a manufacturing firm merges with a provider of raw materials, a significant amount of cost can be saved, which allows the firm to provide a product to the market at a lower cost. This gives these firms flexibility when setting market prices, which is strategically advantageous. As a result, they can compete more effectively or have higher margins. Finally, one of the most important reasons why firms get into M&A is to either eliminate or reduce competition. This happens when a firm acquires a competitor, or when two competing firms form a merger.
2.5. The Level of Success in M&As in General Economy and In E-Commerce Sector
M&A is sometimes a complicated process for firms. For example, a lot of consideration is done by firms’ management to establish whether or not a firm should merge or engage in an acquisition process (Brian 2016). Even when a firm has decided to merge or acquire another company, a great deal of planning is required at various stages of this process to make it a success. In an addition to all these carefully considered processes, the success of the process is influenced by many other factors, some of which a firm may not be able to control. In traditional sectors of the economy, M&A processes are often lengthy processes and its success is never guaranteed (Bodolica & Spraggon 2015). The process of merging two organizations is usually hard, which limits the success of these processes. In some cases, the sheer size of the new organization might make it difficult to unify and coordinate operations (Bodolica & Spraggon 2015). After the merger, the process of creating an identity, developing a common mission and collectively managing the larger pool of assets and liabilities may become a challenge. The disruption after a merger may also cause chaos within the firm. Some of the competitive advantages possessed by the merging firms are lost in this process or are not reorganized to gain the synergies required (Brian 2016).
Acquisitions are rather different from mergers, and have a higher rate of success (Bodolica & Spraggon 2015). This is the case when the acquiring firm is bigger and stronger than the firm it has purchased. In this case, the acquiring firm pumps in capital and other resources into the other firm to continue producing and selling. Sometimes the level of disruption is minimal. However, the success rate for M&As is very low; as many as a half of them end up failing over time. Research done in Harvard Business by Alan and McKone School indicates that over 60% of M&As leads to erosion of stock value (McKone & Lewis 2016). A larger percentage of these continue to generate losses or experience slow growth such that they eventually fail. The general observation has been that when firms acquire a start-up and injects the required resources with minimal reorganization for this firm, there is a higher chance for both firms to succeed (Bodolica & Spraggon 2015). This is also the case in the e-commerce sector where establish firms purchase start-ups and use them to extend their products options and markets (Say 2012). On the other hand, the merger of two large firms can lead to confusion, take time to reorganize and set a combined mission. This was the case with automobile giants Daimler and Chrysler (Weber, Oberg & Tarba 2014). The same case was seen in the e-commerce sector, for instance, with the merger between eBay and Skype, which ultimately failed (Escoffier, La, Speser & Satinsky 2016).
As seen throughout the paper, M&A is an important part of business cycles. At some time in their lifecycle, firms get into such arrangements for various reasons (Rochlin 2006). This often prompts various preparation and considerations including anticipated outcomes. However, for various reasons, few of these arrangements succeed. The rate of failure of M&As often varies depending on the definition of the term failure as well as the objectives for merging. Altogether, Alan and McKone state that around 70% of them fail to meet projected targets and may continuously generate losses or earn very little profit in the short to medium term (McKone & Lewis 2016).
3. METHODOLOGY
This section details how the information needed to conduct this research was obtained. There was a need to effectively respond to all the research questions in order to provide the researcher with the information necessary for drawing conclusions and therefore achieving the objectives of this research.
The current research relied on secondary sources of data in order to gain the information required. This means that previously compiled and published materials such as books, articles and internet resources were used. The reason for using these materials was due to the nature of the research inquiry in question. The research being descriptive in nature, there was a need to get qualitative data from many sources, which would make it possible to respond effectively to various research questions (Fisher 2007). Materials from many sources would be more important in achieving this. In addition to the nature of this research, secondary sources of information are also cheap and convenient to get as the researcher can find them on the internet or from various sources such as the academic library. There were no additional costs associated with booking appointments with various organizations and seeking primary information concerning the subject of this research. Secondary sources also means that traveling was minimized since the information required was obtained from one source. In addition, the information in books and articles is well analyzed such that the researcher can derive meaning from this information as well as compare the views of various authors to reach an objective conclusion.
The objective of this research was to investigate the main aspects of M&As in e-commerce, using the cases of Amazon and eBay as examples. For this reason, the researcher looked for materials that contained information about the subject. These are the materials that could respond to all the research questions, contribute to the discourse about this research and as capture the trend in the e-commerce sector. This could be achieved best using qualitative methods as opposed to quantitative methods. The method approach for data collection was a mix of case study and literature search. The researcher looked for materials that contained information concerning the subject of this research and analyzed them to get the required information. This research looked into the period between the late 1990s and 2016. Throughout this range of time, a large number of firms in the e-commerce industry have seen a lot of growth and expansion (Li 2016). This is also a period in which a lot of mergers and acquisitions took place. After this data was obtained, it was analyzed and utilized to obtain the information needed to attain the objective of this research. The results can be found in the results and analysis section.
The proposed study will use the qualitative research method due to the exploratory aspect of the proposed research. The underlying aim is to ensure that a full investigation is performed. The quantitative approach is not suitable for the proposed research, since it is not descriptive. Instead, a critical analysis of the case studies can only be performed when qualitative methods are employed.
The researcher used a blend of the case study design and literature search. These two designs have been reported to be operational in enabling wide-ranging investigation of various issues. This happens more effectively when data in specific situations or contexts is available (Fisher 2007). The case study strategy is characterized by the selection of a few research objects in order to perform a detailed background examination. In the case of this research project, the ecommerce sector (and especially Amazon eBay) was selected and studied.
The case study design can take the procedure of either single-case or multiple-case study designs (Fisher 2007). Single-case studies are used when there is no need to replicate the findings of the research to other cases. It yields comprehensive finding even if it is limited by the lack of generalizability (it cannot be replicated). On the other hand, multiple case study designs normally utilize a minimum of two case studies for purposes of comparison and generalisation of findings. This research inquiry employed multiple-case study involving two case studies. Literature search was utilized to acquire the information needed for these two studies. Fisher (2007) shows that utilising at least two cases facilitates the generalisation of the research, and, at the same time, cautions that using more than four cases diminishes the benefits of the case study design. The selected case studies for the proposed research were Amazon and eBay. Amazon is an American e-commerce firm established in 1994 (Barnes & Hunt (eds.) 2013). The firm specializes on online retail market: it is largest e-commerce retailer in the US commanding 51% of the online market. Since its establishment, Amazon has made numerous acquisitions, which makes it an ideal case study for the e-commerce sector. eBay is an American multinational e-commerce firm established in 1995. Ebay was established to serve online auction market. Similar to Amazon, eBay has had numerous M&As since it was founded (Barnes & Hunt (eds.) 2013). Still, as it is the case with amazon, eBay has had numerous acquisitions and no mergers. As a result, these two case studies are ideal for the objectives of the proposed study.
Data for the proposed study will be collected from the diverse secondary sources gathered, including corporate press releases of the case companies, newspaper articles, and magazines dealing with the issue of M&As in the selected organisations, journal articles, and books. The secondary sources for analysis will be screened to ascertain their credibility and authenticity.
4. RESULTS AND ANALYSIS
Many firms continue to view M&A as a way to expand, diversify and increase their profitability (Anderson & Lawrence 2014). As a result, firms continue to merge while large firms continue to acquire start-ups firm that are struggling. Despite the fact that 50% of M&As eventually fail, and that over 60% of M&As results in the dAssessment of firms and an average of 83% of them fail to attain their objectives, firms continuously seek to engage in them (In Harper & Miller 2015). This is often due to lack of other options or the fact that a small percentage of firms are still able to succeed through M&As.
M&A is a strategic tool that is utilized by firms’ managements to expand, stay afloat or gain additional capital/market. Ones in a firm’s lifecycle, there a need arise to seek for additional capital, reduction in competition as well as enlargement of a firms market. In such instances the management may choose to merge or acquire other firms in order to respond to these internal/external factors. Also, most firms’ product cycles experience periods of decline in demand and hence consumptions: this may result to reduction of firms’ income. Firms may experience financial problems when they do not make enough profits. In such times, the company may seek for product extension or market extension M&As. Firms in one industry may also face market volatility, which may require them to seek ways of diversifying their markets. Since development and introduction of a new product could be complicated, such firms may seek for ways to merge, acquire or be acquired by a firm that deals with unrelated product. As a result, conglomerate form of M&A may result. The goal is usually to increase the firms’ chance of survival and success. Firms chances of success happen when a firm makes enough profit as well as appreciation in its stock value.
The rate of mergers and acquisitions has continuously increased over many years. There has been a continuous upward trend in mergers and acquisitions in the period after the 2008/09 economic meltdown (In Harper & Miller 2015). Despite the increase in the number of M&A agreements, the amount of money that is involved in such agreements has also increased. This is a global trend and all sectors of the economy are involved. In 2010, an estimated 27,460 M&As were conducted throughout the globe, this was valued at $2.03 trillion (In Harper & Miller 2015). In the following year, this number grew by 11% to 30,366; and was valued at $3.11 trillion, a 53% increase (Hill, Quinn & Solomon 2016). In the US, the rate and amount of M&A transitions was lower of the same period but the value of transactions grew by around 80% to reach $1.95 trillion over the same period (Hill, Quinn & Solomon 2016). Even after 2011, the rate of growth in mergers and acquisitions continued to increase steadily to surpass the highest rate in history which had been in 2007 (before the 2008-2009 financial meltdown). In 2015, $5 trillion worth of M&A deals were sealed globally, by far an increase over the previous record $4.6 achieved in 2007 (Hill, Quinn & Solomon 2016). Of all these trade agreements, a half of them were made in the US. The value per agreement also increased with the record top of these deals having been initiated by Pfizer pharmaceutical company at the cost of $160 billion (Hill, Quinn & Solomon 2016).
In the US economy, the leading sector in terms of the number and the value of deal is the pharmaceutical sub-sector. This is despite the fact that the US has a vibrant technology sector with hundreds of innovative tech start-ups launched every year (Smirnova 2014). The e-commerce sector and technology sector have seen more acquisitions than mergers. These companies are very unique in that they are all only a few decades old. However, the trend in the e-commerce and other tech companies is that the market leader (who is usually very far ahead in the industry). This is the case in the online retail market in which Amazon and eBay are far ahead of their potential competitors. This case is also seen in Alibaba in the Chinese market, where the firm that has risen to global significance without having any important competitor at home (Miguel & Casado 2016). Tech companies like Google, Yahoo and Facebook among others experience the same case in that there are few competing firms that can match them in terms of capital, clients base and/or stock value (Miguel & Casado 2016). For this reason, the e-commerce industry has seen a very unique trend in which the market leaders prefer acquisitions over mergers. As seen in the literature review, Amazon has for many years preferred to acquire smaller online start-ups in the e-commerce industry. This has also been the case with eBay, and the two firms have largely managed to tap into various market segments through acquisitions.
Throughout the history of these firms, neither has entered into a merger agreement. A merger occurs when two firms of preferably equal size in terms of market share and capital fuse to form a united firm with one identity (Clougherty, Gugler & Sørgard 2012). Acquisition on the other hand refers to situations in which a large firm purchases a smaller firm (Clougherty, Gugler & Sørgard 2012). In this arrangement, the acquired firm operates under the direction of the larger firm. The smaller firm may change its identity, take the name of the larger firm or retain its identity. However, its operations are still controlled by the large firm.
Throughout the history of Amazon, the firm has acquired over 30 firms. One characteristic of its acquisition is that it tends to seek firms that are small and have an advantageous position for enabling it to grow into these markets (Clougherty, Gugler & Sørgard 2012). Rarely does this firm acquire firms whose product cycle has reached maturity. As a result, it is able to align its product lines with those of the acquired firms. Additionally, the fact that the firm favors acquisitions over mergers gives it control over the firms that it has acquired. As a result, this reduces the challenges that are caused when two firms of relatively equal size try to forge a common identity. This gives it control of the entire process.
Examples of firms that have been acquired by Amazon include the Italian tech company NICE, which occurred in February 2016 (Amazon’s acquisition spree should strengthen its web services business 2016). The company deals with technology that optimizes the operations of heavy computing. This company has not reached the maturation phase of its product cycle, which means that Amazon will be able to utilize NICE’s growth to its advantage (Amazon’s acquisition spree should strengthen its web services business 2016). Towards the end 2015, Amazon acquired the start-up Elemental Technologies at a cost of $500 million (Amazon’s acquisition spree should strengthen its web services business 2016). This company deals with mobile based video services. As a result, Amazon will be able to optimize its mobile based cloud services.
Another important purchase was the August 2014 acquisition of Twitch tv that was valued at $970 million (Bearth 2015). Twitch.tv is a video game streaming site that was sought after by many tech companies. This enabled Amazon to effectively enter in the already large but still growing market for online games. Additionally, it would also have access to game advertising which is a growing market. Another purchase made by Amazon was of the online shoe retailer Zappos in 2009 (Bearth 2015). Based in Las Vegas, the purchase of Zappos was valued at $1.2 billion. One of the most Amazon’s important acquisition was that of Kiva Systems, now known as Amazon Robotics. This firm deals efficient packaging and transportation of goods. Among acquired this company to Help pick, package and transport its products from its storerooms to customers. This resulted in very high efficiency and helped increase Amazon’s sales (Bearth 2015).
It is important to note that Amazon’s central business is online retailing, which means that the firm has to be careful to acquire firms that produce products that can be sold. Otherwise, the firm may risk having much of its capital tied-up its inventory. As a result, all its purchases target start-ups that deal with highly sellable products or processes that are meant to make its operations more efficient. It is important to also note that the firm prefers to acquire small firms. As a result, Amazon has grown to become the leading retailer in the US, owning 24% of retail market in 2015 (Risberg 2016). It also commands over 51% of the US online retail market by the end of 2016 (Risberg 2016).
On the other hand, eBay built its name in dealing with second hand wears, and the firm has also not entered into mergers but has acquired a large number of firms (Miller 2016). As of 2016, the firm hard acquired about 40 firms (Miller 2016). The difference in eBay is that it sometime purchases large firms, whose products have attained maturity phase of the product cycle, hence being unable to significant boost the sale of the acquired firm. As result, eBay is not able to reap the maximum benefits from the firms it has acquired. Among the firm largest accusation was Skype, a company that provides video calls over the internet. The acquisition was valued at about $2.6 billion (Miller 2016). After this acquisition, there was no appreciable increase in sales and stock value. This was followed by a sustained decline in stock value.
Another acquisition that eBay made was of PayPal which was valued at $1.5 billion (Miller 2016). Since the acquisitions, PayPal, which is an e-wallet service, has seen significant growth over time. On the other hand, eBay has experienced mixed growth that has been characterized by a decline. EBay’s president John Donahoe proposed a spinoff of PayPal to allow its stock to grow without being held back by declining eBay (Miller 2016). This would also give eBay an opportunity to focus on other areas of interest to expand its online auction market. Another acquisition that eBay undertook was the electronic commerce firm Bill Me Later. This acquisition was valued at $1.5 billion (Vermaat, Sebok, Freund, Campbell, & Frydenberg, 2015). It did not reflect the projected synergy as eBay’s stock of performance did not increase after the acquisition. EBay has also made many other acquisitions at various prices and with varying level of success; the cheapest of them was RedLaser which is a mobile application company. The acquisition cost eBay $10 Million (Phillips 2016). Despite these acquisitions that have a combined value of many billions of dollars, the company’s stock value has plummeted to about $23 (Phillips 2016). On the other hand, Amazon which has done fewer acquisitions at a much lower value has seen its stock value increase to about $750 (Risberg 2016).
5. DISCUSSION
Any firm’s success is a function of very many factors. Additionally, the success or the failure of the process of M&A does not solely depend on the process itself. In most cases, it depends on issues such as the market forces, the shareholders and other factors that a firm may not be able to control. On the other hand, every firm has to ensure that it projects and effectively manages all problems that may arise from M&A process. Otherwise, such processes may fail.
Sometimes it is hard for firms to determine if the process of M&As has been successful or not, based on complications that exist in the description of such processes. In other instances, it is difficult to determine the component of the performance that was caused by the M&As and the ones that were caused by external factors. However, any firm should ensure that it aligns all its internal factors to the external factors to ensure continued growth.
The principle reason for M&As is for firms’ expansion in terms of geographical location, market share, as well as the increase appreciation of the value of its stock. For this reason, if successive M&As do not achieve any of this, it is therefore right to say that the particular procedure was not a success. From the above description or lack thereof, it can be said that Amazon’s processes of M&As have been successful and those of eBay have not been.
Throughout the result and discussion section, it has also been seen that the success rate of M&A in the e-commerce industry is closely related to that in the other sectors of the economy. The case of two largest firms in e-commerce reveals that one of them is succeeding while the other one has consistently performed poorly. This is closely related to various surveys showing that a larger number of M&A. However, the case of only to firms cannot be used to confirm a trend but only to illustrate it.
The observation that acquisition of start-ups and small firms when their products are rapidly growing is important in increasing the chances of success of an acquisition has held true in the case of amazon. Acquisitions do not need to be expensive to succeed. On the other hand, acquisitions alone cannot make a firm successful. They need to be backed by sound management practices as well as a favorable environment. On the other hand, acquisition of firms whose products have reached maturity phase decreases the chances of success for the two firms. These firms are not only expensive but their products’ demands are usually low. As a result, the two firms participating in this form of M&A may experience decreasing demand and may not be able to extend their products or markets. This has been the case with eBay that has not experienced increase in growth (in both demand and stock value) despite acquiring very expensive companies. It is also important to note that the declining growth experienced by eBay is not fully caused by the forms M&A procedure that the firm has participated in. other factors such as competition, market forces and management among others also play a part.
6. CONCLUSION AND RECOMMENDATION
As seen throughout the paper, the process of mergers and acquisitions in other sectors of the economy does not always lead to expansion of the firms market or value. In addition to that, the process of mergers and acquisition does not always result to the synergy required to keep both firms profitable. Over half of the M&As eventually fail while over 60% lead to dAssessment of a firm’s stock. In other instances, as high as 80% of these procedures are not successful, and the merging firms do not achieve the objective of merging. Despite this grim prognosis of the process of M&As, many Firms still continue to merge, and the average amount spent in one M&A deal continue to increase. This has been happening across all sectors.
The major cause for firms failure include the setting of overambitious goals, merging with or acquiring the wrong firm, poor follow-up activities and non-conducive external environment. Importantly, the most pronounced causes for failure after mergers are the confusion that arises when the merging companies are looking for a common identity and mission. Acquisitions have better reviews in that the acquiring firms may give directions to the firm being bought. In the case of Amazon and eBay, these two firms have been seen to be inclined to take part in acquisitions and have not shown any significant interest in mergers. Throughout their existence, these firms have not participated in any mergers. The difference in these firms is that Amazon has continuously purchased small firms with potential for growth and has been able to obtain sufficient synergy which has made this firm to continuously grow. On the other hand, eBay has sometimes participated in acquisitions that are very large in value but for firms that have products that are in advanced stages of their product cycle. This has offered the firm very limited growth after the purchase. As a result, a significant number of its acquisitions have not lead to growth in sales or appreciation of its stock. However, it is important to note that the firm’s decline which has occurred over time cannot be solely linked to its acquisitions, but has happened in a larger context of firms operations.
In the process of trying to understand the procedure and the reason for mergers and acquisitions in the e-commerce sector, no significant merger has occurred in this sector. For that reason, it is not yet possible to describe how mergers take place in this industry using Amazon and eBay as examples. However, since the process of acquisitions have been seen to happen like that in the general economy, it is possible to project that mergers too could comparatively follow the same trend. There is however a need to develop a process of projecting how mergers may take place in this industry.

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