Here's why online business-to-business auctions may be the best way for small companies to make?or save?a buck.
Opportunities
Business-to-business auctions may be the best way yet for small companies to make--or save--a buck
Over the past several years, on-line auctions have built themselves into one of the great E-commerce success stories, proliferating into hundreds of sites that clear millions of items a week. The most visible of these are the consumer-to-consumer auctions, which thrive on our apparently limitless interest in buying one another's cast-offs: barely used exercise equipment, slightly chipped Fiesta ware, and collectibles ranging from airsickness bags to antique barbed wire.
But while consumer goods have gotten the ink, visitors clicking their way a little further into on-line-auction sites, such as eBay, will find themselves in a very different marketplace. There buyers and sellers deal in bulldozers, 100-pound rolls of bubble wrap, industrial process-control software, 40-foot conference tables--even employees. Not long ago, eBay listed for sale an Internet service provider's entire engineering staff--one director, three managers, seven senior engineers, and five administrators--all prepared to go as a group to the highest bidder. (So long as they didn't have to move out of the Valley, of course.)
Media coverage notwithstanding, in dollar terms business-to-business sales dominate the on-line-auction market. In March 1998, Forrester Research Inc. projected that the value of goods and services sold in on-line business-to-business auctions that year would dwarf the value of those sold in consumer auctions by a factor of six ($8.7 billion to $1.4 billion) and would accelerate to $50 billion by 2002. An auction site selling power equipment to businesses recently announced it had set a new value record, receiving bids starting at $38 million for a pair of 1,000-ton steam turbo generators.
The reasons for the boom are manifold. Like consumers, many companies have vast quantities of goods and materials moldering away in closets, storage bins, and warehouses. Those goods include obsolete equipment; factory seconds; discontinued or repackaged models; used, liquidated, and rebuilt or refurbished items; overstocks; excess inventory; and products that failed to find distribution. While liquidators and brokers typically will buy such stuff, they often don't pay enough to make it worth the seller's while. As a result, much of the material appears on the market very slowly, perhaps only when companies go out of business or move.
On-line auctions, on the other hand, are a fast, easy, and cheap way for businesses to clean their closets. Price discovery or definition, almost always complex in ordinary markets, occurs automatically. Closing bids are usually lower than retail prices--which attracts buyers, but prices are still often higher than what liquidators will pay. And on-line auction sites attract huge, diverse groups of buyers, who find them far more convenient than slogging through a list of dealers.
And the advantages don't end there. As companies are discovering, auctions can advance promotion and publicity, drive traffic to sellers' sites, and generate lead lists for upselling to failed bidders and cross-selling to successful ones. Since the record of bids compiled at each auction shows exactly how much value buyers place on different products, sellers can mine it for valuable marketing data. Auction results can also be used to help sellers define prices for goods sold in the off-line world. And, increasingly, auctions are a vehicle for what is sometimes called "gray channel" commerce: resellers exploiting the anonymity of the medium to push the borders of their distribution licenses.
Although there are many types of business-to-business auctions (see "How Do I Bid on Thee? Let Me Count the Ways," below), most take place on one of two kinds of sites. General auctions like those run by eBay, Yahoo, and Amazon.com offer an unrestricted selection of goods and services to a broad range of buyers and sellers. Specialist auctions, meanwhile, concentrate on specific sectors or industries.
General auctions, as a rule, attract players in industries that don't yet support a specialist site, skilled auction manipulators with patience and pricing skills (hoping to skin naïve users), sellers for whom a heterogeneous buyer population is particularly important, and open-minded buyers positioning themselves for serendipitous opportunities.
Joe Martin, owner and president of Sherline Products Inc., a $5-million designer and manufacturer of high-precision miniature machine tools, is one such buyer. Martin says he has saved his company $20,000 over the past six months by buying on the general-auction sites, looking for rare and unusual items whose value is underappreciated. "You have to be willing to buy for more than your immediate needs to make out," he says.
Another patron of the general sites is Gary Sorrells, president of GLS Recovery, in Orem, Utah. A seller rather than a buyer, Sorrells auctions off repossessed and liquidated goods both on-line and in the physical world. On-line, he sells about 150 items a month, including as many as 20 vehicles at an average of about $8,000 each. Sorrells is struck by the speed with which items clear on-line compared with the auctions he holds in downtown Orem. "Here a bulldozer might take five weeks to sell," he says. "On eBay it would be gone in a week."
Sorrells explains that such quick sales reduce storage costs and accelerate collateral liquidation. Since on-line buyers don't have to gather at a central point, goods can be stored wherever real estate costs are lowest. And while the ratio of the value of on-line to off-line bids isn't consistent, Sorrells observes that on-line buyers seem willing to pay a 5% to 15% premium for industrial and construction equipment ("though that seems to be coming down"), while sports-utility vehicles attract higher bids locally.
Jeff Krolik, an engineer at Sobek Medical LLC, a 12-employee medical-device design and consulting firm in Campbell, Calif., uses both general and specialist auctions to stretch his employer's procurement budget. Krolik says he begins by checking the general auctions, since they tend to attract buyers and sellers who have no idea what a reasonable closing bid should look like for the complex and rare equipment that interests him. (He recently scored an expensive instrument for 10% of its usual price.) If he can't find a sheep to shear at a general auction, Krolik turns to a site specializing in laboratory equipment: www.labx.com. Between the two he can fill some of his employer's monthly needs for 50% less than if he were buying the material through normal channels, he says.
