This content was uploaded by our users and we assume good faith they have the permission to share this book. If you own the copyright to this book and it is wrongfully on our website, we offer a simple DMCA procedure to remove your content from our site. Start by pressing the button below!
All trademarks are trademarks of their respective owners. Rather than put a trademark symbol after every occurrence of a trademarked name, we use names in an editorial fashion only, and to the benefit of the trademark owner, with no intention of infringement of the trademark. Where such designations appear in this book, they have been printed with initial caps. McGraw-Hill eBooks are available at special quantity discounts to use as premiums and sales promotions, or for use in corporate training programs. For more information, please contact George Hoare, Special Sales, at [email protected] or (212) 904-4069.
TERMS OF USE This is a copyrighted work and The McGraw-Hill Companies, Inc. (“McGraw-Hill”) and its licensors reserve all rights in and to the work. Use of this work is subject to these terms. Except as permitted under the Copyright Act of 1976 and the right to store and retrieve one copy of the work, you may not decompile, disassemble, reverse engineer, reproduce, modify, create derivative works based upon, transmit, distribute, disseminate, sell, publish or sublicense the work or any part of it without McGraw-Hill’s prior consent. You may use the work for your own noncommercial and personal use; any other use of the work is strictly prohibited. Your right to use the work may be terminated if you fail to comply with these terms. THE WORK IS PROVIDED “AS IS”. McGRAW-HILL AND ITS LICENSORS MAKE NO GUARANTEES OR WARRANTIES AS TO THE ACCURACY, ADEQUACY OR COMPLETENESS OF OR RESULTS TO BE OBTAINED FROM USING THE WORK, INCLUDING ANY INFORMATION THAT CAN BE ACCESSED THROUGH THE WORK VIA HYPERLINK OR OTHERWISE, AND EXPRESSLY DISCLAIM ANY WARRANTY, EXPRESS OR IMPLIED, INCLUDING BUT NOT LIMITED TO IMPLIED WARRANTIES OF MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE. McGraw-Hill and its licensors do not warrant or guarantee that the functions contained in the work will meet your requirements or that its operation will be uninterrupted or error free. Neither McGraw-Hill nor its licensors shall be liable to you or anyone else for any inaccuracy, error or omission, regardless of cause, in the work or for any damages resulting therefrom. McGraw-Hill has no responsibility for the content of any information accessed through the work. Under no circumstances shall McGraw-Hill and/or its licensors be liable for any indirect, incidental, special, punitive, consequential or similar damages that result from the use of or inability to use the work, even if any of them has been advised of the possibility of such damages. This limitation of liability shall apply to any claim or cause whatsoever whether such claim or cause arises in contract, tort or otherwise. DOI: 10.1036/0071406220
Contents Preface by Chuck Martin Acknowledgments xi 1.
vii
The Case for Participating at Auction
1
2. A Brief History of Internet Auctions 23 Special Section: Community-Based Selling and Peer-to-Peer Psychographics 37 3. Finding the Relevant Marketplace 47 4. Software and Services for Creating an E-Commerce Auction Infrastructure 67 5.
Key Elements for a Successful Auction on Your Own Site or a Portal 89
Special Section: Case Studies 109 6.
Resources for Researching Your Auction Initiative
129
7. Getting Beyond Being a “One-Trick Pony” 195
v Copyright 2002 by Leland Harden and Bob Heyman. Click Here for Terms of Use.
vi 8.
The Auction-App Strategies to Protect Profit Margins
217
Special Section: Navigating the Online RFQ 237 9. Taking the Ball and Running with It 243 Appendix: Reversal of Fortune: The Changing Face of Government Procurement and How to Bid for Government Contracts Online 257 Index 281
Preface Welcome to the new world of online auctions, the logical next step for interactive business in the new economy. Five years ago, online auctions were a relatively unexplored venue for selling, and not all of the models worked. The market had to be built, and a few companies, such as Priceline and eBay, grew rapidly in a short time because it all was new. At that time, every customer was a new customer. Today it’s quite different. Online, interactive marketing has matured, and the best and largest companies in the world have made the Internet part of their infrastructure. Companies are electronically connecting to their suppliers and distributors and, more importantly, to their customers, who are demanding better and more efficient ways to conduct business. Why online auctions? One of the benefits of the Internet as a marketplace tool is that it allows both the aggregation of supply and the aggregation of demand, all electronically. What Internet auctions do is aggregate both supply and demand simultaneously. This offers inherently more benefits to both buyers and sellers. Transactions, even global deals, can happen much faster; inventory can be turned over far more rapidly, and the true price of a product or service can more accurately reflect true supply and true demand, all in real time. Through e-mail, corporate intranets, and collaborative networking, this larger universe of online customers can provide the initial base of participants for experiments in dynamic trading, including online auctions and even reverse auctions. Many of these customers already have been conditioned to auctions, perhaps by personally bidding for golf clubs at eBay or while vii Copyright 2002 by Leland Harden and Bob Heyman. Click Here for Terms of Use.
viii
Preface
shopping for a discount airline fare. They are ready for online auctions as an additional sales channel, and many of them have been waiting for it for some time, even if they didn’t know it. When companies add online auctions to their array of interactive tools, they discover something interesting: that auctions not only aggregate demand, they can help define demand. This has never been more important in business than today. If real-time information is the engine that drives decision making, the ability to know the price of an item at any moment—and be able to predict what the price will be a minute or a month from now—can be a rocket booster to the decision-making process. Feedback can be instantly transmitted, perhaps to a salesperson’s handheld computer in the course of a sales meeting with an important customer. The current economic climate also suggests that the online auction channel is going to be a very necessary sales vehicle. Through the next few years, all businesses will be feeling the pressure to be as efficient as possible; they cannot afford excess in anything. This means that companies that make and sell goods can’t afford to have excess inventory. Putting these goods into an online auction for quick liquidation makes perfect sense. In fact, on the balance sheet, it’s almost like a double return: you not only have less overstock to ding you on the debit side, you’ve actually got revenue coming in that you might not have had before. And businesses that sell services will find that online auctions can extend their reach to new customers and at very low customer acquisition costs. Companies that buy goods and services are also feeling the squeeze and have quickly realized that they cannot buy in the same ways they used to. In a tough economy, everyone is looking for a deal, and auctions, by their nature, create the deal. To move successfully in online auctions, a company will have to first reflect on what it can bring to the table—in terms of products, or services, or better yet, linked products and services. Executives in charge are going to have to look at what the table can bring to them. Since all online marketplaces are different, and not all of those currently operating will survive, marketing executives will have to examine all possible options before plunging in. The book you hold in your hands was created to take much of the guesswork out of the process. The early chapters introduce all the important players, the language, the techniques, and the strategies
Preface
ix
you need to know to develop your own auction on the Web or participate in a marketplace that’s pertinent to your industry. The later chapters show you how to integrate online auction selling into your current interactive infrastructure. We encourage you to take this book and plunge in. Explore online auctions and extrapolate how they can be used to give your own business a competitive advantage. Does your organization participate in online auctions? Should it? How should you get in? How can you be most successful? And, perhaps most importantly, how can you do it better than your competitors or even take an early market lead? Your customers and business partners will certainly be looking for better and more efficient ways to purchase goods and services—your goods and services—and online auctions can provide them with just the deal they are looking for. After all, everybody loves a bargain, and it might just as well come from you! Chuck Martin is Chairman and CEO, Net Future Institute, author of Net Future, the New York Times business bestseller The Digital Estate, and co-author of Max-e-Marketing in the Net Future.
This page intentionally left blank.
Acknowledgments The authors would like to thank and acknowledge the contributions of the following individuals: Sterling Lord of Sterling Lord Literistic, our agent Mia Amato, our incredible content wrangler Robert Frump of Merrill Lynch Tim Minahan and Kent Allen of the Aberdeen Group, whose expertise was invaluable David Betz of Songlines Gallery Steve Butler of eMarketer Steve Diorio and Greg Katz of IMT Strategies Don Mazzella and JoAnn Laing of SBDepot.com Louis Berman, who always knows where to find the best deal Regina Market at Iron Planet Roberto Sales, Larry Jordan, Millie Lee of AuctionWatch Munjal Shah of Ándale Mark Sutton of Fairmarket, for the great information and background material Paul Lundy of Auctionworks Scot Wingo of ChannelAdvisor Allen, Bill, and John Mark Paschal, who set Leland on the interactive path Brian Stevenson of IBC Ross Dove of DoveBid Andre Brysha and Mike Harper of Ritz Interactive Stuart Henshall Todd Simon of Omaha Steaks
xi Copyright 2002 by Leland Harden and Bob Heyman. Click Here for Terms of Use.
xii
Acknowledgments
Bill Balke of First Data Chuck Martin Regis McKenna Dean Kopulos of Regal Distributing Kelly Babbit and Christine Kemper of eScout Nathan Harden for his creation of the cartoons in this book, and his brother, Jason, who helped prepare them for press Without whom the preparation of this book would not have been possible.
Dedications Bob dedicates this book to his wife Jill, son Sean and mom Fredda, all of whom are awesome. Leland Harden dedicates this book to the love of his life Elise (who, unfortunately, discovered many great buying opportunities on eBay during the course of this book), his daughter Verity, and son Nathanael, who gave up many evenings with their Daddy so that he could finish writing it.
The Auction-App
This page intentionally left blank.
1 The Case for Participating at Auction Since their inception, online auctions have largely been viewed as a consumer-to-consumer venue where people go to sell treasures from their attic to other junk junkies. However, online auctions, almost as if by stealth, have been gaining the attention and respect of corporations the world over as a powerful new revenue channel—one so compelling that it is driving both buyers and sellers to redefine old supplychain relationships and business practices. Both the players and their application of the online auction marketplace have been diverse: ■
William Lyon Homes, Inc., selling (what else?) homes
■
NBC and HBO selling items from TV shows
■
Sun Microsystems selling servers
■
Dell selling PCs
■
Coca-Cola UK selling gear
■
Winery Exchange selling rare California wines
■
American Heart Association selling donated items to raise funds
■
GE Aircraft Engines buying $50 million in indirect materials from twelve different auctions
■
Hershey procurement folks expecting suppliers to participate in their reverse auction site in order to do business with them
New goods, not used or collectible items, now dominate the action at the most popular online auction sites. Wholesalers, small retailers, 1 Copyright 2002 by Leland Harden and Bob Heyman. Click Here for Terms of Use.
2
The Auction-App
liquidators, and home-based entrepreneurs supply a large proportion of the items sold on eBay, for example. These groups put up new merchandise daily, and business-to-business (B2B) customers keep coming back. EBay says that its top twenty sellers are responsible for 72,000 of the 20 million items for sale on any given day, and the top 38,000 sellers account for 2.7 million items. The secret is out. Companies are buying and selling on public auction sites, which in the past have universally been perceived as sites serving the consumer-to-consumer (C2C) market, many of them learning the ropes of dynamic commerce in the process. Companies are setting up their own business-to-consumer (B2C) auction venues. Companies are setting up their own private B2B exchanges. Companies are participating in industry-specific online exchanges to sell and buy goods or services. The use of online auctions is not revolutionary. It is evolutionary. If you are not already experiencing the benefits of online auctions, it is imperative that you begin to participate in these auctions at some level immediately, or risk being left behind.
Dynamic Commerce The Internet has drastically reduced the barriers preventing large numbers of buyers and sellers from congregating to determine the true market value of goods or services. In the open market, optimal prices are derived from a number of elements, including demand, price sensitivity, competitive threats, costs, and strategic objectives. Online auctions compress these market factors. This dynamic commerce is really a microcosm of capitalism—on steroids. The pinnacle of electronic trading may be the equity markets, such as stock and commodities exchanges. NASDAQ, for example, channels millions of shares of corporate stock in a single minute through the giant servers at its Connecticut server farm. Thanks to automated trading programs, negotiations, bids, and completed transactions can be done faster than is humanly possible. With intervals shaved so precisely, a stock price may vary as much as several cents in the same second. Compared to this, the round-the-clock, real-time bidding and trading that occurs in online auctions remains on a human scale, but it
The Case for Participating at Auction
3
still offers buyers and sellers so many advantages that it is no wonder this Internet-enabled form of commerce continues to gain in popularity. The key benefit that online auctions offer participants over traditional auctions is convenience. ■
Buyers and sellers are not required to go to any specific geographic location.
■
Buyers can bid and buy at any time of day.
■
Sellers can economically reach a larger market for their goods.
■
Large groups of buyers can be aggregated on short notice.
For mainstream businesses, large and small, online auctions have led to some profound shifts in product marketing. While at first they may have seemed attractive only for getting rid of excess inventory, auctions are quickly becoming a key part of global sales strategy, not just for major corporations but for medium-sized companies, retailers of all types, and many home-based businesses. Dynamic commerce can be used to generate revenues through all phases of a product’s life cycle. For mass market sellers, online auctions can be used to promote new products, while industrial suppliers might use public online exchanges to test pricing. Later on, online auctions might be used for spot promotions, or during the “off season.” During the more robust portion of a product’s life span, selling through online auction venues can continue to play a role. Consider, for example, the strategic release of product through auction channels (1) to help keep inventory levels manageable, (2) to clear the shelves for improved versions of existing products, or (3) to stimulate demand for a software upgrade. This kind of auction selling can even be finessed into a brand advantage—if, for example, auctions created for a company’s web site are restricted to existing customers and promoted as a “loyalty” benefit, or if online auctions are made available only to those customers who buy through the Web. If the product is popular and in short supply (for example, video game hardware or imported black truffles), an online auction on a company’s web site may be able to whip up a substantial increase in product demand. Done successfully, and with attendant promotion,
4
The Auction-App
this can help generate extra leverage with distributors and resellers or help a lesser-known company gain ground in the war for shelf space in stores. Finally, excess inventory can be disposed of through a generic auction web site. In this context, aftermarket selling (selling distressed or out-of-date products) can be seen as only one small means of using the auction app to boost sales and profitability throughout a product’s life cycle. There are five main reasons why online auctions make dollars and sense to business today: 1. Auctions provide exposure to new markets and new opportunities to gain the attention of “big” buyers. Regional retailers and producers of hand-crafted items have long used the Web to reach customers outside of their geographic area. But this is even more important for manufacturers of semifinished goods, suppliers of raw goods, and other flavors of wholesalers or jobbers. Small companies and minority-owned businesses can join an online B2B exchange and find a more level playing field. For some B2B sellers, the fact that a big buyer finally becomes aware of your existence through an online auction may be enough to justify participation in that marketplace. (For more on finding an appropriate auction venue for your business, see Chapter 3.) This ability to reach new customers can be significant no matter what you are selling, old or new. If the items being sold are out-of-season goods, damaged goods, excess inventory, or other surplus destined for a broker or some other liquidation channel, an online auction provides not just an alternative but an introduction to new customers who may want your surplus in the future. It is not unusual, by the way, for companies to see a 40 percent higher yield on items sold through auction rather than through traditional liquidation channels. 2. Auctions can be your best defense to preserve your existing clients and markets. On the buying side, auctions represent a new mechanism for working with suppliers, and one of the biggest trends in mainstream business is e-procurement. In some instances, you may not have a choice about whether or not to participate in an online auction of your goods and services. If your biggest client sets up a private exchange, you will be forced to compete on that
The Case for Participating at Auction
5
85%
BIDDERS
% OF MSRP
35% 30% 5%
# OF ITEMS
OPEN ONLINE MARKETPLACE TRADITIONAL CLOSED BIDDING Fig. 1-1. Effect of Dynamic Pricing on Liquidation.
electronic auction floor. (That’s why another name for this is captive supply chain.) The handwriting is really on the wall here. With corporate performance as the yardstick, a company that is not aggressive in streamlining its relationships with its suppliers—and cutting its supply-chain costs—is going to find itself at a competitive disadvantage. In an economic downturn, as sales plateau or plummet, a strong reverse-auction platform as part of an overall e-procurement system will prove to be one of the key weapons in many a company’s arsenal. And since every dollar
6
The Auction-App
saved through e-procurement drops straight to the bottom line, it may be the one area that can continue to grow earnings. As far as sellers are concerned, as more and more businesses turn to online auctions as a mechanism for purchasing everything from paper clips to power plants, a company’s survival may depend on how fast it can learn how to compete in an auction setting without getting killed on price points. (For more strategies on protecting profit margins, see Chapter 8.) Sellers can also use dynamic pricing online to increase their profit margins. For example, every experiment in real-time trading, profitable or not, has information value that can help a vendor quickly change that product’s price, or perhaps another product’s price, to better reflect current market conditions in the offline world. Instead of changing pricing once per quarter, as many businesses do, it will become easier to implement “justin-time” pricing strategies. This means that a vendor might find it easier to harvest peak prices when opportunities arise, or perhaps avoid the pitfall of charging too much, or too little, relative to a competitor’s price. 3. Auctions can be a powerful tool for customer acquisition and customer retention. Historical data indicate that for every winning bidder in a B2C auction, there are 300 registered bidders, and each auction acquires at least one customer: the winner. The acquisition cost for this customer is minimal. Assuming a monthly fee of $20,000 to operate an outsourced auction service selling 1000 items per week—or 4000 items per month—the acquisition cost is about $5 per customer. Additionally, a significant amount of valuable marketing data has been gained from each of the 299 losing bidders. Each of these bidders has revealed their basic demographic information, their willingness to pay, and their interest in a particular category of products. And yes, these customers do keep coming back. Statistics on B2C auction sites report a 77 percent repeat purchase rate, compared to 64 percent at the most successful retail e-commerce sites. [For more on using auctions for customer retention and customer relationship management (CRM), see Chapter 7.] 4. Auctions can be a promotional tool for any business. When HBO auctions off the beaded purse that Sara Jessica Parker carried in
The Case for Participating at Auction
7
last week’s episode of Sex and the City, it’s not because the cable giant needs to recoup the price of the prop by selling it secondhand. There’s a good reason why the most successful brands in cyberspace—Amazon and Yahoo!—were early pioneers in putting auction action on their sites. Auctions are a communicative and highly interactive experience for web site visitors. They are viral. Those who participate become more deeply engaged in a site’s offering. They spend more time and may visit repeatedly to up the ante on their auction bids. In the case of HBO, auction participants may feel closer to the “stars” once they’ve had the bonding experience of “nearly” being able to wear the same blouse or successfully scoring the beaded purse as a trophy. Auction participants also enjoy participating or competing in a group experience, just as if it were some form of multiuser electronic game. In short, auctions help to enhance brand loyalty and develop a brand experience among your online audience base. And if you do any sort of e-commerce at all, adding auction capability can bring active, desirable customers to your web site—people with money in their pockets and credit cards at the ready, who may be tempted by other impulse buys or other offerings. 5. Auctions are the app that will lead the world to your e-door. Tens of millions of companies have launched e-commerce web sites in the last five years, and hundreds of millions of dollars have been spent to promote these sites and drive the right kind of “traffic” (i.e., people who actually buy things). Auctions help new customers from around the world find your site: that’s why even IBM, arguably one of the most savvy companies in electronic commerce, has a storefront presence and sells its products on eBay. Along with e-mail and online chat, auctions are a durable app for the ages. This is a game that people like to play—collecting, acquiring, trading, swapping—that stretches from baseball cards and Beanie Babies all the way back to that first dawn when Omar the Trader pitched his first tent at a crossroads in the desert. Trading is a part of the human experience, for like chat and e-mail, auctions allow people to communicate swiftly and globally across lines of race, language, class, and geography.
8
The Auction-App
True, we’ve seen apps come and go since the World Wide Web was introduced in 1993. “Push” technology went nowhere; the effectiveness of electronic mail as a direct marketing tool and promotional vehicle has nosedived as Web users have become more resistant to unsolicited mail. (As for chat, well, the MBAs are still locked in a room somewhere trying to figure out how to make money from all that traffic.) Greeting cards, calendar services, reminder programs, affiliate networks, and the most amazingly expensive CRM software tools have all been hailed previously as the saviors of electronic marketers. But online auctions are different. If you’ve got something to sell, and you can reach a customer on the Web who wants to buy it, you can make money in online auctions—and often from day one.
The Traditional Auction, Turbocharged There are several different types of traditional auction formats that have been adapted to meet the unique opportunities afforded by online auctions. The most widely used are English auctions, Dutch auctions, and reverse auctions.
English Auctions English auctions are what most people think of when they see or hear the word auction. In its analog life, the English auction is characterized by people gathering at a particular venue and raising a paddle or lifting a hand to signal an auctioneer. The auctioneer keeps the auction moving at a fast clip, trying to incite bidders to participate as the excitement mounts (“going once . . . going twice . . . SOLD!”). Usually a seller sets a minimum bid and bidders compete with one another until someone “wins” by bidding a price that no one else is willing to match. An English auction is ultimately controlled by duration. When bidders are at Sotheby’s or the local cattle exchange, it usually takes only a few minutes before the price of an item, or unit of livestock, has reached the point where only one person, the highest bidder, is willing to pay it. Although truly unique items can be advertised in
The Case for Participating at Auction
9
advance and be up for bid for a short period of time in offline English auctions, usually thirty minutes, this is more the exception than the rule in online auctions. Private auctions, those held by companies or industry exchanges, may also create special auction events that mirror the traditional analog English auction. However, in the digital world it is more common to allow as many people as possible to bid by extending the bidding period to as much as a few weeks. It is not uncommon, however, for bidding on an in-demand item to really heat up in the last few minutes of an online auction. Chris Redlitz, former CEO of AdAuction, recounts the story of how, in the early days of the company, his partner hosted a reception for venture capitalists during one of the company’s auction events. After a few hours, only a few bids had been received, and the inventory up for auction (in this case, Web page advertising space) had tallied a mere $5000. More than a little nervous chitchat (“Have you tried the hors d’oeuvres?”) filled the lull. Much to everyone’s delight (and relief), bidding heated up in the last fifteen minutes, yielding a final total of about $60,000 in auction sales for the evening. Because of the longer duration of online auctions, much has been said about the tendency of bidders to hold their bids until just before the close of the auction. Last-minute bidding is called sniping. There are even software programs to help bidders become good at sniping. If all bidders followed a sniping strategy, the effectiveness of an English auction would be reduced. Therefore, online auctioneers have developed a few methods to offset the temptation to snipe. The first is a “Buy It Now” feature. This is readily obvious on eBay. This is in effect a fixed price that the seller has established for anyone who is not willing to gamble on the auction’s outcome. Once the “Buy It Now” price has been met at auction, the fixed-price option disappears. This feature is attractive not only to sellers but to buyers: AdAuction, for example, found that its advertising agency and media buying customers wanted a feature like this because they needed to be able to lock down inventory as quickly as possible. Their company’s model sold the inventory in question at a 20 percent premium above the most recent bid. E-commerce sites that employ auctions as a way to engage and retain visitors also use this ploy. Driven by the need for speed as well as greed, certain customers will always be willing to pay a premium to obtain an item instantly, rather than wait until the auction period
10
The Auction-App
ends. Online retailers now call this “fixed-price shopping”—and it’s a brilliant spin on the more old-fashioned methods of featuring certain products for point-and-click Web shopping. The second antisniping methodology is the extension period. If there is any bidding within the last five minutes of the auction, then the close of the auction will be extended for five minutes. This continues until there have been no new bids for at least five minutes. This adds the “going once . . . going twice . . . SOLD!” element to the online auction. Iron Planet, an exchange for used construction equipment, employs the extension period methodology in its auction events, which usually last for thirty minutes per item. The third slap at the sniper is proxy bidding. Proxy bidding enables a potential buyer to go in, enter his or her highest acceptable price, and let the auction site do the work. If an item’s highest bid is $35 and the bidder is willing to pay $60, then the bidder enters $60
FULFILL
CLOSE
E
IC
BIDDER
OFFER ITEM OR SERVICE
BIDDER
SELLER
SETTLE
Fig. 1-2. English Auction Flow.
BIDDER
PR
BUYER
The Case for Participating at Auction
11
instead of the next step on the bid increment. Proxy bidding has become the standard for eliminating the incentive to snipe.
Dutch Auctions Dutch auctions can be more confusing than English auctions. Dutch auctions are typically used when a seller wants to sell multiple units of the same item in a single auction. There are many “winners,” and all winning bidders get their items at the price of the lowest winning bid. For example, let’s say you have ten widgets for sale. You set the opening price (i.e., the minimum bid) at $30 each. When the auction begins, twenty people bid for the items at that price. If you were to close the auction at that point, the first ten bidders would be declared the winners. Each would be shipped a widget at $30 apiece. Here’s what may happen if you don’t close the auction, however: A twenty-first bidder may arrive and place a bid of $60 for one of the ten widgets. Because this person placed a new and higher bid, he or she moves to the top of the “winners” list. If the auction closes now, the next nine bidders (minus the original tenth person, who got “bumped”) will still get the widget for $30, because that was the lowest bid. And the person who bid $60 also gets a widget at the same price: $30. Not to be outdone, the bumped bidder who is now in the number 11 slot may put in a second bid of $60 to gain the number 2 slot. In this way, the Dutch auction process, rather than engendering joyful cooperation among ten happy buyers, can, if the seller is lucky, degenerate into a satisfactory bidding war as participants wave fistfuls of dollars and fight each other to stay in the ten “winning” positions. The key to making the Dutch auction work is to be fairly sure— ahead of time—that there are enough people participating who want widgets to drive the action, and the price, upward in a relatively short period of time. In a B2B setting, this is an ideal method for selling excess or offlease merchandise to intermediaries. (Just don’t be surprised if these intermediaries then go to eBay to unload their spoils.) In a B2C setting, Dutch auctions provide an ideal tool for liquidating excess inventory. Samsclub.com is one venue that provides a look at how Dutch auctions can work for consumers.
12
The Auction-App
FULFILL
SETTLE
OFFER LOT OF 10 ITEMS
BIDDER 2 FOR 5 ITEMS SETTLE
SELLER
BIDDER 1 FOR 3 ITEMS
E IC PR
BIDDER 3 FOR 2 ITEMS
CLOSE
3 BUYERS @ LOWEST PRICE
SETTLE
Fig. 1-3. Dutch Auction Flow.
Reverse Auctions Reverse auctions are probably best known to buyers and suppliers in the B2B space because they are a primary tool for the procurement of goods through industrial exchanges. However, there are also consumer sites that utilize the reverse auction format. The concept is quite simple: A buyer comes to a marketplace and says, “This is what I want. Who’s going to give me the best deal?” Then, of course, sellers lower their prices in an open market, competing with one another to provide the buyer with the best possible deal for the requested item. Priceline.com, one of the few dominant Web businesses to actually turn a profitable quarter, helped popularize the reverse auction format among consumers when it began selling discounted airline tickets. However, eWanted.com may be the largest provider of consumer reverse-auction functionality on the Internet today, with a far
The Case for Participating at Auction
13
broader range of items that are of interest to small business and home business buyers. The site allows a bidder to browse by category and negotiate for items listed, or to register an item he or she is seeking and solicit bids from potential sellers for that item. In the industrial arena, FreeMarkets provides an example of how reverse auctions can be used to move raw goods and industrial materials. A partner of eBay, eLance, applies reverse auctions to the sale of business-related professional services. Corporations and government entities are already acknowledging that the use of reverse auctions has resulted in significant cost savings for various resources. In this format, sellers fall all over themselves to offer lower and lower prices to a buyer. While other e-commerce initiatives may take a few months or even years to show benefit to an organization’s bottom line, reverse auctions can begin to make contributions to margin almost immediately. Industrial companies such as Raytheon, for example, have reported procurement savings as high as 25 percent, which in that company’s case amounted to more than $400 million in a single year. The Internet has enabled many organizations to secure resources in a more efficient and effective manner, giving rise to the electronic procurement category. The most popular instrument in the e-procurement tool chest is reverse auctions. Reverse auctions inexpensively connect buyers and sellers worldwide and support the competitive bidding process that drives the price of a resource toward its “true market price.” Needless to say, reverse auctions can be a real killer for sellers who can only compete by lowering prices to basement level. Bringing something extra to the bargaining floor—such as product guarantees, faster shipping, the clout of a brand name, or a history of previous business—can help forestall a downward price spiral in a reverse auction. And, of course, reverse auctions can be useful for scraping at least some profit from damaged goods or excess inventory. A hybrid model that is interesting to note is one that Fairmarket has developed in its merchandising package. It is called performancebased markdowns. Here, the seller starts with a price that can range from the standard retail price of the item to a price that already represents a substantial discount. The seller then lowers the price at predetermined time and discount increments until bidders emerge who
14
The Auction-App SETTLE
BUYER
CLOSE
PRI CE
BIDDER
BIDDER
BIDDER
REQUEST ITEM OR SERVICE
SELLER
FULFILL
Fig. 1-4. Reverse Auction Flow.
are willing to pay the discounted price. The bidder will then specify the price he or she is willing to pay and what quantity of the item is wanted.
Business Models There are two primary business models for companies contemplating the use of Internet auctions as a sales and marketing tool. The first is to merely participate in an exchange or auction site run by another entity, which may be an independent intermediary (such as eBay, Priceline, FreeMarkets, or Fairmarket) or an auction site run privately by a large buyer (such as General Electric or Hershey) or publicly by a community of large buyers (such as Rooster.com or Quadrem). Independents are often called listing agent sites. A listing agent site, such as eBay or Iron Planet, acts as an agent for other sellers, allowing them to register their items and then running the auctions on their behalf. The listing site usually neither possesses the auctioned goods nor handles their payment and shipment. All the trans-
The Case for Participating at Auction
PRICE
SELLER
OFFER LOT OR PALLET
15
FULFILL SELLER BIDDERS
CLOSE
BUYERS
SETTLE
Fig. 1-5. Timed Markdown Model.
action details are worked out by the buyer and seller on their own. Listing agent sites make their money by charging fees to sellers; however, these fees are substantially lower for Internet auctions than for traditional auction houses or commodity exchanges. Buyer-managed auction sites exist solely for the convenience of buyers, who can aggregate large numbers of potential suppliers in one space and solicit rounds of bids from sellers who will lower their prices to compete. E-procurement by auction comes in many flavors. The strongest trend is toward the private exchange. Hewlett-Packard, for example, set up an exchange through which it buys plastic cheaply and in bulk, then turns around and sells it to the hundreds of subcontractors who build its machines. Wal-Mart has a private
16
The Auction-App
exchange that keeps track of its many vendors and, not incidentally, keeps them in line. A variation on this is the intranet-based private exchange, in which different divisions of a corporation set up a single site to procure things that all the divisions will need, such as paper, fax machines, or industrial supplies. Some industrial buyers have joined together to manage joint exchanges. An early success story has been Quadrem, which was set up in October 2000 by a consortium of mining companies. These companies, which include Alcoa (aluminum), DeBeers (diamonds), and Rio Tinto (copper and zinc), all wish to buy the same sort of equipment at lower prices—earth-moving machinery, drill parts, and relevant chemicals—but don’t really compete against each other for business. They benefit from lower prices, while suppliers save time and money by pitching many potential customers all at once. The example everyone is watching is Covisint, a joint venture of auto manufacturers Ford, General Motors, DaimlerChrysler, Nissan, and Renault that was supposed to revolutionize (or at least standardize) the purchasing of outsourced car parts, such as brake shoes and plastic dashboard buttons. While each of these companies stands to gain from this industry marketplace, which can potentially place about 35,000 car parts manufacturers on the same virtual trading floor, it remains to be seen whether the fierce competition that already exists between the buyer-partners will affect the results. Volkswagen, for one, snubbed the others and created its own private exchange. (For more on Covisint, see Chapter 2.) E-procurement tends to spread from the top down in major industries. IBM worked with the auction solutions provider Ariba to develop an in-house e-procurement system that would cover approximately 60 percent of its indirect materials spending. It now markets the entire system to other high-end manufacturing companies as a prepackaged leveraged procurement service (LPS). The setup provides direct links to vendors in more than twenty commodities categories, and can be expanded so that e-procurement officers can add their favorite vendors to the mix. Even if you’re a tiny business catering to other small, home-based businesses, you should realize that your customers are going to begin tooling up for e-procurement very soon. Anybody who reads the business page to find out that Raytheon saved $400 million merely by moving the purchase of certain direct materials, such as semicon-
The Case for Participating at Auction
17
ductors, connectors, and machined parts, to online exchanges, or who hears that United Technologies saved $5 billion through reverse auctions, is going to be looking to his or her own bottom line and saying “hmmm?” In response, national firms that supply the small business market are already nudging their customers into e-procurement, spinning “fun” auctions on their existing e-commerce or catalog sites. The office supplies reseller Staples, a notably early adopter of e-commerce strategies, plays both sides of the online auction game: It buys products from its supply-chain wholesalers through a private exchange called StaplesPartners.com, and it already has an auction running on its consumer e-commerce site, Staples.com.
Creating Your Own Auction Creating your own online auction, either for straight selling or merely as a marketing and promotional ploy, can be managed simply with off-the-shelf software or be integrated as part of an overarching e-commerce initiative. The most common model, though, is the merchant site. A merchant site, such as Sam’s Club, offers its own merchandise for sale, acting as a retailer with selected inventory sold to consumers in an auction format. Another example, one that offers some insight into the promotional possibilities of the auction app, is New Line Cinema, which like HBO auctions props (a Corvette driven in an action film, a shirt and tie that have shared screen time with Jackie Chan) and mass-produced memorabilia (T-shirts, posters) to an audience of movie buffs. Some merchant auction sites are a hybrid, selling their own inventory and accepting listings of goods from others. Since it is critical to have a large number of items for sale, in order to attract the volume of buyers needed to make an auction site work, a number of sellers that started their own auction sites have reached out to add suppliers. In addition to the revenues that can be gained from transaction fees, the lure of additional listings and revenue without inventory or settlement responsibility is very compelling. Starting your own independent auction site is a hairier question. If you are an entrepreneur with an itch to get into the auction business,
18
The Auction-App
your best answer is to find a way to partner with the biggest gorilla you can find. When FreeMarkets was launched in 1995, it began with some pretty big gorillas on the buying side: General Motors, United Technologies, Raytheon, and Navistar, to name but a few. The presence of these buyers drew hundreds of sellers and jump-started a robust trading site for everything from cardboard to coal. While it has since lost one of its big gorillas (GM later defected to start its own exchange), FreeMarkets could recently claim revenues of more than $91 million, the transaction fees for more than $9 billion in industrial trades. Fairmarket, Inc., which was founded in February 1997, went through several incarnations (see the case study) before ultimately becoming an enabler for merchants who wanted to sell directly through eBay. With a stable of merchant clients ready to sell at auction, the company came to the conclusion, as Mark Sutton, Fairmarket’s vice president of marketing, puts it, that it should “go where the buyers are.” This is probably the right conclusion. Spending millions on media to attract visitors to a web site marketplace—whether you are enabling traffic in human flesh (such as HotJobs.com) or an industry’s worth of unsold airline seats (such as Orbitz)—is not enough. Even if you achieve the daily Web traffic seen by eBay (about 10 million), traffic is not enough. You need not just lots of eyeballs, but the eyeballs of people who actually have goods to sell or money to buy. Most important, you need a sufficient volume of offerings and a wide variety of attractive listings or potential bidders will not return for a second time. Ross Dove, third-generation auctioneer and CEO of DoveBid, states it plainly: “Demand engines die because supply drives the business.” Yet success can be achieved without spending millions. A customer relationship marketing agency founded by Bob Heyman, one of the authors of this book, was retained by the reverse auction site eWanted in its early days to help it get people to list items. The agency created a promotion with a $25,000 giveaway. The promotion required participants to list something, or place an inquiry for an item they were seeking on eWanted in order to be registered for the prize. It worked, and e-Wanted garnered 38,000 new registered users as a result—at a total cost of less than a dollar per user.
The Case for Participating at Auction
19
Auctions as an Online Customer Acquisition Tool The metrics of evaluating the return on investment (ROI) of any successful marketing campaign have certainly become easier as the Internet has matured. From the early days of counting “page impressions” and “unique visitors,” things have progressed so that a company can track specific marketing vehicles and know quite precisely how many people have responded to an electronic solicitation (i.e., a click-through from a Web page advertisement or e-mail pitch) and how many of those responses resulted in an actual sale. Within the broader range of commerce, the more savvy sales organizations have begun to compare the statistics and results of various types of online marketing, and even comparing them with offline strategies, such as traditional direct mail. And most are shifting their marketing budgets accordingly. While they may spend less on Web banner advertising, they are spending more on interactive direct mail, Web affiliate programs, and a wide range of couponing/promotion schemes that employ some kind of online media. It is time to consider online auctions as a viable option in your marketing mix. In the following sections, the metrics for each of these tools is reviewed and a comparison with online auctions will be drawn.
E-mail To keep the math simple, assume that you are buying 100,000 e-mail names at a cost of 10 cents per name. Many e-mail list providers are moving to a cost-per-click model, but as of this writing, cost per name is still prevalent. Therefore, your cost is $10,000. Assuming that the list you rented had well-targeted, qualified recipients, you can conservatively expect a 10 percent click-through, meaning that 10,000 netizens will come to your site. Standard assumptions in the e-commerce industry tell us that about 2 percent of those visitors will actually buy something. Therefore, you have acquired 200 customers at $50 each. If you are selling big-ticket items with good margin, this is okay. If you expect to make up the acquisition cost through repeat
20
The Auction-App
purchases, research tells us that about half of these customers will come back.
Bulk Mail Now assume that you usually spend $100 for the rental of a list of 1000 names for a bulk mailing. If you have a response rate of 2 percent (2 percent is considered great in bulk mail), you have just acquired twenty customers at a cost of $5 each. The problem arises when you factor in the cost of production of the materials. If each catalog costs you about $1.50 to produce and mail, your acquisition costs are actually $75 per customer for the materials and distribution. Add this to the $5 per customer for the list rental and your total is now $80 per customer acquired.
Affiliate Programs Affiliate programs are pay-for-performance marketing platforms on the Internet. A company signs an agreement with one of the three main affiliate program providers, LinkShare, BeFree, or Commission Junction, which in turn promotes the company’s site to its list of affiliate members to entice them to place a link to the company’s site in exchange for a commission. There are tens of thousands of affiliate sites on the Internet. These sites can range from personal home pages, to small businesses, to charities. The commission is usually about 5 percent to the affiliate and 2 percent to the affiliate program provider. So, for a $100 purchase, your cost would be about $7. The problem is, who actually owns that customer—you, the affiliate program provider, or the affiliate? The affiliate and the provider assume that the customer belongs to them, and therefore you have to pay a commission every time that customer returns to your site. You can negotiate more acceptable terms for dealing with the customer ownership issue, but when it comes to having a solid, proactive customer acquisition machine, an affiliate program comes up short. You will always be at the mercy of your individual affiliate members and how effectively they can promote you.
The Case for Participating at Auction
21
Couponing/Promotions Coupons or some other form of “money off” can be an effective way to drive traffic to your site and incite purchases. These promotions can take several forms, from a discount for the first purchase to the $500 online coupon that Ford Motor Company has used to encourage people to go to their local Ford dealership and take a test drive. While on the surface coupons look promising as a customer acquisition tool, they are not a stand-alone tool. In order to create a successful promotion, a marketing campaign utilizing direct e-mail and banner advertising must be instituted, thus driving the customer acquisition costs to levels that more closely mirror the costs of those marketing vehicles. The authors’ experience, statistics, and subsequent industry studies have confirmed that first-time buyers gained through a coupon promotion have more of a deal-seeker attitude. They are the folks who are cherry-picking for bargains and are 40 percent less likely to return as repeat customers.
Banner Advertising As evidenced by the increasingly and desperately intrusive online advertising instruments employed by ad-supported web sites, the effectiveness of Web banner advertising continues to decline and now stands at a dismal 0.01 percent. Assuming a CPM (cost per thousand) of $10 for 1000 banner impressions, this means you will generate one click-through to your web site. As with e-mail, about 2 percent of those who visit will actually buy something. So, in order to gain one customer, you would need to obtain 100,000 impressions and spend $1,000.
Online Auctions As eBay’s numbers prove, the online auction format lends itself to converting site browsers to registered users. One of the benefits of enabling your site to offer auctions is that you can require that a buyer first register at least a name and e-mail address. Buyers have become accustomed to this process. They recognize that in order to have their bid recognized, they must become a “member.”
22
The Auction-App
Registration can involve collecting basic shipping information, including name, telephone number, e-mail address, and credit card data. Therefore, even without closing the sale, your auction site has captured valuable customer information and a site browser has been converted to a registered user. In the business arena, this registration has the effect of providing prequalified sales leads. B2B auctions and vertical industry marketplaces often will vet or prescreen bidders and buyers before allowing them to participate at all. Going back to an earlier example, which assumed a monthly fee of $20,000 to operate an outsourced auction service selling 4000 items or lots per month, the comparative acquisition costs might be about $5 per customer, assuming that each lot was sold to a different customer. But that’s not what usually happens with online auctions. It may be entirely possible that you’ve only had one customer in a given month, but that customer bought all 4000 lots. This scenario is quite common in industrial online marketplaces—for example, ChemConnect, which trades in plastics and related raw materials. On the other end of the scale, if you’ve got a garage full of hand-painted straw sombreros, it may well be worth the 5 percent transaction fee charged by eBay to find a single customer who wants to buy them all. More than any other form of e-commerce, auctions attract repeat business. E-procurement officers troll the same online exchanges frequently, seeking specific materials; consumers enjoy the thrill of “winning” at auction and often become addicted to the game. More than 75 percent of online auction buyers are repeat buyers. They are not just customers; they have the potential to be great customers. Once you’ve captured their pertinent information and gained permission to contact them in the future, you’ve opened the door to cross-selling and upselling opportunities and the possibility of customer relationships that will last your corporate lifetime.
2 A Brief History of Internet Auctions Perhaps proving that nothing stops a good idea whose time has come, the era of the online auction began in a single year: 1995. In 1995 Hudson & Marshall, auctioneers from Macon, Georgia, contracted with the Federal Communications Commission (FCC) to sell broadband communications spectrum—the bandwidth space that would be needed for cellular phones and the nascent wireless industry—in major metropolitan areas. Foreshadowing the future of today’s B2B marketplaces, the bandwidth was in fact government surplus—what remained in the electronic magnetic spectrum (i.e., radio waves) after frequency space had been licensed to radio and TV stations across America. On behalf of the government, Hudson & Marshall conducted a $10.5 billion auction over the Internet, the largest single auction, before or since, in history. The first consumer Internet auction, what we now know as C2C, occurred in May 1995, when Onsale.com began selling collectibles (grandfather clocks) on consignment. Onsale was an early e-commerce site that sold refurbished electronics gear and secondhand computers; Jerry Kaplan, its CEO, has explained that he brought in the clocks to provide entertainment value to the web site, on the theory that the competitive nature of bidding would stimulate return visits by its core audience of tech-oriented men. The first business to consumer (B2C) auction occurred in 1995 on the web site of Teletrade, which deals in coin collections and sports memorabilia. Teletrade was a pioneer in computerized auctioneering, having implemented a method by which collectors could place bids to a central site using their touch-tone telephones and a toll-free 23 Copyright 2002 by Leland Harden and Bob Heyman. Click Here for Terms of Use.
24
The Auction-App
800 number as far back as 1986. Recognizing that many of the participants in its first online auction were still a bit in awe of their computers, or perhaps did not have one, it integrated real-time phone bidding with real-time Web bidding and mailed a catalog of offerings to 6000 members of its customer base each week. EBay was started on Labor Day 1995 by Pierre Omidyar, who had a computer science degree (Tufts, 1988) and who wrote his first software program for his high school library at the age of 14. He started eBay to help his girlfriend, Pamela Wesley, who collected and traded Pez candy dispensers. He launched eBay as “Auction Web,” having designed the site as a weekend hobby while writing code at General Magic, one of the design companies run by filmmaker George Lucas. EBay was the name of the original Internet service provider (ISP) that Auction Web was hosted on (for $30 per month), which happened to serve communities in the region of San Francisco Bay. It was the eBay name that caught on—perhaps because it was also a pun on abey, an auction term that refers to the temporary “hold” placed on a piece of merchandise by an auction house as it passes from one legal owner to the next. As more and more serious collectibles sellers discovered the site (perhaps smiling at this particular in-joke), the volume and quality of items offered began to increase, and the audience of both buyers and sellers began to soar. By February 1996, Omidyar’s free auction site was so popular that his ISP demanded that he upgrade to a more expensive service. That motivated Omidyar to begin charging users to trade via his site. To his amazement, checks started flowing in. “The checks totaled more than my salary from my day job,” he said. “I was just doing this as a hobby, but by spring 1996 I realized I had to get serious.” EBay became profitable in February 1996. Omidyar quickly quit his day job to focus on the auction site. In mid 1997 the venture capital firm Benchmark Capital invested $5 million in exchange for a 22 percent stake. By late 1997 more than 3 million items had been sold, $94 million in transactions had taken place, and eBay had $5.7 million in sales, 76 employees, and $900,000 in profits. By August of 1998 eBay had more than a million registered users— one of every six Web surfers in America. EBay went public in September 1998, raising $63 million through the public offering.
A Brief History of Internet Auctions
25
Several months before eBay’s initial public offering, Omidyar had stepped aside as CEO in favor of ex-Hasbro executive Meg Whitman. Whitman has acknowledged that the two “worked side by side” for eighteen months as she brought in a management team to turn the company into the multinational corporation it is today. It has aggressively acquired competitors and support service companies: For example, it now owns Butterfield’s, the number three auction house in the United States, as well as iBazar, Europe’s leading online trading web site. It turned down a buyout offer from Yahoo! in 2000 and expects to be generating $3 billion in annual revenues by the time this book hits print. By December of 1998, Omidyar’s 38 percent of eBay stock was worth $3 billion, making him, in his words, the “world’s richest Iranian.” He married Pamela Wesley, who at last count owned over 400 Pez dispensers. EBay’s success is perhaps as daunting to contemplate as it is heady. Not everyone in the online auction industry has fared so well. Onsale, for example, moved quickly from collectibles to electronics, divided its Web business into separate auction and fixed-price web sites, and merged into Egghead, a software retailer, in 1999. In the dust of the Internet bust, it shut the doors of its auction site in 2001. Teletrade continues to thrive online, trading historic coins and sports ephemera in real-time trades that take place Sunday, Monday, and Wednesday. And it still takes bids over the telephone. Hudson & Marshall (hudsonandmarshall.com) continues to bat cleanup for the U.S. government, handling asset auctions for Fannie Mae, the FDIC, the U.S. Customs Service, the U.S. Bankruptcy Court, and the Resolution Trust Corporation, as well as for corporate clients such as Exxon, Wachovia Bank, Mellon Bank, and Travelers Insurance.
Evolution of the Online Trading Experience Online trading actually predates the Internet as we now know it. Well before the first graphical browsers (Mosaic and Netscape) were released in 1993, auctions were taking place on UseNet, in the text-
26
The Auction-App
only computer communication formats used by newsgroups and e-mail discussion listservs. One of the largest was dedicated to trading the cards used in a dungeons-and-wizards card game called Magic. This included several hundred sellers who auctioned either individual cards or card lots over a period of several weeks. These were basically English auctions; potential buyers would submit a bid with a text e-mail message, and sellers would post updates about the bidding and, on occasion, e-mail other buyers to prod them to make a higher bid. (Interested readers and historians can find the latest incarnation of this community on the newsgroup rec.games.trading-cards.marketplace.magic.auctions.)
The Birth of B2B Public online exchanges to serve the markets for industrial manufacturing were the logical result of two important business world trends. The first was a natural desire among commodities marketers to deploy the efficiency of the Internet for real-time trading; the second was the large-scale adoption of corporate extranets, client intranets, and more sophisticated forms of electronic data interchange (EDI) between businesses and their suppliers. When NASDAQ opened the trading floor of its new multi-milliondollar facility in Manhattan in 2000, many stock brokerage firms—and their clients—questioned the need to have a physical trading floor at all. The whole idea of human traders, in sweat-soaked custom shirts and $300 shoes, making deals with hand signals seemed incredibly quaint when even the average Joe (or Jane) could make a stock swap over a kitchen-table computer. By that time there was broad usage of automatic stock trading programs by companies and by individuals, and enabling brokerages such as eTrade made it possible to cut the broker, and the broker’s fee, out of the equation for a simple stock trade. Today the majority of NASDAQ stocks are traded electronically, and brokerage firms are moving their high-priced personnel into the high end of “personal finance” products, such as annuities and other more complicated instruments. Commodities (pork, beef, sugar, oil, etc.) are also largely traded online. EDI networks came into being about twenty-five years ago as a
A Brief History of Internet Auctions
27
way for industrial buyers to communicate product specifications and coordinate automatic replenishment services. EDI is used to transfer CAD drawings, for example, or to send a signal from a beverage bottler to a metal stamping plant that tells its factory assembly line to start making more bottle caps that say “root beer.” The foundations of just-in-time manufacturing, which saves product makers from the expenses of stockpiling, storing, and inventorying shelves full of raw materials, rely on EDI. By the mid-1990s, Internet communication made it possible for supplier companies to set up what were called client extranets—special web sites where customers could check on orders and shipping status, reorder certain consumable supplies, and in some cases even check on factory inventories before placing an order by telephone or fax. Federal Express’s Online Tracking Service, which made its debut in 1993, was an early example of a supplier extranet. By 1995, major vendors such as Hewlett-Packard and IBM were building client intranets—special web sites for preferred customers that were used as private links for data exchange. But these early networks generally only transmitted information. As e-commerce became much more common for B2B selling as a whole, it became a simple matter to add ordering information to both extranets and intranets. Existing clients and new customers could order directly online. About this time, we began to see the first “listing agents” for B2C and B2B commerce. The first form of independently run exchanges, these were sites that aggregated product catalogs from many different suppliers (such as Dexpo.com, now eDentist) and/or directed a consumer to all the sites that sold a particular product (such as MySimon). The listing agents helped buyers comparison-shop online. This was fine for low-ticket and consumer items. But industrial buyers still needed to negotiate contracts for commodities, and they began looking for a way to “round up” all their suppliers and bid information, so that they, too, could comparison-shop on their computer screens. And about the same time, vendor companies that catered to industrial clients were finding it difficult and expensive to build intranets for all their best clients, or to retool their EDI software and hardware to meet the technical requirements of multiple buyers. The first online exchange to gain front-page attention in business media was Covisint, a joint venture of Ford Motor Company, General
28
The Auction-App
Motors, Renault, and DaimlerChrysler. It was actually a response to requests by their small (third- and fourth-tier) suppliers, who were having nightmares keeping up with EDI technology demands from all the companies they sold to. These suppliers asked (make that begged) Ford and GM to unify or standardize their EDI requirements. By then, both companies were contemplating building private, intranet-based exchanges so that they could shop and negotiate for standardized materials and parts. In 1999, Covisint emerged with much fanfare as an online auction site for car parts and automotive industry supplies. It was announced as a single platform that would eventually link all automakers with an estimated 35,000 small and enterprise-level parts suppliers. Almost from the start, there were problems. By the end of the year 2000, only about 2000 suppliers had signed on to Covisint’s reverseauction system. Even though signing up was practically free and technically simplified, vendors were fearful. And Covisint wasn’t even going to be the total platform for its industry: BMW, Honda, Toyota, and Volkswagen refused to join and built their own private exchanges—using completely different technology platforms, by the way. Small suppliers were still in the same boat: They still had to craft multiple strategies for multiple buyers who would use the auction channel. In 2001, amid rumors of infighting among the partners, Covisint’s CEO Kevin English announced that it would use its technology to host private exchanges. It would eventually be a portal site to the various car companies’ private exchanges. At this writing, it seems as troubled as any independent Internet start-up. While DaimlerChrysler claims to have made more than $3 billion in auction purchases through Covisint through 2001, and the exchange as a whole claims to have moved $37 billion of goods so far, many industry analysts maintain that these figures represent only trade channeled through each car manufacturer’s private exchange. The state of the universe now for industrial B2B exchanges is a toss-up, as e-procurement specialists mull the choice of either starting up a private exchange or sending their business to a public marketplace. Steve Butler, a senior analyst at eMarketer and one of the leading experts in online exchanges, predicts that most industrial buyers will use a hybrid model, setting up in-house auctions for cer-
A Brief History of Internet Auctions
29
tain key materials and using public exchanges to purchase raw goods and standardized components. The bright side of all this is reflected in Forrester Research’s latest report on e-commerce, which projects that $746 billion in goods will be purchased using dynamic pricing in U.S.–run marketplaces by 2004. And according to eMarketer’s Butler, the roil of current political events worldwide should have minimal effect on international online exchanges. “We’re finding that online trading patterns are first and foremost following established online patterns,” he reports. “Shipping and transport restrictions are going to be applicable to trade in general, so this will be something that all businesses will need to deal with,” not just those who sell through online exchanges. “If anything, the potential hindrance of just-in-time delivery may ultimately push trading partners together into closer, collaborative relationships,” Butler explains. The ability to see inventories at a glance from many suppliers worldwide may make it easier for buyers to time “safety” stock in lieu of just-in-time deliveries. “This may propel business closer to real online collaboration,” he adds. In effect, this would close the circle of efficient business-to-business communications that began years ago with EDI. The message is definitely getting through. Rolls-Royce, GE Global Exchange, Advanced Data Exchange are all reporting that in early 2002 suppliers are signing up and getting enabled to trade in droves. Rolls-Royce, through Exostar, signed up 180 suppliers in the last quarter of 2001. GE, through TradeWeb, claims to be signing up 400–500 suppliers per month. The worries that all benefits of exchanges and electronic trading would fall to the buyers are being replaced with realizations that the efficiency gains outweigh the concerns of getting beat up on price.
Winners and Losers A string of spectacular and well-publicized failures, such as the reverse-auction sites Mercata and MobShop, and less than stellar performances from premier auction houses such as Wolf’s (once teetering into bankruptcy) and Sotheby’s (which abandoned a partnership
30
The Auction-App
with Amazon in less than a year) in retrospect seem inevitable, or at least understandable, if their business models are examined a bit more closely. Mercata had hefty backing from investors such as Microsoft’s cofounder Paul Allen and a well-received ad campaign: One TV spot featured a couple in bed exclaiming, “It’s going down, down, down . . .” about a product listed on the service. Mercata catered to the consumer market, whereas MobShop focused on the corporate market. Both failed. So what went wrong? At first the blame was assigned to obstinate consumers, who refused to change their buying habits as quickly as had been expected, and wagging fingers were pointed because the concept, called aggregate buying or group buying, was so far ahead of the curve. Despite spending $90 million, Mercata could not attract a big enough user base. But expectations were that MobShop’s more corporate orientation would pay off. Said MobShop CEO Jim Rose, “We decided to focus our efforts on government and business markets after realizing we weren’t going to be able to spend the money to build a consumer brand. It takes at least $150 million to $200 million to build a brand. Mercata spent $90 million and it still wasn’t enough to get over the top. It’s like rolling a boulder uphill; if you don’t get over the top, it’s going to come all the way back down.” But what, then, doomed MobShop? One former employee attributes its failure to the small fact that it lost money on nearly every sale. As they teach in business school, “you can’t lose money on every sale and expect to make it up in volume.” It turns out that the online aggregators had big competitors like Office Depot and BestBuy. These competitors could buy in bigger quantities and ultimately offer the same product at a lower price to individuals who didn’t need to be part of a group buying experience. As pricing on the aggregator sites was transparent—that is, anyone could see what the going price was for a certain product at any hour of the day—these bigger competitors could monitor the prices, meet or beat those prices, and steal away any online customer smart enough to use a price-monitoring service like MySimon to find which site had the best deal. Since these big competitors also had existing large customer bases for offline selling, all the discount giants had to do was wait it out until the upstarts ran out of venture capital. It didn’t even take a full year. Some experts predict that dynamic group buying can work online
A Brief History of Internet Auctions
31
because it is a community-based form of buying, not much different from the small co-ops created by organic grocery stores on the West Coast and the Korean grocery stores that dot Eastern cities. More modest efforts to serve aggregate buying communities can be found at SavingsFinder.com, for example. Successful auction web sites maintain a coherent community feeling, and that’s a big reason why Sotheby’s pulled the plug on its auction partnership with Amazon. While it can be argued that many people who like to buy books also buy fine arts, Sotheby’s neglected to consider that people buy books on Amazon because they want to get a hefty discount off the cover price. And these are not, fundamen-
Fig. 2-1. E-Procurement Gone Awry.
32
The Auction-App
tally, the same folks who consider $240,000 for a bit of Georgian silver to be a bargain price. The number of web sites that cater to high-end fine arts collectors shows that this community does in fact exist online (see Chapter 6 for a sampling). But one of the hardest concepts to grasp about Internet marketing is that you don’t so much find your community of customers—with over 9 million commercial sites to choose from, the trick is to get a community of customers to find you. What then, do winning auction sites have in common?
1. Their web sites are customer-friendly. You can’t attract traffic unless your site is easy to navigate and easy to use and talk back to. Through features such as buyer-seller rankings, forums, bulletin boards, and help menus, well-designed auction sites inspire confidence and trust. Such sites have a clear idea of their audience and design their page navigation accordingly. CNET’s auction page is perfectly attuned to CNET’s tech-minded audience, for example, whereas Yahoo!’s auction pages emphasize the deep level of category detail this portal is known for. 2. They all sell items of unique value. Not all items, but enough unusual or otherwise hard-to-acquire properties, whether frequency bandwidth or a mint 1850s Double Eagle coin, to keep an interested community of buyers coming back. Marex.com, for example is a small but dedicated exchange for boat builders, and perhaps the best game in town for the premium marine wood products used to make yachts. 3. They sell items at value prices. Again, not all items. But auctions are perceived as a value price channel. No one needs to go online to “win” a 10 percent discount. At Sam’s Club, the lunchtime auctions attract bargain hunters who can’t leave the office to shop. And Priceline’s faithful audience is legendary. 4. They offer value-added services. Successful auction sites offer a wide variety of services to grease the wheels of online commerce. IronPlanet, for example, offers both buyers and sellers a range of value-adds, such as financing options and its on-site inspection service.
A Brief History of Internet Auctions
33
5. They offer value-added information. Successful auction sites are data destinations for Web buyers. These sites generate higher levels of traffic simply because the Internet’s search and research capabilities skew traffic to sites with high information value. Teletrade, for example, provides deeply detailed tutorials that help even an amateur collector understand the value and pricing paradigms that drive bid prices on its offerings of rare coins. 6. They are well-managed businesses that put profitability ahead of the need to posture or show off. Teletrade also gets the nod here: When an early foray into the more glamorous world of raw and cut diamond sales failed to attract enough business, the company stopped dealing in gems and returned to its core business of coins and sports collectibles.
Lessons from the Road of Experience Setting up or participating in an online auction site is by no means a ticket to instant wealth. The axiom that hard work with intelligent direction equals results is certainly true in new markets like auctions. The advantages of the traffic, infrastructure, and community that the public auction portals have already created illustrate the necessity of doing the same for a niche, market-specific, or company-specific auction site. The most successful auction sites as well as the most dismal failures can teach us several things: ■
Critical mass counts.
■
Inspect your infrastructure.
■
Listen to your customers.
■
Don’t put all your eggs in one basket.
Critical Mass Counts The viability of any market depends on having the right mix of buyers and sellers. In retail this is often distilled into “location, location,
34
The Auction-App
location.” If you’re on a busy street corner in the commercial district or at a busy mall, 70 percent of your formula for success is in the bag. While a physical location isn’t necessarily relevant in the online world, it cannot be overlooked that those who succeed have found that magic formula. While it is not the intent of this book to be a public relations vehicle for eBay, one cannot ignore what that company has accomplished. It totally blows away all other leading sites in the NetRatings Top 20 in terms of stickiness—the time spent by visitors while on the site. It is not uncommon for a visitor to eBay to spend more than an hour—yes, an hour—per session perusing the items listed there. The leading directory/portal sites like AOL, MSN, or Excite can muster only about fifteen minutes per user session. In this age of the quick-honey-toss-me-the-remote-so-I-can-checkout-five-other-shows-during-the-commercial-break attention span, why does eBay command such concentration? Look at the numbers: There are 20 million items on any given day and more than 10 million bidders per month. Some 75,000 entrepreneurs who make their living selling full- or part-time are active participants, and top sellers are moving 500 to 1000 items per day. Folks, this is what critical mass is all about. Those who run successful online B2B exchanges have realized this as well. IronPlanet, which sells used construction equipment via online auction, has a database of 660,000 buyers that it solicits before each of its auctions, which are held every second Thursday. FreeMarkets powers a number of reverse auctions for the procurement groups at large companies. The company has invested the necessary time and resources to qualify more than 20,000 suppliers to participate in its auctions.
Inspect Your Infrastructure When the authors of this book launched Cybernautics in 1994 and created online marketing techniques that became the standard across the industry, an internal (perhaps impish) yardstick we used to measure the success of a campaign was to create so much traffic through our efforts that the client’s servers would not be able to handle the load. Today’s online user, consumer division, is not nearly as forgiv-
A Brief History of Internet Auctions
35
ing of service delays, service outages, and server crashes. In the business realm, when the procurement of strategic supplies or the sale of excess inventory is at stake, any service blip is completely out of the question.
Listen to Your Customers Making its way in the early years as a mecca for collectibles, eBay never thought that cars would be sold over its service, so it never had a car category. Then its executives noticed that cars were being sold through the “miscellaneous” section. Today, autos, new and used, whole and as parts, account for almost a billion dollars in transactions on this site. Going the extra mile pays off, whether you participate in an auction or run your own. Shipping services, guarantees, and insurance for breakage or loss during shipping are just a few of the value-added features used by successful auctioneers. Even businesses that only plan to use a listing agent to sell goods have often gone on to sell services to other auction participants, such as appraisals for antiques or new forms of bidding software. FreeMarkets has been a fountain of innovation in services for its industrial marketplace, offering multilingual support in thirty languages and templates for requests for quotations (RFQs) and other bid paperwork.
Don’t Put All Your Eggs in One Basket To learn the ropes, it pays to participate in several exchanges to find which one attracts the buyers and bidders that are most valuable to you. Eastman Chemical, a $5 billion business and a maker of industrial chemicals, has sold in various online auctions—for example Chemicals.com, ChemConnect, and Chemdex. While Chemdex folded after three years, Eastman was sufficiently impressed with ChemConnect to take an equity stake in this exchange. It expects to sell 20 percent of its specialty chemicals through auctions and online marketplaces by 2003, and it recently split into two separate companies, one for plastics and one for other types of chemicals. While a number of online auction sites, both B2B and B2C, have folded in the past few years, the species is expected to proliferate,
36
The Auction-App
along with mergers and buyouts to consolidate industries where buyer groups or transaction fee sizes tend to stay small. There may be pressure on sellers to make exclusive selling arrangements with auction sites, but this should be resisted. In particular, B2B sellers who can’t afford to be prisoners in a client’s “captive supply chain” should remain aggressive in developing business with a broad array of independent auction sites, and perhaps look into the possibilities of developing their own auction sites as well. Companies and entrepreneurs selling to consumers through online auctions need to stay alert to the opportunities offered by emerging sites that may have new models. It will also be good practice to monitor customer satisfaction and service when listing agents are used. Finally, starting up a small-scale operation on your own web site for promotional and marketing purposes may be one of the best ways to discover how the auction app can help your business grow.
Special Section: Community-based Selling and Peer-to-Peer Psychographics It is no accident that the word community is becoming a substitute for customers in modern marketing. The auction app has shown us that a platform that enables consumers to meet and exchange ideas as well as goods with those who share similar likes and dislikes can create a very powerful force. As a businessperson, you now have the ability to tap into those large established communities of users (potential customers) via the Internet. As this new capability to communicate and interact with so many people in such a personal way has evolved, thanks to the widespread acceptance of online auctions by consumers, a new theory of marketing needs to be practiced to make the most of this new opportunity. You may recall from business school that as the Industrial Revolution took hold, the Classical Theory of Marketing was practiced. In essence, this meant that manufacturers built products and then sold, sold, sold the attributes of those products to consumers. The product might not necessarily have been useful, but as a consumer you were sure to know why it was a great product. If you have ever seen Ron Popeil hawking any of his amazing gadgets on TV, you can get an idea of what this theory looked like when electronic media first came into play in the mid-twentieth century. (And if you haven’t, see Ronco.com for the latest moves from the direct-selling pioneer.) As consumers became more discriminating and marketers became savvier, the Modern Theory of Marketing became the rule of the day. 37 Copyright 2002 by Leland Harden and Bob Heyman. Click Here for Terms of Use.
38
The Auction-App
Here consumers’ needs are identified and products are pitched based on “benefits,” or how they fulfill those needs. “This bread is healthy.” “This oven saves time.” “This mattress helps you sleep better.” The logic behind this form of customer-centric selling made sense to anyone in the mid- to late twentieth century. As the legendary marketer Lester Wonderman once put it, back in 1966: “People don’t want quarter-inch drill bits; they want quarter-inch holes.” Now, a new twist needs to be thrown into modern business doctrine. The ability to address consumers’ needs individually needs to be incorporated. This can be done only if a business can manage to interact with consumers on a regular basis. This individualization and the higher level of interaction required means that you need to begin practicing what perhaps can be called the Community Theory of Marketing. This doesn’t mean that you should start thinking about how you can control your customer community—especially those who come to you via the Web. Control is anathema to the democratizing foundations of the Internet, which has become the most powerful medium for both one-to-one and mass marketing today. Savvy marketers will begin now to develop a product or service in such a way that consumers (both business types and civilians) can personalize it or feel as if they had a say, some “ownership” or personal stake, in how it was developed or in the way it was made. Stuart Henshall, a successful scenario planner and strategy consultant, puts it this way: “Think of your job as being one of facilitating an open space versus mediating a closed space.” This is frightening to many professionals and contrary to every natural tendency. Even the titans of industry have not always been successful at adopting this mindset.
Understanding Peer-to-Peer Dynamics Implicit in the Community Theory of Marketing is the understanding that many of your customers would like to communicate with one another without your interference. Companies that have instituted forums and chats on their corporate web sites show this basic understanding. The best companies do not wince when a customer uses this pub-
Community-based Selling and Peer-to-Peer Psychographics
39
lic space to complain about a product feature. Instead, they use the input to either redesign the actual product or revamp their marketing communications to address any issues that arise. In turn, the collaborative efforts they make to include their audience in the process pay back in terms of loyalty and customer retention. And most companies have no problem with the idea of ideas being exchanged through their web site hubs. When actual goods are exchanged, however, corporate megaliths start to feel disintermediated—and then they get mad. The perfect example of how peer-to-peer (P2P) exchange of products can completely disrupt normal selling procedures is Napster. Created by a college student with his dorm room computer, Napster allowed Internet users to freely exchange digitized music products in the Internet-friendly digital format known as MP3. Participants could upload digitized versions of songs from the albums, audiocassettes, and CDs in their home collections; other participants could visit the Napster site, view listings of what was available, by title or by artist, and then download the music they wanted into their own computers. If they had a CD recorder (known as a “burner”), they could compile new CD albums of their selections. Aside from the cost of the blank recordable CDs and computer time for downloads, these new and highly personalized music products were essentially “free.” Napster.com itself did not charge participants to exchange music. The web site’s revenue model was advertising, and it could charge high rates since literally millions of technically sophisticated young people—a highly desirable sales demographic— were flocking to the site to exchange music files. The founders of Napster tried to argue that what they were doing was nothing more than facilitating the fair-use copying and exchange of recorded music that has gone on since the advent of the eighttrack tape cassette, but the major music conglomerates would have none of it. Lawsuits and court decisions finally enjoined Napster from facilitating “peer-to-peer” exchanges that did not involve royalty payments to record companies. This has not stopped Web users from exchanging free digital music files online. Heirs apparent to Napster are file-swapping application sets such as Gnutella and Jabber. These are more sophisticated music software systems that do not need a central router or server to facil-
40
The Auction-App
itate an exchange. Instead, the software creates the exchange technology on the individual computer system of each participant when it is needed. When the transfer is done, the computer-to-computer links are disconnected. There is no centralized “hub” that can be prosecuted within any legal jurisdiction, and the data stream may be distributed through several different servers and IP routing systems so that participants can avoid detection. (A good source for the latest developments is the news site openp2p.com.) Most of corporate America still doesn’t understand what Napster really means to twenty-first century marketing. Most have focused only on the fact that Napster was a delivery system for “free” product. They neglected to realize that P2P marketing could be used with great success to sell product. Belatedly, music companies discovered that renegade free sampling had been a positive for the record-selling business. In one damning study, CyberDialog showed that 55 percent of Napster users went on to purchase a CD music product after first hearing the music on Napster for free. The study also noted that 54 percent of file sharers were already buying music products online, compared to 43 percent of other online adult buyers. And a raft of surveys of Napster users showed that its web site was a superior medium for targeting millions of males in the 18 to 24 age range who had money to spend for high-end electronics gear and digital music products. The music giants Sony, BMG, and Vivendi have since launched their own music exchange web sites, such as MusicNet and PressPlay. But these serve up only carefully doled out samples of their own music products—not the out-of-print, rare, or off-the-wall recordings that made Napster a key Web destination for rabid audiophiles and free-spending music collectors. By mediating the transfer process, the corporate sites take product selection and product customization out of the hands of participants. They are not, then, truly P2P or in any sense collaborative. They are merely feeble, overmediated imitations. Let’s take a look at how P2P networking is invading the auction space. For most purposes, eBay itself is a P2P selling platform, as are most C2C auction sites. It facilitates the buying and selling of real, actual products and charges minimal fees for providing a standardized system and hub for this public service. In this regard it is no different from a local firehouse renting out booths in its parking lot for a Saturday flea market.
Community-based Selling and Peer-to-Peer Psychographics
41
But eBay also shields the true names and even the true e-mail addresses of its millions of participants. While this is in part a privacy measure, the practice also ensures that buyers and sellers don’t do their own P2P selling off site. To preserve its ability to make a profit on service charges and fees, it mediates audience participation at a higher level than it did before. So far, it has maintained its community base by allowing many forms of participant feedback, from bulletin boards, chats, and forums to the ratings system, to live events in major cities and charity auctions for community causes. But it has also tried to discourage other blossoming P2P facilitators, notably by creating its own payment company, Billpoint, as a direct competitor to PayPal, an “open system” that is more useful to participants who sell or buy goods at more than one auction portal site. Essentially, this is the same as the keepers of the firehouse parking lot suggesting that only cash or a certain brand of credit card be used for purchasing, or not allowing booth renters to exchange home telephone numbers with potential customers. This may be a danger sign, as any practice that inhibits community building online will eventually erode traffic levels as customers search for freer, less mediated venues. This was certainly the case with Napster. The original site’s traffic levels have continued to decline, to the tune of about 3 or 4 million users less each quarter. Meanwhile, traffic is rising steadily in other file-swapping environments. In August 2001 alone, the digital research firm WebNoize reported that more than 3 billion music files were swapped freely over FastTrack, AudioGalaxy, iMesh, Gnutella, and Napster-like alternatives.
What Can B2C Auction Sellers Learn from This? An auction built on a company’s own web site should provide some opportunity for direct P2P selling. In most cases, the benefits of community building (i.e., liquidity building) in this fashion far outweigh the risks of losing business to C2C channels. Einstein’s Garage, the value-priced auction spinoff of Fischer Scientific, lets its customer base post what are more or less “want ads” for secondhand products. This is smart marketing. Customers who sell items they don’t need
42
The Auction-App
will then have extra money to buy products. Since it can be assumed that people who sell used items are frugal to begin with, these people are also more likely to be attracted to value-priced new products that they can buy through an online auction. By facilitating P2P exchange on its own web site, Fischer Scientific can maintain its auction site’s traffic levels with buyers who have money and will return again and again to look for new “bargains.” Companies that use auction portals to sell goods and services can deploy P2P marketing techniques to drum up business or to perpetuate customer interest after the sale. They can do this using the viral marketing techniques described in Chapter 7 and by inviting successful bidders to participate in chats, forums, or live events that will bring them into contact with people who share their interests or are in the same industry. Community feedback should also be invited, to allow winning bidders some input on what future offerings would mean the most to them. Sellers in B2B online marketplaces already enjoy a high level of autonomy in this regard. Most public exchanges strive to keep their hands off individual transactions, although the most successful, such as FreeMarkets and IronPlanet, use a registration process to prequalify vendors. Both buyers and sellers see this vetting function as a value-add, because most truly want to deal or compete only with their “peers” within specific, vertical markets. A great many online exchanges offer the equivalent of “private chat rooms” so that participants can communicate and negotiate on factors beyond price points. Technologically these are no different from the private chat rooms offered by porno web sites, which is only an indication of how easy it would be for any online auction to provide a free space for P2P discourse. Lately, “second-generation” marketplaces for C2C selling, such as Bargainandhaggle.com, have begun to add this function. Bargainandhaggle.com appeared on the Jupiter/MediaMetrix traffic ratings list in the past year, which means that at least a million people were curious enough to visit. In other P2P news, an outfit called Savingsfinder.com is trying a new twist on the buyer aggregation model that failed at Mercata and MobShop. Even Priceline has looked into C2C selling as an audience builder on its flagship site. Much of the industry discussion of Internet P2P tends to deal with the geekier aspects of system architecture, which misses the point
Community-based Selling and Peer-to-Peer Psychographics
43
entirely. In the strictest technical terms, a P2P communications system is one that allows computer-to-computer communications without the need for a centralized server or similar hub. (This would include strains such as Gnutella and Morpheus, and old forms such as Internet Relay Chat, but would not include Napster or the popular instant messaging found on AOL, Yahoo!, and MSN and the old Usenet forums). In the broad social sense and in the e-commerce sense, a P2P platform can be any central web site, or a transitory, fragmented network grouping of web sites, that allows individuals at their computers to speak to one another directly, without “Big Brother” interference from a central site that offers a meeting place for a widespread community.
Psychographics: Who Is the Online Peer? Many studies continue to show that the global audience for the Web is a highly desirable sales demographic: generally more educated and more financially well-off. Within this broad range of Internet users, those who turn to P2P networking are even more desirable, for they do not merely surf and watch their screens. Instead, they respond and create their own subnetworks, and they tend to buy more stuff. Napster’s audience, for example, tended to buy more music products and own more electronic gadgets than the average netizen, and were typically early adopters of cutting-edge entertainment gear. The Napster audience also indicated a great preference for customized product: While 30 percent of those polled by CyberDialogue said that they would willingly pay $10 to download a digital album, 70 percent said that they wanted to be able to buy customized CDs and assemble their own albums. This strain of individualism is part of the P2P esprit de corps that we now see at auction portals. The perception of the eBay peer as a mild-mannered Midwesterner cleaning out his attic or looking to complete her full set of Depression Glass dinnerware has dramatically changed into the image of the sharp, business-minded “Power Seller” dealing with hordes of bargain-toughened, equally savvy buyers. To understand these individuals better as potential customers or
44
The Auction-App
exchange participants, it is perhaps more critical to look at their actual online behavior. The Values and Lifestyles (VALS) program at Stanford Research Institute (SRI) studies consumers by asking questions about their attitudes and values. Beyond the basic VALS types, SRI once tried to recast the consumer universe into ten discrete segments, based on their Web usage. “Socialites,” for example, were those Web users who were most likely to be drawn to instant messaging and online forums; they tend to be users under 30 years of age. “Immigrants,” by contrast, are late arrivals to the Internet who are drawn there for a particular purpose, such as school research, job-related web surfing—or the need to leave no stone unturned in their efforts to complete a hobby collection. Now it has become clear that Web users, at least within the United States, can be considered merely a slice of the nation’s typical demographics. The split between male and female users is now 50–50. Income is also fairly evenly split between households making more than $60,000 per year (46.5 percent) and those who make less (53.3 percent), according to an October 2001 survey commissioned for the Wall Street Journal. The audience is so middle-of-the-road that even SRI has since gone back to the self-orientation and personal resource dimensions used in the original VALS. (For a more complete description, see SRI’s web site, currently www.future.sri.com.) But the fastest-growing segments of Web users, according to Jupiter/MediaMetrix, are the over-55 set (a jump of 33 percent between April 2000 and April 2001) and the youthful 18–24 demographic (a leap of 32 percent in the same time period). Both these audience segments have shown a strong affinity for P2P venues, such as instant messaging and file sharing. Capturing these novice users at the beginning of their Internet learning curve should be a priority for sellers who are interested in building a “new” Web community.
Counting the Computers According to the latest U.S. Census, about eight of ten family households reporting annual incomes of $75,000 had at least one household member who used the Internet at home. Even among family households with incomes below $25,000, nearly three in ten had a
Community-based Selling and Peer-to-Peer Psychographics
45
computer and about two in ten had Internet access. This seems to bear out other demographic research that suggests that more “average” families (with incomes between $30,000 and $50,000) will be coming out to shop online. Marketers might note that single people are least likely to have Internet access (24 percent) at home, compared to an access rate of 47 percent in households with two to four persons. Residents of Southwestern states were most likely to be wired (47 percent), while Southeastern residents were, comparatively speaking, the least reachable online (38 percent). Sadly, the Census confirmed that there is still a “digital divide” in America: While 77 percent of white (nonHispanic) and 72 percent of Asian/Pacific Islander children lived in households with computers, only 43 percent of African American children and 37 percent of Hispanic American children had computers in their homes. Source: U.S. Census One final word on Web peer communities: They are a naturally occurring phenomenon. Most efforts to create them artificially have been dismal failures, such as Hearst Corporation’s iVillage and Disney.com, or ill-fitting imitations of successful models, for example, FreePlay or Microsoft Network’s attempts to rouse a teen audience with its own version of instant messaging. In the democracy of the Web, participants vote with their mouseclicks. A site isn’t “hot” or an application a “killer” unless volumes of users decide that it is good enough to tell a friend about. The best way to feed and nurture peer-to-peer advocacy is to first provide carrier space for unmediated transactions, then use monitor and feedback functions to listen to your customers and tweak the system to optimize or enhance their ability to communicate with one another under your trading site’s umbrella.
This page intentionally left blank.
3 Finding the Relevant Marketplace At this point, you should be convinced that you should participate in online auctions. The next step is to determine which of the several hundred online marketplaces and/or business exchanges available can expose your business to its most valuable kind of customer. If you are already involved in e-commerce, you’ve got quite a head start. You (or at least the person who serves as your Webmaster or runs your Web sales operations) may already be sitting on data from server logs that can compare how much traffic is flowing in from various search engines (Yahoo! vs. MSN vs. Excite! vs. Overture, etc.). If you’ve tried Web banner ads as a promotional tool, you may have metrics from previous or ongoing Web advertising campaigns that tell you how many of your banner ad placements have resulted in clickthroughs to your web site, and how many of these click-throughs were converted to actual sales. Affiliate programs will also tell you where the bodies are: Which of your Web affiliates are the most productive in terms of sales or sales leads? These sites may already have online auctions up and running. And if your web site is one of the 450,000 affiliate partners linking with Amazon.com, the size of your affiliate payment checks is probably a really good indicator of how many of your online customers have access to Amazon’s online auctions and zStores. If you don’t have these numbers already, get them. If you are new to e-commerce, or if you have used your web site only as a promotional tool (i.e., a Web brochure) for your business, the material in Chapter 8 can help you determine appropriate customer acquisition costs and ROI (the authors’ book NetResults.2: Best Practices in Web Marketing provides a more complete discussion of both topics). 47 Copyright 2002 by Leland Harden and Bob Heyman. Click Here for Terms of Use.
48
The Auction-App
One of the things computers do best is count things and the Internet is chock full of shortcuts to many useful sorts of tabulations. Take, for example, the time-honored strategy of simply copying what your competition is doing. In the offline world, if McDonald’s opens a fast-food restaurant in a certain part of town, it’s a pretty safe bet that a Burger King or KFC franchise will show up on the opposite corner or just down the street. The viability of any market depends on having not only the right mix of buyers and sellers, but also sufficient traffic in one place. Online, it’s incredibly easy to find out where your biggest competitor has established a beachhead. LinkPopularity.com, for example, is a free service that tracks inbound links to any web site. You can simply go to the site, type in your competitor’s web site URL, and get a list of all the linking sites reported by AltaVista, Google, and other search engines. Once you have the list, it won’t take much time to go through them to see if any of these links are from sites that have online auctions.
What You Sell Is Where You Sell Excuse me, are you B2B (business to business) or B2C (business to consumer)? If you’re not sure, you’re not alone. These acronyms, overused as they are, have been a futile attempt to divide online commerce of any sort into “amateur” and “pro” categories, most recently with regard to online auctions. With the exception of private exchanges and commodities exchanges set up for industrial raw goods (such as steel, cocoa, plastics, or grain), it hasn’t been practical to discriminate among potential buyers this way—to drive up prices, auction sellers want exposure to as many bidders as possible. The migration of business-to-business sellers to “consumer-to-consumer” auctions will continue because these are fertile fields for anyone catering to small businesses, self-employed or home office entrepreneurs, start-ups, and resellers. They also attract specialty retailers and procurement managers who are looking for a better price for routine goods and services. And, because the average amount of time on an auction site can be as long as an hour, let’s not forget the corporate executives trolling “consumer” auctions to fill out their hobby collections of DeSoto hubcaps or Polynesian fishing spears who may
Finding the Relevant Marketplace
49
be thrilled to come across an offering from you that is pertinent to their business needs. You can find lists (and lists and lists and lists) of auction sites simply by visiting Yahoo!’s extensive rundown (http://www.search. yahoo.com/bin/search?p=auctions). You can also find updates on webzines such as Auction Tribune (auctiontribune.com) and AuctionBytes.com, and through the Online Auction Users Association (auctionusers.org). There are also dozens of outsourcers who would be happy to take all the decision making off your hands (see Chapter 4). But, as the old saying goes, “the eye of the owner makes the cow grow fat.” It may be best for your business if you define what it is you are selling or promoting, then narrow down your participation to a few auctions where you can earn while you learn.
Business-to-Consumer: General and Niche Sites Retail items, novelties, collectibles, odd lots, vehicles, one-of-akind items, handicrafts: General auction sites such as eBay, Amazon.com, MSN, Yahoo!, and the reverse-auction giants eWanted and Priceline are your best bet if you have a lot of individual items to sell or if you want to use the auction environment to troll for new customers outside your geographical area. These online auctions have reached out to retailers by providing them with “storefront” opportunities that can bring traditional buyers as well as bargainseekers to your e-door. These general sites are also the place to go if you want to use an auction to promote a consumer product or business to the millions of people who make up the global audience of these highly trafficked sites. While corporations have paid in the high six figures to secure some eyeball time with Yahoo! and MSN audiences, you can post a notice of your wares there for less than a dollar and expose it to tens of millions of people. Retail auctions—set up specifically to promote retailers and move new product quickly—have had their ups and downs. First Auction (now out of business) and Shopping.com (shopping.com/store/auction) have dangled merchandise worth hundreds of dollars with start-
50
The Auction-App
ing bids as low as one dollar in auctions that start and end in thirty minutes. This is auction as entertainment, as exciting and addictive as horse racing or a good video game. Another site to explore for ideas is Sam’s Club, which is notable for its pioneering use of Dutch auctions in retail. This site constantly experiments with new promotions that involve short selling times (for example, the two-hour “lunchtime auction”) to maintain the excitement and keep visitors coming back. Excess inventory, distressed merchandise, secondhand business machines, and small manufacturing equipment: IBM sells retired models of its laptops on eBay and Yahoo!. Mitsubishi Electric Automation, which makes factory robots, has been caught unloading older models of its industrial automation systems on eBay—perfectly good robots that were “destined for the scrap heap,” according to a Mitsubishi spokesman. Along with the general sites mentioned previously, there are specialty online marketplaces just for sellers of what used to be called “damaged goods.” More than ninety manufacturers and retailers of electronic equipment, including Apple, Canon, AT&T, Dell, and Sony, sell closeout and refurbished products through uBid, Inc. (ubid.com). Other well-established auctions for electronics are Fairauction.com and MicroWarehouse, both of which have been around for nearly a decade. Several independent companies have been set up to sell returned merchandise from retailers, such as ReturnBuy.com, which peddles the goods through eBay on behalf of the retailers that are its customers. Other Internet service companies that were originally created to handle the logistics of product returns for e-tailers, such as Return.com, ReturnCentral.com, ReturnExchange.com, and ReturnsOnline, are also looking into similar sales platforms. Leave it to the Internet to make returns a viable business model. Selling businesses often first look at online auctions when they want to dispose of unwanted merchandise—at the tail end of the product life cycle. Analysts who look at this say that it can be a good start: They note that dynamic pricing applications generally allow excess inventory to be liquidated more quickly, and that prices in an online auction also tend to be higher than offline distress sales. But it is, of course, just a start. Some companies have begun to capture greater benefits by permitting only members to participate in dis-
Finding the Relevant Marketplace
51
count auctions; the auction then becomes a “loyalty” reward for regular customers who buy through the company’s web site. Luxury goods, fine arts, antiques, real estate, and similar high-ticket items: General sites for these include the online manifestations of Christie’s, Sotheby’s, Phillip’s, and Butterfield’s. While it is true that people have sold Rolls-Royces and private jets on eBay (where a recent airplane offering netted a record winning bid that topped $10 million), you’ll find a greater percentage of carriage-trade customers in these upscale venues. The Sothebys.Amazon.com joint venture shut down in less than a year, a classic mismatch between high-end sellers and the Web’s broadest proletariat. The downside is that you pay for the “brand name” of the auction house through higher fees and commissions—as high as 25 percent, and often with the standard 10 percent buyer’s charge that is a staple of offline auctions. But if your business routinely sells luxury goods with price tags over $3000, these auction sites may be worthwhile for their access to new customers, particularly buyers from other countries. Some of the “niche” marketplaces, such as ArtNet.com, remain players in this field. The German-owned company began its online life as an auction sales database that reported prices from offline, and later online, arts auctions. Its own short-lived auction arm sold more than $2 million in fine artworks in its first year of operation (1999–2000). In March 2001 the company announced a partnership with eBayPremier, and it moved back into providing what are more or less “storefronts” for high-end international galleries. Participants pay a yearly fee and have the opportunity to advertise on the site, which receives a high level of traffic. Part of the continuing draw for customers and sellers is the broad array of content and value-added information, such as auction prices reported from offline houses, news and commentary, and directories of web sites that can be used for researching provenance or appraisal information.
On Beyond eBay Since you’ll want to cast the widest possible net to catch consumers, why not just sign up with eBay and ignore all the rest? This is certainly tempting, and it would save you lots of time. After all, it’s the
52
The Auction-App
biggest gorilla, gobbling up its competitors month by month. Even Fairmarket, one of the most durable independents in cyberspace, quickly ceded its online storefront business to eBay in a partnership. MSN, Lycos, AOL, and Amazon have all inked various partnership deals. Why look elsewhere? As we’ve said before, don’t put all your eggs in one online basket. One of eBay’s greatest strengths is its ability to change strategies quickly, and not all of these changes benefit a seller. For example, eBay used to supply a seller with the e-mail addresses of all bidders, not just the address of the person who made the winning bid. These address lists could be used for customer acquisition and e-mail marketing. Unfortunately, so many people used these lists for SPAM messaging that eBay now “scrambles” the addresses. Communication during the auction process is done by the registrant’s user name only, and mail is forwarded automatically. (A few methods for extracting e-mail addresses to create “permissioned” lists are outlined in Chapter 7.) The billions of dollars being made in online auctions today practically guarantee experimentation with the auction model. Yahoo! Auctions, for example, originally allowed sellers to post an item for free. When it started charging a fee (from twenty cents to a few dollars), more than half of its sellers stopped posting. However, while this certainly cut down the number of sellers offering items (by as much as 25 percent), it did not reduce the number of people who surf the Yahoo! search pages each day. In online auction parlance, zero fee typically means that junk gets listed. Even now, when eBay sponsors zero-fee listing promotions, it has absolutely no effect on sell-through. Certain products will always lend themselves to certain general auction sites. More than 60 percent of computer-related products auctioned on MSN on a given day were software products, new and used. Products related to books (and music) may find a natural audience on Amazon. For example, the pages devoted to reviews and listings of historical romance novels might include an available auction of not only first editions, but feminine wares from antique jewelry to historically accurate corsetry. Finally, a lack of response to offers that you make on eBay may suggest that it is not really the best auction venue for you. If you’re
Finding the Relevant Marketplace
53
not a “Power Seller” (someone selling over $2000 per month in goods on eBay) in a few month’s time, focus your efforts elsewhere. If AOL is considered the “training wheels” for new Net users, eBay provides the same for the next generation of online traders. Sooner or later competitors will find an innovation to exploit. One example of a second-generation auction site that’s trying harder is The Bloke In the Pub, based in Britain (theblokeinthepub.co.uk). It’s a veritable catch-all of audience-building tactics used at one time or another by other auction sites (free trades, free e-mail, community chat, contests, viral marketing, storefronts, currency exchange, escrow services, etc.), and it’s worth watching, if only to see if it lives beyond its initial funding. A U.S. version (theguyinthebar.com) is in the works.
Finding Your Niche This brings us to the specialty auction sites. Entrepreneurs who sell collectibles through online auctions seem evenly split between those who find smaller, item-specific web auctions to be valuable, and those who find that these auctions’ creakier infrastructures merely waste time. Beyond collectibles, robust specialty auctions for the general public exist for automobiles, livestock, sports equipment, and travel services. Finding a niche auction can be done in either of two ways. Let’s say, for example, that you sell fine arts antiques, high-end stuff that won’t play well on eBay. You can find auction sites that target your particular specialty by looking at a general auction directory, such as yahoo.com/Business_and_Economy/Companies/Arts_and_Crafts/ Services/Auctions Now your joyful task will be to go through the list, look at all the Web pages, and sift through them to find a relevant auction venue. Bear in mind that it may take several months for a new listing to appear on Yahoo!, so you may miss a recent contender. The second method is to let the Web community itself tell you where the best niche auctions are. Every possible area of interest to humans has its equivalent Internet community. These include Usenet discussion groups, web rings, special-interest online magazines (’zines), and what are called affinity sites or destination sites or sometimes even Uber-links.
54
The Auction-App
These are the sites that large groups of Net users turn to first— whether their passion is politics or fashion or Star Trek reruns. Net users go to these sites because they contain an abundance of outbound links to other sites in their area of interest. The merits and usefulness of the other sites may even be reviewed, or rated. A recommendation from one of these sites counts for a lot in the peer-to-peer culture of the Web and can result in tens of thousands of visitors to that web site. Ándale and Auctionwatch, Auction Management Service providers that are covered in Chapter 4, host such community sites. Savvy online marketers use Uber-links to find the best site partners for their affiliate networks. You can also use these links to find smaller, lesser-known auction sites that will attract buyers for your niche product. In the fine arts antiques area, for example, the web site for the Maine Antique Digest (mainantiquedigest.com) has extensively covered antiques trading on the Internet. It qualifies as an Uber-link, as it has many suggested links and references to online auction houses. It has articles discussing this end of the business and even includes an online illustrated gallery of stolen goods to look out for. Maloney’s Online Antiques & Collectibles Resource Directory (maloneys.online.com) is another source that’s frequently updated and well spoken of, as is ArtNet.com. Let content experts lead you to niche auction sites that are off the beaten path. Once you find them, specialty auction sites with a strong affinity to your particular consumer product line, no matter how small, should never be ignored. At the very least, you may invite them to join your affiliate network program and compensate them for bringing you some paying customers.
Business-to-Business: General and Industry-Specific Marketplaces Finished goods (wholesale and retail); small office/home office (SOHO) products; general maintenance, repair, and operations (MRO) products: Slightly less than half of the goods
Finding the Relevant Marketplace
55
sold on eBay today (an estimated $1.6 trillion in fiscal 2001) are collectibles auctioned by private sellers. An increasing amount of the remainder is new goods sold through business categories, such as computers and electronics, which the company says should reach $1.6 billion in gross sales this year. Other eBay business categories include medical and restaurant supplies, aviation equipment, agricultural machinery, and laboratory gear. The reverse auction site eWanted has always had broad categories for business-to-business trading, such as specialty tools, real estate, and financial services (loans and insurance). And then there are B2B marketplaces that cater to specialty or small businesses, such as eScout. (See the Regal Distributing Case Study for more on eScout.) These sites are a good place to start for small wholesale lots and products that appeal to the small office/home office buyer. As mentioned previously, MSN attracts many bidders for software products. There are also a number of Web portal sites that cater very specifically to small businesses; sites enabled with auctions include Netscape’s NetBusiness and Microsoft’s bCentral. Business buyers are greatly attracted to reverse auctions because of the cost savings they may produce. Two recent studies, one of fifty multinational companies (IMT Strategies) and another that researched one hundred of the world’s largest corporations (Whyte), indicate that these firms plan to make at least 25 percent of their supply purchases through online auctions by the year 2002, the majority of it through reverse-auction systems. The value of this business is estimated at between $400 and $700 billion. The really good news about this is that these corporate bidders are typically edging into e-procurement to grasp the savings on lowhanging fruit: standardized components and office supplies, or general commodities in categories where vendor switching is common or seasonal. For many smaller vendors, an early effort to reach these buyers during the e-procurement pilot test stage may pay off well later on. Services to corporations and small businesses, such as employment, payroll, estimating, benefits management, travel, hospitality, tax accounting, publicity, or advertising: Sometimes called “functional exchanges,” these marketplaces permit service companies to bid for contracts nationally. As the Internet has
56
The Auction-App
allowed many small companies to outsource many accounting functions, such as payroll and health benefits management, the person or firm that handles human resources data or ad placements for a company may not even be in the same state, let alone the same city. Some first movers in this category include Employease, Hotjobs, and Headhunter.net (employment services, benefits management); Tradehub (import/export services); and Citadon.com (real estate management and construction services), which began many years ago as bid.com. Newer auction sites for selling business-related services include e-Lance and BizBuyer.com, which contract out the kind of work done by independent contractors, such as brochure writing, trademark and patent searches, and web site design. On these sites, prospective buyers can describe the project or service they need and indicate their price range, to elicit responses from a list of contractors registered to the site. If your business is in the hospitality or travel industry, you may wish to sell unsold seats, idle rental cars, or empty hotel room space in a reverse auction that attracts consumer bidders as well as business buyers. Priceline.com would be your first choice; other marketplaces to look at would be Travelocity and Expedia. These sites are prime for customer acquisition, since repeat business is common with travel buyers. They can also be used to attract attention to a unique or unusual travel package or a themed tour. Semifinished goods, industry-specific MRO: Your best bet here is the “vertical” marketplaces that target your specific industry. A great many of these are independent auction exchanges, set up to aggregate large groups of buyers who are spread out geographically but have similar needs for routine supplies. Some of these exchanges were launched by a consortium of buyers with similar needs. One such is Pantellos, which is owned by twenty-one companies in the public utilities and energy management business. Vendors have flocked to this auction site for the opportunity to bid for the business of clients such as General Electric, which has moved perhaps 20 percent of its procurement to online sourcing. Another such exchange is Quadrem, which trades mining supplies. Many industry-specific exchanges started as simple online catalogs that allowed vendors to pitch their wares via the Internet. One of these was Dexpo.com, which renamed itself eDentist.com and has
Finding the Relevant Marketplace
57
plans to set up both auction and reverse-auction action on its site. Since this organization has for several years linked 1200 vendors to 120,000 dentists and dental offices, an audience of sellers and bidders may already be in place. Another such exchange is Marex.com, which serves the recreational marine industry and is the exclusive trading hub for seventeen boat builders and sixty-four suppliers. DoveBid.com also has some relevant categories here (for more on DoveBid.com, see the case study). Spot materials, raw materials, industry-specific materials, commodities, heavy machinery: FreeMarkets is the leader here. Its entire organization is well set up for novice sellers, so it should be your first stop. It will also introduce you to the concept of the automated request for quotation (RFQ). The RFQ requirements for B2B reverse auctions make it clear that low price is not the only factor that industrial bidders respond to or factor into their trades. A typical RFQ spells out payment terms and the type of currency, as well as guarantees of inventory, capacity, and shipping lead times. Buyers will weight these factors according to their needs, in an attempt to achieve an apples-to-apples comparison of commodity vendors. (For more on gaming RFQs to gain advantage, see Chapter 8.) If you are curious to see how the big players trade, take a look at ChemConnect, which handled over a billion dollars in sales of plastics and chemicals for industry last year. Registration fees for sellers and bidders range from $300 to $100,000. Another success story is Intercontinental Exchange, which trades gas, oil, and even electricity as commodities. It grew big enough last year to purchase International Petroleum Exchange, the largest offline energy marketplace in Western Europe. If you’re not a big player, the independent exchanges set up by trusted intermediaries—often a trade association or even a trade magazine group—offer a chance to meet new customers on a fairly level playing field. Trade publications and electronic newsletters in your industry are the best place to find out about these exchanges. Another source of information is to ask your current clients. Find out from them if they are participating in any exchange, or if they are planning to participate in the near future. Where they are going is the place you want to be, first of all.
58
The Auction-App
Since this is where the big bucks are, much of the auction action in heavy industry is moving in-house, to private exchanges. For example, e-Steel, a marketplace for raw steel products, started out as an independent exchange, but lately it has put more of its efforts into helping steel buyers manage their own e-procurement auctions, using its proprietary software. Other independent exchanges that have shifted from enabling public trading to selling software for private trading include SciQuest (biotech) and eMerge Interactive (cattle and livestock) Big buyers will continue to move, and sellers will have to chase them. General Motors, for example, started with FreeMarkets, then left to join an automotive buyers’ consortium, Covisint. Don’t be surprised if by the time you read this, General Motors has moved at least a portion of its online auction purchasing into a private, in-house exchange.
Picking the Winners: Evaluating the Viability and Usefulness of an Exchange In the year 2000, more than 1000 industry-specific business-tobusiness online trading marketplaces were either launched or announced; less than a year later, Forrester Research and other pundits were predicting that the number would shrink to less than 200 viable auction sites. Consolidation is and was inevitable. Until more companies sign on to the religion of e-procurement, many industry-specific B2B exchanges will attract only a small number of buyers, leaving many sellers frustrated because there is not enough business to go around. Unsuccessful B2C auction sites tend to go out of business, rather than merge. This hasn’t meant that B2C auctions are a fad; most of the online auctions that are limping or have folded did so either because they had too many competitors (for example, the home electronics, office supplies, and fine arts markets) or because they blew their venture capital on expensive branding campaigns or fancy offices equipped with laptops and Aeron chairs (you can pick up that gear quite cheaply now at online auctions, by the way—just ask Ross Dove).
Finding the Relevant Marketplace
59
Three Key Factors for a Winning Auction Web Site 1. Liquidity. As noted, this is not just traffic; it is the number of qualified buyers and reputable sellers who are in the mix. When the news is good, publicly held sites such as Priceline and eBay report numbers; less successful or privately held auction companies may be reluctant to give out volume sales. That leaves traffic. Unless the auction site is showing up regularly in the NetRatings Top 20 (which means that a minimum of 10 million people are checking in there), the traffic levels of an auction site may be hard to determine. If the site accepts advertising, it may be possible to get a report on traffic levels (such as numbers of unique visitors or daily page views) from the ad sales kit or the ad salesperson. Actually placing a sample ad will give you an idea as well. The ad or promotion should ideally link not to your home page but to a microsite (that’s a daughter site that’s appended to your home page but exists solely for a promotional use). The microsite not only counts responses but also may be used to elicit some marketing information from the visitor (in the form of a contest registration, perhaps) that might help you determine if the site is attracting the right sort of customer for you. 2. Market credibility and expertise. Who are these people? Do you know them? Do they understand your industry? Most Web businesses have an “About Us” page that is accessible from the first home page, or at least a “Press” page. You can find biographies of the company principals and sometimes a corporate history—these may include people that you’ve heard of or companies you have dealt with before. Copies of old press releases usually reside on the press page for an auction portal. Surprisingly, these press releases are very rarely changed or deleted, so it is possible to discover bad news here—the company changed CFOs twice in a year, or it barely managed to escape intact from a tangle with the FTC. The archives of press web sites, such as C/NET, eMarketer, New York Times online, PRNewswire.com, Businesswire.com, or the late lamented Industry Standard, will also give you a back story. For example, a list of early investment partners might reveal some of your current clients or competitors.
60
The Auction-App
In order to be a “trusted intermediary,” a B2B marketplace needs to be unbiased and independent if there is going to be a level playing field. Sites run by trade associations may not be immune to industry politics, but they may be better than a young start-up auction company that feels an even greater need to toady to big buyers or big sellers. Consumer auction sites should at least sport the TRUSTe logo; that’s the equivalent of a “seal of approval” in the e-commerce world. If a company’s revenue is less than a million dollars per year, an annual license to display the TRUSTe seal costs about $500 and includes the company’s promise to abide by its policies; perks for web site owners include dispute resolution with customers (see Fig. 3.1). Since the fee is relatively small, lack of the logo could be a red flag. However, some useful niche sites run by kitchen-table entrepreneurs may not carry this certification. In this case, an affiliation with a payment verification service, such as PayPal or VeriSign, should be considered a minimum requirement before experimenting with a smaller venue. 3. Value-added services. Viable auction sites are those that make it easy for buyers and sellers to communicate and mitigate risk. In a B2C auction site, this means giving both sellers and bidders opportunities to buy insurance, enable secure credit card transactions, and select from a variety of shipping options. (See Chapter 4 for more on seller services.) Other enhancements include the ability to open “storefronts” for retail sales that link to auction pages, and advertising opportunities to help you attract bidders to your offerings and to your “storefront.” B2B auction sites typically provide secure “rooms” so that traders can finalize deals, as well as certifications and vetting of sellers for quality assurance. Mechanisms for dispute resolution, lost or undelivered merchandise, fraud claims, and credit adjustments should also be in place, in both B2B and B2C venues.
Getting into an Auction Online auctions want your business. They know that the more offerings they have available on their site, the more bidders they can
Finding the Relevant Marketplace
61
I. Pricing for companies with a single brand: Your Company's Annual Revenue
Cost Per Brand
Less Than $500,000
$399
$500,000 - $999,999
$449
$1 - $4.9 million
$599
$5 - $9.9 million
$799
$10 - $24.9 million
$1999
$25 - $49.9 million
$2999
$50 - $74.9 million
$3999
$75 - $499.9 million
$6999
Greater than $500 million
$7999
Greater than $2 billion
$8999
II. Pricing for companies with multiple brands: $25,000 Corporate Rate for companies with multiple brands that all share a common privacy policy and adhere to common information collection practices. Annual Revenue in USD
No. of Brands Included
$10 - $75 million
10 - 15
$75 million and above
5 - 10
Fig. 3-1. TRUSTe Rates per Brand.
attract. Each successful match of a seller and a bidder brings them revenue. Unless you’re selling Nazi memorabilia, stolen veal, or pirated DVDs, you’ll have no trouble making your first offering and your first sale. The main auction sites all have pages that explain the rules and how to register.
62
The Auction-App
Amazon Auctions http://www.inetsupermall.com/amazon_online_books.htm eBay: http://www.pages.ebay.com/help/basics/n-selling.htm eWanted: http//www.ewanted.com MSN: http://www.eshop.msn.com/softcontent/softcontent.aspx?scmId= 978 UBid: http://www.ubid.com/help/selling_on_ubid.asp Yahoo! Auctions: http://www.auctions.yahoo.com/phtml/auc/us/seller/index.html In exchange for matching buyers and sellers, fees per transaction on the mainstream auction sites such as Yahoo! Auctions and eBay range from a few cents to a few dollars. Other sites ask for a percentage commission on the winning bid. For example, Marex.com, an independent exchange hosting the small but lucrative community of luxury boatbuilders, started out as not much more than a catalog agent, charging transaction fees of only 1 to 4 percent on each sale. (That was enough to generate $10 million in revenues the first year.) Industry-specific exchanges will ask for a registration fee, commensurate with the costs of the wares sold. By way of example, Dairy.com, an independent exchange that grew out of a consortium of thirty-four buying companies, including Kraft Foods, the Dannon Company, and ConAgra, charges an annual fee that ranges from $500 to $1000, depending on the number of dairy plants a producer owns. Equitably, fees for individual transactions are the same for buyers and sellers; for example, $30 for milk or $180 for cream, plus a $10 processing fee for each party (see Fig. 3.2). Elemica, a chemical industry consortium that hosts private exchanges as well as a public exchange, charges a $1000 annual membership fee to suppliers, then offers them a choice of á la carte participation ($10 to $25 per transaction plus additional setup fees) or a subscription package ($100,000 for 4000 transactions, or essentially $25 per transaction, with setup included).
Finding the Relevant Marketplace
63
Trading Fees Commodity Type
Buyer Fee
Seller Fee
Condensed Skim Milk
$90
$90
Cream
$180
$180
Milk
$30
$30
A trade is considered consummated and trading fees will be charged once the "ACCEPT" button has been clicked, signifying a matched transaction between the buyer and seller. Both buyer and seller pay a fee for the matched trade, regardless of the transaction's final disposition. Dairy.com's trading billing cycle ends on the last day of each calendar month at midnight.
Dairy.com will present invoices within ten (10) days of the end of each billing cycle and all invoices are due within ten (10) days of the invoice date. Transfer Fees Commodity Type
Buyer Fee
Seller Fee
$10
$10
All Commodities Fig. 3-2. Transaction Fees, Dairy.com.
B2B auction sites may also want to see some verification of your business bona fides. Part of the quality assurance they can give to participating buyers comes from their ability to screen vendors for reliability. Seller-managed exchanges may be the most difficult to breach. If existing partners in a consortium sell the same things you sell, they may not welcome you in. A good example is Orbitz, a consortium of all the major airlines that travel U.S. routes—with the exception of Southwest Airlines, archrival to all of them. The same is true for private exchanges. If you haven’t sold to a company before, you may have to jump through some hoops to get
64
The Auction-App
on the trading floor. If you’re a minority-owned business, let that fact be known. Many of the largest corporations in America have policies that mandate that a certain percentage of their purchasing budgets be given to minority vendors. Another strategy is to offer something like an information tool these corporations don’t have or a location-based service that would also be useful to the other vendors (such as regional demand forecasts or an inspection service) if they let you in. While it is relatively easy to gain access to buyer-managed exchanges, there may be a few more hurdles for a smaller supplier to jump, thanks to the evolution of B2B auction software. Covisint is only one of several buyer-biased industry exchanges that permit their buyer clients to select, add, or delete the vendors who will be allowed to participate in a specific online auction. It actually touts this as an auction feature (see Fig. 3.3). But for a seller, this means that if the procurement department of the buyer’s company hasn’t heard of you, your company may not even get the chance to participate in the bidding. In such a case, the only way to relevel the playing field is to try to
Fig. 3-3. How a COVISINT Buyer Can Delete and Restrict Vendors.
Finding the Relevant Marketplace
65
attract some notice. If you are a third- or fourth-tier supplier in your industry, being among the first to sign on to a new exchange is a good strategy. Because exchanges are anxious to amass a volume of goods to attract buyers, they are often willing to extend some extra support to their charter suppliers. In private exchanges and established industrial auctions, salesmanship and the audience-building techniques described in Chapter 7 will probably be necessary to get you on the list of preferred vendors. Offering more value-added features than your competitors (as described in Chapter 8) can also help get you on the e-procurement radar screen.
This page intentionally left blank.
4 Software and Services for Creating an E-Commerce Auction Infrastructure Today a number of developers are vying to create the auction app for enterprises and small businesses. If yours is a large enterprise that already utilizes a large e-business platform from a vendor such as VerticalNet, CommerceOne, or Oracle, you probably already have auction applications built into this platform’s capabilities. More will be said about these vendors later in this chapter. If you are an entrepreneur or run a small to medium-sized business, you have probably already looked at “off-the-shelf” software and investigated offerings from several Application Service Providers (ASPs). As auctions grow in popularity as a business tool, it has become increasingly obvious that the stand-alone auction software marketplace has been overtaken by the need for tools that can be more seamlessly integrated into other forms of online commerce. In fact, if you plan to use online auctions only as a promotional tool for your product line or nonprofit organization, it’s possible to hand over the entire project to a new breed of consultants who will run it soup-to-nuts, from e-mail promotions to purchase fulfillment. This chapter will provide you with a sample of the spectrum of tools available to large enterprises and small businesses alike. The tools discussed will demonstrate the range of what is available to your business, from stand-alone tools to make selling at auction easier, to auction applications that are built into the enterprise e-business platform and integrated with every level of your business. 67 Copyright 2002 by Leland Harden and Bob Heyman. Click Here for Terms of Use.
68
The Auction-App
Tools for Selling at Auction The first area to explore will be the tools created to sell goods in the established consumer-to-consumer (C2C) auction marketplaces, such as eBay, Yahoo! Auctions, and Amazon, among a few others. A “de facto” standardization for these portals is already in process among software vendors. Not surprisingly, eBay has made it clear that it hopes one day to become to the e-commerce world what Windows has become to the software industry. Recently, the company signed a multiyear agreement with Terra Lycos, one of the largest search engine operators on the Net. This deal will integrate all of eBay’s item listings and categories into Lycos Auctions, giving Lycos users direct access to all of eBay’s item listings. And it recently took the further step of switching from a proprietary platform to IBM’s WebSphere infrastructure application to more powerfully manage a high volume of transactions. This upgrade, rolling out slowly through 2002, will make it possible for eBay to manage literally billions of transactions per day. Having captured most of the Internet auction market, the company now has a new goal: to become the “operating system” for all related e-commerce over the Internet. Toward that end, eBay has introduced technology that enables Web companies to display eBay auctions— whether listings for baseball cards, clothes, computers, or cars—on their own independent sites. Further, eBay has established a “preferred provider” classification for those programmers who are building applications to integrate with this platform. The new technology, coined eBay API (for application programming interface), reflects the company’s growing belief that it can get a larger piece of e-commerce beyond its popular online trading post. The tools to make selling on eBay easier and the companies that create them have been given the moniker Auction Management Systems (AMS). Five vendor companies have been identified as the leaders, and they deserve your attention, if only as comparison benchmarks while shopping for software and services. They are Ándale (pronounced ONdelay), AuctionWatch, Auctionworks, ChannelAdvisor, and Fairmarket. While there are other companies in the marketplace, these were chosen based on their offerings and their perceived staying power. Auction management systems generally provide the following basic features:
Software and Services for Creating an E-Commerce Auction
69
■
Hit counters
■
Auction creation tools, including templates
■
EBay auction launching (listing) tools, including bulk listing and delayed listing tools
■
Photo management storage tools, including image hosting
■
Tools to monitor active auctions
■
Postauction management tools, including semiautomated e-mail and feedback features
Competition among the players and the quickly evolving market continues to spur features like: ■
Integrated storefronts
■
Web-based automated buyer checkout
■
Integrated payment features
■
Multichannel functionality (the ability to launch auctions on sites other than eBay and to sell through other channels, such as storefronts or e-mail)
Each of the companies in the AMS space has varying levels of sophistication when it comes to the complexity of its target market and the ability of its system to handle that complexity.
Target Markets Power Sellers All of these systems can handle the Power Seller on eBay. A Power Seller is usually a person or small business that is selling at least 2000 items per month on the service.
70
The Auction-App
Mid-level Enterprise All of these systems can handle the mid-level enterprise (MLE), which is an enterprise that sells 2000 to 4000 items per month on eBay. Most of the providers have the technology in place to integrate with the inventory and accounting systems of the MLE to some degree. MLEs are usually small manufacturers or liquidators, many of whom are relatively new to e-commerce. MLEs seem to be a gray area among the AMS providers; some classify them as premier Power Sellers, and others classify them as enterprises. Enterprise The great differentiator among AMS companies is the ability of their systems to serve the large enterprise, or Fortune 2000 company, that hopes to profitably sell thousands, or even tens of thousands, of items per week at an online auction. These large enterprises require the ability to seamlessly integrate their content management system (i.e., their catalog), inventory system, payment system, customer service, and accounting system with their activities on their auction channel(s) of choice. AMS providers need to have the flexibility in their systems and the expertise in their management rosters to address the turnkey “I can do it all myself” needs of the Power Sellers and the “I don’t want to be bothered with it, take care of it for me” needs of the enterprise.
Individual AMS Providers Ándale Background: Ándale (www.andale.com) loves to boast that it has always been a “for pay” model. When the company was launched in November 1999, this may have indeed been a revolutionary idea on the Web. The CEO, Munjal Shah, grew up in Silicon Valley and idolized the entrepreneurs there, like Apple founders Steve Jobs and Steve Wozniak. When the opportunity came to create this company, he assembled his dream team and launched it. While many auction tool companies can claim to have eBay’s royal warrant, Ándale is the only AMS provider profiled here that has one of its tools featured as
Software and Services for Creating an E-Commerce Auction
71
part of the eBay registration process. Its hit counter, which it acquired through honesty.com, is the default hit counter in eBay. This is one way Ándale can claim that 75 percent of sellers on eBay use its tools. Management: The management of the company isn’t steeped in auction experience, like some others in the space, but it does have a passion for business automation. Shah and his co-founders have strong backgrounds in applying technology to business systems to achieve streamlined processes and cost savings. Their pedigrees include companies like IBM, Sun, Texas Instruments, First Data, Motorola, and Cirrus Logic. This comes in handy when they apply that experience to creating tools that enable small businesses and enterprises to effectively move inventory over the auction channel. Market Focus: The company’s focus is on serving the 10 percent of sellers who make up 80 percent of the volume on eBay. This focus is evident in the company’s system, which is built to be extensible. Through its “dashboard” a customer can manage and sell items across multiple channels beyond auctions, such as a web site, an online storefront, and direct e-mail. All of the tools are managed through a Web platform, although a desktop or local version of Ándale’s package is available to the enterprise whose volume requires offline access. Enterprise Services: If an enterprise should require extensive integration, auction management consulting, or further customization, Ándale has the processes in place to address these needs. Rates: Ándale, in its effort to provide à la carte services, has the most complex rate schedule (see Fig. 4.1). Its counter is free, but the rest of its suite of offerings is based on either variable or fixed pricing. For more difficult enterprise integration and auction management projects, fees are based on the complexity of the project. Funding: Ándale started early enough to benefit from the funding craze during the peak of the dot.com boom. Additionally, the company’s location, in the heart of Silicon Valley, helped. The company followed the philosophy of legendary small business attorney Bill Evers, “Take a doughnut when the plate is passed,” and raised three rounds of venture capital in quick succession—$2 million, $17 million, and $41 million—before the funding bubble burst. Their venture capitalists (VCs) include Accel Partners, Oak Hill Ventures, and Mohr Davidow Ventures.
72
The Auction-App
COUNTER
IMAGE HOSTING
FREE
SELL
VARIABLE
CHECKOUT
CRM
REPORTS
DESKTOP
FIXED
Fig. 4-1. Ándale Pricing.
AuctionWatch Background: The way AuctionWatch (www.auctionwatch.com) came into the game was somewhat like the founding of eBay. Mark Dodd, a co-founder, is a self-proclaimed auction enthusiast (if you are into Star Wars paraphernalia, you have probably done business with him). He saw the need to create a message board for the online auction community and did so on his personal home page in July 1998. The message board became so big, and the community around it so loyal, that he teamed up with Rodrigo Sales, a fellow auction enthusiast and Stanford business school graduate. They incorporated AuctionWatch in January 1999. The AuctionWatch Message Center is still very active and remains the largest community online where auction sellers go to trade information and seek advice from their peers. It also serves as a valuable perpetual focus group for AuctionWatch. Management: Dodd and Sales put together a solid team of experienced technologists and businesspeople who shared their passion for creating tools to make selling at online auctions easier. The team is a nice mix of old-world business and new economy experience, coming from companies like McRand International, Oracle, Cisco, CSFB, Kellogg’s, Beyond.com, e-greetings, Adobe Systems, and Wang. Market Focus: AuctionWatch contends that it controls the largest piece of the Power Seller pie, with 10 percent of the domestic U.S. listings on eBay on any given day. As the company continues to expand its reach into Power Sellers, it is also focusing on the MLE. The company’s SOHO Solution offers a complete set of tools for managing the entire auction process. Its Sales Manager—Business Edition package, for example, tacks on volume input and output data feeds into the merchant’s inventory database to move goods to online marketplaces. The AuctionWatch solutions enable merchants to sell on eBay, Yahoo! Auctions, Amazon Auctions, and Amazon
Software and Services for Creating an E-Commerce Auction
73
Marketplace and are affordable for the small-time entrepreneur. AuctionWatch is an eBay “preferred provider.” Enterprise Services: The company’s Sales Manager—Business Edition software package provides key functionality for the enterprise. In addition, AuctionWatch has built the necessary APIs to integrate with a customer’s current system. The company currently remains focused on a high-tech, low-touch solution for the MLE. Rates: AuctionWatch’s fees are largely on a per-transaction basis, with a listing fee of five cents per item and 1 percent of the final sales price. Fees for consulting, deeper integration, and customization are negotiated separately. Funding: The company has raised $37.7 million to date through an angel round and two VC rounds. Its VCs include Sequoia Capital, Technology Crossover Ventures, CMGI Ventures, meVC Draper Fisher Jurvetson Fund I, Angel Investors LP, Bulldog Capital, and Argus Capital. Auctionworks (www.auctionworks.com) was Background: Auctionworks founded in September 1999 by Alec Peters, the company’s CEO. Alec was an early adopter of eBay and saw the need for a comprehensive set of tools to make selling large volumes of goods in this marketplace more efficient. In November 1999 Auctionworks acquired Auctionspy.net and inherited its platform, technology, and customer base—along with its founder, Jerry Ablan, who is now the company’s CTO. This gave the company a jump start on its tool set. The company was an early licensee of eBay and lays claim to more than 50 percent of eBay’s “Shooting Stars” (those who have more than 10,000 feedback points) as customers. In another innovative twist, the company created a “Founders Club” to entice the top fifty sellers on eBay to use its tools. For switching to Auctionworks, these sellers, upon reaching a certain sales volume threshold, have earned the right to purchase stock options in the company. Management: On its web site the company boasts that its management team has more than eighty-five years combined experience in the auction and collectibles space. The team brings a strong background in product marketing, management, and technology implementation to the company, with past experience at Coca Cola,
74
The Auction-App
McCann-Erickson, Chicago Board Options Exchange, GE, EDS/A.T. Kearney, and IXL. Market Focus: Auctionworks has primarily served the Power Sellers on eBay, but as that marketplace has evolved, so have the company’s offerings. The company is currently focusing on the MLEs and already counts among its clients companies like Ritz Camera and The Golf Warehouse. To entice potential customers to try its service, the company provides a two-week free trial and has set up its registration process in such a way that a new customer can get an auction up and running within minutes of signing up. Currently, the company’s tools support only eBay auctions and storefronts. Enterprise Services: With half of eBay’s top twenty-five sellers currently utilizing Auctionworks’ tool set, the company appears to have gained experience in the integration of selling on the auction platform with the legacy systems prevalent at retailers. The company has a dedicated team to analyze the needs of the enterprise and use its modular tool set to meet those needs. This can lead to a turnkey solution or a totally outsourced solution, depending on the customer’s preference. Rates: Auctionworks’ customers are billed a monthly subscription fee for image hosting that ranges from $14.95 per month to $99.95 per month or a 2 percent transaction fee, whichever is greater. For its outsourced solutions, the transaction fee can be as much as 35 percent. Funding: As of this writing, the company has not raised money through the VC channel. Instead, Auctionworks has tapped a network of twenty-five angel investors, 60 percent of whom have invested in multiple rounds with the company, and raised $4 million. ChannelAdvisor Background: ChannelAdvisor’s (www.channeladvisor.com) team is “a good idea just won’t die” personified. The company was founded in July 1999 as AuctionRover.com. In May 2000 that company was acquired by GoTo, creating GoTo Auctions. In June 2001, GoTo opted to keep the auction search engine element of AuctionRover.com and spin off the auction management service. Thus Scot Wingo, the original co-founder and CEO, and Aris Buinevicius, the other founder and CTO, along with virtually the whole original management team, rebirthed themselves as ChannelAdvisor.com.
Software and Services for Creating an E-Commerce Auction
75
Management: The company’s management team is steeped in technology development. As illustrated in the background section, the executives have been together through several iterations of this company as well as successfully serving together earlier in their careers. The team is experienced in software development and tools development to meet the specific needs of the markets the company serves. Market Focus: ChannelAdvisor is the most focused on the MLE and enterprise of any of the companies profiled thus far. It has built a solid tool set with the enterprise in mind. The company’s tool set automates posting auctions to eBay, eBay Motors, Yahoo! Auctions, Amazon Auctions, eHammer, and uBid. The system also supports fixed-price marketplaces like eBay stores and Amazon Marketplace. Its current customer base is 60 percent Power Sellers and 40 percent enterprises. One current client is IBM, which hired ChannelAdvisor to set up its corporate presence on eBay and manage its marketing and promotion strategies there. Enterprise Services: ChannelAdvisor realizes that some level of hand-holding is necessary with the enterprise customer. The company has developed services for brand development, channel development, strategy development, and management of all marketplace tasks, right down to customer service. IBM, Omaha Steaks, West Marine, and Memorex are among the enterprise sellers that utilize ChannelAdvisor’s services. Rates: For full-service customers, where most of the auction management tasks are outsourced to ChannelAdvisor, fees range from $5000 to $50,000 for integration, plus a 5 to 10 percent transaction fee. For self-service customers who do the auction management themselves utilizing ChannelAdvisor’s tool set, the integration fee remains consistent, but the per-transaction fee drops to the 2 to 5 percent range. Funding: GoTo owns 18.5 percent of the company and the management team/employees own the rest.
Fairmarket Background: As discussed in the case study on this company, Fairmarket (www.fairmarket.com) has undergone many iterations of its business model to arrive where it is today. A benefit for the cus-
76
The Auction-App
tomer is the experience that this company has gained across the entire auction segment, beyond simply creating great tools for selling on eBay. Fairmarket is listed in this group because its latest advance, an API partnership with eBay to enable its enterprise customers to seamlessly sell in that large marketplace, qualifies it as an AMS. However, the company is much more than that. Fairmarket has the technology in place to provide the entire auction infrastructure, from conducting reverse auctions and Dutch auctions to selling distressed inventory via English auctions, to its customer base. Management: Scott Randall, the sole founder and original CEO of Fairmarket, departed from the company in the spring of 2001, and Nanda Krish, a board member of the company, became its CEO. Fairmarket has a management team with strong business acumen and online business experience and a technology team with deep auction functionality experience. Their collective backgrounds include stints at OpenMarket, EDS, KPMG Peat Marwick, DEC, Compaq, toysmart.com, and Andersen Consulting. Market Focus: Fairmarket has always been totally focused on the enterprise client and has a long-standing track record with mass marketers who use online auctions as a promotional tool. The company enables retailers and manufacturers to tap the potential of dynamic pricing technology easily through its hosted, scalable solutions. Enterprise Services: The company has specific solutions and pricing mechanisms for retail clearance, promotional auctions, and business-to-business (B2B) surplus/liquidation, as well as customerbranded auctions. Additionally, the company has forged a strategic relationship that enables its customers to seamlessly integrate their auctions, and the necessary information flow for inventory and fulfillment, with eBay. The company currently provides solutions to Dell Computer, CompUSA, eValueville.com, Sam’s Club, and New Line Pictures, among others. Rates: Pricing is based on the needs of the customer and the level of integration required. Funding: The company successfully completed an initial public offering on March 25, 2000. The offering was led by Deutsche Bank Alex. Brown and co-managed by Robertson Stephens and U.S. Bancorp Piper Jaffray. Although the stock has suffered during the dot.com shakeout, the company has enough cash in reserve to have
Software and Services for Creating an E-Commerce Auction
77
a significant impact in this market if it can successfully execute a sound strategy.
Choosing an AMS
POWER SELLER - MLE - ENTERPRISE
As is illustrated in the previous discussion, there are many options available to you when considering which auction management system provider is best for your business (see Fig. 4.2). A few basic information points for you to consider are given here. The Online Traders Web Alliance (www.otwa.com), which is oper-
ated by Ándale and AuctionWatch’s message board (www.auctionwatch.com/mesg/), may be slightly biased toward their sponsors but provide great forums for you to explore the pitfalls of the various services and to elicit advice from veterans who have been down the road before you. If you are considering a larger technical integration, make sure you get references from the company’s existing and past clients. Ask about the company’s specific experience with systems like yours, and find out if it has done any other work in your business field. While the final decision on a vendor may rest with the finance department as well as the CIO, getting your technologists and their technologists together in a room for a gamut of chest-thumping, acronym-dropping discussions is a must. When Omaha Steaks decided to make a larger commitment to the auction channel, its additional selection criteria included the following: (1) a seasoned account management team that was well versed in the intricacies of auction merchandising strategy, (2) the ability to be assigned a dedicated account manager who would become fluent in Omaha’s business, and (3) a liaison whose relationship with the major auction online marketplaces could be leveraged on OmahaSteaks.com’s behalf.
Try before You Buy Look for promotional offers from the services, for several still offer free trials. Assemble a team from your own company (from those wearing marketing, e-commerce, or IT hats) to create a test or pilot project and put the software through its paces. You will want to engage prospective systems and see how easy the enlistment process is, how easy it is to initiate an auction, and what benefits the vendor gives you after the sale. If yours is a small organization, you will want to extend your comparison shopping to how well you will be treated should a problem arise. For example, after you do a test, send the same inquiry to the customer service group of each of the vendors or service providers you are considering. Then sit back and judge the speed, accuracy, and originality of the responses (for example, is a robot or a person answering you?). In addition to getting an
Software and Services for Creating an E-Commerce Auction
79
impression of the graphical user interface and ease of use, be sure you dig deeper and find out how the system handles the following areas.
Look at Your Reporting Needs It is important to remember that not every item you put up for auction will necessarily sell, and that some items may fly out the door with “Buy It Now” buyers. You will need to be able to track your auctions and look at them in the aggregate. It will not be enough just to report that “this item sold for X percent of cost or MSRP.” When you examine report generators, make sure that you are getting obvious information such as: ■
How many items are up for auction at any given moment
■
The average duration of auctions
■
The total revenue from the auction channel
■
How many items have closed but not shipped
■
How many items are awaiting payment
Beyond the obvious information, be sure your provider can help you find out: ■
How many auctions are not concluding appropriately
■
How your auctions are doing in the aggregate, by item and by unit price
Some of this may sound elementary, but you may be surprised at how hard this information is to get, unless you’ve been rather firm about building robust reporting systems into your auction management software package. Don’t take your top engineer’s word that the data the program generates will be understandable to “nontechies” in the marketing department. Find out beforehand how the data you will need can be exported into a format that you can use to analyze or present this information to your management team.
80
The Auction-App
Examine the Customer Service Interface All too often, organizations forget that auctions are a very interactive channel. In addition to having a team that photographs and lists items for the auction and making sure that you’ve got a system that provides a seamless data dump from your in-house system to the auction channel, you will need to be prepared to handle the onslaught of e-mail that comes from potential bidders for your items. Mike Harper, Ritz Camera’s auction manager, says that Ritz gets on average 1.5 e-mails for every item on the auction channel. Depending on your volume, this can be a significant issue. Many of these queries can be handled with a frequently asked questions (FAQ) page and canned responses, but others must be answered individually. You will need to make sure that these questions are either routed to an existing customer service group or farmed out to one of the many emerging offshore e-mail customer service groups like AskIt.com, which is based in India. It is not uncommon for questions to be asked within an hour of an auction’s close, since that is when the bidding heats up. And most auctions end in the evening, when you are home tucking your kids into bed. Therefore, you will need to handle or assign someone else to handle this important interactive window. Whatever you do, do not ignore customer questions. Answer them, and answer them in a timely fashion. Even if you cannot respond until after the close of the auction, answer the customer’s question and refer the customer to another, similar item that may be still available for bidding or inform the customer of another auction for the same item that is either in progress or impending.
Feedback Is Important One of the key elements of public auction sites is the feedback system used to rate buyers and sellers. It is very important that you are prepared and that you have a system in place to honor and nurture this element, which is so important to the trust mechanism in the public marketplace. Fortunately, it is not difficult to create a stable of positive feedback points and randomize them to be dropped into buyers’ rating boxes. Most organizations opt not to leave negative feedback on buyers.
Software and Services for Creating an E-Commerce Auction
81
Do the Math It may be appropriate to start with one provider and move to another once a certain volume of sales is reached. Stay on top of the pricing structures of the various providers and determine at what point you should start to consider jumping ship. Most of the services provide “auction import” functions, so moving to a new provider should be almost as easy as transferring a credit card balance to a new card. If you become big enough, don’t rule out going to the provider’s vice president of sales and negotiating a special rate. Additionally, do not forget to put people into the equation. Most of the companies interviewed for this book found that they needed more human power to make their auction endeavors a success— more new people—than they had originally projected. Consider that additional staff may be needed for listing, inventory management, merchandising, technical support, and—especially—customer service. The biggest disservice you can do yourself and your organization is to buy a great squirrel cage and not have enough squirrels to make the wheels go round.
Auctions as Part of Your E-business Platform It’s clear that business-to-consumer (B2C) auctions are now being subsumed into order management and content management applications for online retailing. Companies like BroadVision, Blue Martini, and others have moved quickly away from the B2C focus as their peers in that market segment mostly went out of business. The consolidation of auction technology into order and content management applications is happening rapidly. If your company is still in the e-commerce dark ages, the decision on auctions becomes very easy, for the technology can be picked up for next to nothing as part of sell-side order and content management applications. This section will examine a few of the companies that provide auctions as part of general e-business solutions. Most of the players are publicly held companies, so their relative health and staying power is a topic of open discussion. A more complete listing of companies available for outsourcing and strategic systems development can be
82
The Auction-App
found in industry white papers that can be purchased online. One that we recommend is Aberdeen Group’s report, “Strategic e-Sourcing: A Framework for Competitive Advantage” (for more information, www.aberdeen.com).
Ariba Founded in 1996, Ariba offers hosted solutions for online trading and runs its own commerce network brokering business-related Web services. It recently acquired Tradex, Trading Dynamics, and Agile Software, and it has a long-standing alliance with IBM Global Services. Packages for buyers and sellers include Ariba Sourcing, which is available as a stand-alone suite or can be integrated into the company’s other e-commerce applications. Online industry exchanges that run on Ariba systems include CheMatch (industrial chemicals), RateXchange (bandwidth), PennNet (gas and oil), and Inc2Inc (food manufacturing). Like most of its competitors, Ariba is pushing e-procurement on the buyer’s side, with products such as Ariba Buyer, which allows companies to either set up their own in-house auctions or participate in the SmartMatch program and reach 14,000 prequalified suppliers and an additional 30,000 suppliers through Ariba’s commerce network. An interesting innovation is the Ariba Pcard, which electronically verifies and authorizes payments for purchase orders and spot buys online.
CommerceOne Having successfully targeted Global 1000 companies in key industries such as computers, aerospace, government, and health care, CommerceOne is moving to provide auction capabilities to midsized companies. A year 2000 partnership with SAPMarket has produced the MarketSet e-Marketplace Suite and the Enterprise Buyer, which automates supply-chain procurement. Having also acquired AppNet, a consulting firm, CommerceOne is well placed to deliver customized solutions. NetMarketMaker and RoundTrip, a catalog content management tool, have been used by such clients as Simplexis, a marketplace for school supplies reaching over 400 school districts that managed $20 million in transactions in its first year.
Software and Services for Creating an E-Commerce Auction
83
A current focus is on wooing the e-procurement buyer market with online request for quotation/request for proposal (RFQ/RFP) programs that enable negotiations to include weighting factors for quality parameters. Auction services are provided through CommerceOne.net, which has links to independent agents for payment, freight shipping, and escrow.
eBreviate Originally spun off from A.T. Kearney’s procurement consulting services, eBreviate was totally funded by Ross Perot’s flagship company, EDS, in 2000. Its products are largely buyer-driven and include software for setting up in-house auctions. This can be linked to an online support network that will manage live auctions and online negotiating with, as in CommerceOne’s offering, weighting factors for quality parameters in multiple languages and currencies. The company’s big fish is Volkswagen, which, with more than 800 auctions per year, auctions “practically everything.”
FreeMarkets FreeMarkets would prefer that sellers participate in its own online auctions, but it has bowed to the e-procurement god and now offers an array of packages to help buyers create in-house exchanges. These include FullSource, a hosted turnkey service for global e-procurement; Direct Source, software that links buyers to FreeMarket’s own online exchanges and extensive supplier networks; and QuickSource, a stand-alone package for small companies that want to run their own private net markets. It will also set up and manage real-time auctions among a small group of participants using its BidWare application.
Oracle Oracle sells a wide range of business-related software to large and small businesses alike. Its entry into auctions began on a broad scale with its Oracle Global Exchange Network. Oracle systems power several exchanges in heavy industry, such as GlobalNetXchange (oil and gas) and Covisint (automotive).
84
The Auction-App
In the past, Oracle targeted Fortune 1000 companies with its marketplace technologies, but it is now aggressively pursuing midsized firms and has gone so far as to trash Ariba, currently its main competitor for the MLE market, on its corporate web site. The iSupplier, for example, is a small business suite for companies looking to automate catalog management and RFQ generation so that they can participate in online exchanges.
Siebel Systems Siebel Systems was founded in 1993 and its chief executive, Thomas Siebel, still owns 15 percent of what today is a multibillion-dollar enterprise built around sell-side technology. In 2000, the company acquired OpenSite, an auction management provider. This has been folded into the Interactive Selling Suite Business Unit as part of a hosted application known as the eAuction Application. Designed to let sellers build auctions for inventory reduction and promotional sales, the legacy of OpenSite spans many vertical markets, including energy, finance, and retail. The eAuction package is available as a stand-alone application or as part of Siebel’s eCommerce package. It supports English, Dutch, reverse, sealed bid, and private auction mechanisms. Not surprisingly, much of it was designed with CRM in mind, so it keeps track of bidder profiles and bidder histories, and can separate out customer data. Most importantly, it can be integrated into Siebel’s e-commerce management systems, which include online marketing campaign management and customer-collaborative technologies.
VerticalNet Originally meant to be, like CommerceOne, a “mother of all marketplaces,” VerticalNet will now help you set up your own auction, although it would prefer that both buyers and sellers participate in its own online trading properties. In 2000 the company acquired Tradeum, which had developed auction and exchange platforms for direct materials markets. This expertise is now marketed through a subsidiary, VerticalNet Solutions, as a set of hosted applications.
Software and Services for Creating an E-Commerce Auction
85
Ancillary Services No rundown of auction solutions would be complete without mentioning the range of specialty services that have sprung up around the industry like mushrooms after an autumn rain. Some of these are stand-alone offerings that are integral to other forms of e-commerce, while others were spun off from the real-world auction realm.
Electronic Payment Systems E-commerce sites that are set up for credit card purchasing may also wish to increase their own protection by linking with services that vet and verify payments made online, by phone, or by mail, in exchange for a small fee. Leaders in this category are PayPal, which is popular with small-time operators, and Billpoint, which is partly owned by eBay and Wells Fargo.
Escrow Services These are virtual “banks” that will hold a buyer’s payment until the seller has delivered the purchased item in good condition. Real estate, automobiles, business machinery, raw materials, and commodities may need to be sold this way. While many industrial exchanges offer escrow as a service to participants, it’s usually outsourced to a professional firm, and it may be worthwhile to draw up your own deal with an escrow outfit to save on fees. Tradenable (formerly i-Escrow) and Escrow.com are two escrow companies that were created specifically for online trading, and they are flexible enough to handle a single item, promotional or charity auctions, and small lots.
Dispute Management/Mediation Expect to see this service sector grow as more companies engage in e-procurement worldwide. The pioneer with the most experience is SquareTrade, an online dispute mediation service that is a primary provider on eBay as well as several other auction portals. Among other innovations, it has created an “automated” mediation program
86
The Auction-App
that allows buyers and sellers to iron out settlements by typing their grievances and grudging compromises into input fields, instead of having to speak to each other directly. SquareTrade will also provide a human negotiator—from a stable of several hundred professionally trained mediators—for as little as $15 to help iron out disputes between buyers and sellers.
Appraisals/Inspections Appraisals help sellers set a reasonable asking price; inspections help buyers who are too far away geographically to “kick the tires” before they bid. Auction sites and industry exchanges now include these services as a benefit to participants, but they are usually managed by “independent” and thus theoretically unbiased players (see Fig. 4.3). Depending on what you sell, if you are planning to run your own web site auction, you may wish to add this capability by outsourcing. DoveBid, for example, has its subsidiary DVS (Dove Valuation Services). IronPlanet has teamed with DynCorp Services for appraisal and inspection services, and the reports it issues are insured against inspector negligence. While this service sector is expected to grow in the B2B marketplace, activity in the consumer marketplace has been largely a retreat to offline appraising or online pricing databases. Eppraisals.com, for
DISCUSSION GROUPS PAST
NOW
FUTURE
Fig. 4-3. Evolution of Trust Mechanisms.
FEEDBACK
FULL RECOURSE
Software and Services for Creating an E-Commerce Auction
87
example, charged $20 per item for online appraisals of antiques and collectibles, paintings and sculptures, or coins and stamps, and jobbed the work out to more than 1000 experts and specialists. But this site went out of business in the summer of 2001—perhaps it was slightly ahead of its time. The average consumer looking for appraisal services online is now usually directed to the web site for the American Society of Appraisers (http://www.appraisers.org), which will answer a query with a listing of its members, winnowed by geography and area of expertise.
MARKETPLACE
BUYER
EBAY AMAZON YAHOO!
SELLER
VS.
BUYER
E S C R O W
L O G I S T I C S
MARKETPLACE
Fig. 4-4. C2C/B2C vs. B2B Marketplaces.
A P P R A I S A L
W A R R A N T Y
SELLER
88
The Auction-App
Securities and Seals of Approval Encrypted or secured transactions are required for many sorts of online trades, and assurances of server integrity or buyer protections will add to the consumer appeal of your offerings. If you’re not already using this kind of vendor for e-commerce, you may wish to add this capability so that you can proudly display these comforting logos on your home page. The leading “brands” for e-tailers include Verisign and TRUSTe. Inspection, warranty, and logistics services are part of the valueadded features you’ll see at all successful auction sites and online industry exchanges (see Fig. 4.4). If your own company happens to handle these services well for its existing customers, consider migrating your talents online to help other participants. Offering services can help you create better visibility in a crowded B2B exchange. It is also yet another way to spin out some revenues from your experiments in online marketplaces. (For more on this strategy, see Chapter 8.)
5 Key Elements for a Successful Auction on Your Own Site or a Portal This chapter looks specifically at how to use auctions for promotions and customer acquisition. Whether you are a worthy charitable organization or a Fortune 2000 company pitching disposable lifestyle products to the Generation Y mass market, the principles of running a successful online auction remain the same.
Why Online Auctions Are a Branding Issue Retailers have yet to grasp the promotional opportunities in online auctions, but many understand that online marketing that is targeted to a specific audience segment can and may require a separate online brand. While online demographics are rapidly approaching the mainstream, Web users have completely different buying patterns that need to be addressed if you want to promote your brand and sell your products to this group. Kmart, for example, uses www.bluelight.com to sell fashion, electronics, and music products to young, hip consumers who don’t shop the retail outlets like their parents do. The web site’s name is a riff on the in-store “Blue Light Specials.” The Web brand is complementary, and supports the older brand in a positive way. Fischer Scientific, one of the most venerable names in amateur 89 Copyright 2002 by Leland Harden and Bob Heyman. Click Here for Terms of Use.
90
The Auction-App
optics, hobby lab equipment, and serious scientific instruments, made up a new online brand to sell discounted wares. Fairmarket helped create the venture, known as Einstein’s Garage (www.einsteinsgarage.com). It’s built around auctions, and every trick in the auction book is used there: Dutch auctions, English auctions, fixedprice shopping, a “buy it now” feature (called Quick Win), a used equipment section, and even a classified section for “wanted” merchandise and consumer-to-consumer (C2C) exchanges. The Fischer Scientific connection isn’t hidden, but it’s fairly well masked with brightly colored pages and a lab rat mascot figure. And this represents one of the more seamless ways for a high-end retailer to draw new customers with the auction app. Established names in the entertainment and hospitality industries are already using online auctions strictly for branding purposes. The roster includes Miller Brewing, World Wrestling Federation, Condé Nast, Playboy, Warner Brothers, New Line Cinema, and NBC. There’s no reason why Tiffany’s couldn’t run an auction, for example, as a Valentine’s Day promotion on its stuffy home page. After all, bargain hunters can still find a set of diamond ear studs and diamond engagement rings in the $1000 range among the six-figure emerald, sapphire, and ruby jewelry in Tiffany’s online listings. The result might be an influx of new, younger customers with lifetime value. In short, any company with a brand online can find a way to promote either its own brand or a complementary spin-off.
Set the Branding Goal Branding often first comes into play when the products to be sold in online auctions are distressed or less salable goods from premier companies. These need to be separated from auction sales that are meant to be promotional, and this can be done in a classy way. Consider the many outlet malls within driving range of major cities. Once these became weekend destinations for upscale shoppers, companies like Coach, DKNY, Ralph Lauren, and Kenneth Cole were happy to set up discount stores there. As in much of retailing, location is king. In the online auction universe, there are four pathways you can use to find your bargain-hunting customer. The first is selling items through a broker that will place
Key Elements to a Successful Auction on Your Site or a Portal
91
the items in one or more auction portals. Your brand name may appear in the title listing, but it’s not clear to the consumer that you, in fact, are peddling the item. This works fine if all you want to do is get rid of excess inventory in a quiet sort of way. The second pathway is to set up your own auction page on a portal. Bidders who are interested in individual offerings have the chance to see all of your wares at a glance, leaving open the possibility that they will buy or bid on many things that you have for sale. This works fine for entrepreneurs, but while it can bring you customers, it doesn’t exactly build a brand and it makes MLEs look pretty cheesy. Auction portals now present merchants with a third pathway: a tiny “storefront” that will allow you to sell goods and services through fixed-price shopping. The storefront may lead to your home web page, or it may lead to a microsite that you’ve set up for sales through this portal. Theoretically, you can use this portal to attract auction visitors to your e-commerce site. As veterans of e-commerce, the authors take a dim view of the way storefronts are treated on auction portals, and how successful they can be. They are reminiscent of the old-fashioned cybermalls of the mid-1990s, where vendors were lumped together in geographic listings on Geocities and Sidewalk.com. When was the last time you wanted to buy something online and made Geocities your first stop? By comparison, take a look at how merchant companies are treated at shopping destination sites such as www.giftcertificates.com and www.fashionmall.com. The brand-name retailers clustered on these pages have no interest in storefront ghettos where they will be cheek by jowl with competitors who are not their peers. The moral once again: location, location, location. The fourth pathway is to create your own auction on your own web pages. It’s not necessary to place the auction link on your home page. In fact, it is preferable to set up a microsite that can do double duty—it can be created as a short-term promotional venue and at the same time be used to collect valuable market research information from visitors attracted to its auction function. Microsites are not expensive by themselves, and can be set up quickly. If you’ve read Chapter 3, you probably know what to sell and where you might sell it through existing exchanges. If branding and new customer acquisition are going to be the primary goals of your
92
The Auction-App
auction venture, creating your own microsite auction, or finding other ways to lead auction bidders to a microsite, will give you more flexibility and creativity than using outside agents.
Building a Microsite Making your home page the destination is not just old-fashioned, it also is neither the most evaluative nor the most useful option. Smart Web marketers channel their clicks into a microsite, a temporary web page that supports and enhances the promotion. Microsites work by stretching the visitor’s latitude of acceptance, or what salespeople call “getting a foot in the door.” A user may see an ad banner referencing cowboy boots: liking either cowboys or boots, he then clicks through to a microsite that’s all about cowboy boots. The microsite invites the user to further action: get more information about cowboys (updated rodeo schedule) or more information about boots on sale (sales promotion). Either path can create an ever-deepening excursion into the pages of the Billy Bob Tack and Rack Emporium Web site, lead the user to a sign-up page for further promotions, or make a direct sale. Billy Bob will glean useful information: server logs will reveal not only how many users clicked through to the microsite, but how many are interested in cowboys and how many are truly interested in boots. If the focus of your promotion is not sales but market research, microsites can provide an environment for even higher levels of consumer testing. The technical parameters of microsites are not daunting: once you already have Web pages on your domain name server, adding new pages is like adding telephone extensions to an existing telephone line. A temporary IP page address can be appended to your home page address with a slash mark (www.billybob.com/cowboymania) but designers and domain name servers seem to prefer that temporary pages be pre-pended with a period mark (www.cowboymania.billybob.com). Listing the new address is done by the domain server host, and if you have good relations with your hosting ISP, the process of getting a microsite extension added to your server file usually takes a day or two at most. When the promotion is over, a request
Key Elements to a Successful Auction on Your Site or a Portal
93
is again made to the host, this time to “disconnect” the extension address. — From Harden and Heyman, Net Results.2: Best Practices in Web Marketing
Line Up Inventory and Resources Can you run an auction without a portal? As noted in Chapter 4, finding hardware and software partners to handle the technical end of things is fairly simple and well within the reach of most marketers. The real question is whether what you’ve got to sell is sufficiently compelling to drive enough participants to your site to make the auction work. Having the right “content” makes a difference. The best things to sell on the Web are things that are hard to get elsewhere. Einstein’s Garage works because it’s pretty hard for a kitchen sink chemist to find a titration solutions blender at the local mall, let alone find a Model Turbo2 with its own thermo printer that’s priced at $5000, which is 60 percent below retail. The next question a thoughtful marketer will ask is, “How many people want to buy a titration blender?” Having sold such items for years, Fischer Scientific probably has a pretty good idea of how large this market is and whether it’s worthwhile to find new customers in this fashion. Consider also that this venerable company has catalog mailing lists that stretch back decades. Since traffic is 90 percent of the auction business, the most successful companies are those that already have large client lists. It’s a paradox but an important one: Because buyers “compete” at auction, the most successful auctions will be those with the largest pool of active participants. If your current client roster is not extensive, you may be better off using an auction portal, not your own site, for promotional selling. A good name in your industry is a key ingredient if you hope to turn your e-commerce outpost into a trusted medium for trading that includes products from other, complementary suppliers. This asset is fortuitous in industrial marketplaces, where suppliers may be “famous” only within their own specialties. Suppliers that already
94
The Auction-App
assist buyers in their markets—for example, by providing advance financing, demand forecasting, or consulting to their customers, not just a product line—will have an easier time gaining trading partners and attracting new clients as auction participants. One firm that has taken its good reputation and run with it is PricewaterhouseCoopers, which launched PwC e.conomy (www. pwc.economy.com) as a business-to-business (B2B) marketplace for maintenance, repair, and operations (MRO) product and service vendors. Drawing on its own experience as a supply-chain consultant, it amassed several thousand vendors vetted by its imprimatur. This in turn could attract several thousand e-procurement buyers. Many of them will be previous or existing or even future clients of its accounting and consulting core business. A strong brand asset helps, but, as history has shown, it is possible for companies to create brand presence using Web techniques. Priceline and eBay are just a few of the most visited web sites (as rated by Jupiter/MediaMetrix or Nielson/NetRatings) that are household names to tens of millions, yet didn’t even exist as companies ten years ago.
Auction Rules, Registration, Payment, and Delivery Options The rules for auctions are outlined in the “Terms of Service,” which are accessible on any auction site home page. These lay out the responsibilities and liabilities of bidders, buyers, and sellers and include such basic requirements as age limits for participants (18 in most cases), privacy statements, and what payment terms are acceptable. A tour through the “Terms of Service” of auction sites similar to the one you are planning will give you the basic template for your microsite. IronPlanet’s terms, for example, provide some useful guidelines if you’ll be selling industrial or big-ticket items—such as a $2000 penalty if a buyer defaults on a sale. Just as at the better portals, visitors to your auction microsite should be allowed to browse through the offerings and take note of the current bids for free. However, bidders must be registered. This is your opening salvo in your attempt to secure mailing list or market research data for your company. It is also one of the main reasons to
Key Elements to a Successful Auction on Your Site or a Portal
95
hold the auctions on your own site or microsite—any customer data you gain is yours and yours alone. Promotional and consumer auction registrations are usually free. This being the case, try to restrain yourself from asking too many questions aside from e-mail address, shipping address, credit card/payment verification, and “May we send you notice of future auctions or events?” Offering the visitor a choice of items to bid on before asking for registration material can be helpful to set up a binary/Boolean pathway that separates visitors into useful demographic clusters as they move through the site (see the sidebar on microsites). You need to set up payment mechanisms, which should include alternatives to credit cards. PayPal is one alternative for an online “wallet.” While any seller can apply for a PayPal account, the “Merchant” account option offers slightly lower fees for sellers doing $1000 or more in volume per month. Other vendors of payment services include Billpoint (owned in part by eBay and Wells Fargo), Yahoo! PayDirect, AuthorizeNet, CheckSpace, and VeriSign. Figure 5.1 shows some current data on fees for payment systems. Before selecting a service, check the fine print for hidden fees—for example, Billpoint currently charges an extra 1 percent of the total transaction for international buyers, whereas PayPal does not. American Express and Visa have also been experimenting with online “wallets,” in this case to attract consumers who are still wary of using their credit cards to pay for purchases online. Retail merchants generally have standing arrangements with these and other
Rate Type
Fee
Fee if PayPal Preferred*
Standard Rate
2.9% + 30¢
1.4% + 30¢
Merchant Rate
2.2% + 30¢
0.7% + 30¢
* PayPal Preferred fees calculated by subtracting 1.5% debit card cashback from the Standard and Merchant Rate fees. Fig. 5-1. Paypal Fee Schedule.
96
The Auction-App
credit card companies, and may want to explore whether store credit cards could be used for auction buying as well. If you are an entrepreneur or run a home-based business, you may have to set up a merchant account that will allow you to accept credit cards for payment. This is particularly crucial if you hope to use auctions to attract new overseas customers. Decide if you will also accept money orders, checks, or currency other than U.S. dollars. If you’re setting up a promotional auction through a large portal site, such as FreeMarkets or Amazon, or with the help of an AMS consultant, different payment options will come with the service. What is not often built in is who will pay for shipping, delivery, and insurance. Once the auction has been closed and the sale made, will those Hawaiian vacation airline tickets be sent by Federal Express or by Priority Mail? Will those widgets be shipped F.O.B. or C.O.D.? Good manners suggest that in a promotional auction, the seller should shoulder the shipping costs. This works if the promotion is pure branding for a mass market product, a TV show, a movie premiere, an industry live event, or a charity. Offering to pay for shipping can also be used as an incentive in business auctions. Use this incentive if the purpose of your offering is to pry loose a contract from a big buyer who is using a competitor’s goods (thus cutting down the buyer’s resistance to switching), but be sure to figure the cost of the delivery into your minimum price. If the purpose of the auction is to acquire new customers for your e-commerce web site in an ongoing fashion, don’t be so quick to create a precedent. Free shipping policies killed many a dot-com (Kosmo and Pets.com, among others), even as savvier retailers (Amazon, bn.com) used shipping fees to restore a bit of margin on heavily discounted products. Even in the Dutch auctions that run at Sam’s Club, winning buyers pay for shipping. And Miller Brewing Company’s auction promotion for its beer products, for example, let the winning bidders pay for shipping of the logo clothing and knickknacks. This helped keep costs down, or at least consistent, for the promotion, even though the winning bids for the items sold varied. One trend among sellers on eBay and Yahoo! Auctions is to charge winning bidders a “handling fee” per transaction, as well as postage. This fee is used to recoup the per-transaction costs that occur each time a seller uses a payment services vendor (see Fig. 5.1). It can also be used to cover general shipping expenses, such as the cost of bub-
Key Elements to a Successful Auction on Your Site or a Portal
97
ble wrap and padded mailers. The best policy is to state up front what your “handling charges” are, especially so that consumer sellers can figure this cost into their overall bid cost. Three dollars here, twenty-five cents there—it all adds up in the end. Anecdotally, no one’s been complaining that tacking on a “handling” charge is driving away buyers in C2C auctions. In business-to-consumer (B2C) auctions, a handling fee is a small cushion against the additional expense of using a payment service, over and above the fees you are already are paying to your credit card vendors. In short, logic suggests that you “do the math” to determine what your true selling costs will be. Running statistical models is recommended. Once you have a clear idea of what your average selling cost and break-even point will be for each item, it becomes much easier to take the next step, which is to evolve a pricing strategy for selling goods at auctions online.
Determine Pricing Strategy Todd Simon, senior vice president of Omaha Steaks, says that consumers ultimately know what something is worth. Inevitably, the goods at Omaha’s auctions sell for 80 to 85 percent of retail. However, setting a minimum bid of 80 to 85 percent of retail isn’t going to gain you many fans among the auction community, or among your regular clients, either. Shoppers expect discounts routinely, so an auction must be something special—a chance for the consumer to “win” a product, not just buy it. This is one place where the Pantyhose Principle—having support at the top—is very important. Identify beforehand what your organization’s profit expectations are. If you are moving excess inventory or refurbished merchandise, do your homework and draft out a range for what the return should be compared to that from traditional channels. If you are moving new goods, have the numbers in place to compare customer acquisition costs to the cost of selling in the auction channel versus the retail storefront, web site, or catalog. The operational efficiencies of selling through an online auction are much greater than selling at retail. Consider the advertising and marketing benefit—the branding benefit—in terms of a dollars-and-sense comparison to what a print or TV campaign might yield.
98
The Auction-App
The Loss Leader Many selling companies are familiar with the practice of choosing a product as a “loss leader.” That’s a product that is priced well below the profit threshold because its role is not to make a profit, but instead to “lead” new clients to the seller, who will make up the difference in future business from those customers. Many e-tailers went out of business in the last decade because they failed to distinguish between solid promotional selling and self-mutilation. Customer acquisition costs of $100 or more make no sense in mass marketing, online or off. Instead, we need to remind the reader of something we said in Chapter 1: If a product is sold at auction for 50 percent of cost, that means that the difference between cost and selling price was the customer acquisition cost. In most cases, this should be a lot less than what it would have cost to acquire that customer through a direct mailing or an e-mail sales pitch. If auctions will be ongoing on your retail site, figure in all costs, including staff and bookkeeping time, inventory management costs, and shipping and transaction fees if applicable, when determining your minimum price or opening bid.
Increments, Reserve Prices, and Minimum Bids Bid increments are determined by the opening price on most exchanges, and are generally standardized by the auction portal. C2C auctions may accept increments from low as ten cents (for an opening bid of $1) to as high as ten dollars (for an opening bid of $500 and above), while B2B auctions may set the minimum amount for a bid raise between $25 and $250 per lot. A reserve price is the minimum price you will accept, the lowest you will go. To a person, every executive at the Auction Management System providers who was interviewed for this book said that retailers who set the reserve too high do not get any action. Consumer auctions are run in increments of dimes and dollar bills, and people genuinely want the chance to walk off with a Maserati (or even a toy one) for $14.95. They will feel surly and cheated if you set the bar above their means. If your auction is promotional, don’t set a reserve price. This leaves you with the lonely leverage of the minimum bid, oth-
Key Elements to a Successful Auction on Your Site or a Portal
99
erwise known as your starting price. One strategy is to start at $1 and see how high the bidding will go. That’s great if you’ve already got lots of visitors and the item is pretty cheap to begin with. A 70 percent discount might be a “normal” asking price for apparel and housewares, because consumers can often find similar bargains in end-of-season blowouts at their local shopping mall. Low starting prices can jump-start auctions—all it takes is one curious bidder to get the ball rolling. There’s no shame in trying different strategies just for the feedback and experience. A computer reseller recently posted several HewlettPackard “Audrey” computers (a discontinued basic model) in staggered auction sales. A little bidding research revealed that one unit was given an opening price of $1, but a reserve price of $100. Another identical unit advertised “no reserve price” but had an opening price of $100. While each auction is a random experience, over time the prices for similar items tend to stabilize. The average final price for the Audrey units turned out to be $111 (see Fig. 5.2). So no, you don’t have to start with a minimum bid of $1, and no,
Final Price $88.50 $88.50 $139.00
Opening Bid $1.00 $139.00*
Auction Duration
Number of Bids
7 days
13
3 days
1
$80.00 $80.00
$1.00
3 days
18
$71.00 $71.00
$9.00
3 days
1
$122.50
$49.99
3 days
9
$139.00
$139.00*
3 days
1
$100.00
$10.00
3 days
10
$102.50
$1.00
3 days
17
unsold**
*These items were given a "Buy It Now" fixed price and sold at that price on the second auction day. **This item was later re-listed, with a $15.00 opening bid, then sold at $125.00. Fig. 5-2. Tracked Sales of 10 Audreys from a Single Vendor.
100
The Auction-App
you don’t have to reinvent the wheel. To gain faith in the channel, do a search on items in your inventory that you are considering selling at auction. On eBay, click on “Smart Search” and then the “Completed Items” tab (http://www.pages.ebay.com/search/items/ search_completed.html). This will give you an idea of what your expectations should be. (For other research resources, see the section on auction bots and spiders in Chapter 6.)
Design the Offering with Categories, Key Words, and Screen Art The key words in any consumer auction listing title include the make, the manufacturer, used or new, the condition, and the phrase “no reserve.” As difficult as this may be at first, a seller needs to have faith in the dynamic marketplace. With 35 million registered users at eBay, it is hard to fathom that none of them would be willing to pay a fair price for your product. However, in a promotional auction, you are less interested in finding that one happy winning bidder than in gaining the attention of all those millions so that they will know that you and your company exist. Calling attention to your wares among the clutter is not an easy task. If you’re using an online auction portal, the first trick is to make sure you are putting your item into the right category or subcategory. Yahoo! Auctions, eBay, Amazon, and even FreeMarkets offer some helpful hints for first timers in the FAQ pages of their web sites. List the same item in multiple categories to attract the greatest number of bidders. That cigar store Indian statue may fit into categories for Americana, wooden carvings, commercial store fixtures and signage, and collectibles for smokers. Since the statue is likely to be a high-priced item, don’t place it among the collectible ashtrays. But among antique humidors? Yes. E-commerce veterans will note that the strategies for getting into the right category for an auction are amazingly similar to those for getting your web site into the proper search category on a search engine. And this is even more true when it comes to titles and key words. The sheer volume of offerings on a portal lends itself to targeted, 100
Key Elements to a Successful Auction on Your Site or a Portal
101
one-to-one marketing. No one sits down and looks at all the listings on an auction portal—it would take years. People gravitate to the things that interest them (thus they “qualify” themselves). On eBay, as on most general auction sites, a buyer who is already primed and ready can search for a wanted item in two ways. The first way is to search by the key words in the listing (also known as the title). In this case, a seller of Southwestern Kachina dolls will put “Kachina” in the title, and a buyer searching for Kachinas (which are handmade, elaborate ceremonial figurines) will find the listing quickly. But if the seller was too general and titled the offering, “Ceremonial Figurine,” a buyer who is looking for a Kachina may miss it all together. The second way buyers can search is by a global search of all the items in the offering description. This means that every word in your description becomes a key word and a search hook. So even if the title was “Ceremonial Figurine,” if the body copy of the description mentioned the word Kachina, the buyer would find it through this method. Here’s an example of a good description in this category: A Fine OLD Classic: New Guinea Mendi Shield If you acquire only ONE New Guinea shield for your collection this year consider this bold and striking example. It is an early and rare classic artwork deserving of the most discriminating collection. From an old Australian collection comes this GUARANTEED AUTHENTIC fine older example of a classic Mendi War Shield, Southern Highlands, New Guinea. This particularly large shield, with its finely crafted central ridge, has bold ochre remnant decoration to the front, arrow holes, a wonderful aged knot in the old wood, and features the undecorated areas showing fine glossy patination. It still retains an old carrying strap to the reverse. It is a nice combat used example with authentic arrow embedments to the surface. This example was likely collected forty or fifty years ago but is certainly much, much older than the collection date judging by the under lying patina and worn wood surface. Circa first quarter last century. Measurements: 50” high and 16.25” wide. Recent resale and Tribal art shows record prices of between $2500$3500 for these fine old shields. However this shield’s owner has
102
The Auction-App
placed a significantly more modest reserve on this one so here is a genuine opportunity to own a superb example for substantially less. This is a bold and striking example that deserves a home in the finest collection. GUARANTEED AUTHENTIC- bid in confidence we have received over 450 postive feedback and no negative feedback from eBay customers worldwide. INTERNATIONAL BIDDERS WELCOME- we have many satisfied international customers from all corners of the world. OUR PLEDGE: All items are guaranteed as described to the best of our knowledge. 3 day return privilege less fees, shipping and insurance. Buyer pays S&I. See more fine Tribal artworks on ebay! And here’s an example of a poor description in the same category: Pregnant lady statue pygmy wood This little statue was brought over from Indonesia; it is of a pregnant lady, with a feather headdress. It measures about 15” high and is carved from the local wood there and stained dark. I think she is adorable! Shipping will be only $5.00 for surface. Notice that the good description has good marketing copy designed to appeal to the audience segment—the collector. It describes the piece fully and makes a point of touching on all the issues pertinent to this species of art buyer: the object’s age, its provenance, and sales figures for comparable pieces. The copy also makes a point of mentioning assured authenticity, the seller’s favorable ratings, etc., to emphasize the seller’s credibility. Terms of payment and the seller’s return policy are also briefly touched upon, providing a further veneer of professionalism. The bad description speaks for itself: It is needlessly short, with insufficient detail. The statement that the seller thinks the statue is adorable is meaningless. If auction sites are a lot like search engines, it makes sense to treat them like search engines and do search engine optimization. Generally, the same key words you will use to troll for bidders in Google and Lycos (see Chapter 7) may be the best key words to use if your goal is to attract a broad audience from among the millions who search the bigger auction portals for specific items of interest.
Key Elements to a Successful Auction on Your Site or a Portal
103
Surprisingly, this is an area where many promotional auctions fall short. Someone who is bidding on an item for a charity auction or a TV series tie-in will be hungry for content. Be descriptive in your description. Is the item new or used? In what event or scene was the prop employed, where was the wine bottled? Is that leather jacket “sleek” or “buttery smooth” or “puppy soft”? Colored text or colored backgrounds for your description can also help win higher bids. The trick is not to make a text description look too “busy.” Highlighting only certain words, or a single sentence, with color, italics, or uppercase letters will communicate your most important selling point quickly to someone who is bored or browsing quickly. Consider designing a “style” for your portal auction descriptions that complements your brand. You might use your company logo colors to highlight words or sentences. Both of these techniques will help familiarize frequent browsers with your business. And, just as on search engines, you can pay to get more attention. On Yahoo! Auctions, getting your item highlighted in a listing costs $1, and a “feature” listing can cost as little as ten cents per day. Expect to pay a few dollars more if you want to be a “featured” seller on eBay, where the benefit is that your listing moves to the top of any page being searched in your category. Power Sellers swear this is worth the extra money, especially for higher-priced items. If the goal of your auction sale is promotion, by all means pay what it takes to be persistently “ranked” at the top of a listing page. While you are researching prices on closed auctions, take note of what descriptions seem to be gaining the most traction. Note the key words that are most prevalent for the kind of product you are pitching, and use them when you design the title and text message of your offering. “Hot,” “Vintage,” and “New” are always good Unless you are selling telephone routers or other gray box items, always include, with your description, a detailed picture of the items you plan to sell. Digital images can be captured with consumer-level cameras. If you want to see how creative entrepreneurs can be with single-item auctions, check out the lingerie selections on Yahoo! Auctions—but bear in mind that straight product shots work just fine.
104
The Auction-App
Scheduling and Timing the “Launch” and “Close” In the early days of eBay, it was hard to schedule an auction. Everything went on 24/7, so the time you entered an auction was the same time it ended five or seven days later. This was easy and convenient for auction portals, and helped make the auctions fun for insomniac buyers, but it wasn’t always efficient for the sellers. If you wanted to start an auction on Saturday morning, you had to cool your heels until that time. Later, auction management software made it possible for you to amass and store your auction offerings, then set the “launch” to go off automatically. These tools also help to keep track of the launches and make it possible to compare launch timing and auction durations to perfect the optimum time for the “open” and the “close.” After some years of this, a few best practices have emerged. Unless you want to sell complete pallets or lots of merchandise, stagger your start and end times for identical items. Andre Brysha, vice president and chief marketing officer of Ritz Interactive Inc., the e-commerce arm of Ritz Camera, says that auctioning several copies of the same item simultaneously tends to bring down the price. This is logical. Any consumer, when shopping, will do price comparison. If a bidder goes to an auction site and sees that there are ten identical items, with bidding on all of them ending at approximately the same time, the bidder will go to the item with the fewest bids—or, in the worst case, no bids—and snipe right in there. Keep this dynamic in mind when planning your auctions. For example, if you have ten Palm Pilots to sell, set the auction up so that each end time is an hour or two away from the next one. Experiment with the distribution of the end times. In a dynamic marketplace, experience on bidding for an item and getting beaten will push the price higher. If there are ten bidders for the Palm Pilots, you will have ten bidders for the first auction, nine for the second, eight for the third, and so on. Based on this theory, the price should rise for each subsequent Palm Pilot until the last, which would have, in this example, one bidder. However, the beauty of a wide-open, dynamic marketplace is that new bidders will always be entering the fray. You should find that your items will reach a level of price stabilization that is acceptable. (See Fig. 5.3.)
PRICE
LOSING BIDDERS DRIVE HIGHER PRICE FOR SAME ITEM IN LATER AUCTIONS
10 9
8
7
6
5
4
3
2
1
16 15 14 13 12
11
BIDDERS
MORE BIDDERS CONTINUE TO ENTER MARKETPLACE
PRICE
PRICE STABILIZATION
10 9
8
17
BIDDERS Fig. 5-3. Dynamics of Multiple Bidders.
106
The Auction-App
To take advantage of this group behavior, auction portals have recently added functionality that directs losers to other ongoing auctions for the same item with later end times—in other words, “another chance to win.” The timing of your auction should follow closely on the heels of your promotional efforts. If anecdotal evidence (or, better yet, hard statistics from your e-mail marketing staff) suggests that e-mail promotions to a business clientele are ignored on Mondays and responded to enthusiastically on Wednesdays, then Thursday may be the best time to start your auction. Auctions created to attract consumers may begin and end in the evening hours, traditionally the most active periods for Web entertainment. E-procurement buyers may prefer to visit a promotional auction in the course of a single, expanded business day. From 9 A.M. to 9 P.M. Eastern Time would be a fair compromise to accommodate buyers in Central, Mountain, and Pacific time zones. Noon Eastern Time is also a popular closing time for business-related auctions, to allow bidders from Western Europe to participate in those last exciting minutes.
Early Closing and Antisniping Most of the action in online auctions takes place in the last hour. Consequently, many promotional auctions take place in a short period of time—thirty minutes is not unusual. To prevent a last minute rush, post a notice that antisniping protocols may be used at your discretion. One common antisniping strategy is to extend the auction by five minutes if bids start pouring in within three to five minutes of the announced close. This often shuts off automated bidding programs, leaving the field to enthusiastic “live” bidders who may be tempted to lob in higher bids. On extended (multiday) auctions or reverse auctions, sellers who are happy with a bidded price may opt for an early close. Promotional auctions should last until the closing time advertised, to get maximum value from the cost of the promotion and its attendant publicity efforts. Extending the life of the microsite beyond the promotion may also be a good idea, by the way. Anyone visiting Miller’s “Get the Goods”
Key Elements to a Successful Auction on Your Site or a Portal
107
auction site (well after it had closed) was still welcomed with a hearty greeting and a form to fill out so that the visitor could be contacted for the next online marketing sweep.
Provide Entertainment Value Auction buyers come in two flavors: those who are using this venue because they need to search for the lowest prices, and those who enjoy the game of trying to “win” against other bidders who want the same item. Promotional auctions are aimed at the people with money in their pockets, so it behooves you to give them the best entertainment value for their trading bucks. On a microsite, feel free to invent bidding incentives and twists in the game. You can continue to add content, revealing more and more information about the item or its provenance, or encourage participation by polling bidders by e-mail or asking for their opinion in a related topic area. Post the answers and ask participants to send digital photos of themselves or express themselves in other ways. Add side contests such as trivia quizzes, or introduce a celebrity bidder or auctioneer. There are several tactics that you can use to encourage bidding on portal sites. Amazon, for example, invented the “first bidder discount”—a 10 percent deduction from the winning price if the winner was the first person that bid. Power Sellers on eBay entice their best customers by offering free shipping or combined shipping for those who bid on more than one lot at a time. Sometimes these incentives are revealed in the description; more often they are e-mailed during the auction to the most active bidders or to repeat customers. Another type of “reward” handed out exclusively by e-mail to robust bidders is the offer of an extra small item or accessory if the bidder wins. Surprise “giveaways” tucked into the shipping box sent to a winning bidder are also popular. A “Buy it Now” or “Take It” Price should be appended for all retailrelated auctions. The ability to snatch an item immediately, even at a slightly higher price, appeals to the speed-and-greed factor in many auction buyers. These buyers may turn out to be the most valuable to acquire, for they may have less resistance to “fixed-price shopping” and future buys. As an experiment, you might set your “Buy it
108
The Auction-App
Now” price fairly high and chart how long it takes for bidding to reach that tipping point.
Postsale Follow-up Much of the follow-up for closed auctions can be automated: e-mail messages to winners and other participants, plus automatic relisting for items that had no sale or did not reach a reserve. It is also possible to automatically generate documentation that may bear on future sales: how much was sold, to whom, how this compares to last week’s sales, etc. But even though the essence of online trading is speed, it still takes a human to see certain patterns and to test and tweak a system for future trades. Build the time to do the analysis into the schedule, even if it means sending someone in on the weekend to do it. And speaking of weekends, if fast delivery will be one of the hallmarks of your brand, don’t close an auction on Saturday or Sunday if the item can’t be shipped until Monday or Tuesday. After the close, always send a congratulatory e-mail to the “winner” of your promotional auction, before you send off the final sale memo. This may be appropriate in some B2B situations as well.
Special Section: Case Studies
DoveBid—The Evolution of Capital Asset Auctions This story, as has oft been told in the business press, began when Ross Dove and his brother, Kirk, were sitting in the Oak Bar at the Plaza Hotel in New York City in February 1999 and saw a news story about eBay and its stratospheric market capitalization. These brothers, after all, were interested in anything dealing with auctions, since they were running the family auction business that their grandfather, Harry Ross, had founded in 1937 and their father, Millard Dove, had run before them. Dove Brothers LLC was a successful third-generation auctioneer of used capital assets, from desks and chairs to robotic equipment. The brothers noted that eBay at the time had the same number of employees they did. If eBay could be worth billions of dollars for providing the platform for Barbie doll collectors, what could the Dove business be worth, since they auctioned entire factories? Like his grandfather, Ross Dove, the company’s chairman and CEO, was not afraid of innovation. His grandfather had been the first to use the microphone, which made it possible for the people at the back of the room to hear the auctioneer. Ross had been watching his industry change, and he recognized the need for his company to adapt. He correctly calculated that the Internet could be his microphone. When a company is in the business of auctioning capital assets, much of its work involves insolvencies. Big enterprises were fearful 109 Copyright 2002 by Leland Harden and Bob Heyman. Click Here for Terms of Use.
110
The Auction-App
of the negative connotation that auctions had, and thus avoided them. Instead, they would quietly dump equipment in a warehouse or factory somewhere or relegate it to the scrap pile. Smaller companies were not so particular, but serving only small companies made growth a difficult proposition. These issues, as well as being in the midst of a 15-year bull market, gave Dove Brothers LLC the impetus to move beyond the insolvency space to the surplus asset space. Additionally, it was obvious at the time that all industries were going global. Borders were becoming less and less of an issue. The Internet made cross-border arbitrage possible. Finally, Ross Dove’s handwriting on the wall became as obvious as the scores of cell phones increasingly present at his factory floor auctions. People wanted to participate in his auctions, but they didn’t necessarily want to attend. Upon returning to the San Francisco Bay area, the company’s home, the brothers set about putting together a plan to transform their business. Venture capital wasn’t a problem, since most of the country’s speculative funding firms were only a few miles away. It was strange to the VCs to be considering investment in a company that had such a long history, rather than just a neat idea and a management team with Stanford MBAs. Raising $132 million in venture funding, the brothers commenced putting together a technology and management team to run the new evolved Dove Brothers LLC, which they dubbed “DoveBid.” Everything the brothers did and intended to do was a blend of the old and the new. The technologists learned to work with the old-line auction professionals. The service they established was a hybrid model, utilizing webcasting technology at actual auctions and 24/7 online auctions for business-related goods. Getting the technology right became the company’s biggest challenge in its transformation. Other auctioneers were trying to webcast auction events by kluging together disparate technologies and connecting them with old bubble gum, duct tape, and baling wire. Product pictures and descriptions were delayed in rendering on the Web or, worse, e-mail bids were not being recognized in a timely fashion. So DoveBid decided to team up with Slingshot Technologies, a webcasting firm in New York City, to develop a proprietary system that was truly real-time and glitch-free. In terms of what had to happen at the auction event, there was little intrusion. The room is still full of festive (in most cases) bidders
Case Studies
111
being whipped into spumescent splendor by the auctioneer. A picture of the item being auctioned is projected onto a screen. The difference, however, is that the image of the item is also being simulcast onto the Web along with streaming video of the auctioneer. And, as a “gee-whiz” factor, a screen projecting a global map with dots representing the locations of remote bidders, along with an auction paddle icon that lights up to indicate a remote bid, is positioned at the front of the room. The new service was launched in November 1999 into a market that was already occupied by other old-line auctioneers who were major competitors, along with a slew of cocky, dinosaur-slaying dotcom entrepreneurs. DoveBid’s strong assets—six decades of experience; long-standing client relationships; and a full range of value added features such as appraisal services, storage services, shipping services, and other services; as well as its powerful new technology—have made DoveBid a winner in its category. Twelve of the fourteen acquisitions the company made in 2000 came from this group of competitors. The webcasts have taken off in popularity. At the first webcast auction, for Raytheon Systems, only about 25 percent of the bidders were remote. At the third webcast, remote bidders made up 30 percent of the audience. By the fifth webcast auction, one for Northrop Grumman, about 50 percent of the participants were joining in digitally. The brothers Dove do not rule out the possibility that at some point, all participants could be coming to their events over the ether. Dovebid has more than twenty offices and expertise in nineteen asset categories. The company counts more than half of the Global 2000 as its clients. The company’s legacy of innovation is impressive: ■
First to use the microphone, 1940s
■
First computer auction in history, 1980s
■
First simultaneous auction and webcast, January 2000
■
First to accommodate international bidding, June 2000
■
First to handle simultaneous multiple location auction and webcast, September 2000
Ross Dove believes in holding auctions on the factory floor. He says, “Where others are focused on bringing people to their web site,
112
The Auction-App
we focus on people going to the auction.” There are key benefits for both the buyer and the seller from the DoveBid hybrid format. Buyers have more flexibility in their participation. Sellers gain greater pools of buyers. Final bids are higher—prices for goods at hybrid auctions have historically been 30 to 90 percent higher. All has not been a tiptoe through the tulips, however. Some of the new technology hires ultimately had to be released because of differences of opinion as to what the real assets and endgame of the company were. With the market shakeout, DoveBid had to pull its initial public offering. As Ross Dove puts it, “I’ve been working here for twentyseven years. What’s another couple? I’m concentrating on building a great company.” The lessons to take away from DoveBid’s experience are: ■
Listen to your customers. Don’t let smart people who don’t know your business run your business.
■
Don’t make your established customers interact with you in a new way just so you can gain new customers.
■
Technology is a tool. Don’t scrap decades of experience for some whistles and bells. Use technology to make your business better, not to make a better business.
The 24/7 online auction marketplace ultimately did not work. The company could not generate the critical mass necessary to make it a viable trading community. Ross Dove contends that he’s really not that interested in selling copiers anyway. He’d rather sell manufacturing robots and factories. Of this mistake he says, “I listened to people who had bright ideas who weren’t my clients.”
Regal Distributing—Building Castles in the Big Sandbox Regal Distributing Company is a $20 million family-owned business that sells janitorial and sanitation products in Kansas City and around the country. In early 2000, the Lenexa, Kansas–based firm began looking for the best way to establish a presence on the Internet. A
Case Studies
113
primary goal was finding a “trustworthy and reliable e-commerce partner,” says Dean Kopulos, executive vice president and a coowner of the firm with his brother and cousin. In his quest, he reviewed off-the-shelf e-commerce software packages and looked at online exchanges. An issue identified early on was that with an e-commerce software package, in addition to forking over the $25,000 required to buy the package, the company would have to invest in personnel to keep the tech engine running. And as a small company, Regal didn’t have its own information technology (IT) department. “We have a guy who is pretty good on a computer, but he’s no jock,” relates Kopulos. With those realizations, the exchange route became the obvious choice. After investigating several auction sites, Regal selected eScout, a Lees Summit, Missouri–based e-commerce firm that offered products and services to a largely financial clientele—a group that included more than 1,300 community and regional banks nationwide. Once Regal met the criteria to become an authorized merchant on eScout’s exchange, Kopulos set his computer guy to the task of digitizing comprehensive product descriptions. Since there would be no face-to-face selling, words and pictures would have to make the pitch, at least initially. About 20–man hours later, at a cost of less than $1000, Regal entered the Internet Age. At first, Regal tried to offer about 100 of its biggest volume-producing products through the eScout portal. Kopulos was intent on listing products that were common or popular, so that they would move. By offering these consumable items, Regal would use the exchange to acquire repeat customers. Kopulos had no desire to land any sporadic or one-off buyers. Kopulos says he was pleased to find that eScout handled all aspects of an order transaction, including customer invoicing, vendor payment, and even a call center. Likewise, he was enthusiastic about the number of potential customers that routinely roll through the site, since about 18,000 companies are members of the exchange. Still, Kopulos admits that he was skeptical about just what kind of orders might come through eScout. “I was worried that if the orders were too small in dollars, my transaction costs would be more than the profit I could make,” he says. Fortunately, the average order size from the beginning has run between $150 and $200, or about the size
114
The Auction-App
of a typical order placed through the company’s regular sales channel. Kopulos notes that orders originating through eScout do not require the payment of a salesperson’s commission. Kopulos says his cost of selling is much lower through the site, even with the transaction fee and the small percentage of volume that the company pays to eScout. In fact, Regal is directing an increasing number of its existing customers to order through the site, because of the efficiencies it can gain by selling low-ticket products online. “It’s great,” Kopulos says. “We’re averaging between ten and twenty orders a week.” One of the most pleasant surprises of the whole experience has been that Regal started getting orders from companies that his salespeople had been unable to penetrate. “Companies were buying from us that we couldn’t get past the receptionist with before.” Kopulos contends that reverse auctions will not really change his business model or the realities of doing business in the janitorial field. “The bottom line is that I have my profitability model, and the buyer has their acquisition parameters. Margin-squeeze happens in everyday business. You can’t blame the auction. If it doesn’t work, it doesn’t work.” If a buyer presses prices too low, he notes, “You can always walk away.” Through participation in eScout, Kopulos expects to increase Regal’s market share in the Kansas City metropolitan area by five percentage points over the next 18 months. That’s no small change in a market estimated to be worth between $150 and $200 million. “It’s great,” Kopulos says. “Finally, the little guy has the tools required to compete with the big guys.” Closing advice from the Dean of Regal Distributing: ■
Participating in online auctions and business-to-business exchanges is inevitable.
■
No matter what your size or situation, you must get into it, or risk being left out.
■
Swallow your apprehension, and be “somewhat cavalier” about the outcome.
In addition to selling through eScout, Regal is a purchaser at the site. Currently, more than 4 million competitively priced products are
Case Studies
115
available through eScout. Kopulos says that Regal now makes all of its office supply and maintenance, repair, and operations purchases via the site. “I found that the costs were competitive, and it has cut down our own sourcing and transaction times by quite a lot,” he says. “Plus, I feel like we have better control of our purchasing for those items. Before, I don’t think we even had a clear picture of how much we were buying.”
Fairmarket—The Evolution of a Fair Marketplace When Scott Randall founded Fairmarket in February 1997, he was all set to revolutionize the spot market in computer components. He was well experienced: He had done a stint at NECX and had seen how that company and the market it thrived in could be more efficient. While there, he gained valuable Web experience by helping the company launch its first web site. After NECX, he landed at FirstAuction and helped that company get going, then went on to become an original team member at Yahoo! eCommerce. The basic elements of forecasting success were there: experience in the marketplace, experience in e-commerce, and experience in online auctions. But in 1997 there were not enough buyers and sellers to sustain trading action on all of the available auction sites. Fairmarket quickly found that liquidity in the marketplace was a challenge. Getting suppliers to offer goods and the appropriate traffic to move the goods was a constant problem. However, with all of this expertise in online auctions, the company wasn’t about to go away. Having identified critical mass as a crucial element in the success of an online auction, Fairmarket set about becoming the private-label auction platform for the major portals. Lycos, Excite, MSN, and Ticketmaster/CitiSearch all signed on with the company to power auctions on their sites. With all of this traffic, it couldn’t be that hard to entice people to shop at your site, right? To sweeten the critical mass punch, Fairmarket designed its hosted auction platform in such a way that the auctions were networked across all participating portals. For instance, if a seller listed something on Lycos, it would be available for bidding on MSN, and vice versa around the network.
116
The Auction-App
In order to continue to grow listings, the company created programs that allowed merchant partners to sell at auction. Dell, CompUSA, and J.C. Penney all signed-up to offer returned goods, surplus goods, refurbished goods, and end-of-life products over the auction platform. In addition to having auctions on their own sites, these merchant auctions were made available across the entire portal auction network. Experience with the merchants led the company to develop merchandising applications for its auction platform, thus enabling the merchants to offer special promotions to drive traffic and excitement to their auction offerings. April 2000, as you may recall, was the beginning of the end for the dot.com delirium that had run rampant from Silicon Valley to Wall Street. Fairmarket had managed to run a successful IPO on March 25, 2000, just days before the NASDAQ bloodbath. But in the ensuing months, as portals began excavating their business models from the dust of vaporized stock options, these key web sites began to restate their objectives and withdraw from Fairmarket’s portal auction network. Once again, the company had to address the critical mass nemesis. In February 2001, Fairmarket and eBay announced a partnership through which the auctions from Fairmarket’s merchant program would be listed on eBay. The company has now developed another level of sophisticated tools to enable merchants to tie their systems into the eBay platform (see Chapter 4 for more information). Key lessons to be learned from Fairmarket are: ■
Never give up, never surrender. Take the experience gained from one business model and apply it to the next. Along the way, a suite of solid services and expertise will emerge to make the company’s offerings well-rounded and deep.
■
Go where the customers are. First, you want to sell goods. Then you want to provide services related to selling goods.
■
What may have once appeared to be a competitor may turn out to be your best outlet. Being Switzerland is always better than being David or Goliath.
In four years the company has gone from being an exchange for the computer components spot market to one that applies its expe-
Case Studies
117
rience and technologies to retailers and manufacturers that have, as Mark Sutton, Fairmarket’s vice president of marketing, puts it, “recognized auctions as another channel versus a new way of doing business.”
Omaha Steaks—Getting to the Meat of It As the whole idea of online auctions for promotions was beginning to take hold, Omaha Steaks was an early experimenter, trying to discover new ways to reach new customers. A family-owned business since its founding in 1917, Omaha Steaks boasts an array of distribution channels: retail stores, online sales, catalog sales, corporate incentives, and food service sales. Omaha Steaks began by selling larger bundles of excess or slowermoving inventory over Onsale.com in late 1996 through early 1997. At that time, Onsale was definitely more of a business-to-consumer play, while eBay was still pretty much consumer-to-consumer. In the summer of 2001, Omaha Steaks moved its auction operations in earnest to eBay. As Todd Simon, senior vice president of Omaha Steaks, puts it, “eBay has emerged as the killer-app of online auctions.” The company chose to work with ChannelAdvisor to tie its systems into eBay as seamlessly as possible. Having previous experience with an alternative company in powering its auction services, OmahaSteaks.com recognized the need to centralize both front- and back-end support in order to take its products to a variety of auction marketplaces in both a timely and a costeffective manner. While other auction management systems (AMSs) were deemed cost-prohibitive—most required fixed monthly fees, up-front costs, and integration charges—ChannelAdvisor offered the company an aggressive proposal: It included a performance-based compensation expectation that made participation in a test effort risk-free. The ability to conserve margin by being able to control the reserve price was a deciding factor and primary concern. “This also became a requirement when selecting the company with whom we would partner,” says Simon. “In our previous auction experience, price control was not an option, forcing us to compromise our profitability expectations to participate.”
118
The Auction-App
Additional selection criterion included a seasoned account management team that was well versed in the intricacies of auction merchandising strategy, the ability to be assigned a dedicated account manager who would become fluent in the company’s business, and a liaison whose relationship with the major auction online marketplaces could be leveraged on OmahaSteaks.com’s behalf. To integrate the auction channel with its legacy inventory system, OmahaSteaks.com has opted to provide a detailed spreadsheet for merchandising purposes, rather than allowing ChannelAdvisor access to its back-end database via integration. It can do this because none of its core products—aged, luscious Midwestern beef—are ever “out of stock.” Consequently the essential pieces of data, such as stockkeeping units, starting price, description, etc., can be easily communicated without the use of technical resources, something that is not always the case with other gift categories. Omaha Steaks maintains that the most important consideration when choosing an AMS is recognizing the time involved in supporting the relationship at the seller’s end. While ChannelAdvisor is a tremendous advocate of Omaha Steaks, Omaha Steaks still needs to provide the merchandising, back-end support for customer service issues and order entry, and creative/compliance feedback. If ChannelAdvisor provides 70 percent of the account management required to launch and support an auction relationship, Simon cautions, “be aware that the 30 percent needed to perpetuate a successful sales effort is labor-intensive.” The company has found that the “no reserve pricing” strategy seems to perform best. Simon says, “We knew that having no reserve was a risk, but we found that the market ultimately seeks equilibrium.” In other words, consumers know what a fair price is and will go there. The company has found that its goods are typically selling at a 15 to 20 percent discount off of retail. However, the company’s system closely monitors pricing criteria, and every step is taken so that the company can avoid sacrificing margin. A few key points of perspective to be gained from Omaha Steaks’ use of the auction channel, from Scott Simon: ■
Auctions are just another channel. Your job is to serve customers in their channel of choice.
Case Studies
119
■
Auctions are a stealth channel. Omaha Steaks has found that it can sell at a deep discount at auction without threatening its traditional channels.
■
Auctions are a customer acquisition tool. Omaha Steaks will ultimately merchandise to the customers it acquires through its auctions, enhancing the depth of its customer database and its customer relationships.
At the time of this writing, the company had not yet begun to undertake any data mining on the customers acquired through its auction endeavors, but Simon hypothesizes that the primary difference between these customers and its traditional customers will not be demographics, it will be channel preference.
IronPlanet—A B2B Exchange Ready for Heavy Lifting IronPlanet is a full-service marketplace for buyers and sellers of used heavy equipment. In case you were wondering, used heavy equipment includes items like bulldozers, excavators, backhoe loaders, and motor graders—all types of capital equipment used in construction, mining, forestry, and agriculture applications. And yes, even the company’s founder was surprised to find out that people would actually buy this stuff over the Internet. The market for this type of equipment has been estimated at approximately $100 billion globally and $27 billion in the United States. The company was founded by Reza Bundy in 1999. Reza got the seed of the idea for IronPlanet by watching the “Big Dig” in Boston when he was a research fellow at Harvard. He investigated the concept and found that there appeared to be a viable market. The primary competition then, as it is now, was offline auctioneers like Ritchie Brothers, which is the leading auctioneer in the offline world for this category. IronPlanet has managed to wait out the other online competitors. Selling heavy equipment had always been an “as is/where is” industry. Buyers needed to go and kick the tires and check out the
120
The Auction-App
hydraulics. Realizing this, IronPlanet took necessary and innovative steps to put significant assurances in place to provide a comfort level to its potential audience. All equipment in the company’s auctions and catalog is backed by what the company calls IronClad Assurance. This warranty, besides making good use of the iron metaphor, is a commitment to provide independent, insured inspection reports and one-on-one customer service. Every piece of equipment is inspected by DynCorpServices, an established, industry-leading provider of technical inspection services for heavy equipment, using its standardized inspection process. All of the inspection reports are freely viewable on the IronPlanet web site and are insured for accuracy. Additionally, the company has invested in establishing and maintaining a first-rate customer care team that works one-on-one with customers to handle the entire transaction, including financing, warranties, and transportation, enabling customers to buy with confidence. Finally, buyers trust the company’s marketplace because of its willingness to stand behind every sale. The company opted to not institute 24/7 online auctions; instead its IronClad Auctions are day-long online auctions held every other Thursday. There is a week-long preview period before each auction to allow potential buyers to preview the detailed inspection reports. If a buyer likes what he or she sees, the buyer must then register and qualify to buy, if he or she has not already done so. Once registration is complete, the buyer may then place a proxy bid or wait until the auction event. If the bidder places a proxy bid, he or she will be notified of a higher bid during the actual auction for the item. This usually happens via a telephone call from IronPlanet’s customer service department. At the event, each piece is auctioned during a fifteen minute time period, with features ensuring that every auction bidder has a fair chance to win a piece. There are never hidden reserves in IronClad Auctions, so the high bidder always wins. There are typically four items on the block at any given time. When prospective bidders log on, they are presented with pictures of the items that are currently up for bid, along with their make, model, and year, the current bid, and the number of bids for each item. Bidders can then just watch their screen for the auction action. IronPlanet utilizes a “publish and subscribe” technology developed by Bang Networks that IronPlanet has
Case Studies
121
modified with a bid notification and clock synchronization function. Messages are being published (some might say pushed) by the IronPlanet server and received by the bidder’s subscribing browser client. This automatically refreshes the bidder’s screen whenever a bid is placed. Additionally, to avoid any sniping, the company has an automatic extension period. Auctions are extended for five minutes if any bids are placed within five minutes of the designated end of the auction. This continues until there are no more bids during a fiveminute period. To address the need for a fixed-price marketplace, the company created the IronClad Catalog, which contains listings of equipment available daily. Each piece in the catalog has an asking price defined by the seller. Interested buyers can either pay that price or make an offer for any amount, to create a negotiation. Each offer from a qualified buyer is given to the seller, who can then choose to accept the offer, reject it, or make a counteroffer. Having put all of these assurances and services in place for buyers, IronPlanet also knew that in order for the marketplace to succeed, it had to get the buyers to come to the events. The buying community the company is serving is primarily made up of end users, such as contractors and independent rental companies. But equipment dealers and brokers have also been known to come to the exchange in search of a good deal. Through research and its relationships with leading construction equipment manufacturers Caterpillar, Komatsu America, and Volvo Construction Equipment, which are also investors in the company, IronPlanet has accumulated a database of more than 660,000 proven buyers of construction, mining, forestry, and agriculture equipment. Some 62,000 of these are further qualified as core, volume end-user buyers. These buyers are primarily in the United States, Canada, Mexico, and Latin America. All are credit prequalified before being allowed to bid or buy. Depending on the items being auctioned or offered through the catalog at any point in time, the buyer database is segmented and notified of the availability of specific items that they have shown a proclivity to buy. IronPlanet’s sellers include finance companies that need to sell repossessed equipment, equipment dealers, contractors, and rental companies. A key benefit that IronPlanet delivers to sellers is that they gain access to a prequalified customer base outside their normal territory, and they save because the equipment is sold from their
122
The Auction-App
location. It does not need to be transported to a central auction venue to have a gathering of buyers. The buyers are brought to the equipment via the Internet. Beyond the transportation savings, IronPlanet provides more liquidity to sellers because it conducts an auction event every two weeks and releases funds to the seller more quickly than its offline brethren do. Because of the efficiencies of operating online, the company is able to charge its sellers lower commissions. On a $60,000 sale, a seller will save 45 percent on commissions and fees by using IronPlanet. IronPlanet is backed by venture capitalists Kleiner Perkins Caulfield Byers and Accel Partners, as well as by Caterpillar, Komatsu, and Volvo. Key points to note from IronPlanet: ■
When you build a better mousetrap, don’t forget the cheese. IronPlanet put a great system in place, but it also recognized the need to attract and retain a qualified audience.
■
Partner with big gorillas. A smart move by IronPlanet was to partner with DynCorp Services, a recognized and trusted industry inspection company, and to get investments from Caterpillar, Komatsu, and Volvo. These partners not only helped the company with a supply of used equipment and the creation of a great prospect list, but also contributed valuable industry experience that it probably could not have gained on its own in a timely enough manner.
The average sale price for the equipment auctioned to date has been over $43,000. As of this writing, the company’s single largest auction was a Caterpillar 771D rock truck that sold for $267,000. (This truck must really rock!)
Ritz Camera—A Snapshot of Auction Experience Ritz Camera is a well-known national brand, thanks to a footprint of 1000 retail stores across America. Ritz also has forty-four outlet cen-
Case Studies
123
ters nationwide, which sell cameras and photographic supplies at discounts of 20 to 30 percent. Thus equipped with experience in both fixed-price selling and the higher end of discount sales, Ritz Camera dipped its toe in the online waters in 1998. Its early e-commerce efforts were alliances with Photo.com, a site for camera supplies, and Boater’s World, a marine supply site. In the spring of 1999, Ritz spun off its interactive group to form Ritz Interactive. Ritz Interactive is a network of e-commerce web sites. Led by its flagship sites RitzCamera.com, Boaters world.com, and ritzPIX.com, Ritz Interactive represents a diverse group of properties in different stages of growth. Ritz Interactive began to research auctions in January 2000 and chose Fairmarket as its initial partner. Because Fairmarket provides a hosted platform, Ritz was able to launch auctions in April 2000. Mike Harper, Ritz Interactive’s auction manager, recalls, “It’s always more complicated than you think. Getting all of the programs working together was arduous.” The legacy system at Ritz Camera was an IBM AS400. The first task was getting it to communicate with Ritz Interactive, then interfacing with Fairmarket, and now interfacing with AuctionWorks and eBay. The company initially focused its auction selling efforts on old inventory. Its volume was typically 200 to 250 items at auction at any given time. About 85 percent of its auction sales came from customers who accessed the auctions through the Ritz site. The remaining 15 percent came through the Fairmarket network of sites. In early 2001, eBay approached Ritz and asked the company to move its auctions to the eBay marketplace. Because the company would be selling on eBay and not hosting its own auctions, the company changed its AMS vendor to AuctionWorks, which it uses primarily for the listing tool. Ritz works directly with eBay for its API. Moving to eBay also had some trade-offs. A big advantage that the company had when working with Fairmarket was that the Fairmarket solution required all bidders to register their name, address, and credit card information before being able to bid. This made back-end processing very easy when an auction was completed, and it provided the company with great demographic information about all of its bidders. This capability, along with all of the customer acquisition metrics that Ritz had built around it, went out the window when Ritz
124
The Auction-App
moved over to eBay, which had changed its rules regarding transmittal of bidder addresses. With eBay, sellers have direct access only to data on winning bidders. However, there are two sides to every coin. While the company was listing 200 to 250 items per month on its own auction site, the volume at eBay is able to support its listing 1000 to 1500 items per month, 500 to 600 percent of the previous volume. An additional benefit is that their items seem to be popular among the eBay community. Early on, eBay had suggested that Ritz should project a 65 percent close rate (auctions coming to successful conclusion) for its listings. The company has found, though, that its close rate is above 85 percent. Therefore, giving up data from its bidders seems to be outweighed by selling more merchandise—a lot more merchandise. Ritz employs different pricing strategies based on the type or supply of the particular product it is listing. If the item is part of excess inventory where the company has an oversupply, the listing will be a “no reserve” listing. The company has discovered, however, that it is more beneficial to stagger the end times of individual auctions for the same item. If several auctions for the same item conclude simultaneously, this tends to drive the final price of all of the auctions down. By staggering end times, the company is able to preserve more margin. If the company has a high-ticket, low-supply item to auction, the reserve price is usually set at or slightly above break-even. “Of course, with items that quickly become obsolete, like digital cameras, the goal is profit, but at worst we want to settle for breakeven,” Andre Brysha, Ritz Interactive’s vice president and chief marketing officer, observes. A few pearls of wisdom from Ritz Interactive: ■
Do not underestimate the personnel requirements. Auctions can be a manual process. Ritz employs two people for choosing inventory, photographing it, writing the listing, and answering the difficult e-mail questions.
■
Treat your customers right. Customers are educated and know what they ordered. If they are not happy, negative feedback can hurt your company.
Case Studies ■
125
Good images and good descriptions are not enough. Expect potential bidders to e-mail questions before the sale. Answer every e-mail, even if the sale has concluded.
A further note: Ritz Camera’s auction sales are delivering results consistent with those of other retailers interviewed for this book or quoted in industry studies. In its online auctions, items are selling at a 20 percent discount to the Ritz retail store price.
Interstate Bakeries Corporation—Baking Up E-Procurement Savings Interstate Bakeries Corporation (IBC) (NYSE: IBC) is America’s largest baker, with such familiar national brands as Hostess, Wonder Bread, and Hope Pride and regional favorites like Dolly Madison, Drakes’, and Columbo. And, of course, no list of IBC products would be complete without reference to the ubiquitous Twinkie. With that stable of brands, it is estimated that 95 percent of the American public encounters an IBC product in the course of their lives each and every day. Producing all those baked goods is no small venture. IBC, based in Kansas City, Missouri, operates 64 factories and has 34,000 employees. Its sales total $3.4 billion per year—now that’s a lot of dough. With such a wide distribution of facilities, it is not surprising that IBC would recognize the benefits that the organization could gain from e-procurement. Brian Stevenson, IBC’s senior vice president of purchasing relates, however, that the company’s initial focus has been on its MRO spending. MRO represents items like bearings for the mixing machines and parts and tires for delivery trucks. Since IBC has over 10,000 sales routes, that amounts to a lot of tires. Stevenson notes that IBC buys “nothing on the inside of a Twinkie” via e-procurement. The reason is that when it comes to ingredients like flour or sugar, IBC is “the big dog,” the nation’s biggest buyer anyway, and does not need the advantages of e-procurement to get the best price from suppliers. But, when it comes to truck parts and bearings, IBC is not a Marmaduke but a much smaller breed, and can realize savings through joining in online aggregation. A problem that the company is trying to address is that it has always been decentralized, with each of the sixty-four bakeries mak-
126
The Auction-App
ing purchasing decisions. Stevenson says that vendors have seen IBC as more like “64 little companies, not one big one.” A goal of e-procurement is to greatly reduce the number of IBC’s vendors, which now is in the thousands, and the company believes that the resulting rationalization of the vendor base will also rationalize prices and services. IBC’s initial forays into e-procurement included three reverse auctions. Unfortunately, none of these really worked. Stevenson’s analysis concludes that the company was probably expecting too much from the events, and that the consultants with which it was working never really took the time to gain an understanding of IBC’s business. He says, “They did not understand our business, and as it turns out, they didn’t understand their business either.” Even with this dubious record, Stevenson expects that IBC will try the reverse auction format again. Presently, IBC has created a private e-commerce exchange through eScout, the Lees Summit, Missouri based e-business network that allows it to transact with suppliers electronically, from order through payment. IBC chose eScout’s solution, in part, because of the proximity of the two companies—they are located 20 minutes apart in the Kansas City area. Based partially on the company’s reverse auction experience, Stevenson says of moving to e-procurement, “This is not easy . . . not for the company, the suppliers, or the software providers . . . it’s not a slam dunk.” The close proximity between IBC and eScout makes it easier for the programmers and the bakery executives to understand each other’s needs. The giant bakery concern expects to realize around 5 to 10 percent in savings by using the exchange. But Stevenson is very cognizant of the fact that there is a huge learning curve and that it is difficult to know precisely what will be saved. A common theme sounded by practically every executive interviewed for this book is also present here. Stevenson says that the biggest challenge in moving to the exchange is that it requires cultural change, on the part of both IBC and its suppliers. Part of the cultural problems that stand in the way of e-procurement success is the established ways of doing things on the supplier side—the old way of doing business. As a case in point, Mr. Stevenson cites a deal contemplated between IBC and a national supplier. The corporation was more than willing to negotiate special rates with IBC, but when it
Case Studies
127
came time for execution, what everyone learned was that the national chain’s local outlets, in some cases franchisees, were often not tied into electronic systems; many even lacked in-store computers. Tools for compliance were not in place. Motivation among franchisees was practically nonexistent. So IBC moved on. Points to take from IBC: ■
Do your homework. Make sure that your e-procurement vendors understand your business and that you allocate the necessary time to spend with them in order to achieve a solid execution of your e-procurement strategy.
■
Get buy-in at every level. Include local plant personnel and suppliers to reach a solution that is logical and executable by everyone.
■
Do not lose sight of the big picture. The best price in the world means nothing if quality suffers.
For IBC, the most important thing is that its products are always on the store shelf. The last thing IBC wants is for a consumer to go to the store to buy Wonder Bread and find it out of stock. Therefore, as Stevenson says, “If we buy a belt for a mixing machine that costs $2 more—that’s a problem for Procurement. If that belt isn’t there and we can’t make bread—that’s a problem for the CEO.”
This page intentionally left blank.
6 Resources for Researching Your Auction Initiative The universe of online marketplaces is itself dynamic, as new ventures rise and fall, companies merge, and partnerships within industries are attempted, solidified, or reconsidered. In fact, any book about online trading would be inadequate without specifically mentioning online resources that can help to update you on an ongoing basis as this part of e-commerce matures. Assembled in the five sections of this chapter, you will find a short list of trading-related web sites that we think readers may find useful, either as background or as updates to the current strategies and trends that reflect best practices. Some of the first are independent media sites that aggregate news and provide idea forums for the online business community. Others are examples of workable designs for the auction app, or illustrate good techniques and innovative strategies. Additionally, there are technologies and resources on the Internet that can enable businesses to become well-informed sellers before a first offering is launched. This is critical if you wish to avoid the two main pitfalls of auction pricing: Setting an asking price so high that it discourages bidding, or accepting a bid price so low that your potential for profit is endangered. In the world of global commerce, there seems to be no excuse for not knowing, or at least attempting to identify, the “street price” of any commodity, whether it is a ton of industrial-grade rubber or a dozen boxes of talcfree surgical latex gloves. Business-to-business (B2B) sellers who are approaching industrial exchanges online for the first time have some special information 129 Copyright 2002 by Leland Harden and Bob Heyman. Click Here for Terms of Use.
130
The Auction-App
needs. While large buyer companies do not move very quickly, when they move into online exchanges, they do not always take the time to include or even notify their lower-tier suppliers about changes in procurement procedures. Since timely information is the best bulwark against the tides of fate, savvy B2B traders who pay attention to procurement issues within their own industries can perhaps find themselves better able to manage the inevitable shakeouts that are now occurring and will continue to occur in B2B online exchanges, both public and private. All B2B sellers need to arm themselves with experience as well. To this end, Section 7 provides a collection of trading sites, categorized by industry. This list includes both heavy-duty industry (petroleum, metals, chemicals) and broader market areas such as retail packaging, transportation services, food and beverage, and agriculture. Most of the sites listed offer dynamic commerce, and all are either industry-supported or “neutral” sites run by independent operators. They’re the logical first step for a supplier who is ready for auction selling. In fact, if your business involves automotive, energy, or electronics products, you would be well advised to jump in as soon as possible, for these market sectors all boast fairly mature electronic exchanges. In other industries, you’ll note that a few Web hubs still function largely as listing sites. Catalog aggregators and the like are still useful venues for what’s called vendor discovery—a presence on the right list can help a buyer across the planet find you, and at fairly low cost.
1. General Resources These are primarily media sites that in many cases offer daily updates on business news in the auction space, including the latest news emanating from eBay, Priceline, and other big players. They are also the first places to look for new products and services that can be adapted to your e-commerce design.
News and Information Online Auction Users Association http://www.auctionusers.org/
Resources for Researching Your Auction Initiative
131
Geared primarily to existing and would-be “Power Sellers” and home-office-based selling businesses, this nonprofit (note the “org”) is “sponsored,” as opposed to ad-supported. The emphasis is on timely news, forums, and discussion groups; some forums have live-chat capability and involve reps from major e-commerce firms. The wide variety of free information includes an auctioneer’s code of ethics, a free listing of sites that help sellers identify and price antiques and collectibles, and a news archive. Auction Tribune http://www.auctiontribune.com This ad-supported online magazine provides a broad and fairly unbiased aggregate of news reports, product reviews, and directories of outbound links. These can provide a useful shortcut for searching in purchase categories—for example, image hosting, escrow services, or payment systems—and within industries, thanks to a listing of B2B online auction sites by business category. The site’s strongest feature is its product comparison and evaluation. Plus, you cannot help but love their slogan: “We keep an eye on the rascals so you don’t have to.” Auction Watch www.auctionwatch.com While this company mainly sells services and software solutions to online sellers, its web site projects a helpful, community feeling that is nevertheless slanted to serious business-to-consumer (B2C) sellers. The news section is outstanding, as are the portions of the site dedicated to analysis and research. For example, in partnership with Nielson/NetRatings, the site tracks reported metrics (number of repeat visitors, etc.) for the largest consumer-to-consumer (C2C) and B2C selling sites. The daily “Tips and Tactics” section offers some insights into strategic selling, while an “article search” feature lets you look up background news about companies you may be dealing with or issues you are facing. Informative tutorials, insight through commentary and columns, and pages and pages of software reviews provide as close to a 360-degree view of the auction universe as you’ll find online.
132
The Auction-App
AuctionBytes http://www.auctionBytes.com This ad-supported, independent news site often has hard-hitting comparisons of vendor products and services; timely news and statistics, archives, forums, reviews, and a free weekly e-mail newsletter are available on the site. BayPal http://www.baypal.com This company sells auction technology products but serves its community foremost as a support group for eBay sellers. For novices, the friendly forums on a variety of auction business topics, from using photo templates to charging handling fees, offer useful and current advice from their successful peers.
Trade Groups and Forums The Global Trading Web Association (GTWA) http://www.GTWA.org This is an independent membership organization of electronic marketplaces and electronic exchanges. The chairman is Sandy Kemper, founder and CEO of eScout; Dennis Jones, president and COO of CommerceOne, serves as its president. At this writing, the GTWA has 44 member exchanges, with systems hosted in 33 countries, including the United States, Asia, and Europe, B&R Samizdat Express http://www.samizdat.com This site is a compilation of articles by Richard Seltzer on the topic of online auctions and related e-commerce. Widely read, it is a compendium of useful advice. There are also transcripts of live chats with business leaders, and recommendations and commentary about hardware and software products. Auction Books http://www.amazon.com/exec/obidos/ASIN/0761530851/adgen /107–2505185–3292560
Resources for Researching Your Auction Initiative
133
This is a shortcut to the current Amazon.com page that sells books related to auctions, online and offline.
2. Auctions in Action Here are some sites that provide examples of particular types of auction mechanisms, or reflect current thinking in auction design. AuctionOpen (Charity Auction Model) http://www.auctionopen.com/ This is an Internet auction solution provider for corporate donors, charities, and nonprofit organizations. Its services include web site construction and maintenance, auction production, management reporting, staff and volunteer training, warehousing and fulfillment, and marketing expertise. It is also a “home” auction site for small nonprofits that are just getting their feet wet. BridesBid (Niche Model) http://www.bridesbid.com/auctionbab.pl This site sells bridal items at a discount. This is a niche market that may perhaps be too niche to survive, though the site continues to evolve as a listing agent. C/NET Auctions (Community Model) http://www.auctions.cnet.com C/NET is one of the most respected business news sites on the Internet, a prime example of a “publishing” model that has continued to evolve with the medium. Along with its pioneering efforts in linking strategies, it recently added auction services for electronics products and electronics components. Note that the auctions are conducted on a prepended microsite (see Chapter 5 for more on microsites). Note also how the products offered enhance a sense of community (all appeal very specifically to C/NET’s tech-minded audience) and how the exercise as a whole builds revenues (through a 3 percent transaction fee, plus listing fees of from $1 to $50 per item) while encouraging stickiness (even IT engineers like to browse their “wish lists”).
134
The Auction-App
EventSource (Hosted Services Model) www.eventsource.com EventSource is a hosted software application company. Its solutions help companies and event planners efficiently manage group travel and events. One of the most innovative services the company offers is OpenBid. This is in essence a reverse auction where hotels bid in real time for a meeting planner’s business. EventSource claims that planners who participate in OpenBid save upwards of 25 percent on meeting costs. Einstein’s Garage (Catalog Model) http://www.einsteinsgarage.com This is a Web brand initiative from Fischer Scientific, a catalog retailer. Dutch, reverse, and English auctions are used, as are fixedprice selling and product promotions. IQ4Hire (Services Model) http://www.iq4hire.com This is a modest exchange for business services, such as copywriting and accounting, that can be outsourced. Elance (Services—Reverse Auction Model) http://www.elance.com Elance has a link right off of eBay, so you can be fairly certain that critical mass is not a problem for it. This reverse auction format has services that extend from web site design to IT consulting. eScout (B2B Model) http://www.escout.com This low-key marketplace is an e-procurement site for the little guy, a listing agent and auction facilitator for companies selling business services and general business supplies, such as plumbing equipment or janitorial needs. It stresses buyer privacy and has about 18,000 member companies engaged. It is particularly popular with small financial companies and independent banks. EWanted (Reverse Auction Model) http://www.ewanted.com/
Resources for Researching Your Auction Initiative
135
This site uses natural-language search technology to allow buyers to request or ask for a product; sellers then bid a price to vend the product, competing against one another and lowering bids until the buyer stops the auction. The action includes some businessrelated commodities, along with a core business of items that are normally hard to find, such as certain collectibles or replacement parts. Priceline (Reverse, Seller-Managed Model) Priceline.com While this travel industry site helped introduce millions to the joys of the reverse auction model, it is one of the few exchanges that is seller-biased, yet successfully serves its buying public. Widely imitated (Orbitz.com comes to mind), it continues to experiment with products to sell, from staple groceries (a failure) to mortgage loans (currently a success). JustGemStones (Voice Recognition) http://www.justgemstones.com/ This small auction site uses a voice-recognition bid system that enables participants to use their telephones and/or voice over IP (VoIP) for scheduled live auctions. The product offerings are jewelry-quality precious stones. Nashville International Wine Event (Absentee Bidding Model) http://www.nashvillewineauction.org This is one of several links for auctions of fine wines (and similar luxury items) produced by L’Ete du Vin. The bidding process is leisurely, and proceeds often go to charity. Teletrade (Phone Bidding) http://www.teletrade.com This trading site for rare coins pioneered the integration of realtime, toll-free-telephone bidding and direct mail catalogs with online auction technology. (For more on Teletrade, see Chapter 2.)
136
The Auction-App
New Line Cinema (Promotional Model) http://www.auction.newline.com This is an example of a promotional microsite that uses auctions to generate a mass audience and interest for entertainment products (feature films). It has been widely imitated—although nowhere else can you bid on the shirt that Jackie Chan wore in Rush Hour. Sam’s Club (Dutch Auction Model) http://auctions.samsclub.com/ This division of Wal-Mart is one of the few that uses the Dutch auction model, where multiple items are sold to multiple buyers, based on the lowest winning bid. Other innovations include the “Plunging Prices” auction, a variant of speed auctions, and “Lunchtime Auctions,” short midday events that are regularly scheduled to draw in office computer users. Antiques and Collectables Connection (Niche Storefronts) http://alsnetbiz.com/acc/ This site provides online storefronts in the collectibles market. The audience draw is a resource center that helps with the pricing of antiques and useful tools such as a currency converter. Jindal Strips Ltd. (Seller-Side Model) http://ww.jindalstainless.com An innovative manufacturer based in India uses auction theory to allow its global customers to submit their needs for stainless steel components and finished products. Potential buyers can walk through an online request for quotation (RFQ) process to submit a request for a product; then this related group of factories responds with its “bid” for the job. The Bloke In The Pub (U.K. Auction) http://www.theblokeinthepub.co.uk/ After Priceline, this clever upstart auction portal is the most popular auction site in Britain. It is representative of the “second-generation” auction sites that use proven value-added features (escrow
Resources for Researching Your Auction Initiative
137
services, currency exchange, free e-mail) to gain a global C2C audience. iShip, Inc. (Listing Service Model) http://www.iship.com A subsidiary of United Parcel Service (UPS), the iShip solution is the basis for the MBE Internet Ship service available to sellers on eBay. The system is a hub where a shipper can compare pricing and monitor shipping among multiple vendors, such as UPS, USPS, FedEx, and others. This site is not only a useful resource for companies looking for shipping options after an auction sale is made, but also a good example of how a site that trades only information can be attractive to buyers and sellers alike. Disturbing Auctions (Bizarre Items) http://www.disturbingauctions.com/This site provides a roundup of bizarre and tasteless offerings actually put up for bid—with pictures, unfortunately, included. You will not want to use this as material for your business case presentation to upper management. Who Would Buy That (Weird Items) http://whowouldbuythat.com/This site is a corny compilation of offerings that actually received bids. More comic relief.
3. Services and Off-the-Shelf Software This is a sampling—by no means complete—of the range of products and services from smaller firms that are sold on the Web to online traders. See the online version of this book (www.the auctionapp.com) for an updated and more complete list of resources, and also check out the web pages for AuctionWatch and AuctionTribune (listed earlier in this chapter). Major providers of auction management software and solutions (AMS) and integrated e-commerce systems are covered in Chapter 4. VirtualFeedback (Central Feedback Hub) http://www.virtualfeedback.com/aboutus.asp
138
The Auction-App
AuctionInsights (Auction Site Building Tools) http://auctioninsights.com/hosting/ AuctionSecurity (Auction Security) Auction Share (Auction Software) http://www.auctionshare.com/ CollectorOnline (Auction Management Software) http://www.imakenews.com/teach/index000005168.cfm RatingPal (A Central Feedback Hub) http://www.ratingpal.com/ AuctionLink (Short Web Address Service) http://auctionlink.to/ 2Announce (Auction Storage Listings) http://www.2announce.com/ eAuctionWatcher (Software Tool) http://defoort.free.fr/ewatcher/ This is a tool that enables you to configure multiple auctions in one screen window. INetAuction (Software Tool) http://www.inetauction.net/inetauction/ This is a tool for realtime integration of Internet bidders with traditional auctions. Internet Auction List (Database) http://www.internetauctionlist.com This site primarily provides resources for traditional auctioneers. It does indicate whether or not these auctioneers can support an online component. Auction Broker (Software Tool) http://auctionbroker.com/ Auction Maker (Auction Management Software) http://www.alysta.com/software/auctionmaker.htm
4. Search Robots for Auction Sites Here are some of the services and software products that allow both buyers and sellers to compare item pricing across many different auction sites. While auction search robots were originally created for C2C and B2B users, business and industrial applications will not be long in appearing. No matter what you sell, experimenting with these consumer search programs is recommended, as both buyers and sellers often strive to subvert, reverse-engineer, or game the software to either beat other buyers or draw in greater numbers of buyers.
140
The Auction-App
AuctionSearch (Item Search) http://www.auctionsearch.cc/ This is a B2B and B2C item search robot. Antiques are currently emphasized. BidFind (Item/Price Search) http://www.bidfind.com/af/af-allcat.html This is a dynamic pricing agent that tracks not only items but current bid prices as well. It is a popular resource for both sellers and buyers. MySimon (Item/Price Search) http://www.mysimon.com This consumer service searches and compares identical objects by price among more than 2000 online retailers. For sellers, it is a convenient way to scan current “street prices” for brand-name products and trendy consumer goods. Universal Search (Item Search) http://www.srch.auctionwatch.com/usearch/ This is a section of the Auction Watch web site, a search feature that scans not only hundreds of online auctions, but online fixedprice sellers as well.
5. Business Exchange News and Research The best source for news and updates about Internet industry exchanges for specific vertical markets is the trade publications (both print and online) for your particular line of work. However, broader views can be useful, so the following is a list of sites that provide emarketplace research and market intelligence.
Aberdeen Group (Research Reports) http://aberdeen.com
Resources for Researching Your Auction Initiative
141
This research firm organizes specific research for business clients as part of its consulting core business; some of the resulting data are published in periodic reports, case studies, and newsletters such as Aberdeen Viewpoints; industrial e-procurement and technology outsourcing are frequent topics. (Tim Minahan, Aberdeen’s chief analyst in the eProcurement space, has told the authors that a new report covering that category will be out in early 2002.) Registered users of its web site are given access to free reports on business issues and sourcing trends. e-Marketer (Research Reports) http://www.emarketer.com This privately held research site aggregates a wide variety of published research from other sources and puts it in perspective. More than 300,000 executives receive its member newsletters. The company publishes extensive reports on e-commerce several times a year; the latest e-commerce B2B report covering industry Internet exchanges and auction trends is dated February 2002. News briefs, statistics, report summaries, and free trial subscriptions are available on the web site. Net Market Makers (Research and Directories) http://www.netmarketmakers.com This site provides commentary, news, research, and analysis with a primary focus on B2B exchanges. Reports and subscriptions are available. This is part of Jupiter/MediaMetrix. ValNets (News and Analysis) http://www.valnets.com This is an ad-supported news site focusing on e-procurement, Internet supply-chain issues, and B2B online exchanges. Its web pages boast lots of statistics, charts and graphs, and aggregated research. Manufacturing News (News Site, Directories) http://www.manufacturingnews.com
142
The Auction-App
This site maintains an updated list of electronic industry exchanges, from sporting goods to textiles, with links. Purchasing Magazine (News and Research) http://www.purchasing.com The online edition of a print magazine, this site has full coverage of e-procurement and online industry exchanges, with emphasis on chemicals; electronics; metals; maintenance, repair, and operations (MRO); and functional (services) exchanges. Exclusive research reports and statistics based on surveys of procurement executives are a regular feature. This site also has its own online auction, for used equipment. B2eMarkets (News and Research) http://www.b2emarkets.com This site provides research papers, studies, and Web seminars on electronic sourcing and e-procurement. IBC. Inc. (Directories) http://www.ibc.tv/B2B/auctions_and_exchanges_directory.htm Not to be confused with the bakery case study in this book, this is a flashy broadband site for business communications. This URL points to a very useful directory of auctions and exchanges. Though not comprehensive, it rounds up many functional exchanges for services, such as IT consulting, finance, and shipping/expediting.
Top Ten Industry Trading Exchange Services, 2001 (Source: AMR Research) Exostar (Aerospace/Defense) http://www.exostar.com Covisint (Auto and Auto Supply) http://www.covisint.com CheMatch1 (Industrial Chemicals) http://cheMatch.com 1
This exchange was acquired by rival ChemConnect in January 2002.
Resources for Researching Your Auction Initiative
143
Transora (Packaged Goods) http://www.transora.com Converge (Electronics) http://www.converge.com eSteel2 (Metals) http://ww.e-steel.com FuelQuest3 (Petroleum Products) http://www.fuelQuest.com Paper Exchange (Industrial Paper) http://www.paperexchange.com GlobalNetXchange (Retail) http://www.gnx.com Altra Energy Technologies (Utilities/Energy) http://www.altra.com
6. Specialty Topic Areas Readers are encouraged to create bookmarked lists of sites pertinent to their product line. These can include uber-links (see Chapter 3) for general market data as well as competing online exchanges. By way of example, the following list gives a dozen web sites that might be included in a bookmarked list for a business that sells American fine arts antiques:
2 These two exchanges,eSteel and FuelQuest, have more recently changed their business models; they now provide technology and services to companies building in-house auctions. 3
See (2), above.
144
The Auction-App
Art.net.com (Fine Arts Search Engine) http://www.artnet.com This site is a treasure trove of information and links. There is tons of research material, including auction results from around the world. Onsite auctions, begun in 1999, feature art from nearly 1000 galleries and private collections. More than $2 million in art was sold in its first year. Art Sales Index (Sales Database/Directory) http://www.art-sales-index.com Founded in 1968, Art Sales Index aggregates sales results from auction houses all over the world and archives auction catalogs. Its database, with over 2.4 million art auction entries (with price results) since 1950, is available on the web site, along with financial statistics on the fine arts market, news, and a directory of fine arts auction houses that conduct business online (see Fig. 6.1). American Society of Appraisers (Pricing Data) http://www.appraisers.org This professional society links art sellers and buyers with expert appraisers around the country.
Art Price (Pricing Data) http://auction-research.com.searchartprice.com/cgi-bin/static This site provides art market data for pricing. www.askart.com (Pricing Data) http://www.askart.com This is a comprehensive database with latest auction prices for major artists, with images, bios etc. It includes results from all major online and offline auction houses. Catalog of American Portraits (Research Database) http://www.npg.si.edu/inf/cap.htm This is a database of over 100,000 paintings of prominent Americans by prominent American artists, as documented by the Smithsonian Institution’s National Portrait Gallery. The online index includes approximately 3000 images and current locations of the artworks. ICollector (Search Engine, Directory) http://www.icollector.com This is a hub site tracking auctions, with regional searches for services such as fine arts appraisal, shipping, and offline galleries. Maine Antique Digest (Online Magazine) http://www.maineantiquedigest.com An uber–link for antique dealers, this respected news source is entirely up to speed on online trading in fine arts. It gives lots of resources, links, news and commentary. Butterfield’s (Auction House) http://www.butterfields.com Christie’s (Auction House) http://www.christies.com Sotheby’s (Auction House) http://www.sothebys.com
146
The Auction-App
World Wide Arts Resources (Service Company) http://www.wwar.com This site provides art-audience-specific mailing list rental, e-mail campaigns with electronic postcards, advertising services, and seminars. It also provides news, commentary, gallery links, and a museum index with links to web sites related to international museum collections.
7. Listing of Industry-Sponsored and Neutral B2B Exchanges Much of the early spadework for B2B auction selling is finding and researching what might be appropriate public marketplaces for a specific type of product or service. Since companies that create internal private exchanges also tend to purchase basic commodities and less strategic products through public exchanges, such auction sites can be useful points of entry for sellers that have yet to crack a company’s preferred vendor list. And even sellers involved in a private exchange that belongs to a large client should remain active in at least one “neutral” or independently run public auction in their industry. All the Web sites in this section were active as of January 1, 2002.
Advertising and Media Neutral Exchanges AdOutlet.com
www.adoutlet.com This platform, the Advertising Distribution System (ADS), provides a set of tools that allow media professionals to present, aggregate, and transact advertising inventory for all media in real time. BuyMedia.com www.buymedia.com BuyMedia.com (www.buymedia.com) is an exchange that lets media buyers purchase premium advertising from any radio or TV station or cable system in the United States. Buyers can send avail-
Resources for Researching Your Auction Initiative
147
ability requests, orders, and traffic instructions electronically. Access is provided to commercial radio stations in the top 262 Arbitron-rated markets and commercial TV stations in the top 211 Nielsen-rated markets.
Aerospace (Includes Aviation and Defense) Industry-Supported Exchanges Aeroexchange
www.aeroexchange.com Founded in October 2000 by thirteen airlines, Aeroxchange integrates e-procurement, cooperative purchasing, and supply-chain management. Aerospaceonline www.aerospaceonline.com This site describes itself as a vertical net marketplace for aerospace professionals. It provides industry news and supports buying and selling functionality for its audience. Cordiem www.cordiem.com Cordiem LLC provides supply-chain management, e-procurement, and engineering services. Cordiem’s twelve founding aviation members include nine airlines (Air France, American Airlines, British Airways, Continental Airlines, Delta Air Lines, Iberia Airlines, SAirGroup (Swissair), United Airlines, and United Parcel Service and three original equipment manufacturers (OEMs) (Goodrich Co., Honeywell International Inc., and United Technologies). The founding airlines represent $45 billion in annual purchases, while the three OEMs represent more than $13 billion in aftermarket parts and services. Cordiem focuses on five major spending areas: maintenance and engineering, fuel and fuel services, catering and cabin services, airport services, and general procurement. Exostar www.exostar.com
148
The Auction-App
Exostar’s Internet-based e-marketplace connects manufacturers, suppliers, and customers. The company provides a suite of e-procurement and e-collaboration tools to automate and standardize processes and communication—from planning and design to sourcing, procurement, and support for its network of buyers and sellers. Other features include a real-time zone/currency converter and multiline bidding (MLB). Neutral Exchanges Aircraft Marketplace (AircraftAuctionSite.com)
www.aircraftmarketplace.com This site provides liaison-assisted aircraft auctions as well as classifieds; FAA data; and insurance, financing, and weather information. AviaBid www.aviabid.com An aviation auction community and marketplace for the aviation consumer and professional buyer and seller, AviaBid’s mission is to bring all corners of the aviation community together in order that users may buy and sell all things aviation. Avolo www.avolo.com Avolo, headquartered in Seattle, was founded in 1999 by aviation and e-commerce industry leaders to facilitate Internet-based sales, asset management, and procurement. Inventory Locator Service (ILSMart) www.ilsmart.com ILS operates an electronic marketplace that brings buyers and sellers together and provides tools to enhance their ability to conduct business. ILS, which was founded in 1979, focuses on three industries: commercial and general aviation, the commercial marine industry, and the U.S. Department of Defense (DoD) market. Parts Base www.partsbase.com
Resources for Researching Your Auction Initiative
149
Parts Base, based in Houston, Texas, was founded in 1996. One of the most impressive elements of this marketplace is its parts database, which allows buyers to search 2300 inventories through multiple search options. The company also has auction functionality. Source One Spares www.sourceonespares.com Established in 1997, Source One Spares specializes in the “just-intime” delivery of refurbished flight control, landing gear, nacelle, actuation, and other rotable airframe components to commercial aircraft operators around the world. Source One has the world’s largest exchange pool of refurbished flight control surfaces and airframe components, with complete ship-sets available. The company has over 10,000 refurbished components in stock, including some next-generation inventory, many of which are the only spares available in the world, for Boeing, McDonnell-Douglas, and Airbus aircraft. This inventory is available for exchange, sale, or lease 24 hours a day, 365 days a year. All components are fully traceable and overhauled by the leading repair facilities in the industry (all FAA/JAA145 facilities). Trade Air www.tradeair.com TradeAir.com is an online marketplace founded by aviation industry veterans. The company provides real-time information on pricing and the availability of parts as well as online negotiating and purchasing, and warehousing and shipping of parts. TradeAir.com was born in July 1999 and is based in Milwaukee, Wisconsin.
Agribusiness Neutral Exchanges Agriculture Online
www.agricultureonline.com The creators of this site have taken the term information hub seriously. The site features discussion forums, market prices, news,
150
The Auction-App
and a plethora of other resources. The marketplace supports classifieds, Yellow Pages, and auctions in the @gShop! area. AgraLink www.agralink.ca With western Canada as its purview, Agralink strives to deliver a cost-effective, secure, and open trading arena for agricultural products. The exchange initiates trade activity in the feed grains and freight markets, and links grain companies, brokers, and producers with their trading counterparts—feed mills, feedlots, and international buyers. CattleInfoNet. www.cattleinfonet.com If Clara Peller were still alive, she’d love this site. CattleInfoNet features content designed to help ranchers, including industry news, weather, and links to commodities pricing. The site also offers an exchange and auction where participants can buy or sell cattle. Dairy.com www.dairy.com Farmer-owned cooperatives; milk, ice cream, and yogurt processors and cheese manufacturers are all part of the consortium that came together to found Dairy.com. The site carries news and tools to enable operators to run their businesses more efficiently, as well as an exchange for the buying and selling of goods. DirectAG.com www.directag.com This site provides industry news, a catalog, market prices, weather, financing information, online forums, and “virtual expert” advice. It is not clear if the marketplace provides multiple suppliers or if the site is simply a storefront for one supplier. FarmBid www.farmbid.com Farmbid.com was developed to provide farmers all over the world with a “one-stop shop” to assist them in their daily operations. The
Resources for Researching Your Auction Initiative
151
site has community resources and news, and the exchange features auctions, classifieds, and affiliate sales. Farms.com www.farms.com Farms.com’s mission is to provide producers with the information, services, and markets they need in order to make sound business decisions and increase profitability. The site focuses on cattle, swine, and crops. The marketplace is an auction environment where livestock can be traded 24/7. FreshfromtheWeb.com www.freshfromtheweb.com This small site does not as of this writing appear to have achieved critical mass. Its roots are in Asia, and it is funded by B. Grimm & Co. of Thailand. The site has an exchange for the global trading of agricultural products. It does not charge any listing fees. Internet Hay Exchange www.hayexchange.com If you’ve got an itch to buy some hay, this site could be your remedy. IHE is a nuts-and-bolts site where visitors from the United States and Canada can get industry news, share information, post “hay wanted” ads, and participate in hay auctions. Log on. Make hay. MachineFinder.com www.machinefinder.com This site is a weak attempt by John Deere to expand its prospect database. As of this writing, the site appears to be little more than glorified digital classifieds. Critical mass on the buyer and supplier side are missing. NetSeeds www.netseeds.com If you are in the market for corn, alfalfa, sorghum, grasses, and other kinds of seeds, this could be your site. NetSeeds was founded by a network of seed-industry veterans who believe
152
The Auction-App
strongly that there is a better way to purchasing farm inputs. The site’s marketplace is open 24/7. XSAg.com www.xsag.com XSAg.com was founded by a group of agribusiness veterans. The site’s technology platform enables buyers and sellers to come together via aggregation/group buying, a name-your-price venue, or a marketplace with fixed price and auction capabilities. Industry-Supported Exchanges Rooster.com
www.rooster.com The big rooster has some pretty big gorillas running the show: Dupont and Cargill started this trading site jointly and remain principal buyers.
Automotive Industry-Supported Exchanges Covisint
www.covisint.com DaimlerChrysler, Ford Motor Company, and General Motors came together to form Covisint and were joined by French automaker Renault S.A. and Nissan of Japan. Though it once aspired to be the central hub for all automotive OEMs and suppliers, Covisint’s current business model has shifted more toward supporting private exchanges within its industry. Rubber Network www.rubbernetwork.com If there’s an exchange that wants to use the expression “where the rubber meets the road,” this one should have the first right. Rubber Network was formed by the Continental, Cooper, Goodyear, Pirelli, Michelin, Dunlop, Toyo, Hancook, and Yokohama tire companies. Total purchases within the tire and rubber industry, which include raw materials, equipment, machinery, goods, and services, are estimated at more than $50 billion a year.
Resources for Researching Your Auction Initiative
153
SupplyOn www.supplyon.com Germany-based SupplyOn was started by Robert Bosch GmbH, Continental AG, INA Wälzlager Schaeffler oHG, SAP AG and ZF Friedrichshafen AG to create an electronic marketplace for European automotive suppliers. Neutral Exchanges Autodaq
www.autodaq.com Autodaq is an automotive remarketing company that provides the infrastructure and technology to facilitate the business-to-business trade of used cars on the Internet, as well as professional remarketing services that include remarketing management, lease maturity management, strategic marketing, vehicle sourcing, and sales and leadership training AutoTradeCenter.com www.autotradecenter.com This site describes itself as an Internet vehicle remarketing company. ATC markets its services to captive finance companies, financial institutions, fleet/leasing companies, and dealers. It also offers auctions and links to industry resources. CarStation.com www.choiceparts.com ChoiceParts, CarStation’s successor, operates the CarStation CommerceSystem (CCS), an Internet-based parts management and communication system. Repair facilities and suppliers can use CCS to locate and place parts orders, build and manage their own web sites, and schedule and manage service appointments. Manheim www.manheim.com Manheim extends its offline brand to provide comprehensive online information and functionality for dealers that includes auc-
154
The Auction-App
tion information, presale and postsale lists, and the Manheim Market Index. Motorplace.com www.motorplace.com This site’s focus is on aggregating vehicle and parts data from more than 12,000 auto-dealer clients to create a dealer-to-dealer e-commerce marketplace. Truckxchange www.truckxchange.com Truckxchange provides goods and services for the commercial transportation industry. The company provides the following: BuyNet controls, MRO (nonproduction goods and services), and financing through PACCAR Financial and PacLease partners.
Business Goods and Services, MRO, Raw Materials Epylon.com www.epylon.com This company’s mission is to bring together public-sector buyers and suppliers for efficient online purchasing. imandi.com www.imandi.com This reverse auction site has hundreds of categories of products and services. Mondus www.mondus.com Mondus is a trading platform and community with thousands of registered businesses in Europe. NewMediary.com www.newmediary.com
Resources for Researching Your Auction Initiative
155
Newmediary supplies its partners with private-label directories that feature an RFP engine. onlineMRO.com www.onlinemro.com This site describes itself as an MRO e-distributor. RawMart.com www.rawmart.com This site is a multilanguage service linking buyers and sellers in more than 600 raw materials and commodities. Sitestuff.com www.sitestuff.com SiteStuff is an exchange for managers, owners, tenants, service providers, and suppliers of commercial and multifamily real estate properties.
Capital Equipment, Machinery, Mining, and Parts Industry-Supported Exchanges PTPlace
www.ptplace.com This private marketplace is open only to distributors of INA, Rockwell Automation, SKF, or Timken products. Neutral Exchanges AssetTrade
www.assettrade.com AssetTrade, established in 1998, was global from day one. The company is one more example of established offline companies taking their expertise online. The company was established as a joint venture between U.K.–based Henry Butcher International, Ltd., which claims to be the world’s largest industrial equipment disposition and asset management firm, and Michael Fox
156
The Auction-App
International, Inc., a strong U.S.–based industrial auction company. AssetTrade operates in 27 countries. BLiquid www.bliquid.com BLiquid is a full-service marketplace for buyers and sellers to trade in construction equipment and industrial machinery. One interesting feature is the ability given to buyers to list an item for which they are looking and solicit bids and terms from sellers. DoveBid www.dovebid.com DoveBid is another example of an offline auctioneer who was savvy enough to put together a strong online endeavor (see the case study). The company has been aggressively acquiring smaller Internet pure plays and other traditional auctioneers in its space with the sole intent of gaining technology, market, or geographic expertise. Floorspace.com www.floorspace.com This pure-play site is trying to play its neutrality in that it is not associated with any dealer organization or equipment manufacturer. As of this writing, it did not charge fees and had aspirations of making money from other sources of revenue, perhaps advertising. It is doubtful that this site will ever gain critical mass. Global Capital Equipment Market www.gcemarket.com GCEMarket is a totally open marketplace for buying and selling used semiconductor manufacturing equipment and printed circuit assembly equipment. The company is attempting to take a fragmented industry and bring it together. To that end, the company does not require that the transaction even take place online. It allows its customers to conduct business in the format with which they are most comfortable.
Resources for Researching Your Auction Initiative
157
i-Mark, Inc. www.imark.com This exchange was originally conceived as a way to bring manufacturers together with their suppliers. Along the way, the company developed a great suite of software products to enable manufacturers to streamline their processes. The exchange aspect is now handled by FreeMarkets, which acquired the company.
Environmental Neutral Exchanges Cantor Fitzgerald Environmental Brokerage Services
www.emissionstrading.com This exchange offers a full suite of environmental credit trading services, from wastewater credits to greenhouse gas trading. The site provides an auction platform and other market information. CO2E.com www.co2e.com This site bills itself as the global hub for carbon commerce. It is operated by Cantor Fitzgerald and PricewaterhouseCoopers. International Carbon Bank and Exchange ww.icbe.com ICBE helps its participants, both individual and corporate, to track and manage their greenhouse gas emissions and to assist in certifying their emissions reductions. The exchange provides a platform for participants to acquire offsets in real time. The Halon Trader www.halontrader.org Halontrader is a U.N.–sponsored site that is a virtual marketplace for recycled halon gas. The trading of existing halon has become a key strategy to phase out halon under the Montreal Protocol and protect the ozone layer. The site helps people who need halon for
158
The Auction-App
essential uses and people who have recycled or banked halon find each other. Michigan Water Quality Trading Program www.deq.state.mi.us This site, operated by the state of Michigan’s Department of Environmental Quality, provides a platform that allows trading of pollution credits for water discharges. Texas Water Bank www.twdb.state.tx.us/assistance/waterbank/waterbankMain. htm The Texas Water Bank was created by the 73d Texas Legislature as a mechanism to allow for and assist in the voluntary transfer of water rights between willing buyers and sellers. It is managed by the Texas Water Development Board. Water Bank www.waterbank.com This site really holds water! The Water Bank is a very comprehensive web site dedicated to creating a broad marketplace for the buying, selling, trading, and marketing of practically everything to do with water, like water rights, water investments, water utilities, and bottled water. EnviroXchange.com enviroxchange.com This site is operated by AptusNET, Inc., which is a spin-off of Environment NewsMagazines, Inc., a regional publisher. The exchange is a platform dedicated to creating and recovering value from industrial commodities. Wastechange www.wastechange.com Wastechange is geared to enable European trade and industry to locate cost-effective recycling, waste management, and waste exchange solutions for all categories of commercial waste.
Resources for Researching Your Auction Initiative
159
XSmaterials.com, Inc. www.xsmaterials.com This is a directory dedicated to excess materials, secondary commodities, surplus inventory, and other related services. Recyclers World www.recycle.net This was established as a worldwide trading site for information (including buy/sell/trade listings) related to secondary or recyclable commodities, by-products, and used and surplus items or materials.
Miscellaneous and Specialty Manufacturing Neutral Exchanges CoalCamp.com
www.coalcamp.com CoalCamp is a marketplace for the coal industry that was launched in 1998. Its parent, Heavynet, also operates exchanges in other segments of heavy industry, including rail, hauling, rock mining, and drilling. EquipmentLeasing.com www.equipmentleasing.com (aka eLease.com) This is a marketplace for leasing customers and equipment sellers. IndustryMart.com www.industrymart.com This site calls itself the Internet channel for bearing and power transmission dealers. Here’s a chance to get your bearings. MachineTools.com www.machinetools.com This site is a marketplace for the machine tool industry, offering new and used equipment and auction functionality.
160
The Auction-App
Marex.com www.marex.com Marex Marine is an online marketplace for the marine industry, supporting direct material and contract pricing procurement. ZoneTrader www.zonetrader.com ZoneTrader, based in Minneapolis, Minnesota, is a privately held company with a stable of distinguished venture capitalists who have 65 million reasons for wishing them to succeed. The company has a strong history and has evolved into a full-service surplus asset management and disposition provider. Beyond providing an online marketplace, live/webcast auctions, and negotiated sales, the company has a web-based utility to enable clients to track and efficiently manage their surplus assets. Strategic partners include Ford Motor Company, Dow Chemical Company, and Peregrine Systems.
www.envera.com Envera is an ordering, processing, and payment system that is part of ChemConnect (see below). It offers a wide range of value-adds for its industry and is worth studying. Elemica www.elemica.com Elemica was formed in August 2000 by investments from twentytwo of the world’s leading chemical companies: Air Products and Chemicals, ATOFINA, BASF, Bayer, BP, Brenntag, Celanese, ChemCentral, Ciba Specialty Chemicals, Degussa, The Dow Chemical Company, DSM, DuPont, Millennium Chemicals, Mitsubishi Chemical, Mitsui Chemicals, Rhodia, Rohm, Solvay, Sumitomo Chemical, and Vopak.
Resources for Researching Your Auction Initiative
161
Trade-Ranger www.trade-ranger.com Trade-Ranger is an Internet-based global marketplace for goods and services traded in the energy and petrochemical industries Neutral Exchanges ChemACX
www.chemacx.com This is an aggregated catalog database of more than 200 top chemical suppliers serving the research community. The company’s technical chops have taken a huge bite to enable its database not only to search by chemical name, CAS number, chemical formula, molecular weight, or desired chemical property, but also to allow a buyer to simply draw chemical structures, which it will then search. ChemConnect www.chemconnect.com ChemConnect provides a number of venues for buyers and sellers from the chemicals industry to come together. The Exchange Floor enables companies to list products and buyers to browse available inventory. The Commodities Floor brings together 500 prequalified members from large chemical and plastics producers, consumers, traders, and distributors to trade standard, high-volume commodity products in real time. Corporate Trading Rooms are private online auctions that can be customized to meet the specific business requirements of large buyers and sellers of chemicals and plastics. CheMatch.com www.chematch.com Based in Houston, Texas, CheMatch.com is a global Internet exchange and information resource for buying and selling bulk commodity chemicals, polymers, and fuel products. The company provides an exchange platform and an auction platform and was recently acquired by ChemConnect.
162
The Auction-App
SciQuest www.sciquest.com Enablement of labs and research institutions with procurement and process systems appears to be job one for this site. However, buried deep within its scientific jargon, the site does have 850,000 products from 450 suppliers in an exchange format.
Computers, Electronics, and IT Industry-Supported Exchanges Ajunto
www.ajunto.com Headquartered in suburban Philadelphia, Ajunto helps companies create “buying webs” and “selling webs” across the IT commerce chain. Component Planet www.componentplanet.com Component Planet is an exchange for the software component marketplace. E2open www.e2open.com E2open provides a global collaboration network for managing product-life-cycle business processes across trading partners in the electronics industry. E2open was founded by Acer, Hitachi, IBM, LG Electronics, Lucent Technologies, Matsushita Electric (Panasonic), Nortel Networks, Seagate Technology, Solectron, and Toshiba, and is backed by Crosspoint Venture Partners and Morgan Stanley Dean Witter. In addition, E2open has a number of strategic partners: Mitsubishi Electric, Omron, Ricoh, Sanyo, and Sharp. ImageParts.com www.imageparts.com ImageParts.com is a Web-based marketplace for buyers and sellers of printer, scanner, copier, fax, and multifunction systems, parts
Resources for Researching Your Auction Initiative
163
and peripherals. The members-only exchange was launched in the fall of 2000, with an inventory of more than 500,000 new, used, refurbished, and end-of-life parts from hundreds of distributors, dealers, resellers, and service companies, including, among others, Avondale Systems Ltd., CHA Inc., Computer Parts Unlimited, Inc., FaxWorld, IKON Office Solutions, Market Point, National Parts Depot, Oasis, Omnitech Gencorp, Paramount Imaging, Parts Now!, and Seneca Data Distributors Inc. Power Source Online www.powersourceonline.com Power Source is a hybrid entity that could be classified as a hub of exchanges for computer components and telecom and printer systems and parts, peripherals, and software. The marketplaces include: Powersourceonline.com—computer equipment marketplace Telecomfinders.com—telecom equipment marketplace Imageparts.com—imaging equipment marketplace TechnologyNet www.technologynet.com TechnologyNet develops web-delivered sales and procurement of computer solutions for computer resellers. One of TechnologyNet’s products, the IT Solutions Locator, claims to be the world’s largest database of value-added resellers (VARs). The Dealer Network www.thedealernetwork.com TheDealerNetwork.com is a B2B network for all types of IT channel resellers. Trade Loop www.tradeloop.com Trade Loop is an online trading community for computer dealers, resellers, and brokers. It is the official network of the ITRA (Information Trading Resellers Association).
164
The Auction-App
Neutral Exchanges Asia-Tech
www.asia-tech.com As the name connotes, this is a United States–Asia B2B marketplace for electronic components and semiconductors for the United States and Asian markets. Asia-Tech was started by AsiaLinks Media, which also started Asia-Links (www.asia-links.com), an Internet portal for business professionals in the United States and Asia Converge Trade www.converge.com ConvergeTrade is a global marketplace offering prequalified buyers and suppliers of computer components the opportunity to connect, negotiate competitive pricing, and shorten their delivery cycles. ConvergeTrade utilizes multiple online and offline commerce mechanisms, including quotations, auctions, reverse auctions, and structured negotiations. FastParts.com www.fastparts.com FastParts.com is a B2B marketplace for the electronics manufacturing industry. The company has developed a number of services, such as the ComponentConnect and EquipmentConnect trading exchanges, SOLD!Auction, and the Century Catalog, to meet the needs of its buyers and sellers. FastXchange www.fastxchange.com FastXchange provides a Web-enabled suite of e-procurement tools. This tool set will help buyers work with their current suppliers, as well as give them access to the FastXchange database of 30,000 vendors. Free Trade Zone (PartMiner Direct) www.freetradezone.com
Resources for Researching Your Auction Initiative
165
PartMiner Direct is a primary source of electronic components and also serves as a secondary supplier for hard-to-find, obsolete, and shortage parts for customers by tapping over 6000 suppliers. PartMiner Direct maintains offices in the United States, Europe, and Asia. IT Parade.com www.itparade.com The site appears to have taken the necessary steps to aggregate the players in the IT remarketing industry to bid on surplus IT assets and to respond to RFQs for refurbished technology. These dealers also offer their inventories on the exchange so that an end user can have a one-stop shop for equipment needs. Mectronic www.mectronic.com Mectronic.net is an online exchange for electronic, electrical, and mechanical components and services. Memory Network www.memorynetwork.com Not to be confused with a purveyor of gingko biloba, royal jelly, or ginseng, this exchange is for buyers and sellers of memory (DRAM, etc.) products. NECX (see Converge Trade) www.necx.com Need2Buy www.need2buy.com Need2Buy, founded by industry insiders, is an exchange serving the electronic components industry. The company couples comprehensive industry and technical databases with powerful Internet technology. As a result, Need2Buy is able to offer component buyers, distributors, manufacturers, and engineers a full range of services to address most buying and selling situations.
166
The Auction-App
SellXS www.sellxs.com As the name tells you, SellXS is a marketplace for auctioning excess inventory in the global semiconductor industry. USBid.com www.usbid.com USBid is a global e-commerce marketplace where manufacturers and distributors, sellers, and buyers come together to trade in electronic components online. The site provides four models for doing business: fixed price, request for quotation, exchange, and auctions. USBid provides warranties on all purchases. Virtual Chip Exchange www.virtualchip.com Virtual Chip Exchange has the backing of Arrow Electronics Inc., the world’s largest distributor of electronics. Qualified OEM member companies log onto the Virtual Chip Exchange web site to purchase microchips or offer excess stock for sale. The site also offers global news, market prices, delivery lead-times, and technical information from the semiconductor industry. Wire Connect (CableNet) www.wireconnect.com CableNet offers customized e-business solutions for the cable industry. The company licenses its cable-industry supply-chain solution to cable manufacturers and their key raw material suppliers.
Construction Industry-Supported Exchanges Mercadium
www.mercadium.com Mercadium was formed in April 2000 as an Internet-based trading hub for building materials. The companies involved in
Resources for Researching Your Auction Initiative
167
Mercadium include Aggregate Industries, Alfred McAlpine, BPB, Gesys, Glauser International, Hammer Architects, Pilkington, and RMC. Citadon www.citadon.com Cobbled out of previous exchanges Bid.com and Cephren, Citadon has been more successful as a provider of web-based collaboration software used in the construction industry. It remains an important player and facilitator for the engineering sector. Neutral Exchanges FindStone
www.findstone.com This one will definitely get you stoned. Information, catalogs, services, marketplaces, expert advice, or whatever else you may be looking for that relates to the world of stone and sculpture will probably be found here. IronPlanet www.ironplanet.com See the case study for a complete description. This company has assembled a strong offering and qualified buyer base to do something many experts in the field predicted could never happen: sell construction equipment over the Internet. OneBuild www.onebuild.com OneBuild provides software solutions and marketplace solutions that enable contractors, manufacturers, distributors, and other intermediaries in the construction material industry to communicate and conduct business online. The eMarkets solution lets buyers and sellers inquire, initiate, specify, target, negotiate, and close transactions online. TradePower www.tradepower.com
168
The Auction-App
TradePower provides software solutions for the commercial construction industry and connects contractors and distributors through the TradePower Online Exchange.
Energy—Electricity, Oil, and Gas Industry-Supported Exchanges APX
www.energy-exchange.com APX offers a fully Internet-enabled energy marketplace. This includes everything from trading and credit management to grid market services. Enermetrix www.enermetrix.com This company, headquartered in Maynard, Massachusetts, provides e-business solutions to companies operating in competitive energy markets and operates an active natural gas and electricity retail marketplace. Customers include energy utilities, energy traders and marketers, energy service companies, and commercial and industrial users of energy Enporion www.enporion.com Enporion is a marketplace serving the electric and gas industries. Altra.com This site provides a real-time bilateral auction that gives traders instant access to natural gas and electric power at substantial savings because they can tap into local, national, and global suppliers to lock in prices. This successful exchange had $12 billion worth of business transacted in 1999 and continues to grow its own revenues from software sales and services. Reflecting the current state of its industry, it provides credit risk information on participants. Enron Online www.enrononline.com
Resources for Researching Your Auction Initiative
169
EnronOnline is recognized here for its spiffy web site and its vibrant exchange for trading energy-related products and other commodities, including gas, power, oil and refined products, plastics, petrochemicals, liquid petroleum gases, natural gas liquids, coal, emission allowances, bandwidth, pulp and paper, metals, weather derivatives, credit derivatives, steel, and more. Its future is uncertain: its parent company, Enron, went bankrupt late in 2001, and at this writing remains the subject of a government inquiry and about a zillion private lawsuits. FuelQuest www.fuelquest.com FuelQuest serves the petroleum marketing industry with news and information, statistics, and hosted service platforms. Its ASP technologies and services include supplier hubs, marketer hubs, and private marketplaces. HoustonStreet.com This is a hub for the trading of wholesale electricity, crude oil, and refined products. It also provides industry information and resources and real-time anonymous trading in seconds. This was the first hub for wholesale electricity; crude oil and natural gas were added in 2000. The site has a unique push bidding technology that automates posting of new catalogs; 400 traders use the system. Equiva Trading Co. delivers industry content. The site’s technology partners include Sapient (infrastructure), Bowstreet (XML), and MicroArts (marketing). The site has more than 100 employees and is run by BayCorp Holdings Ltd in Portsmouth, New Hampshire. Indigopool.com www.indigopool.com Indigopool is a Schlumberger company. The site is a global trading platform for oil leases, property, and other assets. Intercontinental Exchange www.intcx.com
170
The Auction-App
Based in Atlanta, this is an exchange for trading global commodities. The company’s aim is to extend the technological advantages in the world financial markets to the world commodities markets. NetworkOil www.networkoil.com NetworkOil helps its customers sell or find new, used, refurbished, and surplus equipment. A prominent tool is its e-auction. Pantellos www.pantellos.com Pantellos is an independent, open marketplace focused on the utility and energy services industries. The company is a charter member of the Global Trading Web Association and is considered one of the more successful public exchanges in existence. Petroleum Place www.petroleumplace.com Petroleum Place is an Internet portal that hosts a range of domestic and global oil and gas assets on its web site. The Oil and Gas Asset Clearinghouse offers a hybrid live floor and Internet auction service, and also offers other mechanisms to broker assets online. Watt-Ex www.watt-ex.com Watt-Ex is an online trading system for electric energy in Canada. It allows exchange participants to buy or sell contracts for firm forward commitments in the real-time or spot electricity market. WattEx is a true commodity exchange in that it facilitates the electronic contract transaction and performs all the clearing functions. World Oil www.worldoil.com This is site is predominantly the online version of World Oil magazine. A catalog of oilfield equipment and services is offered. A
Resources for Researching Your Auction Initiative
171
planned exchange powered by Ariba has not, as of this writing, come on line.
Finance IMX www.imx.com IMX, based in San Ramon, California, brings together mortgage brokers and lenders. The company has developed a patented pricing technology that delivers significant product discovery opportunities for brokers and advanced Web-enabled distribution channels for lenders. Grant Street Group www.muniauction.com Grant Street Group has been auctioning a number of financial instruments over the Internet since its launch in 1997. Since that time, the company has completed more than 2000 auctions totaling over $1.6 trillion for over 220 different issuers in thirty-two states. The instruments include CDs, GICs, notes, taxable bonds, tax-exempt bonds, zero-coupon bonds, and other instruments. Pedestal www.pedestal.com Pedestal is an online mortgage-trading site. The site supports a wide range of mortgage products, and the exchange supports pool trading and live auctions. TradeWeb www.tradeweb.com TradeWeb, launched in 1998, is the largest online bond market. The site supports eighteen of the world’s leading dealers as market makers and more than 900 of the largest buy-side institutions as customers. The market has generated more than $6 trillion in trading volume since its inception.
172
The Auction-App
Food and Beverage Neutral Exchanges Agribuys
www.agribuys.com Agribuys serves the retail and foodservice industries. The company boasts a strong management team that is considered by many to be the thought leadership for the industry. The team is steeped in food-industry experience and also has extensive technology and ecommerce experience. The company is based in California and also has offices in Australia, Canada, India, and the U.K. It counts the Worldwide Retail Exchange among its strategic partners. BevAccess www.bevaccess.com BevAccess is a global exchange for the alcohol beverage market. The exchange, which supports classifieds as well as shopping, helps provide a more efficient and easy-to-use procurement process for trade buyers and sellers of wine, spirits, and beer. It is linked to Beverage Media, which distributes alcohol-industry trade magazines. CoffeeContact www.coffeecontact.com This site offers a global marketplace for the trading of green coffee. The site is deep in its content beyond the marketplace, providing industry news, chats, resource, weather, and trade logistics, among other items. ecFood www.ecfood.com Founded in December 1998, ecFood conducted its first private auction in December of 1999. Located in the heart of Silicon Valley, ecFoods places a high value on providing the platform for companies to succeed and not getting in the middle of their business. The ecFoods community consists of what the company calls “67 scout sites”. These sites are hosted by a leading food industry trade association or food manufacturing expert.
Resources for Researching Your Auction Initiative
173
eSkye Solutions www.eskye.com eSkye Solutions provides a suite of e-business solutions for the beverage industry, including applications for retailers (restaurants, hotels, liquor stores, and grocery stores), distributors, and suppliers. Floraguide.com www.floraguide.com This European exchange offers solid community tools like weather forecasts, plant forecasts, job boards, and a marketplace. The marketplace has an easy, straightforward registration process. Food and Beverage Information Exchange www.fbix.com This could be considered the granddaddy, or at least an elder statesman, of electronic exchanges for the foodservice industry. Conducting its first transaction in May 1993, FBIX proved the efficacy of its electronically “shared resource.” Now Web-enabled, the exchange provides an e-commerce solution linking foodservice distributors with their customers. FoodHunter.net www.foodhunter.net FoodHunter.net is a B2B exchange for the foodservice industry. The service utilizes a network of distributors, brokers, and manufacturer’s storefronts to allow buyers to search for and purchase all of their food products. FoodService.com www.foodservice.com Based in New York, FoodService.com offers an extensive set of community features on its site, including news and information, job listings, classified ads, trade show information, and discussion forums, among others. Its marketplace enables suppliers to upload their entire catalog into the searchable FoodService.com database.
174
The Auction-App
GoFish.com www.gofish.com “Gimme a seven.” “Go Fish!” Although this site didn’t spring from a card game (as far as we know), it does have a great heritage in the seafood industry, dating back to 1985. GoFish.com is a global exchange providing industry credit reports, financing information, negotiated listing and auction formats, a huge directory, and industry news. IceCreamZone.com www.icecreamzone.com IceCreamZone.com is a portal plus a B2B marketplace for the frozen dessert industry. Founded in 1999, the exchange provides those in the industry a place to buy and sell products, services, and supplies. The site also provides solid business resources for its members. Instill www.instill.com Instill focuses on the foodservice industry and claims that its system now services more than 15,000 foodservice operators, 100 distribution centers, and 1200 buyers. Novopoint www.novopoint.com Based in Chicago, Novopoint connects buyers and sellers of food and beverage ingredients. Seafood.com www.seafood.com Seafood.com was organized in 1999 by Seafood Datasearch and Urner Barry Publications, two companies that are well known in the seafood industry. The site features industry news, market pricing (provided by Urner Barry), and a wholesale and retail marketplace. SellMeat.com www.sellmeat.com
Resources for Researching Your Auction Initiative
175
This interactive electronic marketplace offers the following features: real-time bidding, free customized market listings to sellers, customer service and technical support, access to an international audience, contract management, credit management, inventory management, current price quotes, industry news, and market trends.
Government, Education Epylon www.epylon.com Epylon, recently acquired by Accenture, offers education and government institutions e-procurement solutions with access to a tailored marketplace. The company will also assist in supplier recruitment, strategic sourcing, content management, and contract and catalog loading. The marketplace platform enables catalog sales, shopping lists, RFQ submissions, and sealed bids. FedCenter.com www.fedcenter.com FedCenter.com claims that it is the largest global electronic marketplace designed exclusively for government buyers. The site has impressive depth in its number of vendors and the categories they represent. National Information Consortium www.nicusa.com NIC boasts an impressive array of solutions to enable e-government—from tax information to e-procurement solutions. The e-procurement solutions cover integration of the government entity and its approved vendors. Onvia.com www.onvia.com Onvia helps businesses secure government contracts and government agencies find suppliers.
176
The Auction-App
SBDepot (Small Business Depot) www.sbdepot.com SBDepot is a powerful portal for small businesses. The site is deep in information and resources to help small businesses manage their operations better and get more business. SBD has a corporate contract database and a government contract database to help businesses keep a steady stream of opportunities coming their way. It also provides a steady stream of news and tutorials on the subject of electronic procurement, particularly in the government sector. Simplexis www.simplexis.com Simplexis helps the education community and some public-sector organizations use the Internet to save time and money in procurement. The company’s solutions allow schools to work more efficiently with their own suppliers as well as become part of a national buying cooperative to achieve greater savings.
Insurance Neutral Exchanges Catex
www.catex.com Based in Princeton, New Jersey, the Catex exchange is the world’s largest Internet-based B2B exchange for insurance, reinsurance, and risk management. Catex is a totally open market, serving all levels of users and providing price transparency. ePolicy www.epolicy.com ePolicy is a listing service for business-related property and casualty insurance from A-rated companies like AIG, Fireman’s Fund, The Hartford, Interstate Insurance Group, Kemper, Zurich, RLI, and TIG. thebenefits.network www.thebenefits.net
Resources for Researching Your Auction Initiative
177
The founders of this marketplace are insurance professionals whose aim was to make this site a repository of information and a virtual marketplace. The marketplace allows brokers, employers, and insurers to access unbiased and vendor-independent coverage details so that they can more accurately compare large group benefit plans. Brokers are able to solicit bids through an online RFQ system.
Intellectual Property Neutral Exchanges The Patent and License Exchange, Inc.
www.pl-x.com This site positions itself strongly as a true exchange and a market leader with the presentation of data and market prices so prominently on its site. PL-X provides an exchange and services to assist the intellectual property community in managing, valuing, marketing, and ultimately monetizing their intangible assets. Yet2.com www.yet2.com The brain trust at yet2.com provides an anonymous marketplace for licensable technologies and intellectual property that targets R&D professionals and technology holders. The market aims to tap the approximately 90 percent of great ideas that never see the light of day. Yet2 introduces the interested parties. Negotiations and agreement happen offline.
Medical, Health Care Neutral Exchanges Dream Weaver Foundation
www.mrn.com This site has a decidedly charitable focus. DreamWeaver Medical’s main focus is to turn medical surpluses into useful products and funding for charitable health-care programs worldwide. The organization networks with manufacturers and distributors to make a
178
The Auction-App
continuous stream of medical supplies and equipment available to mission agencies via the Web. Medical EquipNet www.solumed.com This marketplace offers a variety of opportunities for buyers and sellers. It lets buyers solicit bids through its iBuy services. Through iSell, sellers can list their wares. iAuction brings buyers and sellers to the table in an auction format, and iService provides the necessary logistics, financing, and other services that the community might require. Medinex Systems, Inc. www.medmarket.com MedMarket is a community site for health-care professionals, providing web pages as well as other resources for buyers and sellers. MedPool www.medpool.com The MedPool Contractor solution enables health-care professionals to detail their needs; the MedPool system then aggregates those requests with others on its network and solicits bids from suppliers in its marketplace. The intent is to streamline the procurement process and drive product acquisition costs down. Neoforma www.neoforma.com Neoforma is trying to revolutionize health care by streamlining the industry’s procurement practices. It has built marketplace solutions utilizing i2’s technology. The company has a stable of competent suppliers that are tied into its network.
Transora was formed by a veritable “who’s who” of packaged goods companies: Alberto-Culver Company, Beiersdorf A.G., Borden Inc., Bristol-Myers Squibb Company, British American Tobacco, Busch Investment Corporation (a wholly owned subsidiary of Anheuser-Busch Companies, Inc.), Bush Brothers & Company, Cadbury Schweppes PLC, Campbell Soup Company, Coca-Cola Enterprises, Inc., Colgate-Palmolive Company, Compania Cervecerias Unidas S.A. (CCU), ConAgra, Inc., Danone Foods, Inc./The Dannon Company, Inc., Diageo PLC, Eastman Kodak Company, Embotelladora Andina, Faultless Starch/Bon Ami Company, General Mills, Inc., Georgia Pacific, Grupo Bimbo, H.J. Heinz Company, Hallmark Cards, Inc., Heineken International, Hershey Foods Corporation, Hormel Foods Corporation, Johnson & Johnson CCI, Kellogg Company, Kraft Foods, Inc. (includes Nabisco), Lance, Inc., Mars Incorporated, McCain Foods LTD, McCormick & Company, Inc., Morton International, Inc., Nestlé Holdings Inc., Orkla, Parmalat, PepsiCo, Inc., Perdue Farms Incorporated, Ralston Purina Company, Reckitt Benckiser PLC, Rich Products Corporation, S.C. Johnson & Son, Inc., Seagram Suiza Foods Corporation, The Coca-Cola Company, The Earthgrains Company, The Gillette Company, The J.M. Smucker Company The Pepsi Bottling Group, Inc., The Procter & Gamble Company, The Quaker Oats Company, Unilever NV (includes Best Foods), and the Wm. Wrigley Jr. Company. Need we say more?
Packaging Neutral Exchanges B2BPkg.com
www.b2bpkg.com This site appears to be targeted at buyers of pharmaceutical and consumer products packaging and requires registration before entering. To get more buyers, it allows suppliers to list items for free. PackageX www.packagex.com
180
The Auction-App
PackageX is a researched exchange for custom packaging, created by a team of professionals experienced in the packaging industry and related package design software applications. Beyond putting buyers and sellers together, it provides a collaboration platform and industry news. PackExpo www.packexpo.com This site has made the necessary investment to be truly a hub for the packaging industry. It provides a marketplace as well as forums/discussions, a supplier database, a trade show calendar, and a reference section. Paxonix www.paxonix.com Paxonix offers, in addition to its network of first-class providers, software and process tools for buyers, and also consulting services. The marketplace appears to be secondary to selling tools and consulting.
Paper and Timber Neutral Exchanges e-Wood
www.e-wood.com This site focuses on wood flooring of all types, from small quantities to truckloads. It is a pure marketplace in that it offers an items wanted section, an items for sales section, and auctions. IHB—Internationale Holzboerse www.timber-exchange.com IHB is a global concern with a strong presence in Germany. The site is offered in seven languages and claims 1300 members with 2750 buyers. It offers auctions of raw and refined wood products as well as equipment and machinery.
Resources for Researching Your Auction Initiative
181
PaperSpace www.paperspace.com This is a large organization with exchange, automation, software, and logistics solutions for the paper industry. The marketplace platform was originally developed by PaperExchange and acquired by PaperSpace.
Plastics and Elastomers Industry-Supported Exchanges Elastomer Solutions
www.elastomersolutions.com Elastomer Solutions was founded by Advanced Elastomer Systems (AES), a leader in dynamically vulcanized thermoplastic elastomers (TPEs). AES was formed in 1990 as a joint venture between Monsanto Chemical Company (now Solutia) and Exxon Chemical Company. Omnexus www.omnexus.com Omnexus is a marketplace for the global plastics industry. It provides primary equipment, auxiliary equipment, tooling, and MRO supplies. Omnexus was founded by BASF, Bayer, Dow, DuPont, and Ticona. Neutral Exchanges Allplastx
www.allplastx.com Allplastx was founded in 1999, with the idea of providing the leading independent plastics marketplace in Europe. It has since switched its focus to working with Asian partners to provide plastic resin to the European market. Biz2Biz Plastics www.biz2bizplastics.com
182
The Auction-App
This site provides a comprehensive catalog of all items relating to the plastics industry. Its solutions enable buyers and sellers to streamline their processes and do business more efficiently. getPlastic www.getplastic.com Founded in 1999, getPlastic provides a unique, proprietary business process efficiency platform aptly named RESINATE. GetPlastic customizes RESINATE for major OEMs. A standard version of RESINATE is available to small and medium-sized plastics processors. Plastics Commerce www.plasticscommerce.com Plastics Commerce is an exchange that connects plastics businesses across the plastics supply chain. Polymer Site www.polymersite.com PolymerSite is a plastics exchange site that offers negotiation capabilities in a sealed-bid environment. In March of 2000, PolymerSite merged with Polysort. PRO-plast www.pro-plast.de As its domain name indicates, this is a German site. It does provide an English translation. The company is a marketplace for surplus raw materials for the plastics industry. It provides its community with selling and buying opportunities.
Printing Neutral Exchanges 58K.com
www.58k.com
Resources for Researching Your Auction Initiative
183
There are 58,000 printers in the country—hence the name. This exchange’s aim is to bring those printers together with millions of commercial print buyers in a centralized auction market, using standardized electronic bid forms to communicate. The site claims that its RFQ form has become the industry standard. ConvertingResource.com www.con-res.com This is a site where the marketplace takes a back seat to information. It is steeped in the converting industry and provides reams of data to its constituency. FlexoExchange www.flexoexchange.com This site has a strong dedication to content and an intent to create community among its audience. It was created to provide the industry with access to the information and resources most often needed by people closest to the flexo press room: printers, prepress personnel, and printing managers. The exchange supports auctions and a marketplace. httprint www.httprint.com As reflected in the name, httprint (get it? http?) considers itself more of an Internet service provider to the print industry than an exchange. It has a Web-enabled platform to allow print buyers and sellers to save time and money by streamlining the procurement and management process. Ozeprint.com www.ozeprint.com Ozeprint.com, based in Australia, is the down-under version of a 58K.com or Printbid.com. It has established a marketplace where buyers and sellers of Australasia can come together. Printbid.com www.printbid.com
184
The Auction-App
PrintBid.com’s mission is to put the right printer together with a buyer at the right time. The company has an extensive database of printers and their capabilities.
Retail Industry Supported Exchanges GlobalNetXchange
www.gnx.com GlobalNetXchange (GNX) is an electronic marketplace for retailers and suppliers to manage their supply chains. GlobalNetXchange’s equity partners include many of the world’s largest retailers: Carrefour, SA, Kroger Co., Metro AG, J. Sainsburys PLC, Coles Myer; Pinault-Printemps-Redoute SA, Sears, Roebuck and Co., Oracle, and PricewaterhouseCoopers. GNX facilitates communication and collaboration among retailers and suppliers globally. Infomat www.infomat.com Infomat claims to be the fashion industry’s largest search engine. It may well be the largest listing service of its kind. More than 350,000 showrooms can be accessed from the site. The site is deep with industry information and resources. The marketplace provides a catalog, leads, and sourcing, as well as an auction format that is powered by Liquidation.com. Worldwide Retail Exchange www.worldwideretailexchange.org Lead by U.K. retailer Tesco, Worldwide Retail Exchange focuses on food, nonfood, textile, and drugstore needs. Its full-scope procurement platform allows participants to conduct a broad range of e-commerce transactions, from negotiations and auctions to supply-chain management. As of this writing, it has fifty-eight members whose revenues total more than $820 billion. Of concern is that it lists only one supplier.
Resources for Researching Your Auction Initiative
185
Shipping, Transportation, Logistics Arzoon www.arzoon.com Arzoon provides what it calls a collaborative logistics software platform so that partners engaged in managing freight and inventory work from the same system at the same time to manage the flow of product. The platform can work with a private exchange, or the shipper can access suppliers from Arzoon’s exchange. BestTransport.com www.besttransport.com BestTransport provides tools to enable shippers to communicate more effectively with their current carriers or to initiate new relationships in the BestTransport community. CarrierPoint www.carrierpoint.com CarrierPoint calls itself a dynamic shipping marketplace. It allows shippers and carriers to conduct the necessary communication and negotiations using either their own private marketplaces or CarrierPoint’s public marketplace. eLogistics www.elogistics.com This U.K.–based company provides a suite of Web-based services for manufacturers, retailers, and transport companies. Its collaborative freight management products provide advanced internal, private, semiprivate, and public marketplaces. e-Transport.com www.e-transport.com e-Transport offers a private online marketplace and Web-based information tools to electronically manage how carriers and shippers negotiate, buy, and sell services for moving cargo and the accompanying documentation.
186
The Auction-App
Freightconnect.com www.freightconnect.com This site caters to a global audience. It is a load matching exchange that also provides Department of Transportation statistics and a classifieds section. Freightgate www.freightgate.com This site has a portal feel as a result of the huge directory and extensive information resources it boasts. The marketplace covers air, ocean, and trucking shipments. FMX (FreightMatrix) www.freightmatrix.com FMX offers its shipper and exchange customers a choice of a private or public marketplace, with access to a large carrier base, international shipment execution, and rail and intermodal services. Freightquote.com www.freightquote.com Freightquote has created a centralized directory where B2B customers can view the offerings of multiple carriers. The site offers a fixed-price format for less-than-truckload, truckload, expedited, local cartage, and intermodal freight. GetLoaded.com www.getloaded.com Lest you think that this is an exchange for suppliers to fraternity parties, this site functions as an Internet load board for truckers. The objective is to help truckers avoid having to deadhead from one location to another. The truckers post load capacity on the site, and shippers call them to arrange for transportation for a load they need to move. Global Freight Exchange www.gf-x.com
Resources for Researching Your Auction Initiative
187
Global Freight Exchange has developed a neutral trading platform for air freight carriers and forwarders that takes advantage of unused inventory in a dynamic pricing environment. The company is well funded, having raised $85 million as of this writing. GoLogistics www.gologistics.com GoLogistics is an Internet service that allows shippers to purchase excess capacity on less-than-truckload (LTL) and truckload (TL) carriers on an as-needed basis, based upon a “spot market” pricing program. GT Nexus www.gtnexus.com GT Nexus is bringing e-logistics to the ocean transportation industry. It currently works with twelve major ocean carriers representing over twenty global brands, and it has a live network of hundreds of active, collaborating participants on its platform. iShip, Inc. www.iship.com This company, originally owned by Stamps.com, is now a subsidiary of United Parcel Service (UPS). The iShip solution is used by more than 2000 Mail Boxes Etc. franchisees and is the basis for the MBE Internet Ship service available to sellers on eBay. The system is a hub where a shipper can compare pricing and monitor shipping among multiple vendors, such as UPS, USPS, FedEx, and others. Logistics.com www.logistics.com Logistics.com’s suite of integrated transportation solutions is an ASP-based technology for shipper and carrier management and for contractual and spot procurement across all modes of transportation, domestic and international. Exchanges are private, semiprivate, and public.
188
The Auction-App
National Transportation Exchange www.nte.com This Chicago-based exchange makes great use of the Internet for its platform. National Transportation Exchange (NTE) improves the way companies buy, sell, and manage transportation services. The company has developed real-time procurement services and information management tools to improve supply-chain value and control for shippers and carriers. ShippingFinder.com www.shippingfinder.com This site provides live auctions for personal and commercial transportation of goods and a request-for-shipping functionality to solicit bids from shippers. Translogistica www.translogistica.com This logistics exchange offers its members Web-based e-business applications that let shippers publish invitations to tender (ITTs) for term contracts or agreements to a wide audience of qualified logistics providers. Logistics providers that are interested in bidding can read the ITTs and reply. Translogistica also provides tools to assist shippers in comparing bids. Where is the ship? www.whereistheship.com This South America–based site is principally an information site for foreign trade via the high seas. The site expects to add more functionality in the future.
Steel and Metals Neutral Exchanges e-MaterialCut www.e-materialcut.co.uk
Resources for Researching Your Auction Initiative
189
e-MaterialCut is a U.K.–based independent European B2B marketplace for the buying and selling of metals and materials in all forms. Sellers are able to list their materials on the site’s database, which is checked on a regular basis by buyers. E-Steel www.e-steel.com Originally a purely global marketplace for the exchange of steel, the company now provides tools to companies to enable them to streamline their procurement processes. Supplier networks and buyer networks are intact to provide a jump start to potential clients. MetalSite www.metalsite.com This early exchange for the steel trading industry closed down in the summer of 2001. It was revived a few months later after its assets were purchased by Management Science Associates. Inc., which, like e-Steel, makes most of its revenue by offering technology products to the steel industry. Metals Suppliers Online www.suppliersonline.com Metals Suppliers Online, founded in 1997, is a B2B product exchange serving the metals industry. Suppliers and buyers can conduct secure e-commerce on the site through auctions and through fixed-price venues.
Surplus Goods Neutral Exchanges ComAuction.com
www.comauction.com This site sells everything from telephones to tractors. Its pitch is that the company will make the auction of surplus B2B equipment easier. The site takes no responsibility for inspection and offers no
190
The Auction-App
escrow service. It appears to be trying to be the eBay of surplus B2B equipment. Liquidation.com www.liquidation.com Liquidation.com is a privately held corporation that offers an extensive selection of products. The company specializes in business and government surplus liquidation, thus accounting for its diverse product offering. The company’s subsidiary Government Liquidation, LLC, which can be found at www.govliquidation .com, boasts an exclusive contract with the Department of Defense.
Telecommunications Equipment and Services Neutral Exchanges AceQuote
www.acequote.com AceQuote is a U.K.–based B2B marketplace for telecom and IT professionals. Arbinet—the Exchange www.arbinet.com The Arbinet Exchange has all of the feeling of an exchange, with a scrolling price ticker and great industry resources. Members meet at the online exchange to buy, sell, and physically deliver voice, fax, and Internet Protocol (IP) minutes across public switched telephone networks (PSTN), data, VoIP, and wireless networks. Band-X www.band-x.com With Band-X, buyers can trade network capacity, spot trade wholesale international minutes, and buy and sell IP transit capacity. Founded in 1997, the company is global in reach. Min-X.com www.min-x.com
Resources for Researching Your Auction Initiative
191
Min-X.com bills itself as “The Minutes Exchange.” It is the home of what it calls “trading screens” for the VoIP telecom traffic exchange industry. Min-X was launched in 1998 to help the emerging VoIP service providers find traffic exchange partners. It now offers voice brokerage operations for members across all telecom capacity. Rate Xchange www.ratexchange.com RateXchange is not a pure exchange. The company provides consulting services, brokerage, and information services for companies seeking to create liquid marketplaces for bandwidth and other telecommunications services. Telcobuy.com www.telcobuy.com Telcobuy.com is a B2B e-marketplace for the buying and selling of telecommunications infrastructure products and services. Telecommunications Industry Association www.Tiab2b.net This portal provides exchange, auction, RFP/RFQ, and jobs functionality. Telephone.com www.telephone.com Telephone.com is a provider of telecommunications equipment and services. These services include resale, liquidation, and consignment. Telezoo www.telezoo.com Telezoo is a B2B telecommunications marketplace. It was named one of the top five B2B telecommunications web sites by Forbes.com magazine. The Bandwidth Place www.bandwidth.com
192
The Auction-App
Bandwidth.com bills itself as the single source for data connectivity for businesses worldwide. The company helps customers identify, price, and purchase connectivity from telecommunication carriers. It is an agent for ATT, Sprint, MCI/Worldcom, UUNet, Cable & Wireless, Global Crossing, and more than fifteen others.
Textiles, Fabric, Apparel, and Clothing eTexx www.etexx.com This site brings e-commerce know-how to professionals in the textile industry. Fasturn www.fasturn.com Based in Los Angeles, this company addresses procurement and sourcing solutions for the complex relationship between retailers, buyers, and manufacturers in the apparel industry. i-Textile www.i-textile.com This site has a large seller network. Buyers can use the exchange to request specific materials or search the listings. Tradetextile.com www.tradetextile.com This global marketplace is Asia–based and commands a vast supplier base and a deep catalog of textiles and related raw materials. The organization helps textile companies with private exchanges, as well as enabling them to participate in their public exchange.
Solutions Providers/Aggregators of Marketplaces Many of the e-procurement solutions providers that are mentioned in Chapter 4 and elsewhere in this book enlist a stable of suppliers for various niche exchange applications. Many of these exchanges are considered proprietary, and therefore a complete listing for this book
Resources for Researching Your Auction Initiative
193
is not possible. The following is a list of companies that appear to be solid in the e-procurement solutions category for you to review and explore as you investigate your e-procurement strategy. Arriba www.arriba.com CommerceOne www.commerceone.com eBreviate www.eBreviate.com FreeMarkets.com www.freemarkets.com Industry2Industry www.industry2industry.com Oracle Corporation www.oracle.com VerticalNet www.verticalnet.com
This page intentionally left blank.
7 Getting Beyond Being a “One-Trick Pony” In this chapter, we’ll discuss what it takes to use online auction selling as an integrated selling channel that complements your other marketing activities in e-commerce, catalog and direct sales, or retail outlets. The ongoing process of finding new buyers and keeping them coming back is critical to your profitability. And it’s simply more efficient in terms of time and marketing dollars to sell to an existing customer base. The core strategy for customer retention can be laid out in three simple steps: 1. Assemble your best possible audience of buyers and potential clients. 2. Create the best possible customer experience. 3. Exploit a customer database to improve future sales. You are attempting to carry out the first step whenever you buy a direct mailing list or place a newspaper advertisement to draw customers to a special sale. You’re doing the second step whenever you advise a counter clerk to smile a bit more, or track down an errant shipment on your own time to assist one of your favorite customers. The customer database part has been around for centuries, really; it’s just that it was in people’s heads or on a Rolodex in the sales manager’s office. The restaurateur who remembers that you prefer to be seated in the nonsmoking section and generally take a cognac with your coffee is practicing what marketers now call customer relationship management (CRM). It’s just a matter of time before you start 195 Copyright 2002 by Leland Harden and Bob Heyman. Click Here for Terms of Use.
196
The Auction-App
getting e-mail alerts from the same restaurant to let you know that Thursday’s special will be lamb shanks. Unfortunately, all of the high-powered software that makes recommunication easier on the Net has simply been used to trigger bulk mailings of outbound e-mail at the drop of a hat. That’s not what we mean when we speak of CRM for auction sellers—or for even e-commerce in general. Good customer communication does not equal e-mail on steroids. The term customer relationship management was originally coined by direct marketers (the folks who make an art form out of junk mail delivery) to describe the way in which databases enabled deeper relationships with buyers. It has become all the rage among large companies, which purchase very expensive technology solutions from vendors like Siebel and E.piphany that are designed to tie together a company’s sales force automation efforts, call support centers, and marketing promotion campaigns. But it doesn’t take a CRM system to bring CRM thinking to your customer relationships. While automated data mining tools abound, even the smallest eBay seller can utilize the mail management functions of an auction management system program to keep track of good customers to resell, cross-sell, and upsell. CRM thinking can be employed even if you keep lists manually. You just have to be organized. CRM is properly about segmenting customers so that appropriate value propositions can be generated for each identifiable customer type that is numerous enough to be worth the effort. For the e-commerce site tribalartsgallery.com, for example, it makes sense to segment the customer base into those who collect African tribal art and those who collect Oceanic tribal art, and then into smaller groups of those customers who collect shields and those who collect spears. As a smart seller, the gallery will send promotions, perhaps by e-mail or by targeted Web advertising, to the appropriate buyer group when there are items that fit the profile of a certain group. CRM thinking starts with all the “touch points” you have with the customer. These touch points occur prior to the sale (in the product and company discovery phase), during the sale (while the auction or transaction is going on), and after the sale (with customer service follow-ups and recontacts to win future sales). You can build customer loyalty with superior service; you can get repeat visitation with loyalty currencies and “frequent buyer” reward
Getting Beyond Being a “One-Trick Pony”
197
programs. Good CRM happens when you focus on the fact that the 80/20 rule applies to online auctions as well: 20 percent of the buyers who participate in your auctions will generate 80 percent of the winning bids. Web statistics and auction management software can provide you with the statistics, but it still will take a creative human being to figure out the best way to segment customers and what value proposition will keep them coming back. Sometimes it pays to remember that online auctions are to a certain extent just another selling channel. Some of the basic steps that you take when you sell your products at retail through a catalog, email, web site, or physical location still work. However, there are also specific merchandising rules for selling in an ongoing fashion via a dynamic marketplace.
Assemble Your Best Audience: Promote Your Offerings Effectively So how do smart merchants apply marketing, merchandising, and customer relationship management techniques to their auctions? By using the best practices for audience development, a term the authors coined back in 1995. The same strategies and tactics that have helped large companies get traffic to their web sites can help auction merchants get traffic to their auctions and keep folks coming back. Here are some of the most effective.
Search Engine Optimization Most people still use search engines like Google or Excite or Lycos to find things on the Web. The search engines sell “key word” advertising that places an ad for the advertiser’s site alongside the search results. These ads can be very effective in driving traffic. Some search engines, like Overture (formerly GoTo), actually sell high ranking to the highest bidder. Publications like Search Engine Watch are full of the latest tricks for getting the highest possible ranking in the search engines. But, you ask, what does this have to do with my auction listing? A landmark study by IMT Technologies in 2001 revealed that search engines remain the dominant way Internet users find new
198
The Auction-App
vendors. This is particularly true among business Internet users. The IMT study showed that search engines are used more by buyers than by nonbuyers—54 percent of Web users who made twenty or more purchases online as a part of their jobs reported that search engines were their number-one way of finding new sites, compared to 25 percent of similar users who made no such purchases in the same year. Even among the nonbuyers, a significant percentage (one in four) are still relying on search engines to research new web sites of interest. While individual auction listings won’t be listed in the search engines, a merchant can create a web site that can achieve high ranking under multiple appropriate key words (either by guile or by payment), and that site can default to the merchant’s auctions (such as the eBay seller’s auctions page). A buyer looking for cigar store Indians might click on the highly ranked Cigarstoreindian.com and be whisked away to Cigarstoreindian.com’s auctions microsite. In the business realm, a manufacturer in urgent need of a certain semifinished part might well do a Google search for that part by name, and by that method track down a previously unknown vendor of the item. HTML key words (which describe a site) and meta tags (which are “titles” for and within a site) are bits of computer code, called source code, that search engines look at when they discover, and then categorize and rank, a web site that is new to them. While creating the HTML code with key words and meta tags is usually a task for the technical staff, it’s not terribly hard to find good examples of source code. Most Internet browsers have software in their Edit menus that will allow you to view any site’s source code. In Navigator, for example, the function for “show page source” is within the “Find” features of the browser’s Edit menu. Here’s of an example of the source code for key words and meta tags on an Australian tribal art site that always places highly in search engines: <TITLE>Songlines Aboriginal Art Gallery, museum quality Australian Aboriginal paintings <META NAME=”description” VALUE=”A San Francisco and Amsterdam gallery exhibiting museum quality
Getting Beyond Being a “One-Trick Pony”
199
Australian Aboriginal paintings. Desert art, often referred to as dot painting or Aboriginal Dreamtime paintings, is based on site-specific Dreamings, inherited mythological stories of which the artists are custodians. The site includes photographic essays on the land, spirituality, and culture of Australian Aboriginal people”> <META NAME=”keywords” VALUE=”aboriginal, art, gallery, Australian, paintings, Australia, Aborigine, dot, painting, Emily, Kngwarreye, Kathleen, Petyarre, Utopia, Papunya, Songlines, San Francisco, Amsterdam, tribal, desert, indigenous, people, Dreaming, Dreamings, Dreamtime, Didjeridu, Didgeridoo, Yidaki”> <SCRIPT LANGUAGE=”JavaScript”> ’) }else{ document.write(‘’) } //STOP HIDING—>
200
The Auction-App
Note that the descriptive phrasing for the web site looks a lot like the wording used for the “good” eBay description of an aboriginal art item given in Chapter 5. The seller, Songlines Aboriginal Art Gallery, is the same. This is best Web practices in action: trying to include in your source code all the words that will help potential customers find you on the Web.
Trading Links and Affiliate Partnerships Your auction should be promoted to those companies that have already joined with you as Web affiliate partners, Web ring buddies, or affinity sites. If you’re holding the auction at a main portal, spread the news by sending a blanket e-mail release to affiliate managers and content masters at the other sites. If the auction is being held on your own web pages, sweeten the pot for your Web affiliates by offering a higher referral fee during the promotion’s life span, or send them special artwork for their web site link to your microsite or main site. Or offer a contest rewarding the affiliate who sends the most bidders to your auction.
Direct E-mail and Direct Mail Many businesses have existing lists of potential customers. Sometimes these are former buyers or people who have made enquiries. Clearly it is smart to let these people know about any sale they might be expected to be interested in. E-mail is the quickest and cheapest way to let people know, but snail mail, fax, and phone can be equally effective. How do you get the word out to a wider audience? Consider buying lists of names from list brokers. There are many reputable brokers, and names are available in very precisely targeted subcategories. Clearly it makes sense to alert every possible buyer that your auction is about to take place. Once upon a time, eBay merchants were able to compile lists of email addresses of all the bidders on their auctions and those of others. Those early sellers were able to put together massive lists of people who were interested in various kinds of items. However, eBay and other auction sites have taken steps to “disintermediate” their
Getting Beyond Being a “One-Trick Pony”
201
buyers and sellers, realizing that in order to continue to reap transaction fees, they had to control the interactions between buyers and sellers. This was not directly intended so much to affect proactive marketers as to curtail the burgeoning practice of buyers and sellers contacting each other directly and consummating sales for which the auction site got no fee. However, while bidder e-mail addresses are no longer available for free in this manner, sellers are still put in contact with their auction winners. It’s a no-brainer to compile the e-mail addresses of these winning buyers and let them know when similar merchandise goes up for bid. The name of the second-highest bidder may also be available on some auction portals. (The second-highest bidder is, after all, the one who determines the final price in an auction.) Of course, if you’ve done your own auction on a microsite, you’ll have a complete list of participants, with bidding histories (for more on building your own site, see Chapter 5). And there are still plenty of ways to circumvent eBay’s scrambling of participant names. For example, tribalartsgallery.com has its domain name embedded in its eBay username, thus defeating the fact that you’re not supposed to mention URLs in eBay listings. Purchasing a tailgate ride on someone else’s e-mail is another way to get your message out. The practice is called pay per e-mail, and it’s very similar to performance-based, pay-per-lead web site affiliate programs (see the discussion earlier in Chapter 1). Basically, you pay a list marketer to attach your message to the outgoing mail the marketer is sending to its own customers. The fee is usually less than 50 cents per lead, and you have to pay only for the messages that achieve a successful click-through. This practice originated with e-mail newsletters that were looking for new revenue streams once the online ad market went south. You can make deals with newsletters that attract your customer base, or you can sign on with a management provider that will also seek out e-commerce sites with suitable mailing lists. For an administrative fee and a percentage, the vendors round up suitable list partners, administer the program, and handle the payments. Some vendors in this area include Focalex, Mailbits.com, NetEzines, and Z Media. Don’t neglect old-fashioned direct mail, aka snail mail. It still works, and it can be a good way to promote your Web auction to customers who haven’t tried online buying before.
202
The Auction-App
Viral Marketing Promotions By definition, viral marketing is the introduction of an idea/concept/message/product that is so compelling that your customers can’t help but tell all of their friends about it. Any sales, promotional, or marketing activity you undertake today on behalf of your business should have a viral element. Successful facilitation of a community leads to viral bonanzas that repay their efforts by orders of magnitude. Hotmail—an early genius at viral marketing—put a message link to the Hotmail system at the bottom of every message e-mailed by Hotmail users. The message promoted the service, and anyone interested could simply click on the words to get to Hotmail’s signup page. As more users came on, more messages were being distributed with the link and Hotmail subscriptions grew exponentially, from 18 million members in its first year to 40 million the next. Viral communications were critical to eBay, which started as a site for Pez dispensers in 1995. It now has 35 million to 60 million registered users, depending on whose numbers you are reading. The company built its initial audience of millions without ever spending a dime to acquire it. Because it provided a great mechanism for listing unique items for sale, word quickly spread through newsgroups and via e-mail. EBay resonated with communities because many of the items that individuals listed with it represented connection with other enthusiasts. As more buyers came, so did more sellers, and some of those sellers became buyers, and more affinity communities of buyers and sellers evolved. And so on, and so on. Viral messaging companies like Bounty Systems (bountysystems.com) and books like Seth Godin’s Unleashing the Ideavirus can provide you with solid information for inserting viral elements into programs for your company. A few basics are: ■
The first mover advantage counts. John Chambers, CEO of Cisco Systems, is quoted as saying, “In this market, the big won’t beat the small, the fast will beat the slow.” That applies here. Make sure that any product, service, or idea that you market virally is original. Everyone knows Kellogg’s Pop Tarts; not many remember Post’s me-too breakfast product.
Getting Beyond Being a “One-Trick Pony”
203
■
Find your community. EBay is an aggregation of communities with passionate members. Identify your Barbie doll collectors and get your message to them. Tip: Don’t forget to look in your current client e-mail database.
■
Empower your community. Make sure your community knows that it is appreciated and give it the incentive and facility to spread the word for you. Think “Napster.” Napster provided the facility; the community did the rest.
■
Watch. If all this is done correctly, “spread like wildfire” will not be adequate to describe your initiative. This is not a passive endeavor, however. Tweak your message and your incentive to achieve maximum efficiency. Listen to your community and give it what it wants. Lon Otremba, CEO of Bounty Systems, says that one of the most popular tools in Bounty’s product is the ability to watch in real time how many times a particular message is being referred. Clients can become addicted to hitting the refresh button on their browser as they watch the number rise.
Contests and Sweepstakes Internet shoppers have proved to be attracted to contests and promotions. Everyone likes to get something for nothing. A properly designed contest or sweepstakes can result in substantial traffic. If you don’t have the creativity to design and run a contest yourself, the whole project can be outsourced to specialty marketing firms.
PR and Publicity If anything about your auction is noteworthy, you can attempt to get on- and offline publicity. Auctions that have attracted press include the auction of the Leica camera with which Vaclav Havel recorded the Velvet Revolution, Norman Lear’s winning bid for one of the few privately held copies of the Declaration of Independence, and the auction of a multimillion-dollar jet aircraft from a bankrupt Arab oil prince. All you need is a “story hook” that is of interest to the subgroup of people who might be interested in your item. Send a press
204
The Auction-App
release to the specialized magazines and newspapers that follow the particular field in question. Use a little bit of creativity to figure out why your auction might be newsworthy. Once you have the angle, write a press release and get the word out. An inexpensive Web PR vehicle is PR Newswire (prnewswire.com), where a news release is issued to over twenty thousand media outlets for about $500.
Paid Online Media Online banner advertising is so inexpensive now that targeted marketing is well within the reach of all marketers. CPM (cost per thousand) rates for impressions (the number of times a web page banner ad will appear on the user’s computer monitor) are well below $20, and many banner deals are compensated solely on a pay-for-performance basis—that is, you pay a set fee that’s based on how many times a Web visitor clicks through the ad to find your auction microsite. Depending on what you sell, some deals can be negotiated as a “bounty.” This means that you pay only if the visitor actually buys something at your auction. A cash fee is not out of line for big-ticket items; for example, there are plenty of houses auctioned for sale on eBay. You’ll get the most value if you stick with targeted placements. Audiences already segment themselves on the Web by the kinds of web pages they surf to. The more you’re selling a niche product, the more you need to direct your banner ads to that niche. If you’re selling bridal gowns or flowered bridal veils with auction discounting, specialty bridal sites such as WedNet.com may give you higher conversion rates than general fashion sites or women’s destination sites.
Clicks vs. Conversions One of the great paradoxes of Internet advertising is that the banner ads that generate the highest level of click-throughs don’t always yield the highest number of conversions (people who clicked through and actually made a sale or other transaction). That’s
Getting Beyond Being a “One-Trick Pony”
205
because people will click onto a banner offering a too-good-to-betrue deal, a game or contest, or a sexy come-on, but most of them won’t be qualified customers. With click-through rates languishing at 0.01 percent (in other words, one in a thousand), many e-sellers have given up on banners entirely. However, targeted buying often yields higher conversion rates because you’ve already winnowed down the pool of viewers to a qualified cluster. A bridal site such as WedNet.com will have less traffic than iVillage.com on any given day, but the percentage of bargain-hunting brides-to-be is probably far greater. Click-through rates (CTRs) are not an effective measure of the branding power of an Internet ad banner either. If you intend an ongoing auction sales operation, bear in mind that a Web surfer may view your paid placement many times on a targeted site before deciding to click through and check it out. However, the branding message persists and can be effective in the long run. A landmark study on Web brand recall by the Internet Advertising Bureau and Millward Brown showed that on average, there is a less than 1 percent difference between people who did not click on an ad but recalled its message (44.7 percent) and those who did click and recalled its message (44.1 percent). This study has yet to be disputed and involved thousands of Web user participants. E-commerce sites rarely take advantage of the long-haul aspects of banner branding. According to a yearlong study by AdRelevance (July 1999 to June 2000), 23.7 percent of the banner ads analyzed on the top 500 most-trafficked web sites ran for only one week. Further examination showed that companies that rely heavily on brand cachet ran the longest campaigns—for example, automotive manufacturers (seven to eight weeks) and electronics companies (four weeks). Highly competitive industries, such as credit card services, run banner ad programs constantly, changing the content and style to freshen the message every few weeks.
Create the Best Experience Because an online auction is a brand-building exercise, everything you do should suggest that your company is a pleasure to do busi-
206
The Auction-App
ness with. And if you don’t know where to put the dollars, we have two words for you: customer service.
Generate Trust If on the Internet, no one knows you’re a dog, how does a potential bidder know you are not a low-down dirty hound? For that matter, how do you know that the winning bidder isn’t one either? Actually, you don’t. There’s a lot of trust out there on the Web. People open their hearts to online dating services and chat rooms, buy products and shares of stock based on recommendations in online newsletters and forums, or type in their credit card numbers to buy something from a seller they don’t know and will never meet. Consequently, there’s a lot of fraud on the Web as well, and as the years go by, consumers are becoming less trusting—and a lot less willing to give you their e-mail address, let alone their credit card numbers, for fear of being accosted by endless spam mail, or worse. So let’s talk about building trust in your bidders—they are, after all, your future customers. One of the best ways to build trust and positive feedback is to ship the item immediately after the auction has closed—even before the check has cleared. What you lose in risk control you gain in branding, for the impression of prompt, efficient delivery is solid currency among online shoppers. Another way to encourage trust is to allow folks to browse your auction wares without having to register their name, e-mail address, and credit card data. Asking for a commitment up front is off-putting: No matter how much you crave visitor demographics, you wouldn’t march up to a person visiting a store and ask that person for his or her address. People visiting your site or microsite for the first time will feel more welcome if they are allowed to browse. During the course of an auction, respond quickly to any inquiries from potential bidders. Given that the average e-mail response time from even “best-inclass” companies is about two days, you may want to direct these particular queries to a specific response team. You might consider
Getting Beyond Being a “One-Trick Pony”
207
posting a toll-free telephone number on all auction-related web pages for immediate response if your promotional auction is aimed at serious business buyers. A third option is to set up your auction with a complete frequently answered questions (FAQ) page so that visitors can get answers to their questions swiftly online.
Remember to Ask for Feedback On the main auction portals, buyers are invited to give feedback about their experience. High ratings are very important to consumers, so it doesn’t hurt to remind winning bidders to input their feedback to help you earn your “stars.” Since both sellers and buyers are part of the feedback mechanism at eBay, gaming its star system has become part of the fun for some. Getting your friends and relatives to buy something cheap and rave about you is old hat, though. And it’s harder now, for example, to really rely on the feedback comments, since the buyer or a seller may use several names in this exchange and, in any case, eBay scrambles the addresses so that they can’t be traced. If customer acquisition and retention is your goal, ask your winning bidders to “bookmark” either your auction microsite or your auction portal web page. A bookmark is a way to file a web page address so that it can be called up quickly with a single click from a list of favorites. Bookmarking can be part of a buyer’s Web browser program, or it may be built into the auction host (“click here to bookmark this page”). Most portals provide this service to bidders because this makes it easier for novice bidders to relocate the pages of sellers or categories in their interest area.
Fulfill Orders and Exceed Expectations Contact winning bidders as soon as possible to confirm the final price, which may or may not include shipping and insurance, and make any final payment arrangements. Ship the item promptly, and enclose a thank-you or perhaps a small extra gift. A closed auction sale is not the end of the experience if branding is your goal. Handle any complaints or refund requests with alacrity.
208
The Auction-App
Be proactive by e-mailing a shipping advisement (“Your package was shipped by UPS and will arrive Tuesday.”). Enclose a company catalog and/or a discount coupon for the next “fixed-price” purchase. When confirming the final price, take the opportunity to sign up the customer for a service contract or replenishment service if the item lends itself to such value-added features. One incentive that is not yet prevalent (but probably will become so) are the “points” programs that give away loyalty currency to those who buy frequently at a retail-oriented auction site. Since many retailers already use loyalty currency or have their own credit cards, it may not be difficult to add this as a “frequent buyer” incentive. Priceline, for example, has built an upward spiral of special promotions that are accessible only to its best customers. The closing process can also be a further means of gleaning customer intelligence. One or two simple questions can point to an upselling or reselling opportunity. The buyer of the cigar store Indian statue surely won’t be offended if you inquire whether he or she smokes a pipe, cigars, or cigarettes. If the item sold was a pet product, you might ask, “What kind of dog do you have?” If the answer is “pit bull” or “bichon frise,” you’ve immediately gained a great deal of information about that buyer’s lifestyle and preferences. Refunds and Guarantees Some entrepreneurs will go as far as offering a refund or guarantee in their product descriptions, but that shouldn’t be necessary. As a merchant, you should not feel that you have to proclaim your integrity in print—integrity should be built into your brand. Some of the most successful Web retailers—for example, Land’s End, Nordstrom’s, and L.L. Bean—are known for their liberal return policies. But in most cases a business should not advertise free returns in an auction offering description for a mass-market item— your winning bidder might turn out to be one of those flip-flop shoppers who will take delivery and return to you damaged goods while demanding a free exchange. It is preferable to put a notice of your return and refund policy in the outgoing e-mail to the winning bidder. The policy may include the cost of shipping in the refund, or just the cost of the item (having to pay the freight often stifles the impulse to make a return).
Getting Beyond Being a “One-Trick Pony”
209
Exploit Databases for Reselling: CRM for Auction Sellers All right, now you’re swimming in customer response data. Some of it is in the server logs for your microsite, and some of it is in the sales logs of your auction management software. This is the raw data that you can use to segment your audience, the first step in a sustained, planned campaign to resell, cross-sell, and upsell your most valuable customers. Executives in Enterprise and Fortune 2000 companies will be able to turn this information over to data managers, who will sift and cluster and segment both sales and demographic data with high-powered CRM tools; smaller organizations might turn the job of segmenting over to their direct mail staff, for these people usually have the background to turn statistics into useful suggestions. Or it may be your job, personally, to segment customers and come up with the right value proposition for each group. Some general guidelines apply to all. Don’t forget that each channel can, in effect, have a different marketing or sales purpose for your organization. In general, the auction site is for customer acquisition, the online store is for cross-selling, e-mail is for customer loyalty, and your web site is to service your legacy customer base.
Get Permission First If you are holding the auction on your own site, your company’s privacy policy should be part of the “Terms of Service.” The privacy policy states how you will use information, such as the winning bidder’s e-mail address and home shipping address, for future promotions or sales pitches. Ideally it should include a form field so that anyone who takes the time to actually read the “Terms of Service” can “opt out” of future mailings. The highest standard and best practice is the “opt in.” This is a separate request that asks permission: “May we contact you if we have other items in this line?” You can make this request when someone registers for an auction or when you are communicating with a winning bidder after the close of the sale on a portal. In both cases, the
210
The Auction-App
form field or radio button for “yes” or “no” should be left blank, because research continues to show that Web buyers prefer to feel in control of the permission process. CRM marketing is true “permission” marketing. A great body of research exists that shows that “permissioned” e-mail can generate return response rates as high as 20 percent, or about five times as high as what would be considered a great return in direct mail. Two recent research projects on e-mail management by IMT Strategies show that half to two-thirds of consumers respond positively when asked for permission, and as many as three-fourths actively respond to permissioned e-mails that they receive. The other side of this coin is that consumers have grown to hate unsolicited e-mail messages. More than 89 percent of responders in one of the IMT Strategies studies indicated that they felt negative toward unsolicited e-mails, while other studies have shown that between 30 and 40 percent of recipients simply delete messages from unknown senders and never open them. “Enterprise Permission Marketing,” a white paper resulting from this research (data-rich and available at http://www.imtstrategies .com/PEM2/index.htm), reveals that consumers make a clear distinction between unsolicited e-mail and the messages they receive from companies they know and trust. They are ahead of the curve and are unsubscribing or opting out of e-mail lists much faster than marketers can coax them to opt in. E-mail overload remains a primary concern of best-in-class marketers, who are justifiably wary of strangling this potent marketing tool in its crib. For small merchants, fashioning a CRM program around e-mail marketing is even more critical, since the e-mail response rate for small companies (in both B2B and B2C campaigns reported in the IMT study) was more than 17 percent, compared to 12 percent and 8 percent of the campaigns reported by large (Fortune 500) companies. Frequency management separates the CRM amateurs from the pros. Bear in mind that the number of e-mails sent has surpassed the number of paper letters sent by the U.S. Postal Service by a ratio of about seven to one, so show some pity for the consumer. Timing is also a factor when contemplating frequency. In most industries, businesses are well aware of the buying cycles of their customers and can decide whether a promotional auction will work best at the height of
Getting Beyond Being a “One-Trick Pony”
211
the buying season or in the off-season. Companies marketing to small office/home office (SOHO) buyers should restrain themselves from stuffing their inboxes with redundant e-literature. Instead, use your database to target messages when a buying history suggests that replenishment, product upgrade, or replacement item will soon be sought. In the IMT study, the number one reason that consumers decided to opt out or unsubscribe to a e-mailing list was “lack of relevance.” (The second reason given was “e-mails come too frequently.”) Thus, the soul of successful CRM is to personalize each message as much as possible. The chart in Fig. 7.1 shows the results that best-in-class marketers (both large and small companies) are getting with different types of personalization strategies. As Fig. 7.1 shows, the average business doesn’t really need to invest large sums of money in data mining or click-stream analysis, since comparable results can be obtained by the simplest kinds of audience segmenting. These include sending only targeted e-mails based on geography (pitching products and promotions tailored to a region or a specific city) and more personalized messages tailored to account history (pitching products and promotions based on your records of what the customer has bought in the past). E-mails that provide news of upcoming pertinent events in the topic area, such as Web seminars or a local rodeo, score only slightly lower than customer-triggered events. A customer-triggered event would include not only a response to a customer’s request for information by e-mail, but also a response generated by a reminder service (anniversary, product upgrade, warranty expiration) or a promotion tied to a customer’s peak buying times (holidays, ski season, etc.). But even sellers who can’t get a reminder service in gear can give their auction-related e-mails a relevancy boost by including references to a timely news event, such as a trade show or sport championship, that is related to the topic area. When online customers are polled, the same research group found that the personalization factor most preferred was “communication control”—the ability to stipulate the frequency of messages and the type of messages that would be sent (see Fig. 7.2). Being able to choose the content of messages and being addressed personally, by name, are both seen as a plus. Receiving a message that might refer to past account activity (the kind of message that is most linked to
Personalization Features Source: IMT Strategies, 2001
Fig. 7-1. E-Mail Campaign Response Rates by Personalization Features.
cross-selling and up-selling) is definitely within the acceptable range. All of this reinforces the way CRM can be a “community builder” when customers feel that they are collaborating with vendors who pitch them. It’s worth noting that “lifestyle” scored poorly by comparison—customers don’t want to feel that they’re being grouped. The message to marketers should be pretty obvious: Customers want to feel that they are not only being spoken to but being listened to, and they want to be recognized as individuals.
Automate Customer Response on the Web Don’t try to get eBay on the phone. When the auction site first started, it was handling and routing about 200 transactions per week. In less than a year the number of weekly transactions grew beyond 60,000, and it is now estimated to be over 500,000 per week. Needless to say, a great many of the people making these transactions have questions for eBay and about eBay.
Getting Beyond Being a “One-Trick Pony”
213
Communication Control
Personalization Features
Self-Select Content Name Recognition Account History Geography Purchasing Behavior Personal Events Lifestyle
2.8
3.0
3.2
3.4
3.6
3.8
Average Ranking Note: Most Important (5), Least Important (0)
IMT Strategies, 2001 Fig. 7-2. Personalization and Targeting Features Popular among Customers.
To handle this traffic, eBay early on decided to invest in an automated e-mail management system, which was built by Kana Communications (now part of Broadbase). This not only helped shuttle and track communications between buyers and sellers, but also handled customer service and billing questions. The e-mail management system directs priority queries to a group of human beings (some staff, some outsourced) and directs others to a self-help database that on its own can handle about 200 customer service queries every twenty minutes. Part of your auction infrastructure should be a method and protocol for handling inquiries and sorting them so that they can be used not only for customer service but also for active reselling. The majority of companies are not set up for this; in fact, the majority of companies doing e-commerce rarely see more than 1000 customer inquiries per week.
214
The Auction-App
A great many general inquiries can be handled by using a self-help database or a FAQ page. Mail management software is also pretty cheap. The best practice for CRM, however, would be to routinely survey or tabulate customer questions to pinpoint which “touch points” need to be improved for a better brand experience. In an enterprise environment, customer queries should be centralized to the company’s call support center. Advances in call center automation now make it possible to route both telephone calls (through phone-mail loops) and e-mail queries (through intelligent mail response programs) to the group of human beings most qualified to answer the question or provide service. These turbocharged versions of Judy the Time-Life Operator will be able to hold live telephone conversations with customers while they view web pages or customer data storage files. In a perfect world these superhuman men and women will use the customer service query to upsell and cross-sell products as they converse. Scenarios like this already occur at companies that have invested for years in customer service technologies, such as IBM, Dell, Land’s End, and Victoria’s Secret. But smaller businesses will find that they can do a lot with simple mail-management tools. Netscape Messenger, Microsoft Outlook, and even the e-mail program that comes free from many Internet service providers (ISPs) usually allow a mailer to separately file the communications to and from any e-mail address. All that is needed is the ability to manage different lists of names. One common mistake, though, is that many sellers forget to bcc (blind copy) their recipients. It is amateurish for a recipient to see the names of all the other recipients, and it also makes it too easy for other sellers (who might be on your list because they bought something from you) to swipe your customer list. A slightly more sophisticated mail software program teamed with a simple offline filing system allows one Southwestern art gallery to segment its winning auction bidders and street-level gallery buyers into useful clusters (Who buys the cheap stuff? Who buys the expensive stuff? Who cares most about provenance? ) so that it can send out targeted e-mail messages like this: Dear X, I know you only collect the finest Southwestern tribal art, and I
Getting Beyond Being a “One-Trick Pony”
215
wanted you to know that we have just received a shipment from a Sante Fe collector whose name will no doubt be familiar to you. You may recall that you suggested that I contact you if ever I came across . . . etc. It doesn’t matter whether this letter is sent to one prospective buyer or thirty. The point is that the letter (1) is personalized, (2) is permissioned, and (3) addresses the buyer’s need or desire as gleaned from a past history of purchases.
This page intentionally left blank.
8 Strategies to Protect Profit Margins Now that the techniques for using online auctions for branding, promotion, and customer acquisition (Chapters 5 and 7) have been discussed, it’s time to focus on strategies for getting the maximum amount of profit from the goods you sell at auction. Research shows that more than 50 percent of the merchandise sold at business-to-consumer (B2C) online auctions sells at a final bid that is above the manufacturer’s suggested retail price (MSRP). However, sellers can lose when auctions knock down prices or erode a competitive edge. Before you begin selling at auction, you must know well in advance how much you can afford to knock down a price, when to pull out, and where to recapture a margin advantage.
Using Loss Leaders Effectively The only reason to sell an item at auction for one dollar is to capture someone’s attention, and you can never be sure that buyer is going to be a valuable customer later on. This is the great liability of using online auctions to capture names for e-mailing lists or other promotional uses. Loss leaders do make sense if you’re dragging the Web for a broad base of consumers and you sell products that are low-priced to begin with. Flash auctions, reverse auctions, and Dutch auctions attract what might be called recreational bidders, who are in it for the fun of “winning” a low price. In this case, choose an offering that is likely to appeal to first-time buyers so that you’re not eroding the expectations of your current customers. Here are some other tips: 217 Copyright 2002 by Leland Harden and Bob Heyman. Click Here for Terms of Use.
218
The Auction-App
■
Choose a product that needs to be replaced, updated, or replenished often [batteries; music on compact disks; game software; maintenance, repair, and operations (MRO) supplies; Barbie dolls].
■
Choose a product that lends itself to upselling or cross-selling. Make sure the winning bidder of a pair of jeans trimmed with rickrack knows that you have matching jean jackets in stock.
■
Test start times and end times.
■
Experiment with heading descriptions and key words.
Using Reserve Bids A reserve bid is the “minimum acceptable price” set for an item sold at auction. This price may be withheld from the bidders, and if it’s not at least matched, the item can be withdrawn from sale. While it is common to see reserve bids on capital properties, real estate, fine arts, and heavy machinery, they are not appropriate for retail products offered to consumers online. Since getting a “low, low, low” price is part of the game, auction participants hate the whole idea of reserve bids—they feel it is not sporting. After a while, they will often shun certain sellers if they feel that the vendor is withdrawing too often or is always setting reserve prices too high. If you can’t bear to see a certain product’s price go down to the bare bones, leave it in the fixed-price shopping zone. In business auctions, a reserve price for a big-ticket item (such as secondhand industrial equipment or a boatload of ore) usually represents the seller’s break-even point, with the cost of delivery figured in. Only you know how low you should go, so make sure the profit-and-loss numbers are clear. Don’t try to fudge it to a higher figure (to represent the little bit of profit you hope to make) or to a lower figure (one that takes into account potential lifetime customer value) unless your business model gives you leeway to set a lower reserve bid the next time around. If the reserve bid is firm but is not matched, be prepared to walk away with your head high.
Strategies to Protect Profit Margins
219
Moving Beyond Price As amazing as it may seem today, the concept of the MSRP and even the idea that a product might have just one price did not exist a century ago. Until the latter part of the 1800s, retailers and wholesalers expected to bargain with customers and all prices for all things were negotiable. A shopkeeper, for example, might size up a customer walking through the door and name a price based on his perception of what that customer might be willing to pay—with that perception based on what the person was wearing, how the person talked, or whether the person was recognized as a past client. In turn, the customer might assess the quality of the establishment (dusty shelves, quantities of stock, busy trade with other customers) and take that into account when told the asking price. What followed was often a spirited one-on-one exchange, with a great deal of haggling before the sale was made. The invention of the department store by such retail giants as F. W. Woolworth and John Wanamaker forced the concept of one consistent price for an item, simply because there were too many items and too many salesclerks in the mix. Early specialty retailers, such as Louis Comfort Tiffany, even advertised the “one-price policy” as a benefit to consumers. The democratic notion that all customers would be treated equally was perhaps as big a draw to the modern urban shopper as was the time savings that resulted when haggling was no longer expected. Price competition moved to a different arena: By the early 1900s it was being fought out among the sellers alone. In the heyday of department store retailing, buyers voted with their feet—they could choose to shop at one store or another, while store owners vied to woo them with lower prices, special services, luxury tea rooms, gimmicky displays, and celebrity personal appearances. A low price was only one of many factors a buyer might consider when deciding where to shop. Entertainment value, customer service, and the availability of store credit all were factors that helped retailers keep both their profit margins and their customers. Today, Internet auctions have taken us back full circle to a new era of negotiated pricing. Everyone expects to haggle in the dynamic pricing environment. Consumers remain price-conscious, but the
220
The Auction-App
online buyer can still be swayed by other factors besides the lowest price.
Retiering Pricing Models: Apples vs. Oranges Online Online trading now makes it possible for a potential buyer to comparison-shop for an identical item or commodity from many different vendors, anonymously and in the comfortable glow of his or her computer screen. Online trading is most efficient when a straight apples-to-apples comparison of goods can be made: If two people are selling laptop computers of the same make and model, with the same features and the same software add-ons, the only difference, at first, may be the price. The best way to not get killed on price is to make sure that your offering is somehow different or enhanced—in other words, to make it an apples-to-oranges comparison. If you want to take a look at how expert sellers do this, just shop around at the various travel exchanges (Priceline, Orbitz, Travelocity) and try to pinpoint the best price for an American Airlines flight from city A to city B on any given day. What you are likely to see is a considerable difference among the lowest offered prices from site to site, not to mention a variance in available departure times, nonstops vs. connecting flights, choice of seating section, etc. And if you happen to log onto American Airlines’ own web site, or if you are a member of its e-mail fare advisory program, other special fare discounts or posted fares may apply. American Airlines is adept at apples-to-oranges trading because it realizes that different customers have different needs. While everyone likes a discount, business travelers may be less sensitive to the price than to the need for a certain arrival time or the ability to stretch out and take a power nap in a cushy first-class seat. Bargain hunters looking for the cheapest fare don’t care if the flight leaves at 3 A.M. The airline also trades on the psychological factors that seem built into online trading, such as a customer’s reluctance to set up a new credit card account and user profile with Travelocity when he or she already has an account and profile with Priceline.com. Marketing consultants refer to this as a switching cost. This reluctance to burn
Strategies to Protect Profit Margins
221
any calories while seated before the computer screen makes it possible for American Airlines to make different offerings to different groups of customers. It can spread out its discounting, making more profit on some sales to balance less profit (or no profit) on others. Here are five strategies for retiering to protect your profit margins in online trades:
1. Bundling/Unbundling Products The simplest way to boost margin is to increase the minimum order size by bundling items or selling them in groups or lots. This works for just about everything sold online, from pallets of refurbished computer monitors to underwear (Victoria’s Secret thongs sold in sets of three). There are two advantages: your savings on shipping costs can be applied against the cost of the discount, and the offering may attract only those bidders with the deepest pockets or those who are likely to make volume buys or repeat buys in the future. A second method of bundling that is popular with both B2C and business-to-business (B2B) auction sellers is to throw in some extra accessories or other goodies. In the case of the laptop offering, a vendor might include an extra battery pack or a carrying case. A retailer selling CD burners to home stereo buffs might throw in a few discount coupons good for later purchases of blank disks. The full cost of such add-ons must be figured into the lowest acceptable bid price. The additional shipping costs for the extra weight of a battery pack might be negligible for a single unit, for example, but not if hundreds of units are sold. Unbundling is less common, but it can increase margins when the object sold is worth less in its entirety than as the sum of its parts. A vintage Caterpillar tractor may not run but may be dismantled and sold profitably as replacement parts. Another form of unbundling is to remove certain optional features from a product if those features added to the manufacturing costs or base price. Many manufacturers and retailers prefer to sell entire pallets, or lots, of items rather than go through the hassle of selling each item individually. Many of these pallets are sold at online auction in industrial marketplaces. Some sellers, however, have begun to tap eBay even for selling entire pallets. Liquidators have made eBay a primary
222
The Auction-App
channel. It is easy for them to break open the pallet and sell individual items on the marketplace. If you sell your goods to liquidators on a regular basis, do not rule out the possibility of hiring a few people and moving the inventory yourself on eBay. Compare the amount your liquidators are giving you against what you may be able to garner with a little extra effort. A potential pitfall for sellers in industrial markets is the Volume Purchase Agreement (VPA). Having secured a very low price in a reverse auction, a buyer may wish to “lock in” that price for future shipments of the same commodity. While it may be tempting to enter into such an agreement with a prestigious new client, sellers must be sure they are not committing to a deal that leaves them no margin room.
2. Enhance Brand Value or Product Value Brand-name products or brand-new items that are in short supply can command a higher price. Always supply product information if it lends cachet. If a car or appliance was voted number one by Consumer Reports or received favorable reviews in trade publications, add this to your offering’s description. Buyers who are unfamiliar with your business have only what they see on their screens to differentiate your offering from another one. Many of them rely on the auction site’s vendor feedback mechanisms (such as eBay’s “gold stars”) or review comments posted in chat rooms. Practicing good brand management (see Chapter 5) and encouraging good feedback can enhance your vendor status and increase your bid prices without adding a penny to your selling costs. In the business arena, FreeMarkets pioneered the idea of the “supplier knowledge base.” Bidders who participate in FreeMarkets’ auctions can view its comprehensive database for more than 150,000 vendors covering such things as factory capacity, shipping data, and past performance. Any company selling there should make sure that the information in this database is accurate, complete, and positive. Sellers who participate in small-business or vertical industry marketplaces may be able to promote their brand through advertising on the auction site. Submit news releases if the site has a news section on its home page.
Strategies to Protect Profit Margins
223
The early reverse auctions online that were based purely on price caused so much supplier backlash that e-marketplaces had to quickly establish mechanisms to place a numerical value on nonprice elements of bids, such as inventory, logistics, quality of goods, etc. These are now calculated in as weighting factors or multiples that wind up in the math when the automated procurement program compares all bids. This cold, hard statistical method of evaluating product “quality” has its drawbacks: Every request for quotation/ request for procurement (RFQ/RFP) software program calculates these intangibles in a different way, for one thing. Theoretically, however, if the product quality of a small supplier is numerically equal to that of a “name” supplier, the smaller vendor may benefit because the perception of “quality” is no longer a reflection of the personal views of the procurement manager (see Fig. 8.1).
3. Add Service to Your Offering Don’t just sell a product. Sell a package that contains a value-added service. This has become increasingly important in online exchanges where a potential bidder cannot necessarily touch or examine an item. IronPlanet took extensive steps to have the heavy equipment they offer at online auction appraised and inspected, and to have the inspection insured. Dovebid, which sells factories and heavy manufacturing equipment, counts its half-century of experience as a traditional auctioneer as a key benefit for its online auctions and hybrid webcast auctions. The most common service add-on for online auctions is free delivery. Consumers and small office/home office (SOHO) buyers seem willing to pay more for the convenience of letting the seller handle the busywork of insurance and shipping. Retailers can also offer relatively low cost add-ons such as a year-long guarantee or warranty of service and replacement parts. Liberal return policies are less important and can be more costly in the long run. Sellers of industrial products should try to include service contracts in their offerings, or amenities such as online customer support or a year’s worth of software upgrades. A free installation service can also help tip the scales if you’re trying to woo a buyer away from an entrenched supplier. Since the bidder will be factoring switching
E
PRIC
TY
ALI QU
DE
LIV ER Y
W AR
RA
NT
Y
S
M ER
T
Y TOR
HIS
Fig. 8-1. Nonprice Factors in E-Procurement Reverse Auctions.
224
Strategies to Protect Profit Margins
225
costs and the expense of retooling assembly lines or manufacturing facilities into the bid price, it makes good sense to estimate what installation costs could be accommodated in the asking price. Making a wide variety of financing options available is another tactic. In some commodities markets, buyers may be pleased to bid in local currencies if they find an advantage there. Flexibility in F.O.B. terms, C.O.D. terms, seller financing, and staggered payments may look good on certain RFQs. Financing options also extend to B2C sales. Automotive auctions, for example, routinely include seller financing or the opportunity to lease a vehicle rather than buy it. Accepting forms of payment other than major credit cards (postal money orders, online payment services such as Paypal) is a form of service that appeals to certain segments of the consumer auction audience.
4. Add Speed to Your Offering Faster delivery justifies higher bid prices in both consumer and business marketplaces. The incredible success of the “Buy It Now” option on eBay supports the widespread perception that Internet buyers crave instant gratification. This builds value simply because turning inventory over more quickly is good for your business. Turning inventory more quickly means the ability to negotiate better prices with suppliers and to reduce warehousing costs. EBay stores, Amazon Marketplace, and “Buy It Now” have all emerged as a result of a whole market segment that prefers to pay a fixed price rather than fighting it out in a dynamic marketplace. Going back to our Palm Pilots, if ten Palm Pilots come onto the marketplace each day, that means that at any given time there are seventy Palm Pilots on the market. With Buy It Now or fixed-price options, the amount of time that some of the Palm Pilots are on the market will be significantly reduced, as a result of the needs of those buyers who are unwilling to wait. The other part of the speed equation is showing customers just how fast you can deliver a product after the auction closes. If your business already has volume discounts with UPS and Federal Express, you can offer discounted express shipping without depress-
226
The Auction-App
ing your margin, or at least maintain your margin when a buyer is willing to pay a premium for speed. In some industries and in much of consumer selling, you can offer two different tiers of delivery service: regular and “rush.” Charge a premium for the faster delivery and add that to your profit tally. This is also where you can game the RFQ in industrial auctions for spot goods or materials. While the whole point of the RFQ is to compare suppliers on equivalent terms, a vendor can gain considerable advantage by offering shorter delivery cycles, greater available factory capacity, or speedier fulfillment of a custom order. When you’re filling in automated RFQs, this extra service value winds up being factored in as a numerical value, which can improve your standing when the bids are calculated automatically. Trades in spot materials or raw materials can be even more time-sensitive: A metal or grain that can be obtained in three days is going to be more valuable to some buyers than the same material delivered three weeks from now. It pays to remember that just-in-time manufacturing facilities and e-procurement buyers are driven to the Internet because they are looking for speed. If you can accommodate them, you’ll win.
5. Be Alert to Arbitrage Opportunities Among the ranks of eBay’s Power Sellers is the governor of Utah, who along with other family members has made a hobby of buying goods at auction and then reselling them through the same venue. Flea market fans often see the same item move from stall to stall in the course of a morning, the price tag mounting with each resale. In certain market sectors, arbitrage through Internet trading is already a major fact of life. A study of 250 U.S. car dealerships commissioned by Autodaq found that almost half (48 percent) had purchased secondhand vehicles online last year, compared to only 12 percent the year before. Conducted by Q2 Brand Intelligence, the study also found that 98 percent of the dealerships surveyed had their own web site. Buying and selling used cars in online auctions has been such a brisk business lately that the biggest complaint among these dealers (40 percent) was that it was getting harder to find “quality” used cars to resell.
Strategies to Protect Profit Margins
227
Throughout the Internet, much of the arbitrage action concerns liquidated merchandise. Many manufacturers turn over their old stuff to their traditional liquidators, then are surprised to discover the same items being sold one by one on eBay. Once you become familiar with the online auctions in your specific line of selling, you may see opportunities to buy not just used goods, but new goods that can in turn be resold. If you have mounted an online auction on your own e-commerce site, adding capacity or inventory through trades and virtual partners may prove more profitable than selling your own products. Many of the early online auctions made this choice. Onsale was originally a liquidator of computer equipment at auction. When eBay caught on, the company saw the opportunity in allowing others to list on its marketplace. While adding merchandise isn’t always a panacea, this can help maintain critical mass. Though Onsale is long gone, one of the strongest auction sites for the computer market is its competitor Ubid.com, which is a liquidator of refurbished electronics that allows others to list on its platform.
Raising Revenues by Serving the Community Visionary marketer Steve Diorio, in his book Beyond “e” (McGrawHill, 2001), calls this the “endgame” for those who would participate in online marketplaces, and it’s hard not to agree with his logic: Perhaps the best illustration of how to take advantage of the potential of online marketplaces in the long term is the New York Stock Exchange (NYSE). Two hundred years ago, the NYSE was only one of twenty-four competing stock exchanges in New York City. It has survived to outlast all of them, growing to manage $8.9 trillion dollar’s worth of transactions in 1999. Yet for all this transaction volume, the income generated from transaction fees was a mere $75 million during 1999. What is significant about this story is that the profits from all the services that provide support to the traders and investment bankers who use that exchange—ranging from take-out Chinese food, pizzas, coffee, limousine services, haircuts, shoe shines—
228
The Auction-App
far exceed the money being made on the transactions within the exchange itself. Even more significantly, the information generated by the exchange, in the form of stock updates, trend and performance analysis, generates even more money. Media companies turn this information into profitable news programming (e.g., CNBC, Moneyline, CNN Financial). Financial analysts repackage and sell this information to investors in the form of stock newsletters, financial Web sites, and securities analysis. And investment bankers use this information to build new and highly profitable products like sophisticated derivative securities, futures contracts, and other financial instruments. The lesson to sales and marketing executives is that providing services to an exchange and using the information generated by the exchange may prove a more profitable growth path than the transactions that happen within them. Within the next several years, organizations that facilitate online exchanges will get less revenues from shrinking transaction fees but will gain higher revenues on services and the sale of timely, market-related information products. Value-added services and information will become the primary source of revenue and profit. — From Beyond “e” (reprinted by permission)
The perfect example of this is PayPal, which provides a useful service to auction sellers by managing electronic funds transfers. It also provides a benefit to buyers by giving them a method for faster payments, which speeds up the fulfillment and shipping of an item when the auction is over. It is an open system, available to all auction sites, not just eBay. Paypal’s clients are both buyers and sellers, but only sellers are charged a fee to receive payments from buyers. The fee is a percentage (about 2.5 percent) of the transaction plus (currently) a 30-cent fee for each transaction. Consider the math: Nearly $9 billion in goods were sold on eBay in the year 2001. If PayPal maintains a mere 5 percent of that market ($450 million), its projected revenues from the percentage will be $18 million. Its actual revenues, taking into account all those 30-cent fees as well, will be much greater. Such are the rewards of community service.
Strategies to Protect Profit Margins
229
Raising Revenues by Cutting Costs When the current technology revolution was taking its baby steps one hundred years ago, businesspeople used to make fun of the “efficiency experts” who would go to a factory or manufacturing plant, stopwatches in hand, in the earliest attempts to trim the fat off expenses for labor and materials. Nobody laughs anymore. The modern manufacturing plant, which relies on robotics and just-in-time inventories, does a pretty good job of squeezing every nickel paid out to cover costs of a product. Modern marketers have begun to use many of the same techniques to cut their “cost to sell” expenses. Those who are toiling in e-commerce are already feeling extreme pressure to cut back selling costs, and no one is allowing companies to blow out millions of dollars in fancy bells and whistles or wall-to-wall TV ad campaigns. Selling through Internet channels usually involves some extra costs—for example, you may need to hire extra people for customer service or fulfillment. Best-in-class etailers tend to use very similar strategies when it comes to trimming back these extra selling costs. Some of these strategies are very appropriate for those who sell at auction: 1. Don’t add new hires if you don’t have to. When big companies need more staff, they outsource. Telephone and web site customer support can be jobbed out on a monthly basis from the many service companies that provide “tele-reps” at a distant location. There’s no additional burden on your payroll, insurance, and physical plant when you add bodies to your staff in this fashion, and there’s no pain about laying them off when business gets slow. Smaller companies are advised to look into the possibilities of cross-training current employees to take on Web-related tasks before they add new hires. For example, staffers who answer customer service questions by telephone might be retrained to handle e-mail queries as well. 2. Renegotiate your arrangements with your shipping vendors. Look at comparison sites such as iShip.com, which compares fees for
230
The Auction-App
FedEx, UPS, and the USPS. To get a better deal on your volume business, don’t be shy about asking your current vendor for discounts—there are “package deals” available for even the singleperson enterprise. UPS, for example, offers “partnership” discount programs. One of these gives a 10 percent discount off domestic shipping rates when you use an American Express corporate card to pay for shipping costs. 3. Design sales media for digital repurposing. If you’re shooting product photos, make sure you have digitized “masters”—preferably on CD-ROM, or at least on a Zip drive disk. When you’re writing up copy for print catalogs, sales brochures, and lengthy specifications sheets, use a common digital text format. Then you can quickly cut and paste versions that can be used on a web site promotion or included in an e-mail to a customer. Similarly, artwork created for your web site auction should be adaptable to print uses later on. If you have to wait a week to get a graphic from your ad agency’s art department, that lost time can turn into lost revenues, for Internet marketing tends to favor the fast.
E-Procurement: The View from the Buyer’s Side Now that the sell side of auction profitability has been discussed, it is time to look at the buy side of the equation. The auction mechanism is indeed a powerful tool in that it makes a significant impact on both ends of the value chain. By taking a look at how B2B buyers and procurement departments actually construe the benefits of using an auction for purchasing, it becomes a bit more possible to create strategies to fulfill the needs of these buyers.
How Fast Are Manufacturers Moving into the Auction Space? If you are an industrial supplier, it’s a safe bet that by the time you read this, one out of every three of your clients is already purchasing through an online auction or a private exchange. How can this book make this claim?
Strategies to Protect Profit Margins
231
It’s in the cards—or at least in the numbers, folks. A study by Line56 Research, funded by Cap Gemini Ernst & Young, looked at 182 e-business managers and found that 31 percent of respondents, or about a third, would use a public exchange rather than their own private exchange. A study by Morgan Stanley in early 2001 found that that 33 percent of the companies it researched had already participated in an online exchange—again, about a third. A different study by AMR Research predicts that one-third of companies whose revenues exceed $1 billion would build their own private exchanges by 2005. And research by the META Group, a worldwide telecom consulting firm, estimates that as many as 35 percent of Global 2000 companies will operate a private exchange by 2003— again, about a third. Suppliers can only thank the conservative nature of CFOs for holding back what could have been a land rush into private e-procurement. Building a private exchange currently costs about $50 million, much of it for infrastructure. A consortia of companies might spend two or three times that to build an industrywide exchange such as Orbitz or Covisint. The most successful consortium exchanges, such as Transora, plough dollars into infrastructure (a recent Fortune magazine estimate put the cost of that exchange, which is divided among forty-seven charter members, at $140 million by the second quarter of 2001). However, tooling up to participate in a public exchange costs even big buyers only around $1 million per year, while small and midsized enterprises usually have smaller “membership” fees or the option to pay by the month or by the auction. A poll of CIOs by Morgan Stanley back in July 2001 showed that 51 percent had a favorable view of using public exchanges (they were thinking perhaps of their own workloads). However, in the same survey, 21 percent of the CIOs responding said that they “didn’t see the advantage” in using a public exchange, and 23 percent were interested “only if there are substantial cost savings.” Procurement officers have, not surprisingly, been the least impressed with the need to go online for sourcing. Purchasing magazine, the trade organ for the procurement industry, polled its readership in early 2001 and found that a good portion (38 percent) were still sitting on the fence when it came to public exchanges. Their resistance to these marketplaces can be summed up simply: Most of them are happy with the old way of doing business. Many procure-
232
The Auction-App
ment contracts stretch across the corporate life spans of these executives, and understandably they are reluctant to move beyond suppliers with whom they share trust relationships, easy credit terms, and golf tee times. But even these people are being pressed. A survey of procurement executives done at nearly the same time by Jupiter/MediaMetrix revealed that the four biggest reasons why these professionals would participate were cost reduction (71 percent), reduced sourcing time (56 percent), reduced sourcing cycle time (51 percent), and the desire to reduce supply inventory (43 percent). This provides a few important clues to exactly what pressures are being placed on procurement officers to at least experiment with some auction sourcing. The slowness of companies to move into marketplaces has been a godsend to suppliers, as it provides the selling community with a bit of breathing room and a chance to get ahead of the curve in terms of customer demand. Where is the most activity likely to occur? According to an April 2001 study by the investment firm Goldman Sachs, 60 percent of American health care companies plan to build private exchanges. Financial companies were second at 55 percent. Public, buyer-managed exchanges for commodities such as metals, chemicals, computers, food and beverage products, aerospace, and energy are fairly well established, though consolidation through mergers continues Outside the United States, Australia is extremely active, with more than 55 percent of companies participating in online exchanges, according to a report by Internation Data Corp (IDC) in 2001. Australia actually has a better track record in online exchanges than the United States (39 percent), and it participates robustly in online trading posts in the United States and in Asia. Canada, France, Japan, and Germany are also busy creating their own global sourcing networks and infrastructure.
How Fast Can You Stay Ahead of the Curve? The Center for Advanced Purchasing Studies, in its report, “Electronic Reverse Auctions: Integrating the Tool with the Strategic-Sourcing Process,” enumerates an eight step process to implement reverse auc-
Strategies to Protect Profit Margins
233
tions. These are some of its recommendations to companies that want to strategically buy at auction: 1. Conduct a spend analysis—find out where your money is going. If you are part of a large corporation, this should include all units on a worldwide basis. You may need to hire an external firm to do the audit. 2. Profile the categories. Once you have completed step 1, move on to determining which areas can result in the greatest savings. If the category encompasses very specific engineered supplies for a manufacturing process, it may not be right for a reverse auction. Look for something that can be used across multiple areas of the company with a large supplier base. Many organizations immediately choose MRO expenses (for example, office supplies) as a candidate, but do not stop there. 3. Identify opportunities for leverage. In order to make the most of your reverse auction endeavor, look for: ■
■
■
A relatively large amount being spent where the specifications can be clearly communicated A large number of qualified suppliers who are available and willing to participate A third-party host to technologically facilitate the auction
4. Develop clear specifications for quotes and bids, and model how your participation in an online auction will save dollars. Clear specifications can be a major barrier-breaker. Create a business case with the facts front and center to show how using auctions for procurement will enable the company to improve its business practices. 5. Identify and qualify the supply base. Having a cooperative supply base is the linchpin in this endeavor. Most suppliers should be familiar with the reverse-auction procedure. Your objective should be to provide them with as much information and technology as possible to streamline their participation in your auction and encourage them to work with your company on a long-term basis.
234
The Auction-App
6. Select the reverse-auction provider. There are many providers in the marketplace, and what they provide ranges from solely technology to technology, infrastructure, supply base, everything. You have the luxury of picking and choosing. The more work you do internally, the greater the economic benefits you will enjoy. 7. Communicate with the suppliers. Handle all of their contractual questions and specification questions before the event. The auction is nothing but a price-determining event. 8. Conduct the auction. If you have successfully implemented the previous steps, you should have a successful auction. Depending on the category or commodities bought at auction, history tells us that you should enjoy a savings of anywhere from 5 to 25 percent. With these steps in mind, here are some strategic steps a vendor can take to proactively gain a better seat at the table: 1. Instead of a loss leader (see the discussion earlier in this chapter), choose as your initial product offering the one item or service that buyers feel the most price-sensitive about. This may be a material with limited availability or the corporate service that is most likely to be outsourced. These are the products and services that send buyers into online auctions in the first place. Be there and be known to them. 2. Choose to participate in those exchanges claiming the largest number of buyers for your specialty. ChemConnect, for example, is a successful exchange because all sorts of businesses need all sorts of chemicals. (For more on selecting an exchange to participate in, see Chapter 3.) In terms of private exchanges or consortium-led exchanges, start first with the ones whose buyers or procurement teams will be interested in a range of offerings from your company, not just a few items. 3. If you’re in a niche market, you may get better results from a niche exchange or listing service than from one that is broader-based. This may be especially true for service companies. ProtoMarket.com, for example, is a marketplace for companies that build prototypes and models for manufacturing. Its participating vendors are selling a
Strategies to Protect Profit Margins
235
highly specific skill, which the auction site promotes actively to the entire manufacturing community. 4. Identify opportunities for collaborative design. This is one of the fastest-growing areas of e-commerce communications. Software companies and industrial exchange auction platforms are actively promoting collaborative technologies as a value-added feature. Vertical market builder i2Technologies (see Chapter 4) is just one of the major players looking for vendors who want to develop a capability in this area. 5. As you begin to fill out your first RFQs, explore what your business can offer to buyers as pay-for-performance, volume purchase discounts, or something similarly tempting in service-level agreements. Or see if your company can assist with buyer financing or offer more favorable credit terms. Create a business case to show buyers how buying your products at auction will enable them to improve their business accountability. 6. Promote yourself as an online auction vendor well before your clientele goes online to buy. This can be particularly key if you are a lesser-known, third- or fourth-tier supplier to a company that is building a private exchange. You need to “get on the list” of participating vendors. Here are some avenues: ■
■
■
■
Send press releases to major clients and industry publications (offline as well as online) about how your company is tooling up for electronic exchanges. Stress the value-added features you will be bringing to the table. Explore possibilities to advertise within a public exchange in your industry. Set up a “live” auction at your trade show booth to show how hip you are. Do a promotional auction (see Chapter 5) within your industry.
7. Bone up on reverse-auction strategies. Have your staff participate in consumer reverse auctions (such as Priceline) and experiment on general sites such as FreeMarkets or eWanted.com. Drop into some exchanges and practice applying or filling out automated
236
The Auction-App
RFQs. Get ahead of your clients on the technology curve. The more familiar you become with reverse-auction psychology, the more confident you’ll be when you approach the reverse-auction platform of a private exchange. 8. Communicate with buyers. Assign someone to cover all incoming requests for information regarding online auction participation. Poll your current clients to find out their “favorite” exchange, or whether they are building their own e-procurement infrastructure. When you begin participating in an online exchange, respond promptly to all queries during an auction, and do quality-control follow-ups with buyers after the sale. 9. Finally, don’t give away the store. According to a recent survey by Forrester Research, the vast majority of e-procurement executives expect only modest reductions in materials costs, from 1 to 5 percent. Rather than going deep on price, emphasize positive valueadded features, such as fast turnaround, reliability of components, the purity of your raw material, or the ability of your factory to create a more customized product.
Special Section: Navigating the Online RFQ
The process of bidding for a corporate contract has only become slightly more complicated with the addition of reverse auction trading on both private and public Web exchanges. It’s still a buyer’s market out there, and while requests for quotation (RFQs) haven’t disappeared, they have changed. Most business-to-business (B2B) sellers become familiar with the terms request for quotation (RFQ) and request for proposal (RFP) as they bid for contracts in the offline world. The RFQ is a document created by a buyer that spells out what’s wanted and is sent to one or more suppliers to solicit their response in terms of what they would offer, or bid, as their selling price for the items. The RFP is a similar document used for contracting out services, and it usually spells out a specific period of time for the contract work. In the online world, RFQs enjoy paperless efficiency. More important, they are the first line of communication that occurs between a buyer and a seller. Most industry exchanges make it very easy for a buyer to post an RFQ. All the buyer has to do is fill in a few online forms, then sit back and wait for sellers to respond with what they can offer in terms of materials, suggested price, and a few softer factors such as delivery dates and shipment methods. When an auction is involved, this information process gets speeded up and compressed. It may even be automated, if a buyer is using an “automated RFQ” software product that compares competing bids using numeric algorithms to make the final decision. To compete in this kind of marketplace, a supplier needs to sharpen up its RFQ-writing skills and add a few new ones to the mix. 237 Copyright 2002 by Leland Harden and Bob Heyman. Click Here for Terms of Use.
238
The Auction-App
The Registration Process You can’t sell in an online marketplace unless you are registered first. Registering correctly raises your visibility among your most likely customers, while errors in your registration may leave you wondering why nobody is replying to your offered bids. On a site like FreeMarkets, which allows vendors to register at no charge, the registration form lets you select from among about a hundred vertical specialties (e.g., nonmetallic quarrying, paper labels, waste management, package delivery) and choose one of about a dozen industry sectors as your main client base (e.g., contract manufacturing, Tier III automotive, or schools). The registration process is also your opportunity to play up what you bring to the table in terms of extra enhancements. Technically the online RFQ represents a level playing field for competing suppliers, but buyers are still interested in who you are and where you came from. If your business has a special status because it is minority-owned or in a particular location, for example, it may help to get this across. Because many industrial buyers (and all government buyers) are under pressure to increase the amount of business they give to minority or local suppliers, even automated RFQ software tends to have some weighting factor that can boost the visibility of bidders who qualify. FreeMarkets has made this a routine part of its registration process; it also asks what languages a vendor can trade in— another plus if your target client base has ethnographic dimensions of its own.
Receiving and Transmitting Specs In B2B online auctions, the actual bidding event tends to be relatively short—thirty to sixty minutes at most. The most successful bidders in a reverse auction will be the ones who thoroughly understand what a buyer is looking for before they get started. You can’t afford to waste time waiting for an answer to e-mail queries while the auction is taking place, and a buyer who is in the middle of a “live” auction isn’t going to be thrilled to waste time clarifying the specs for a part or a component. And if a vendor doesn’t quite understand the spec-
Navigating the Online RFQ
239
ification, he or she may be unable to put in a bid—or, worse, may put in a bid and live to regret selling the item at a profitless price. Buyers who participate in online trading are very bullish these days about paring down their RFQ requests to simple statements or text fields to be filled in. In their eyes, they see less “padding” of specifications and get better visibility as to whether a supplier can meet a precisely defined specification. A sample RFQ page from WidgetJunction.com (see Fig. S2.1) shows how a simple form can reveal reams of data about a buyer’s desires. Here, the buyer is most interested in finding a supplier for metal plates that is not too far away geographically and has an ISO certification. The “comments” field tells the bidder what type of steel is preferred, and indicates that the delivered product should be smoothed of all rough edges. The attachments file (Fig. S2.2) contains detailed drawings of the part in several different graphic
Fig. S2-1. RFQ Form.
240
The Auction-App
Fig. S2-2. Schematic for RFQ.
formats. And the buyer holds out the promise of repeat business (“5,000 per month”), which indicates that a volume-priced deal is expected. Vendors can also use attachments to send their own drawings, or photographs if applicable, as part of their electronic bid response. Most auction sites allow bidders to change the information on the forms before the auction starts. Nearly all require that both bidders and buyers use a standardized RFQ form specific to the auction site.
Navigating the Online RFQ
241
Using RFQs to Troll for Job Leads Not all jobs that are up for bid wind up in the auction space. There is still a vast network of corporate and public-sector buyers who use the Internet to post RFQs. Sellers can view the postings, then reply by e-mail or return a bid by mail or by fax. A recent search turned up a request, from a Michigan casino, for the purchase of light bulbs (see Fig. S2.3). Just like the Widget RFQ, this real request for a simple set of products indicates that preference will be given to local vendors, indicates that a certification is needed, and holds out the promise of repeat business (“Please send catalogs . . .”) if the price is right. RFQs can also be used successfully on the sell side of your web site. If you make custom products, providing a simple set of forms for customers to fill out can help you draw new business and make life easier for your existing clients. By way of example, check out the web site of Jindalstainless.com. This is the global front door to Jindal Strips Limited, which makes customized stainless steel products and is based in India. It has an impressively well-designed RFQ section that allows its global customers to specify exactly what type of product they need. This is part of an overall site strategy that uses the B2B marketplace concept to pull in new customers who may be trolling auction sites for value-priced products.
Fig. S2-3. Vendor Bid Form.
242
9 Taking the Ball and Running with It There has been a lot of hype about how the Internet would revolutionize business. As this book proves, those who view the Internet as evolutionary to their business, rather than revolutionary, are the ones who are winning in this new age of business. “New Age of Business”—now there’s a phrase with which some pundits would take exception. Yes, the market has learned that plausibility and profitability are more important than market share and momentum. However, one cannot ignore how many of the old techniques of selling and thinking about your customer base are now inadequate, and that a new way of thinking, acting, and reacting is required to stay on the crest of the wave of business success instead of paddling frantically to catch it.
If an Idea Is Right, Large Communities Can Be Built Overnight. With a customer base of more than 10 million and continuing to grow like mildew in the shower at a college dormitory, PayPal is the world’s largest Internet-based payment network. PayPal launched its service on October 22, 1999. By April 5, 2000, it had more than 1 million customers. Within one year it became the leading e-finance site. It now commands more than 10 percent of all Internet traffic in the financial services category, more than Citibank, Wells Fargo, and Bank of America combined. PayPal met an unfulfilled need quickly. Peer-to-peer payments in the online space were difficult until PayPal came along. First Virtual 243 Copyright 2002 by Leland Harden and Bob Heyman. Click Here for Terms of Use.
244
The Auction-App
had tried; Cybercash had tried; eCash had tried. The alchemists at PayPal got the formula right. The adoption, virtually overnight, of PayPal is an example of how the community itself can make a marketplace evolve. By adopting PayPal, the community made eBay better. EBay was initially threatened by PayPal and, in the “we’re going to mediate our community” mode, tried to meet that challenge by teaming up with Wells Fargo to create Billpoint. The perception among most eBay sellers is that Billpoint is expensive and cumbersome to use and is basically a lame duck. It will undoubtedly remain viable due to its association with eBay but will always play second fiddle to PayPal. EBay is fortunate that PayPal was an open platform. Had it been proprietary to Yahoo! Auctions or Amazon Auctions, the dynamic marketplace landscape might well have been different.
Facilitate Your Community Look to the Web to find and identify your community, and then give it something it can’t live without. That’s not a very long directive. It doesn’t even sound that difficult. Unfortunately, execution is the killer. In order to thrive, communities need familiarity, trust, and history. If you’ve got a huge consumer brand, then the familiarity part of the equation should not be a problem. There is probably even some good history sprinkled in. Trust will come over time as you adroitly handle customer service, fulfillment, and privacy issues relating to your community in the online space. The big dilemma is concocting the right secret sauce that will enable you to season your community in such a way that it basically changes your marketplace. Even a small innovation takes on a life of its own and a fusionlike reaction commences. While this book can in no way provide the recipe for answering that dilemma for every reader, it can provide food for thought with the following scenario. Organize buyers and sellers in a different way. Look at eBay as a powerful buying cooperative. True, it is an aggregation of buyers and sellers, all trading millions of diverse goods per month, but those more than 35 million members must have some wants and needs in
Taking the Ball and Running with It
245
common. Currently this community is not viewed as one huge buying block. For your next product launch, or to meet some quarterly sales objective, consider a joint promotion with eBay. Here are a few tips to help you construct such a promotion: • Negotiate premium placement on eBay’s site or sponsor one of their e-mail blasts. • Solicit members to join forces to buy one item from you. This could be a car, a television, a vacation, whatever. • Participate in the auction atmosphere and let each member who opts in for this item contribute to driving the price down. • Encourage participants to tell their friends by giving them an incentive. The results could be very interesting. With the right product, placement, and offer (does this sound like the rules of direct marketing?), you have the potential to bury your fulfillment group. Mercata tried this with its marketplace but was never able to gain critical mass. You have the benefit of knowing where critical mass resides. The relative expense of participating in an auction hosted by an established portal is so small that it seems foolish not to brainstorm and experiment as you go along. There is still plenty of room in the Internet universe for the next brilliant business model.
Think Price, not Brand Auctions are the ultimate engines for establishing a product’s or service’s true market value. Consumers are no longer constrained in their ability to research, negotiate, or find the best price for virtually anything for which they are looking. They hold the cards now, not you. Your epiphany should be the realization that customer loyalty is out the window. If your market share pie charts aren’t already showing your company’s and your competitors’ slices shrinking, and the “Other” category growing like some PacMan from Hell, they probably will soon. For a consumer, the cost of switching from one vendor to the next is not significant. This is why marketing guru Regis McKenna contends that “brand is dead” as a selling strategy.
246
The Auction-App
OTHER
Fig. 9-1. “Other” Has Fastest Growing Market Share.
“But,” you say, “we’ve got a huge brand.” Consider this: Procter & Gamble, the mother ship of probably 50 percent of the products in your home, decided to raise its prices a few years ago. It lost market share. About the same time, Mercedes-Benz introduced more models in the $100,000+ price range. Lexus came in and ate their lunch. Your brand is not as important any more. If you are still worried about what participating at auction will do to your brand, you have adopted a mindset that will lead to your epitaph. (Go back and read Chapter 3.) This does not mean that you have to go out and sell everything in a dynamic pricing environment. On the contrary, fixed pricing still has a place of honor in retail. But your perception of your own brand dominance does not give you a license to rest on your laurels. Market share and mindshare are always up for grabs. You must address the needs of your consumers in the venues where they gather—and at the earliest opportunity, before someone else does. We are now in a service economy. Your brand is now built on how well you service your client base and facilitate your community, not on what your product is.
Where Hype Has Met Reality There are many assumptions from the early “hype” days of the Internet that can be examined and found to be accurate. Online auc-
Taking the Ball and Running with It
247
tions and the mechanisms of the online marketplace have made many of the predictions reality.
The Internet Is a Vast, Level Playing Field The authors of this book have always maintained that an individual or a small business with enough perspicacity, perseverance, and palaver could excel in the great Internet marketplace. Thank online auctions for bulldozing the playing field. Where else but in an online auction could IBM or CompUSA be found selling alongside a woman whose warehouse is her garage? As online auction venues are branching into fixed-price venues, this egalitarianism is moving with it. On Amazon.com it is not uncommon to have a book or DVD query returned with, of course, Amazon’s selection and shipping terms for the item, but also with the opportunity to buy the item at half price—purportedly “used”—from a seller on Amazon’s Marketplace. Amazon’s Marketplace is Amazon’s answer to eBay’s Half.com. This is a sound strategy for Amazon in that the company gets a listing fee and a portion of the transaction without having the responsibility of shipping the item or carrying it in inventory. This is sound for the seller in that he or she gains access to a huge consumer base that he or she would have never before had a hope of being able to exploit or even contemplate. Larger enterprises do have the potential of changing the landscape at eBay or Amazon’s Marketplace, as those services will be forced to address the special needs of the enterprises that drive ever-larger transaction volumes through these channels. In many cases this will help the small seller or mid-level enterprise (MLE). It also has the potential to price the small seller or MLE out of the market, as the large enterprises will pay more for premium placement in online exchanges, and this, in turn, may squeeze others out.
Fixed-Price Selling Still Works Fixed-price selling is having a strange rebirth out of auction marketplaces. As mentioned in Chapter 1, AdAuction was forced to place a “Buy It Now” feature in its marketplace as a result of the urgency
248
The Auction-App
expressed by some of its bidders. Amazon’s Marketplace, eBay storefronts, and the many eBay auctions utilizing the “Buy It Now” feature all offer fixed-price goods. This is significant on several fronts. First, with the advent of selling at fixed prices, the online auction marketplace is legitimized as a customer acquisition tool. Savvy consumers are already trolling online auctions for specific goods, and they can be moved by microsites or portal storefronts to the domains of fixed-price purveyors. Savvy sellers are fishing the online auction waters hoping to land a whale that will come to their store and buy a whole selection of goods that are not offered through the auction channel. Kent Allen, the analyst at the Aberdeen Group who watches the online auction industry, compares this practice to grocery stores always placing milk in the back of the store. The hope is that once you come to the store for milk, you might walk out with a few bags of groceries, since you had to pass so many shelves of goods on your way to the back dairy cooler. Second, not everyone on the Net is enamoured of the competitive, gaming aspects of shopping at auction. While many thrive on the thrill of victory, others would rather eat worms. This is not really a revelation. At the end of the last century, there was a lot of hoopla about how a buyer could go to a Saturn dealership and not have to negotiate with the car salesperson. This was so successful that many dealerships began to tout their one-low-price policy. In the world of online marketplaces, having a fixed-price option means that a new set of consumers can be tapped. Many of the executives at the Auction Management Systems (AMS) companies are projecting that if auctions are moving $9 billion of goods, adding fixed pricing to the model doubles the size of the market. Third, fixed pricing accelerates inventory turn. If you are auctioning the same item with multiple end times, as discussed in Chapter 5, and you have a “Buy It Now” feature with every auction, a certain percentage of those items are going to be bought with the instant gratification option. Some consumers just cannot wait, or are unwilling to risk losing the item to a higher bidder. In this case, those items purchased through “Buy It Now” have moved through inventory more quickly than the items that were actually sold at auction. Finally, with a fixed-price option, many channel or brand conflicts go away. Still, many enterprises have been content to sit on the sidelines and watch the evolution of e-commerce, using their fear of
Taking the Ball and Running with It
249
alienating established channels as their excuse. (In reality, their channels are probably finding a more efficient way to work with another enterprise via the Internet—but that’s another book altogether.) Until these enterprises see the light and get faith in the dynamic marketplace, a listing in eBay Stores or Amazon’s Marketplace is a legitimate strategy—and a toe in the pool. For smaller sellers whose brand has been geographically handicapped, using a storefront to test the waters also makes sense. In the meantime, forward-thinking direct sellers such as Fischer Scientific are adapting by launching complementary brands (i.e., Einstein’s Garage) that do not dim their flagship brands, and creative mass marketers such as Miller Brewing, New Line Cinema, and Condé Nast explore promotional possibilities with branded auction microsites that cross-promote with print and TV campaigns.
Forget Old Product Life-Cycle Models In this wired world, time is compressed. The success or failure of a product can be determined in days, not months. If you think that your company does not operate in a wired world, ask yourself: ■
Does the company have Internet access?
■
Does anyone in the company use a cellular phone?
■
Does anyone in the company carry a pager?
■
Does anyone in the company use a mobile computing device?
Your company is wired; your employees are wired; your customers are wired. When something big happens, people know about it almost instantly. You must be able to introduce products in this environment. You must be able to adapt products in this environment. You must be able to meet the demands of your client base in this environment. You must be able to compete in this environment. If you think that your main competition is the guy down the street with the better sign, you are still in the last century. Your biggest competition is the old way of doing business. Bill Gates called this business at the speed of thought.
250
The Auction-App
Many large enterprises have practiced the couch potato strategy, believing that they could simply outspend or acquire any upstart that crossed into their comfort zone. Consider the following tale: For decades, large media companies in America held great sway over public opinion and commanded large advertising and subscription revenues from their vast subscriber base. The holy grail for these companies was to gain more demographic and/or psychographic information about their readers. In most cases they would have their readers’ home addresses, and maybe their phone numbers, but little else. In 1993, a little upstart decided to be the next-generation media company by providing all the information that customers traditionally got from magazines and newspapers online. While it struggled for a few years, it exploded with the graphical browser interface in 1995–1996, and it hasn’t shown any signs of slowing down since. The company not only had its customers’ addresses and phone numbers, as the traditional media companies did, but also had their credit card numbers; it knew specifically what its customers liked to read and when; it knew how many people were in each customer’s household; it knew who its customers’ friends were. In time, this upstart new media company became so huge that it bought America’s largest old media company. Of course, this is the story of AOL and its subsequent acquisition of Time Warner. At the beginning of the Internet phenomenon, not many would have hypothesized that AOL would buy Time Warner. But what AOL ultimately gained over Time Warner and other traditional media companies was its ability to continue to deliver services that were of value not to its customers or subscribers, but to its community of users. Think about what this means for your business. You may succeed in acquiring some upstart that gains critical advantage as a result of its relationship with a community of users. Or, this upstart may acquire your company.
The Global Economy Is Here In the B2B space, automatic, electronic procurement is the future of global industry. In our exhausting era of 24/7 real time trading, a commodities market is always open somewhere in the world, and
Taking the Ball and Running with It
251
Fig. 9-2. Running with It.
buyers and sellers of globally traded goods are getting up early and going to bed late to find the best deals and make their best profits. Humans are yielding the field to machines because there’s no other way to keep up. Automated trading in real time is efficient for both buyers and sellers. Automatic replenishment and event-triggered reordering of supplies are already standard methods of doing business among mainstream manufacturing companies. Suppliers who are worried about automatic request for quotation/request for proposal (RFQ/RFP) software and exchange platforms that compare, match, and execute bids and sales will see these innovations continue to live alongside of fixed-price selling. Long-term business
252
The Auction-App
arrangements with global partners will still be sought, as a budgetary hedge against the buffeting winds of fortune and global political change. Industrial buyers see tremendous benefits in e-procurement. They can save (25 percent on average) on everything from paper clips to the raw ores and materials needed for their factories. The righteous among them can prove that their vendor decisions did not favor certain companies or involve backroom deals or kickbacks. They don’t even have to do any paperwork—all they need do is set up a virtual trading floor (ideally a reverse auction) and invite sellers to input their data into the automated RFQ/RFP software. Then they can sit back and let the computer make the decision about what to buy, how much to buy, and at what price. To industrial sellers, this could be a nightmare if they are not prepared to compete in the electronic procurement arena. Unfortunately, sell-side technologies for e-procurement are not keeping pace with buyer-side advances. Industrial suppliers who cannot get into the online auction pipeline before their buyers get there first will find themselves shut out, or later disintermediated by brokers who will make them pay dearly for access to their old customers. There are a few strategies that will help suppliers survive the coming surge of e-procurement: First, don’t stand on the sidelines. Experiment and ally your company with an independent marketplace, to avoid being trapped in “captive supply chains” run by your biggest customers. Second, remember that global competition is a sword that cuts both ways when it comes to slicing the market-share pie. Global initiatives such as the North American Free Trade Agreement (NAFTA), which eliminated many barriers and allowed freer trade in the Western hemisphere, have already given some Fortune 1000 companies, as well as smaller businesses, a good idea of what borderless commerce can offer in terms of opportunity as well as competition. Finally, keep abreast of the software that’s being used for e-procurement. Look for ways to find advantages in programs that are buyer-biased to start with. Look for technology that can fight back. Auctionbots, for example, and consumer price comparison Web engines like MySimon can track the going price of civilian commodities, like DVD players or trail bikes, over many auction venues
Taking the Ball and Running with It
253
to pinpoint the highest price, the lowest price, or the average “street price.” An industrial-strength version of these same algorithms may be used to track the going rate for sheet metal on a dozen industrial exchanges for a firm that can buy access to password-protected trading floors. Innovations like this may come not from hardware and software vendors, but from service companies and entrepreneurs that thrive on the fringes of all marketplaces. As was noted in Chapter 2, industrial-strength interest in online exchanges grew out of corporate experience with the collaborative technologies of electronic data interchange (EDI) and extranets. The most forward-thinking industrial suppliers will begin to create dialogues with their best customers, so that they will have the advantage when bidding. They will be able to offer products that are so customized that a buyer can hardly resist them. Having the right product—whether mass-customized or manufactured to order—or having the capability to build a product to order will become a more important factor in RFQs than having a cheaper price. This strategy is of course only a more “industrial-sized” version of the process of creating a community that strongly binds your customers to you. And it is a useful defensive plan for any period in which global trading is hindered by political upheavals. Shipping and transport restrictions, for example, make it more critical that any raw and finished materials to be shipped are specific enough to cut waste and maintain production cycles. This can be done globally only if buyers and sellers perfect their collaboration to create efficiencies wherever they can.
Even Consumers Are Going Global Everyone knows that VISA and MasterCard are globally recognized brands with more than 1500 issuing banks and thousands of acquirers. But when it comes to using a credit card on an international web site or accepting a credit card from an international customer, wrinkles appear in the fabric of commerce. VISA and MasterCard have regions internationally. There is not yet one big repository of data for the approval and verification of international commerce. Merchants are forced to work with these regions
254
The Auction-App
individually and to deal with the unique problems of each. As Bill Balke, vice president of international business development for First Data, puts it, “Currency conversion is a mess because the merchants always want the rates to be in their favor and there are fees charged for conversion.” These and other issues can create customer service challenges. Fortunately, where there are problems, free enterprise usually kicks in. Pay attention to changes in this sector because they will become more important over time. For example, there are now emerging companies that specialize in dynamic currency conversion. Fexco (fexco.com), an Irish company; Promisant (promisant.com) and FEDS (fedsinternational.com), both domiciled in Bermuda; and e4x (e4x.com), a U.S. company, all provide merchants, and in some cases consumers, with the ability to accept or spend the global currency of their choice in an online transaction. This benefits merchants in several ways: ■
Merchants now have the opportunity to maximize revenue through effectively managing the conversion of multiple currencies.
■
Customer service issues are abated by bringing the currency conversion process forward to the transaction or point of sale.
■
Exchange rates are more dynamic, thus decreasing the merchant’s risk.
Customers benefit as well. They get to choose the currency with which they are most comfortable at the point of sale, and foreign exchange charges are eliminated. Ultimately, you may see consumers having the ability to keep accounts in multiple currencies and to choose to pay for purchases based on whichever currency is most favorable to them at that time. This may sound far-fetched, but the tools are already in place to make it reality. For you as a merchant, the handwriting on the wall is “WORLD WITHOUT BORDERS” in big block letters. It is time to take your “Open for Business” sign to the translators.
Taking the Ball and Running with It
255
Emerging Technologies The news that eBay planned to launch an auction television program for real-time trading should not have surprised anybody. Net by phone, wireless laptop computing, Web-enabled cell phones, and handheld devices such as pagers with wireless Internet connections will all be part of the future of online trading as well. Just as Napster revolutionized the peer-to-peer (P2P) exchange of music and Kazaa, among others, is doing the same with video, eBay has become the great facilitator for P2P e-commerce of goods and services. Any tools that can enhance this platform and its ubiquity will be exploited All of these are additional selling channels that can be integrated into the auction sales channel once buyer acceptance of the media reaches a critical mass. The only way that you as a businessperson can face new technology is to keep your head up, out of the sand, and keep some of your budget set aside so that your company can gain experience with newer telecommunications tools. It is far more important that you continue to scan the horizon to discover broader and more important shifts and reshifts in buying trends and customer behaviors. Look forward, but look backward as well. At its heart, the Auction-App is an old, even ancient, form of selling that in its Internet form has helped make commerce accessible to everyone who wants the opportunity to grow a business, and we find that very heartening, to say the least.
This page intentionally left blank.
Appendix: Reversal of Fortune: The Changing Face of Government Procurement and How to Bid for Government Contracts Online Reprinted with permission from: Small Business University, a service of SBDepot.com.
Technology is transforming the way the government does business. In one area, procurement, government contracting officers are taking their cue from the popularity of online consumer auctions. The cost reductions resulting from business-to-business auctions have encouraged agencies to do reverse auctions over the Internet. Many government agencies plan to convert nearly all of government contract bidding to electronic channels by 2003. In a reverse, or private, auction, the entire bidding process is handled online. Here’s how it works: You register your company in a contractor database. That gets you an e-mail invitation to bid on a particular contract. Unlike a traditional bid, which requires many hours of filling out paperwork and attaching supporting documents, 257 Copyright 2002 by Leland Harden and Bob Heyman. Click Here for Terms of Use.
258
The Auction-App
you’ll simply submit a short description of your company to the firm conducting the auction. The actual bidding takes place in a limited time period, say 30 minutes or an hour. Suppliers must evaluate the Request for Quotes (RFQ) on the contract, decide on their price, and place their bid. Contractors are prequalified before the auction begins. So, when a reverse auction opens, price is generally the only factor in who gets the contract. It’s called a reverse auction because the bids are driven increasingly lower, not higher. “We’re giving small businesses an opportunity to do things that they otherwise could not do on their own,” says Karen Kovatch, senior manager, marketing communications, at FreeMarkets.com, which in May 2001 conducted its first online auction for a government agency. “This is a no-cost sales channel that leads to significant business opportunities.” FreeMarkets.com, a provider of B2B marketplaces, has conducted several reverse auctions for the federal government, including two for the U.S. Postal Service, one for the Defense Logistics Agency, and several for the U.S. Navy. It has also conducted fifteen reverse auctions for the Commonwealth of Pennsylvania since 1999. With a database of more than 150,000 contractors, FreeMarkets.com has been able to open up the contracting process to more companies. This increases competition and lowers cost. And that, of course, is the government’s goal. Early results indicate that reverse auctions will provide the government with significant savings, streamlined procurements, reduced paperwork, and increased customer satisfaction. Savings have generally ranged from 5 to 22 percent per contract, with some auctions saving agencies as much as 38 percent. FreeMarkets.com, for example, helped the Defense Energy Service Center save $452,000 on a recent auction for natural gas. Some say it will also increase the number of contracts awarded to small businesses. “There’s a real possibility for getting some small businesses involved in government contracting that may not have been involved before,” says Cordell Smith, a professional staff member on the Senate Committee on Small Business. “But contracting officers are creatures of habit. If we’re not careful, we could end up, out of habit, going to the same people over and over again. So, we
Reversal of Fortune: The Changing Face of Government Procurement 259
would need to be conscious of the fact that we need to do outreach to small businesses.”
Bidding on Government Contracts Can you convince Uncle Sam that you’ve got what it takes to deliver the goods? The first step in convincing the agency that you’re the one for the job is to submit a bid or price proposal, which is usually required when the government purchases a product. A proposal is required for work contracts, such as construction jobs or janitorial services. It should include a description of the work to be provided, as well as a timetable for completion or a schedule for ongoing services. How difficult the proposal will be to draft “depends on how complex the procurement is,” says Leon Bechet, former assistant administrator of the U.S. Small Business Administration’s Division of Program Certification and Eligibility. “Some would probably be relatively simple, others could be more complex. You have to understand the specifications; otherwise you could get into trouble.” The government uses two basic means of accepting bids: formal advertising (or sealed bidding) and negotiation (or requests for proposals).
Sealed Bidding In the sealed bidding process, the agency offering the contract places an announcement in Commerce Business Daily and various trade publications. A notice may also go up in post offices and at the SBA’s local Small Business Development Centers. If you’ve managed to get yourself on the agency’s list of potential contractors, you will receive a notice in the mail. If you’re interested, you’ll need to prepare a bid. The notice, or invitation to bid, should include a description of the product or service in question, a delivery schedule, packaging/shipping requirements, payment schedule and terms, deadline for submitting bids, date and time of bid opening, and standard contract provisions and clauses. The bidder who quotes the lowest price generally gets the con-
260
The Auction-App
tract—provided, of course, he demonstrates the capabilities necessary to fulfill the contract. A contracting officer makes that determination by looking at the bidder’s financial situation, plant capacity, skills, judgment, and integrity.
Requests for Proposals You really have to be an insider to find out about an RFP because no formal advertising is done, except for a notice in Commerce Business Daily. Instead, the agency sends a notice to the contractors on its bidder’s list, as well as to contractors who request it. So, if you’re not on that select list and you don’t have an inside contact, chances are you won’t even hear about these contracts. But if you do, it’s a good way to bid because you can negotiate your fee. The RFP package will generally include a description of the work and the obligations of the contractor. You will be asked to provide certain information, including pricing information, descriptions of your products and/or services, and company background. In this case, the contractor who offers the best overall package—not necessarily the one with the lowest price—gets the contract.
If at First You Don’t Succeed . . . The SBA’s web site provides tips on preparing bids and proposals. You can also contact a counselor at your local SBA office, the Service Corps of Retired Executives, Small Business Development Centers, and other government agencies. A listing is available on the site. The best way to master the process, however, is to just do it. “For me, it was trial and error,” says Sarian Bouma, owner of Capitol Hill Building Maintenance, in Hyattsville, Md. “Every job I do not get, I go in [to the contracting agency] for a debriefing and learn from my mistakes. Then I use what I learn for another proposal.” If your bid or proposal is rejected, you can request a Certificate of Competency (COC), which would verify your “capability, competency, credit, integrity, perseverance and tenacity,” to fulfill the contract in question. The SBA would have a representative visit your
Reversal of Fortune: The Changing Face of Government Procurement 261
office to look at your credit ratings, past performance, management capabilities, management schedules, and prospects for obtaining the financial help or equipment necessary to do the job. A COC review committee makes a determination based on the representative’s findings. “It is designed to help a bidder obtain that particular contract, as long as it has not been awarded to another company,” Bechet says. Bidders must go through this process every time they contest the rejection of a bid or proposal. Bechet says that obtaining government contracts is actually quite simple. “You have to demonstrate to the contracting officer that you have the ability and the funds to perform,” he says. Bouma has an even simpler formula. “If you do it well and you’re sincere, you’ll get the business,” she says. “Agencies want somebody they can trust and work with. They want someone who can deliver.”
Are You Eligible to Work for Uncle Sam? The federal government is one of the largest—and most overlooked—markets for small businesses. Every year, the government purchases more than $170 billion in goods and services from outside companies. And yet, small businesses often sit on the sidelines, missing out on thousands of contracts because they don’t know the work is out there or they don’t know how to bid on it. “Basically, anything that the government uses or buys would be available to small businesses—pencils, various supplies, janitorial contracts, construction, guard services, consulting—just about anything,” says Leon Bechet, the U.S. Small Business Administration’s former assistant administrator, division of Program Certification and Eligibility. And Uncle Sam is willing to give you a little help getting those contracts. The Small Business Act of 1953 requires that a certain number of government contracts—usually in the $2500 to $10,000 range—be set aside for small firms. That act has been expanded over the years to forbid practices such as bundling. That’s when components of a contract are consolidated into one job, making it too large for small companies to handle.
262
The Auction-App
But before you go too far, make sure you are eligible to make a bid. Here’s how: Count your employees. In order to bid on government contracts, you must qualify as a small business under SBA guidelines, which usually means employing less than 100 people. Your business must also be organized for profit as a business entity, have offices in the United States, and operate primarily in this country or contribute significantly to its economy through taxes or products. Evaluate your surroundings. Is your office in a “bad” neighborhood? You probably thought that could only be a hindrance. Not so. If you’re in one of the “underutilized” business districts identified as such by the SBA, you might qualify for the HUBZone Empowerment Contracting Program. This program provides federal contracts for small companies located in distressed communities. You are considered a qualified HUBZone small business if you are located in an “historically underutilized business zone,” at least one of your company’s owners is a U.S. citizen, and 35 percent or more of your employees live in a HUBZone. Are you at a disadvantage? If you come from one of the socially and/or economically disadvantaged groups identified by the SBA, you may qualify for business-development assistance and contracting considerations under the agency’s 8(a) program. But you’ll have to complete a pre-certification process before bidding on government contracts. If you fit this profile, contact your local SBA office to apply for certification. You’ll have to fill out a bunch of forms and attach a lengthy list of supporting documents, including a personal eligibility statement, a personal financial statement, personal history, business organization information, business financial statements, personal and business income tax returns, resumes, licenses, and a schedule of business insurance. The process sounds treacherous. But Sarian Bouma, owner of Capitol Hill Building Maintenance, in Hyattsville, Md., insists that it’s easier than it sounds. “It wasn’t complicated,” she says. “The SBA was very cooperative. I think every businessperson knows that if you’re a college student you can’t just sit in a class and expect to get high
Reversal of Fortune: The Changing Face of Government Procurement 263
grades. A lot of people think the government just gives handouts, but you have to be part of the process too.”
Getting Started in Government Reverse Auctions Uncle Sam’s reverse auctions are fast, easy, and likely to increase the number of contracts that go to small companies like yours. Instead of scouring federal publications in search of Requests for Proposals (RFPs), you’ll get an e-mail notifying you of an upcoming project. And instead of spending days filling out paperwork, you’ll submit a short description of your company to the firm conducting the auction. When it comes time to bid, you’ll do so online. All this may sound very high-tech. But all you need on your end is a PC and a modem. The online market providers—companies like FreeMarkets.com, EDS eBreviate, and ACS Government Solutions Group Inc.—handle the technical end. The key to getting into reverse auctions, therefore, is not your technical knowledge or capabilities. It’s the auction providers’ databases of private companies. Those firms search electronically for companies that produce the kinds of products and/or services their federal clients need. That’s why it’s important for your company to have a web site. You can also register directly with the auction providers. FreeMarkets.com, for example, allows companies to register online by providing certain information. That information includes full company name, contact information, areas of work covered, industry type, company classification, Standard Industrial Classification codes, Data Universal Numbering System number, Commercial and Government Entity Code, Federal Tax I.D., and any certifications from the U.S. Small Business Administration. Once you’re registered, you’ll be notified of any government auctions for which you qualify. A government agency may, for example, ask for a list of companies that make a particular airplane part. If you do, you’ll be notified of the upcoming auction. If you choose to participate, you’ll be given special access codes for the day of the auction. Some auction providers, including FreeMarkets.com, will instruct
264
The Auction-App
you to download special, free software from their web site. It’s simple to use, and FreeMarkets.com will provide special training over the phone. That training takes about 30 minutes. What if you don’t have a computer? Still not a problem. “We don’t let technology be a barrier,” says FreeMarket’s Kovatch. “If a supplier doesn’t have a computer, they can still bid. We can actually surrogate bid for them. They will dial in, hook up with one of our market operations assistants, and sit with them on the phone throughout the auction.” According to Manny DeVera, director, IT Solutions, Regional Services Center for the General Services Administration (GSA), small businesses need to look at this as a new channel with new opportunities. “We are very aware of the need for small businesses to participate in these events,” he says, “and we’ll do as much as possible to make sure this is a process they participate in.”
The Caveats of Reverse Bidding Reverse auctions are expected to become a powerful force in government contracts. For small businesses, the trend could potentially open the door to new opportunities—but only if they can overcome some new obstacles. “As is almost always true with these things, there are pluses and minuses,” says Cordell Smith, a member of the professional staff of the Senate Committee on Small Business. “I think there’s a real possibility for getting some small businesses involved who may not have been before. On the other hand, the downside is, how do they identify participants in these auctions?” Good question—and one that has not been overlooked in the rush to push government contracting online. Here’s how to make sure you get the most out of these online auctions. ■
Send up a flag. This new process will only help you if government agencies—and the companies conducting the auctions—know you’re out there. “You need to identify the agencies who buy what you have to sell,” says Smith. “If you make widgets, it doesn’t do any good to market yourself to an agency that doesn’t buy widgets.”
Reversal of Fortune: The Changing Face of Government Procurement 265 ■
■
Watch the cost. Before you log on to bid during an online auction, make sure you have a solid grip on what it will cost to deliver the goods. Auctions can move quickly, depending on the number of suppliers placing bids. You don’t want to get caught in the rush and excitement and bid lower than you can afford, just to get the contract. Watch your location. Small businesses located in areas where it’s more expensive to do business—including large cities and distressed areas—could get caught in a numbers game. One of the main goals of the online procurement process is to save the government money. So, there’s a big commitment by government agencies to take the lowest qualified bid. If you’ll pay more for materials than a company located in a less expensive area, you may not be able to submit the lowest bid. That’s why the initial cost analysis is so important.
Getting on a Bidder’s List Tracking down government contracting opportunities can be a timeconsuming endeavor. Instead of spending your time chasing contracts, let the government agencies come to you. How? Get your company on the bidder’s lists of every agency in the market for the products or services you sell. Here’s what you need to do.
1. File the Standard Application Forms Request the Solicitation Mailing List Application (Form SF 129) from the agencies you’re targeting. Read the material carefully, making sure you understand all of the requirements. Make sure you can conform to the specifications given on the list of products or services bought by the agency. Be sure to describe your product or service according to those specifications. If the products and services list is not included, or if the list does not contain the exact item your company can supply, attach a separate sheet to the application. The sheet should include:
266 ■
■
■
The Auction-App
The specific names of the products or services your firm offers, along with their government classification codes Any products or services your firm has supplied under previous government contracts A full description of each product or service listed, using government descriptors, and the government specification number for each product or service listed
Write a cover letter for the SF 129 asking for confirmation of your placement on the bidder’s list for the products and/or services you have specified.
2. Conform to Federal Specifications While government specifications for certain items will continue to exist, the Federal Acquisition Streamlining Act of 1994 establishes a preference for the use of commercial items. It encourages the acquisition of commercial end items and components, including the acquisition of commercial products that are modified to meet government needs. So, the scope of products and services that qualify for treatment as commercial items has been significantly expanded. However, you may still have to meet government specifications and standards on certain products.
3. Get Your Information Straight The tough part here is determining the correct specifications and standards. Try the Index of Federal Specifications and Standards and Commercial Item Description. This is a complete list of governmentwide specifications and standards. It is available from the Superintendent of Documents, Government Printing Office (GPO), Washington, DC 20402, or GSA Business Service Centers. Military Specifications and Standards are available from the Naval Publications and Forms Center, 5801 Tabor Ave., Philadelphia, PA 19120. Still confused? Get a description of the classification system in the Standard Industrial Classification (SIC) manual, a comprehensive listing available from the Superintendent of Documents (see address above). The Federal Acquisition Regulation (FAR), which
Reversal of Fortune: The Changing Face of Government Procurement 267
became effective April 1, 1984, is the primary law governing federal agencies in their acquisition of supplies and services. Copies of FAR are available for reading and study in each SBA field office. Part 10 of FAR deals with specifications, standards and other purchase descriptions.
Where to Find Government Work Before you can start bidding on government contracts, you have to find the available opportunities. Here’s where to start. Government agency lists. You first need a list of government agencies and the types of products and services they usually purchase. Your local U.S. Small Business Administration field office can also get you started by providing a list. Small Business Centers. The General Services Administration’s regional Business Service Centers can give you information about GSA contracts—which reach billions of dollars each year—as well as direct you to other appropriate federal agencies or departments. Commerce Business Daily. This publication lists all proposed contract actions and contract awards of $25,000 or more. The SBA has a U.S. Government Purchasing and Sales Directory on its web site, and you can search for subcontracting opportunities there as well. To obtain the paper versions of both publications, write to the U.S. Government Printing Office, Washington, D.C. 20402. Electronic posting boards. The federal government has also set up a variety of electronic posting boards and search mechanisms. The Electronic Posting System (EPS) provides access to agency contracts. You can also register for e-mail notifications of contracting opportunities in your area of interest. Federal acquisition computer network. Under the Federal Acquisition Streamlining Act of 1994, the federal government was required to establish the FACNET, which lists regional, federal, and international contracting opportunities and publishes details of government solicitations. You can submit bids and proposals electronically, and submit questions about solicitations via e-mail. Agency mailing lists. The earlier you find out about contracts, the
268
The Auction-App
more time you have to prepare a bid. So, it’s important to get on the mailing lists of every government agency that purchases the products or services you offer. The SBA’s web site offers tips in this regard, but the process is fairly simple. Contact each agency from the list you’ve put together, and ask that the proper forms be sent or faxed to your office. While some agencies may just ask for your name and address, many will require you to complete some paperwork. Once you’re on the list, you will receive invitations to bid on particular contracts.
Five Strategies for Working the GSA Schedule So, you got your business on a General Services Administration schedule. That means orders will be pouring in from various government agencies, right? Wrong. Your work has just begun. “One of the misconceptions small businesses make is that once they get a government award, the orders are going to just pour in,” says Robbie Motter, owner of Contacts Unlimited, a Sun City, Calif., consultancy that assists small businesses in obtaining government contracts. “You actually have to market yourself.” Motter recommends the following strategies for her clients: ■
■
■
Do a mailing. This is actually required of every company that gets on a GSA schedule. But don’t wait for the GSA to tell you that—or to provide you with the list of every agency that buys the product or service you provide. You could wait for months. Instead, make sure you ask for the list up front—and follow through with the mailing. Target your audience. Use the list you get from the GSA to determine which agencies buy your product and/or service. In the case of the military, you may need to target particular military bases. You can request a staff phone directory from each agency and military base. If they tell you that such information is confidential, don’t believe it. Under the Freedom of Information Act (FOIA), you are entitled to that information. You may have to fill out a formal FOIA request. Make contact. Using the phone directory, determine which procurement officers are in charge of purchasing products and/or ser-
Reversal of Fortune: The Changing Face of Government Procurement 269
vices like yours. Send them a letter and follow up with a phone call. Ask them what they’re looking for and how you can be of assistance. You’ll be surprised by how forthcoming they may be. After all, they may need you as much as you need them. ■
■
Seek help from the experts. Virtually every government agency and military base has a person or office charged with helping small businesses get contracts. They’re called small business development officers. They can walk you through the procurement process—from getting on a GSA schedule to searching for contracts online and getting your business certified. Make the rounds. Nothing can substitute for face-to-face meetings. That’s why it’s important to attend procurement conferences and small business fairs. Most government agencies, military bases, and large prime contractors hold one or two each year. Some prime contractors hold informal gatherings for small companies each month. Contact the agencies’ small business development offices or prime contractors’ procurement officers to find out about such events. Industry publications, such as Government Product News, often list the larger conferences.
“The contracting officer isn’t going to recommend any one company,” says Motter. “It’s up to you to market your products. It doesn’t automatically happen. There’s a myth that once you’re [on the GSA schedule], the orders are just going to fly in. But they don’t— unless you’re unique.”
Government Contracting Terms— Definitions and Abbreviations APPEAL: Request by the contractor to the GAO, USBCA, or to the Director of Procurement through the agency appealing a final decision made by the Contracting Officer. ASIAN PACIFIC AMERICANS: United States citizens whose origins are in Japan, China, the Philippines, Vietnam, Korea, Samoa, Guam, the U.S. Trust Territory of the Pacific Islands (Republic of Palau), the Northern Mariana Islands, Laos, Kampuchea (Cambodia), Taiwan,
270
The Auction-App
Burma, Thailand, Malaysia, Indonesia, Singapore, Brunei, Republic of the Marshall Islands, or the Federated States of Micronesia. AWARD LETTER: A letter given to the contractor stating award of a contract with the Government. It contains the amount of the award and the award date. It may contain the Notice To Proceed (NTP). BONDS: Assurances that the contract will be performed. BID or BIDDER: Terms used when working with Invitation for Bids or sealed bids. A bond, usually 20 percent of the total bid price, is used to ensure that the contractor who is the low bid will accept the bid when notified or forfeit his bond. This bond is used only when the bid is crucial or if the solicitation was difficult or lengthy. BLANKET PURCHASE AGREEMENT (BPA): An agreement that is similar to a charge account that the Government uses for purchases less than $25,000. The BPA is used when there is a constant need for a certain type of item or service wherein each purchase might be very small. This is not a contract but an agreement. It is set up amongst several small businesses, and usually there is a rotation used to select contractors. CLAIM: A request for money by either the contractor or the Contracting Officer. COMMERCE BUSINESS DAILY (CBD): A publication by the Department of Commerce of all Government solicitations that are expected to be in excess of $25,000 or that are very difficult to procure. Each agency is required by law to advertise their procurement in this publication. It must be published 45 days before bid opening date (BOD). There are exceptions. COMPETITION IN CONTRACTING ACT (CICA): This Act states that all Government contracts are required to have full and open competition except in cases of procurement procedures expressly authorized by statute. CONCERN (as used in FAR Part 19): Means any business entity organized for profit (even if its ownership is in the hands of a nonprofit entity) with a place of business located in the United States and which makes a significant contribution to the U.S. economy through payment of taxes and/or use of American products, material, and/or
Reversal of Fortune: The Changing Face of Government Procurement 271
labor, etc. “Concern” includes but is not limited to an individual, partnership, corporation, joint venture, association, or cooperative. For the purpose of making affiliation findings (see FAR 19.101), any business entity, whether organized for profit or not, and any foreign business entity, i.e., any entity located outside the United States, shall be included. CONTRACT ADMINISTRATOR (CA): A warranted Contracting Officer who has the responsibility of administrating the contract after award. CONTRACT CATEGORIES: Architect & Engineering (A & E) Design and Construction (D & C) Research and Development (R & D) CONTRACT SPECIALIST (CS): A Government procurement official who will usually be in charge of the contract either from planning to award, or from award to termination, or contract close-out. Usually, they will have a warrant (authority) to bind the Government to contractual agreements with contractors. They are usually Contracting Officers. CONTRACT TYPES: Firm Fixed-Price (PFP), Cost Reimbursement (CR), Incentive Indefinite Quantity–Indefinite Delivery (IQ-ID), Labor-hour (LH), Letter Contracts (LC). CONTRACTING OFFICER (CO): Any person who has authority to enter into, administer, terminate, write determinations and findings, and who can bind the Government to any contractual obligation within their authority. A Contracting Officer is almost omnipotent, and is the one person who has the overall charge and responsibility of the contract. The Contracting Officer is the only procurement official who can make a final decision that can only be overturned by the GAO, BCA, Federal Appeals Court, or the Supreme Court of the U. S. CONTRACTING OFFICER’S REPRESENTATIVE (COR): A person designated in writing by the Contracting Officer, who is delegated authority to act on behalf of the Contracting Officer. This authority is limited to what the Contracting Officer has written and the authority delegated ends upon completion of the contract. CONTRACTING OFFICER’S TECHNICAL REPRESENTATIVE (COTR): A technical person, i.e., Chemist, Engineer, Attorney, Accountant, Researcher, Teacher, Writer, Computer Operator, Lawn Maintenance
272
The Auction-App
Person, Plumber, Cook, Electrician, Plant Nursery Person, or any other person who has some kind of skill or ability that the Contracting Officer relies on for expert subject matter knowledge when awarding or administrating a contract. DISPUTE: A disagreement between the Contractor and the Contracting Officer. The Contractor must continue to perform the contract pending resolution of the dispute. DUNS NUMBER: A number issued by Dun & Bradstreet to all contractors who want to do business with the Government. ECONOMICALLY DISADVANTAGED INDIVIDUALS: Socially disadvantaged individuals whose ability to compete in the free enterprise system is impaired due to diminished opportunities to obtain capital and credit as compared to others in the same line of business who are not socially disadvantaged. Individuals who represent that they are members of named groups (Black Americans, Hispanic Americans, Native Americans, Asian-Pacific Americans, SubcontinentAsian Americans) are to be considered socially and economically disadvantaged. EX ORDER 11222: This Executive Order is a policy on ethical conduct that applies to all Government Officials bar none. FAIR MARKET PRICE: A price based on reasonable costs under normal competitive conditions and not on lowest possible cost (see FAR Part 19.202–6). FEDERAL ACQUISITION REGULATIONS (FAR ): The primary regulatory document that is used by all Federal executive agencies when procuring supplies, goods, and services with appropriated funds. It is a book of regulations, statutes, and codes that control Federal procurement. HANDICAPPED INDIVIDUAL: A person who has a physical, mental, or emotional impairment, defect, ailment, disease, or disability of a permanent nature which in any way limits the selection of any type of employment for which the person would otherwise be qualified or qualifiable. INDIAN TRIBE: Any Indian tribe, band, nation, or other organized group or community of Indians, including any Alaska Native
Reversal of Fortune: The Changing Face of Government Procurement 273
Corporation as defined in 13 CFR 124.100, which is recognized as eligible for the special programs and services provided by the U.S. to Indians because of their status as Indians, or which is recognized as such by the State in which such tribe, band, nation, group, or community resides. INDUSTRY: All concerns primarily engaged in similar lines of activity, as listed and described in the Standard Industrial Classification (SIC) Manual. INSPECTOR (Ins): A person delegated by the Contracting Officer to inspect the progress performance of the contract to insure that the contractor is doing as according to the contract. INSURANCE: The contractor is required to have certain types of insurance from time to time in order to perform. INTEGRITY AND ETHICS: Characteristics that a person must posses prior to receiving an appointment as a Contracting Officer. INVITATION FOR BID (IFB): A solicitation that is asking for bids that are in excess of $25,000, usually called a sealed bid. There is a public bid opening. The contract is awarded without discussion to low bid. (Exceptions) JOB SITE: The place where the contract is being performed. LABOR SURPLUS AREA: A geographical area identified by the Department of Labor in accordance with 20 CFR Part 654, Subpart A, as an area of concentrated unemployment or underemployment or an area of labor surplus. LABOR SURPLUS AREA CONCERN: A concern that together with its first-tier subcontractors will perform substantially in labor surplus areas. Performance is substantially in labor surplus areas if the costs incurred under the contract on account of manufacturing, production, or performance of appropriate services in labor surplus areas exceed 50 percent of the contract price. LIABILITY: This insurance is required to be carried by the Contractor so that the Government is protected. LIQUIDATED DAMAGES (LD’s): A fine imposed by the Contracting Officer on the Contractor for delays in the project.
274
The Auction-App
NATIVE AMERICANS: American Indians, Eskimos, Aleuts, and Native Hawaiians. NATIVE HAWAIIAN ORGANIZATION: Any community service organization serving Native Hawaiians in, and chartered as a not-for-profit organization by, the State of Hawaii, which is controlled by Native Hawaiians, and whose business activities will principally benefit such Native Hawaiians. NONMANUFACTURER RULE: Means that a contractor under a small business set-aside or 8(a) contract shall be a small business under the applicable size standard and shall provide either its own product or that of another domestic small business manufacturing or processing concern (see 13 CFR 121.906). NOTICE TO PROCEED (NTP): The date the Contractor can begin performance of the contract. The performance time of the contract starts on the date stated in the award letter. OFFER or OFFEROR: Terms used when working with Requests For Proposal or proposals. PAYMENT: A bond that is 20 percent of the contract bid price that is used to ensure that upon contract completion, the contractor pays all of its employees, suppliers, subcontractors, and others who were responsible for assisting in the contract. If the prime contractor fails to take care of his obligations, then the Government will disperse this money to all of the unpaid claimants. PERFORMANCE: A bond that is 100 percent of the total bid price that is used to ensure that the contractor performs the contract according to the specifications. Upon default, the Government will use the bond money to finish the project. This bond is usually used when performing construction contracts. PRE-BID CONFERENCE: A meeting called by the Contracting Officer to describe the solicitation. This meeting may be held in an office or at the job site. The contractors can ask the Contracting Officer about the solicitation and the job. After the pre-bid conference, the contractor is prohibited from asking further questions or discussing the bid with the Contracting Officer until bid opening date (BOD). (There are exceptions.)
Reversal of Fortune: The Changing Face of Government Procurement 275
PREAWARD CONFERENCE: A meeting called by the Contracting Officer with the successful contractor that includes every person who will be involved in some way with the contract until close-out. These people can be either or all of the following: COR, COTR, CA, PM, payroll personnel, agency heads, etc. During the pre-work, schedules, deadlines, subcontractors, equipment storage, offices, keys, passes, elevators, and other information vital to the contract’s performance will be discussed. PRIME: The contractor to whom the Government made the award. PROJECT MANAGER (PM): The person who has constant contact with the Contractor. Usually the Project Manager will be appointed by the Contracting Officer’s Representative or by the Contracting Officer. PROTEST: A complaint that is filed by contractors prior to or immediately after award. PUBLIC OR PRIVATE ORGANIZATION FOR THE HANDICAPPED: One which (a) is organized under the laws of the United States or of any State, operated in the interest of handicapped individuals, the net income of which does not inure in whole or in part to the benefit of any shareholder or other individual; (b) complies with any applicable occupational health and safety standard prescribed by the Secretary of Labor; and (c) employs in the production of commodities and in the provision of services, handicapped individuals for not less than 75 percent of the direct labor required for the production or provision of the commodities or services. QUALITY ASSURANCE REPRESENTATIVE (QAR): A person delegated by the Contracting Officer to ensure that the quality of the contract is performed at an acceptable level. REQUEST FOR INFORMATION (RFI): This is issued on a Standard Form 18. This kind of solicitation is used when the Government wants information about a certain type of procurement. There is no public opening for this type of solicitation. REQUEST FOR PROPOSAL (RFP): This kind of solicitation is used by the Government to request the contractor to submit a written description (proposal) of the plan to perform the work. There is no public
276
The Auction-App
bid opening, but there is discussion/negotiations between the Contracting Officer and the contractor. This bid (offer) can be awarded to other than the lowest offeror. This type of acquisition is usually in excess of $25,000. REQUEST FOR QUOTE (RFQ): A solicitation form (Standard Form 18) that is used for quotations of procurement that are estimated to be under $25,000, usually called a quote. There is no public opening for this form of solicitation. SET-ASIDES: For Small Businesses, Socially Disadvantaged Businesses, Woman-Owned Small Businesses, Small Disadvantaged Businesses, Labor Surplus Areas. SITE VISIT: To make an appearance to the job site. SMALL BUSINESS: A business is considered a small business when it has a gross of $3.5 million to $17 million. In size, it is considered a small business when it has no more than 500 employees. SMALL BUSINESS CONCERN: A concern, including its affiliates, that is independently owned and operated, not dominant in the field of operation in which it is bidding on government contracts, and qualified as a small business under the criteria and size standards in 13 CFR Part 121 (see FAR 19.102). Such a concern is “not dominant in its field of operation” when it does not exercise a controlling or major influence on a national basis in a kind of business activity in which a number of business concerns are primarily engaged. In determining whether dominance exists, consideration shall be given to all appropriate factors, including volume of business, number of employees, financial resources, competitive status or position, ownership or control of materials, processes, patents, license agreements, facilities, sales territory, and nature of business activity. SMALL DISADVANTAGED BUSINESS CONCERN: A small business concern that is at least 51 percent unconditionally owned by one or more individuals who are both socially and economically disadvantaged, or a publicly owned business that has at least 51 percent of its stock unconditionally owned by one or more socially and economically disadvantaged individuals and that has its management and daily business controlled by one or more such individuals. This term also means a small business concern that is at least 51 percent
Reversal of Fortune: The Changing Face of Government Procurement 277
unconditionally owned by an economically disadvantaged Indian tribe or Native Hawaiian Organization, or a publicly owned business that has at least 51 percent of its stock unconditionally owned by one of these entities, that has its management and daily business controlled by members of an economically disadvantaged Indian tribe or Native Hawaiian Organization, and that meets the requirements of 13 CFR 124. SMALL PURCHASES (SP): Any procurement that is less than $25,000. This type of procurement is also known as Negotiated Procurement. This kind of procurement does not have a public bid opening. The Contract Specialist will conduct discussions if the bid prices are not fair and reasonable. Also, the Contract Specialist will have discussions if the Statement of Work (SOW) is ambiguous or misleading. Award is made to the most reasonable, responsible, responsive bidder. SOCIAL SECURITY NUMBER (SSN) SOCIALLY DISADVANTAGED INDIVIDUALS: Individuals who have been subjected to racial or ethnic prejudice or cultural bias because of their identity as a member of a group without regard to their qualities as individuals. SOLICITATION: A bid package; an instructional packet which describes in great detail what the Government wants. SOURCE LIST: A list of contractors kept by the Contracting Officer of all contractors who are interested in bidding on Government contracts. It is separated into different crafts or skills. STANDARD INDUSTRIAL CODE (SIC ): A numerical listing of skills, professions, and trades according to types. STATEMENT OF WORK (SOW): A general description of the type of work or services to be performed. It is included in the solicitation. SUB: The contractor that the prime contractor hires. SUBCONTINENT ASIAN AMERICANS: United States citizens whose origins are in India, Pakistan, Bangladesh, Sri Lanka, Bhutan, or Nepal. TAX IDENTIFICATION NUMBER (TIN)
Fashionmall.com, 91 Fastparts.com, 164 Fasturn, 192 FastXchange, 164 FCC (Federal Communications Commission), 23 FedCenter.com, 175 Federal Acquisition Streamlining Act (1994), 266, 267 Federal Communications Commission (FCC), 23 Federal Express (Fedex), 27, 225, 230 Fedex (Federal Express), 27, 225, 230 FEDS (First Ecommerce Data Services), 254 Feedback, postauction, 69, 80, 124, 207, 222 Fees for auction, 52, 71, 72, 73, 74, 75, 228 Fexco, 254 58K.com, 182–183 Finance, resources, 171 Finding relevant marketplace (See Marketplace, choice of relevant) Findstone, 167 First Auction, 49 First bidder discount, Amazon, 107 First Ecommerce Data Services (FEDS), 254 First Virtual, 243–244 Fischer Scientific, 41–42, 89–90, 93, 249 Fixed-price option “Buy It Now,” 9, 90, 107–108, 225, 247–248 “fixed-price shopping,” 10 rebirth of, 247–249 FlexoExchange, 183 Floorspace.com, 156 Floraguide.com, 173 Flow B2B, B2C and C2C settings, 87 Dutch auction, 12 English auction, 10 reverse auction, 14 timed markdown, 15
288
Index
FMX, 186 FOIA (Freedom of Information Act), 268 Food and Beverage Information Exchange, 173 Food resources, 172–175 FoodHunter.net, 173 FoodService.com, 173 Ford Motor Company, 16, 21, 27 Form SF 129 (Solicitation Mailing List Application), 265–266 Forrester Research, 29, 236 Fortune 2000, 70, 89, 209 Fraud, 206 Free Trade Zone, 164–165 Free trial, 78–79 Freedom of Information Act (FOIA), 268 FreeMarkets auction history, 34, 35 B2B setting, 57, 58 brand value enhancement, 222 government contracts, 258, 263–264 P2P setting, 42 registration, 238 as resource, 83, 193 reverse auctions, 13, 14, 18 FreePlay, 45 Freightconnect.com, 186 Freightgate, 186 FreightMatrix, 186 Freightquote.com, 186 Frequency of communication, CRM, 210–211 Frequently answered questions (FAQ), 207 FreshfromtheWeb.com, 151 FuelQuest, 143, 169 Functional exchanges, 55–56 Functionality, multichannel, 69 Funding fees for auction, 52, 71, 72, 73, 74, 75, 228 payment mechanisms, 85, 95–96, 225, 243–244 venture capital, 71, 73, 74, 75, 110, 122
Gas resources, 168–171 GE Global Exchange, 29 General Electric (GE), 14, 29, 56 General Motors, 16, 18, 27–28, 58 General resources, 130–133 B2B sites, 54–57 B2C sites, 49–54 news and information, 130–132 trade groups and forums, 132–133 General Service Administration (GSA) Business Service Centers, 266, 267, 268–269 General Services Administrations (GSA), 264, 266, 267, 268–269 Geocities, 91 GetLoaded.com, 186 getPlastic, 182 Giftcertificates.com, 91 Giveaways included with purchase, 107, 221 Global Capital Equipment Market, 156 Global economy, community model, 250–254 Global Freight Exchange, 186–186 The Global Trading Web Association (GTWA), 132 Globalization procurement, 232 sales strategy, 3 GlobalNetXchange, 143, 184 Gnutella, 39 Godin, Seth, 202 GoFish.com, 174 Goldman Sachs, 232 GoLogistics, 186 Goods, business, resources for, 154–155 Google, 197 GoTo, 197 GoTo Auctions, 74, 75 Government agency lists, as contract source, 267 Government contracts, 257–278 about, 257–259 as B2B, 55–56 contracting terms, 269–278
Index eligibility, 261–263 listing on bidder’s list, 265–267 opportunities, 267–269 practice, 260–261 registration, 263–265 requests for proposal, 260 sealed bidding, 259–260 [See also Request for quotation (RFQ)] Government Printing office (GPO), 266 Government resources, 175–176 GPO (Government Printing office), 266 Grant Street Group, 171 Group buyers, 30 GSA (General Services Administrations), 264, 266, 267, 268–269 GT Nexus, 186 Guarantees, 208 Half.com, 247 The Halon Trader, 157–158 Handling fee, 96–97 Harden, Leland, 93 Harper, Mike, 80, 123 Headhunter.net, 56 Heading, offering, 100, 102–103, 218 Health care resources, 177–178 Hearst Corporation, 45 Hershey, 14 Hewlett-Packard, 15 Heyman, Bob, 18, 93 Highlighted titles, 103 History of Internet auctions, 23–36 about, 23–25 B2B birth, 26–29 critical mass counts, 33–34 evolution of online trading experience, 25–26 infrastructure inspection, 34–35 lessons, 33–36 listen to customers, 35 try several, 35–36 winners and losers, 29–33 Hit counters, 69, 71 Honda, 28 Honesty.com, 71
289
Hosted services model, 134 Hotjobs, 56 HoustonStreet.com, 169 HTML key words, 198–199 Httprint, 183 HUBZone Empowerment Contracting Program, 262 Hudson and Marshall, 23, 25 i-Mark, Inc., 157 i-Textile, 192 iBazar, 25 IBC. Inc., 142 IBM, 7, 16, 50 IceCreamZone.com, 174 ICollector, 145 IDC (Internation Data Corp), 232 IHB-International Holzboerse, 180 ILSMart, 148 Image hosting, 69 ImageParts.com, 162–163 Images of offerings, 103, 125 imandi.com, 154 IMB WebSphere, 68 IMT Technologies, 197–198, 210, 211 IMX, 171 Income and computers in homes, 44–45 Index of Federal Specifications and Standards and Commercial Item Description, 266 Indigopool.com, 169 Individualization, 38 Industry-sponsored and neutral B2B exchanges advertising and media, 146–147 aerospace, 147–149 agribusiness, 149–152 apparel, 192 auctions for, 26–29, 56–58 automotive, 152–154 aviation, 147–149 beverage, 172–175 business goods and services, 154–155 capital equipment, 155–157 chemicals, 160–162
service model, 134 for site creation (See Infrastructure creation, software and services for) Shah, Munjal, 70, 71 Shipping bundling lots, 221 as enticement, 107 handling fee, 96–97 resources, 185–188 vendor renegotiation, 229–230 ShippingFinder.com, 188 Shopping.com, 49 SIC (Standard Industrial Classification), 266 Sidewalk.com, 91 Siebel, Thomas, 84 Siebel Systems, 84 Simon, Todd, 97, 117, 118 Simplexis, 176 Simply Postage, 139 Site creation (See Infrastructure creation, software and services for) Sitestuff.com, 155 Small Business Act (1953), 261–263 Small Business Administration (SBA), 259, 260–263 Small Business Depot, 176 Small office/home office (SOHO) products, 54–58 (See also specific topics) Smith, Cordell, 258, 264 Snail mail, 201 Sniping, 9–11, 106–107 Software, 17–18, 137–139 (See also Infrastructure creation, software and services for) SOHO (small office/home office) products, 54–58 (See also specific topics) Solicitation Mailing List Application (Form SF 129), 265–266 Sony, 40 Sotheby’s, 29–30, 31–32, 51, 145 Source One Spares, 149
Index Southwest Airlines, 63 Spam, 210 Specialty topic areas, resources for auction initiative, 143–146 Speed of delivery, 225–226 SquareTrade, 85–86, 139 SRI (Stanford Research Institute), 44 Stamps.com, 187 Standard Industrial Classification (SIC), 266 Stanford Research Institute (SRI), 44 Staples, 17 StaplesPartners.com, 17 Starting price, auction, 98–99 Starting time, auction, 104–107, 218 Steel resources, 188–189 Stevenson, Brian, 125, 126, 127 Stickiness, 34 Storefronts B2C general site, 49 and branding goal, 90–91 eBayPremiere, 51 Fairmarket, 52 IBM, 7 integrated, 69 as value-added service, 60 Superintendent of Documents, Government Printing office (GPO), 266 Suppliers (See Procurement) Supply-chain costs, 5–6 SupplyOn, 153 Surplus goods resources, 189–190 Sutton, Mark, 18, 117 Sweepstakes, 203 Switching cost, 220 “Take It” price, 107 Target markets, 69–70, 264, 268 TechnologyNet, 163 Telcobuy.com, 191 Telecommunication equipment and services resources, 190–192 Telecommunications Industry Association, 191 Telephone.com, 191
Unique items, 32 United Parcel Service (UPS), 187, 225, 230 United States Postal Service (USPS), 230, 258 United Technologies, 17, 18 Universal Search, 140 Unleashing the Ideavirus (Godin), 202 Unsolicited e-mail, 210 Unwanted merchandise, 50–51 UPS (United Parcel Service), 187, 225, 230 Upselling, 218 USBid.com, 166 UseNet, 25 USPS (United States Postal Service), 230, 258 ValNets, 141 VALS (Values and Lifestyles), 44 Value-added service and information, 32–33, 60, 223 Value price and auction success, 32 Values and Lifestyles (VALS), 44 Vendor bid form, RFQ, 242 Vendor discovery, 130 Venture capital, 71, 73, 74, 75, 110, 122 VeriSign, 60, 88, 95 VerticalNet, 84, 193 Viral marketing promotions, 202–203 Virtual Chip Exchange, 166 VirtualFeedback, 137 Visa, 95, 253–254 Vivendi, 40 Voice recognition, 135 Volkswagon, 16, 28 Volume Purchase Agreement (VPA), 222 VPA (Volume Purchase Agreement), 222
Wal-Mart, 15–16 Wall Street Journal, 44 Wanamaker, John, 219 Wastechange, 158 Water Bank, 158 Watt-Ex, 170 WebNoize, 41 WedNet.com, 204, 205 Wells Fargo, 85, 95, 244 Wesley, Pamela, 24, 25 Where is the Ship?, 188 Whitman, Meg, 25 Who Would By That, 137 Wingo, Scot, 74 Winners in history of Internet auctions, 31–33 Wire Connect, 166 Wolf’s, 29 Woolworth, F. W., 219 World Oil, 170–171 World Wide Arts Resources, 146 Worldwide Retail Exchange, 184 Www.askart.com, 145 XSAg.com, 152 XSmaterials.com, Inc., 159 Yahoo!, lists of auction sites, 49 Yahoo! Auctions as auction pioneer, 7 categories in, 32 eBay buyout offer, 25 as general site, 49, 50 handling fee, 96–97 niche marketing, 53–54 rules and registration, 62 Yahoo! Pay Direct, 95 Yet2.com, 177 ZoneTrader, 160
