Until recently, a company wishing to host its own auction had to write its own software, but now several products are available off the shelf. Those include Emaze's Auction, OpenSite Technologies' Auction, Moai Technology's LiveExchange, and SimAuction's SimAuction. In addition, OpenSite, along with Fairmarket's Merchant Auction Place, offer auction-hosting services. And new features are being introduced almost every day, extending the power of the model. (See "Tools of the Trade," below.)
The cumulative effect of all these auctions may be to redraw the business models of many companies. Advocates of business-to-business on-line auctions--including, not surprisingly, the entrepreneurs launching them--argue that almost every industry has wasteful practices that auctions can mine for value, with the savings benefiting both buyers and sellers.
Robert Dobinski, for example, started Exhibitauction .com to streamline the handling of trade-show exhibit booths. Typically, he explains, companies ship the booths to shows, often over long distances, ship them back, store them, then ship them to another show. Not surprisingly, the costs are considerable.
Exhibitauction.com allows a company just finishing a trade show in one city to auction its booth skeleton to another company planning to exhibit in the same region (and, ideally, in the same hall). The buyer simply replaces the logo and signs on the booth with its own. Both buyers and sellers profit from the savings in construction, transportation, and storage. The auction site itself makes a commission on the transaction.
In another sector, FastParts Inc. is targeting the excessive time and energy that the nation's more than 1,500 electronics manufacturers spend on materials management. Each of these companies might work for many clients at once; each job might require dozens or even hundreds of parts; and any of those jobs might be changed or canceled at any time, leaving many of the parts on the shelf. FastParts hopes to lower the costs required to manage the chaos by using on-line bid-and-ask auctions to clear needs and inventories. (See "Deal Making at the Speed of Light," below.)
On-line auctions are particularly effective at improving market efficiency when distribution is fragmented and costly. Jeffrey Goodman, CEO of 18-month-old Dexpo.com, sees dental supplies as a case in point. The market is a swamp, says Goodman, with 1,000 manufacturers and 200 distributors all trying to reach 120,000 dentists, each of whom buys from many sources. The number of players and their small average size make promotion expensive, and few can afford to market to every buyer. Dexpo.com's goal is to bring all those suppliers into a central common market. At press time, about 60 companies were selling over the site and 500 dentists were bidding there, in advance of the company's major marketing push in July.
While the resulting competition drives prices down (typically 20% to 30% below retail), there is some compensation for sellers. Manufacturers get direct contact with their customers, Goodman points out, and Dexpo.com provides them with a database of information about their bidders. "They've never had that before," says Goodman. "They get to advertise to the whole profession. They have outlets for excess stock, products in old packaging, and products the distributors don't carry."
While this model seems to put distributors at risk, Goodman has found some of them to be aggressive early adopters. "Distributors often have a really intimate understanding of the market, and they can leverage that," he explains. For example, the CEO recently noticed one distributor that purchased more than it needed to fill an order, pocketed the volume discount, and then sold the remainder through the auction.
In the short term, the most powerful impact of business-to-business auctions will probably be felt by companies that act, at least in part, as dealers, traders, brokers, or agents. Sag Supply, in Deer Park, N.Y., has been buying and selling used and liquidated industrial tools (drill presses and lathes, for example) for 30 years. Historically, says sales rep Eric Barnett, dealers like Sag have operated on a high-cost, high-margin, slow-turnover business model. Dealers would buy inventory, perhaps at a bankruptcy sale, for pennies on the dollar, sort it, clean it up, and store it. Then they would wait months, or even years, for a customer who was motivated enough to pay for the continuously mounting storage and capital opportunity costs, the costs of the objects in the dealer's inventory that never sold, plus, often enough, referral fees from other brokers. The system was slow, hit-or-miss, and expensive.
About a year ago Barnett and some dealers in his area began selling through the general on-line auction houses. The result, he says, is that the dealer/trader model is developing into a low-margin, high-turnover business. He thinks that eventually businesses like Sag Supply will act as on-line-auction services and consulting houses, using their grasp of the market and pricing to evaluate different venues for sellers, package bid presentations, set up and track auctions, supply escrow services, and even handle fulfillment.
If Barnett is right, it will be yet another example of an industry created whole cloth from a business model born on the Internet.
