January 28, 2000

Article at PC Computing

Sold! B2B auctions are changing the way companies buy and sell (cover story)

(PDF version here.)

Sure, Internet auctions are hot. We all know people who supplement their income selling stuff on eBay. And every office has at least one or two auction addicts. But Web auctions are more than just a way to clear your garage of clutter or kill time during lags in your workday. They're the model for the way the Internet is shaping the economy. One day we'll all buy and sell with the idea that the market sets prices—if no one will pay more than $5 for a ream of paper or $10 for a bushel of corn, that's what those items will cost. Business-to-business auctions are set to explode, says Forrester Research, with sales predicted to shoot from $19.3 billion last year to $52.6 billion by 2002.

Moving traditional auctions to the Web is just the beginning. Dynamic pricing takes many forms, including typical auctions, group buying sites, and online swap meets. Sites that let you name a price you're willing to pay are leading the way toward the new economy.

We help you sort out the top auction sites so you know where to get the best deal on paper clips, motor oil, and new and used PCs. Or where to unload your company's surplus products or raw materials. And discover products and services that let you build your own auction, post multiple auctions with a click, and ensure that every transaction you complete is safe and secure.

STANDARD AUCTIONS

PROBLEM: You have business assets you don't want, can't get rid of, or just want to sell.

SOLUTION: Get top dollar through a standard auction where you'll also snag deals on office goods.

When you see a garden gnome that would normally sell for a buck at a garage sale going for $30 on eBay, you know auctions tilt in the seller's favor. The more bids that come in, the higher the price. If you've got junk in your garage and need cash quick, look to eBay. Chances are good that some of the site's 10 million monthly visitors will drive up the price. Similarly, if your business has extra inventory in its warehouses, the best way to get rid of it is to auction it online.

eBay attracts legions of bidders, and it might work for selling your company's more generic assets or starting a side business. Don't be surprised if what starts as an evening and weekend venture soon turns more profit than your day job. (See "Auction Managers," page 142.) As a business buyer, you can find sweet deals on conference tables, notebook PCs, and high-end copiers.

Egghead.com and ZoneTrader.com are also excellent sites for business buying. Bid for everything from computers to family vacations in the Auctions & Surplus section. You'll also find deals on new hardware, software, and electronics. With ZoneTrader.com bidders buy directly from the site, not directly from a seller as with a traditional auction. The company recovers equipment from Fortune 500 companies and manufacturers, tests it, and auctions it with a 30-day guarantee. Its focus for now is technology products, but ZoneTrader.com plans to offer warehouse equipment and office furniture soon.

If you need to sell goods and services on the Web, particularly surplus inventory, turn to business-focused auctions. The big players are TradeOut.com, Com Auction, and DoveBid. Each aims to be the eBay of business-to-business Internet auctions and offers a wide range of merchandise in a variety of categories, including heavy industrial equipment and regular office supplies. As a buyer you can find just about anything on these sites but first check out reverse auction and group buying sites, which tend to favor the buyer. (See "Reverse Auctions," page 134, and "Group Buying," page 141.)

Within three weeks of its launch in May TradeOut.com had $25 million in merchandise listed on its site. A few months later, a customer auctioned $2.9 million worth of power generators. Today TradeOut.com lists $750 million-plus in merchandise in more than 100 categories.

TradeOut.com charges sellers a 5 percent commission in addition to a $10 listing fee. TradeOut.com boosts your chances of making a sale by telemarketing your products to potential buyers on your behalf. Since the company gets a cut of each sale it's in its best interest to encourage bidding. If you're looking to move excess inventory fast, TradeOut.com is a smart choice.

Security is where ComAuction clearly takes the lead. The site integrates escrow services into its auctions. Additionally, ComAuction prohibits anonymous buyers and sellers on the site, ensuring a safe place to do business. Also, buyers and sellers are free to communicate directly with each other before the sale. Many sites don't allow this for fear they'll be cut out of the deal.

Also unique to ComAuction is its Virtual Inspection program, which lets you turn photos of your wares into 3D images. The hope is that after seeing a piece of machinery from all angles, bidders won't think twice about buying it without having seen it in person. Com Auction offers this and the escrow service for free but charges sellers $250 per year plus a 5 percent transaction fee at the close of a sale.

DoveBid has been around since 1937 and has conducted more than 3,000 auctions worldwide, overseeing more than $5 billion in transactions. Its site is the only one that gives buyers access to both online and offline auctions. DoveBid charges sellers a 5 percent transaction fee plus a $10 listing fee. Check it out the next time you need a mahogany conference table or a Toyota forklift.

REVERSE AUCTIONS

PROBLEM: You want the lowest prices on products and services for your company but don't have time to scour the market.

SOLUTION: Use a reverse auction and have sellers come to you.

Reverse auctions favor buyers by forcing sellers to compete for your hard-earned cash. All you have to do is put out a request for a product or service, then choose the offer that fits your needs.

The reverse auction format works for consumers and businesses as well as for more specialized industries (see "Industrial Auctions," page 144). Companies like Ariba and Commerce One, which specialize in online procurement for corporate purchasing departments, are also starting to add reverse auctions to their services. Chances are, though, you're looking to buy something specific for your business or home that's difficult to find, expensive, or not available in your area. That's where general-purpose reverse auctions shine particularly if you don't need the item right away. With most reverse auctions, there's no guarantee that sellers will make offers within the time frame you specify. Or at all. Still, they're a good place to start.

Some reverse auctions simply help buyers and sellers connect. At Imandi .com and Respond.com, buyers request products and services within a price range. Sellers respond with bids or related information. As a buyer you're anonymous so you don't open yourself to unwanted sales pitches or cold calls. You respond to the bids that meet your criteria or simply use the offers to compare prices. For sellers it's a cheap way to find new customers, and you don't even need your own Web site just an e-mail address.

Imandi.com focuses on local merchants, using zip codes to match buyers and sellers. Its small-business section features categories like office machines, real estate, and business travel. It's free to all for a short time but will soon cost merchants a referral fee.

On Respond.com, merchants pay fees $5 to $50 to get notified when people make certain product requests. It also costs merchants a small fee to respond to requests. The site boasts thousands of categories, including business machines, office supplies, computer software and hardware, and electronics. Respond.com and Imandi .com are excellent places to compare prices on services that can otherwise be difficult to price over the phone or on the Net. Respond.com's services area which includes movers, notaries, security, telemarketing, and many more is much deeper than Imandi.com's, which doesn't group services in one place.

Buyingedge.com works the same way as Respond.com and Imandi.com. However, its business offerings are slimmer. Sellers pay a percentage of each transaction that results from a referral from the site. Buyers are free to play vendors off one another for more competitive bids and can remain anonymous the whole time.

In contrast, eWanted is the only site we found that lets suppliers and all site visitors see each other's bids. Just like in standard auctions, visible bids stir up more competition, especially since vendors can sweeten the pot by offering buyers more for their money.

For business buying, turn first to BizBuyer.com and Onvia.com. Both let you post requests for products and services that all businesses need, from office supplies to legal services. Of the two, BizBuyer.com offers a wider array of products and services via reverse auction. Onvia.com lets you post requests for quotes in certain categories like health insurance and market research but offers fixed-priced offerings in others, like Internet access and payroll services.

At BizBuyer.com suppliers pay a fee ranging from $2 to $10 (depending on the category) for the privilege of responding to your request for products or services. The site's services are free to buyers. BizBuyer.com has more than 50 small-business categories and 11,500-plus vendors.

To enter a request, find the appropriate category and fill out a form describing in detail what you're looking for. At any time during this process you can click on Buying Guides to learn more about the product or service you want.

After you submit a request, you may receive bids from multiple vendors though there's no guarantee you'll get any. Once you've been notified, it's up to you to initiate contact, and in the meantime you remain anonymous. How do suppliers learn of your request? When they sign up, they tell BizBuyer .com what sorts of requests they want. It's free for them to look at your posting; they pay only if they make an offer. BizBuyer.com also lets you instantly compare up to three bids side by side.

GROUP BUYING

PROBLEM: Your company lacks the clout to get bulk rates reserved for larger firms.

SOLUTION: Join an online purchasing coalition to qualify for lower prices.

Group buying sites pool the bargaining power of scattered buyers, creating a virtual purchasing department with the leverage to command lower prices from suppliers. And the suppliers aren't complaining. They're eager to offer the bulk rates as long as they can close gargantuan sales as a result.

Three out of the four group buying sites we looked at cater to small businesses: Shop2gether.com, Point Speed, and Accompany. The fourth, Mercata, was one of the first group buying sites to launch and continues to focus on consumers. But that doesn't mean you can't use Mercata to buy a microwave for your employee lounge or snag a deal on Waterford pens to present to your top salespeople. Case in point: In a recent Mercata PowerBuy session, a Sharp microwave oven went for $372, about $130 off the retail price.

At Shop2gether.com the seller dictates how many units the group must buy for a deal to go through. You join the buying cycle for an item and hope enough people will follow suit to meet the seller's quota. In the meantime you wait Shop2gether.com is not the place to shop when you're in a hurry. The cycle ends when the seller's quota is met. Unlike the other sites, Shop2gether.com charges buyers a transaction fee, which ranges from $5 (for an inexpensive item) to $250 (for a vehicle). The seller pays nothing.

PointSpeed uses a different model. It prenegotiates prices with vendors and collects fees from them based on transaction volumes. The incentive is that the more sales PointSpeed generates, the more money it makes. And by working with vendors ahead of time, PointSpeed can offer entire product lines, which means more variety than you'll find at most group shopping sites.

Other differences: Shop2gether.com acts as a neutral intermediary, whereas PointSpeed aims to be a buyer's advocate, negotiating with vendors for the best prices and representing the buyer if problems arise. PointSpeed also offers live customer service and provides a tool called eProcurement, which lets you download order information to your accounting software. Point Speed's central weakness is that it's available only through the site's partners, such as banks, so you must be one of its partners' customers to use it. Shop2gether.com is open to everyone, and although it's focused on business, there's nothing to stop individuals from taking advantage of it.

Accompany and Mercata, the first group buying sites to get a lot of attention, focus on different markets. With a product list that includes baby goods, tools, and jewelry, Mercata's main customers are general e-shoppers. Accompany, on the other hand, intends to branch out and will soon add a business-to-business area. It also plans to launch a program that lets unrelated departments in large corporations band together for purchasing. As with PointSpeed, there's no charge to buyers. Accompany takes a slice of each transaction from sellers.

Like Shop2gether.com, Mercata is a destination site meaning its goal is to attract as many shoppers as possible. It does this by buying products in anticipation of consumer demand. It also takes care of warehousing, shipping, and customer service. Accompany, on the other hand, aims to blend like a chameleon into lots of partner sites. What's that mean to you? As more buyers join the Accompany exchange from all over the Web, prices just keep going down.

Group buying sites offer you, the buyer, an advantage you don't have as an individual or a small company. Like reverse auctions, they give you more control over how much you pay for an item as long as there are enough buyers in the network to satisfy the vendors. While group buying sites offer lower prices, it's still up to the vendor to set the bulk rate ahead of time.

AUCTION MANAGERS

PROBLEM: You sell so much at online auctions it's hard to stay on top of the details.

SOLUTION: Use an auction management service to create ads, post items and images, track transactions, and correspond with customers.

It's hard to feel sorry for an eBay power seller who rakes in thousands of dollars in extra income each month. It's like drumming up sympathy for Jeff Bezos when Amazon.com's stock dips a few points. But keeping track of hundreds of auctions at once isn't easy and can quickly become a full-time job. Many services help you do this, but Andale is the most comprehensive we've seen.

Andale is a Web-based auction management system. It's free until you close a sale and then it takes a small percentage of the transaction. From your secure area on the Andale site, you prepare items you want automatically posted to various auctions, which can include Amazon.com Auctions, BizBuyer.com, eBay, and a few others with more on the way. Instead of creating a product description at each site, you write it just once in Andale, which then posts your listings automatically.

As for posting images of your wares, Andale simplifies that too. Several services advertise free image hosting, such as AuctionWatch.com (www .auctionwatch.com) and Auction Images (www.auctionimages.net). But they typically start charging once you exceed 3MB to 5MB of storage space. Andale gives you 100MB of free space for your images, enough room for hundreds or even thousands of photos. And it automates posting the same image links across multiple auctions.

Andale also provides transaction management. When an auction ends, the service sends the high bidder an e-mail message that links to a form where the buyer can quickly fill in address and payment information and shipping preferences. Andale automatically calculates the shipping price. Normally this step takes up to a week and can be a confusing snarl of back-and-forth e-mail messages. Once each transaction is complete, all the pertinent data remains in the system, allowing you to monitor your sales to specific buyers, track the popularity of certain items, and repost items that don't sell.

i-Escrow offers a similar but less comprehensive service called QuikTrack. It lets power sellers prioritize and manage their interaction with customers and provides real-time shipping updates. Eventually it will work with popular accounting software like Intuit QuickBooks and Peachtree Complete Accounting. Of course, i-Escrow's main service is, well, escrow, which protects the buyer and the seller from fraud.

What other outlets for your wares are there? In addition to business-to-business and industrial auctions, consider selling to the government. Dealing with government requests for bids involves more red tape than most can stomach. But a tiny startup, Search4bids .com, is simplifying the process of finding requests for bids from government and nonprofit agencies.

Search4bids.com offers a search engine that scans only the Web sites of these agencies. So you'd enter hammer, for instance, and get back links to online requests from agencies for hammers. This part of the service is free. If you need more in-depth bid sleuthing which often requires Search4bids.com employees to scour newspapers or pick up the telephone you pay $33 a month.

BUILD YOUR OWN AUCTIONS

PROBLEM: You're all for a business auction, but only if you can put your name on it.

SOLUTION: Create your own auction using software or a hosting service.

You didn't start your own business so someone else could be in charge. So why use another site's auction, especially if you have enough goods and services to sell from your own site? Adding an auction to your offerings or simply hosting an auction that allows others to sell stuff from your site increases traffic and puts you in charge of the process.

For a cheap and easy way to add auctions to your site and to see if auctions make sense for your company Bidland is worth a look. After the initial $295 setup fee, Bidland charges $99 per month and a 5 percent transaction fee. Because it's a Web-based service, there's no software to install. And you can have it set up in about half an hour. Another plus: Although the auctions appear to take place on your site, Bidland's servers actually host them, which means you can start your own auction site with Bidland even if you don't yet have a Web site.

You might, however, opt for total control. For one thing, collecting detailed customer data helps to evaluate buyer trends and craft marketing campaigns. And because you hold the keys, you can lock out the competition, make money off advertising, and dictate the branding and appearance of your auction.

OpenSite Technologies gives you everything you need to set up a comprehensive auction. Its OpenSite Auction 4.1 starts at $5,000 and goes up to $50,000 for the corporate edition. It's much more expensive than Bidland, but you get a wider range of features. You can run standard or reverse auctions (corporate only), manage bidders and products in detail, export your data to an accounting software package, and set up a secure auction site relatively quickly usually in less than 5 hours. More than 300 companies use OpenSite Auction, including Sharper Image and Cannondale. OpenSite also features smaller-scale hosted auctions through ISPs and is one of the few vendors that offers a complete migration path from small, let's-give-it-a-spin auctions to full-blown, enterprise-level exchanges. To see if your ISP offers auction services through OpenSite go to www.opensite.com.

Moai focuses on large-scale auctions. Its LiveExchange auction services are expensive to license (around $100,000) but have everything big companies like AdAuction and Ingram Micro need. Another big player, FairMarket, offers auction hosting for $10,000 to $50,000 a month, with a setup charge of $10,000 and a transaction fee of about 2 percent. Your auction is added to FairMarket's search option, which lets shoppers simultaneously search all the auctions of every FairMarket customer.

You could also hold your own auction through an auction community site like BizProLink. The problem is that while you create your own auction, it's on someone else's site. It doesn't even appear to be on your site, as with Bidland. But you do have control over where users go in your auction, what they can buy, and what they see, based on who they are. BizProLink charges a transaction fee that ranges from 2 to 13 percent depending on the extras you choose.

Steve Mollman writes from Silicon Valley about business and technology.