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ONLINE BUSINESS

Strength in Numbers?

A look at what group-buying sites have to offer consumers who are in search of computer gear.
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A look at what group-buying sites have to offer consumers in search of computer gear

A timeworn theory of economics decrees that when supply equals demand, a state of equilibrium is attained. This harmonious balance, without a shortage or a glut, should yield the fairest price.

Of course, that's not the real world, where the general opinion is that the fairest price is the lowest. In that vein the Web has cooked up a few economics principles of its own, including this one: the more products a site sells, the more steeply the prices of those products drop in real time.

Welcome to the world of group buying, a variant of the online auction. Beautiful in its simplicity, group buying online allows even lowly consumers to benefit from economies of scale in the same way that big businesses do. Here's how it works: An item is listed for sale. A description of the product is given, accompanied by a bar chart or some other kind of measuring device that maps out the falling-price gradients for the item as sales volume rises. Most "buy cycles" last for a week, though a hot product can sell out within 24 hours. The group-buying site MobShop.com, for instance, outlines the falling-price gradients for a Palm V computer this way: $244.95 for up to 25 units; $234.95 for 26 to 200 units; $229.95 for 201 to 500 units; and $224.95 for 501 to 1,000 units. When I first viewed this particular transaction, the volume had reached the 26-to-200-unit level (at $234.95) with four days and 28 minutes to go. However, several weeks later the Palm V had sold out, which suggests that suppliers are reluctant to let go of hot products at steep discounts.

I was perusing MobShop in an attempt to learn how useful group buying could be for consumers who are in search of computers and other office technology. Because the Web has spawned so many new ways to bring supply and demand into greater balance, I figured tech gear on group-buying sites would be plentiful.

But I was wrong. Aside from MobShop, there is only one other major domestic group-buying site online: Mercata.com. (Another site, Letsbuyit.com, so far operates only in Europe.) And what I quickly discovered was that computers, given their infinite number of configurations and models, are not the staple of either MobShop or Mercata. Sure, there are computers aplenty at Costco.com, whose parent, Costco Wholesale Inc., is a well-known brick-and-mortar buying club. But Costco.com's retail prices do not fall with volume, in the way that MobShop's and Mercata's do. "The large degree of customizability makes the PC market very difficult for group buying," says Mark Gambale, an analyst with Gomez Advisors, an E-tailing-research firm. "The draw with group buying is large amounts of single products." Such items as household tools (things like power drills and saws), kitchenware, watches, jewelry, and sports gear move well across both Mercata and MobShop. However, beyond a handful of printers, scanners, and palm-top devices, Mercata -- the pioneer of the group-buying model -- has only a small selection of computer gear. "The main reason is that not a lot of customers have asked for them," says Scott Scharfman, Mercata's chief financial officer.

Still, online computer shoppers can take advantage of Mercata's group-buying model by visiting other sites that use the company's technology to conduct their own "PowerBuys" (the name Mercata has given to its group buys at other sites). Sun Microsystems and small-office portal Onvia.com, for example, are two companies that currently peddle computers using PowerBuys. Acting as a middleman, Mercata says that its PowerBuy partners compose a "We-Commerce Network," because any site that uses its group-buying technology can sell the products of all the other sites on the network.

MobShop, on the other hand, has stuck its toe directly into the digital waters with a broad but thin selection of peripherals, desktop computers, laptops, and software, though in the last category the greater number of titles among the three dozen offered are games and DVD movies. "We go after the items that can create the most volume," explains MobShop CEO and cofounder Jim Rose. "We prenegotiate the prices so that sales get more profitable for the supplier as volumes rise. Then we take the role of lead generator and take our cut off the top."

MobShop, whose prices for the Palm V (when it had them) -- $244.95 down to $224.95 -- were excellent, has a simple come-on: "Prices fall as more people buy. Discount prices should not be the exclusive privilege of large-volume buyers." That statement is not as gimmicky or disingenuous as it might sound. PalmGear.com, which was one of the first Web sites to offer palm devices and software exclusively, was selling the same Palm V for $309.95. Another site, eCost.com, which ranked first on overall cost in a Gomez Advisors survey of the top 20 sites at which to buy a computer, was selling the same product for $255.99.


MobShop has a simple come-on: "Prices fall as more people buy. Discount prices should not be the exclusive privilege of large-volume buyers."


Still, comparison shopping is essential because, as often as not, the better deal for computers is not at MobShop. A Hewlett-Packard Co. Omnibook model 4150 6/366 at CDW.com, which Gomez ranks as one of the top computer-buying sites, was $2,696.86, compared with MobShop's price of $2,831.95 with a possible drop to $2,426.95 if the sales volume hit 16 to 26 units during the time period for that transaction. The disadvantage at MobShop, though, is that products come and go. CDW's selection, on the other hand, is huge all the time.

In terms of raw inventory, MobShop and CDW are worlds apart. For instance, only two desktop units were listed on MobShop, compared with literally hundreds of configurations using the top brands at CDW. And be aware that one of MobShop's primary roles is to move late-in-life inventory and liquidate obsolete products. "That's one place where we can play," Rose admits. On the other end of the spectrum, MobShop also test-markets new products (though not computers), as evidenced by the site's recent sale of 10 new Toyota Camrys for two California auto dealerships. Regardless, it's wise to check model numbers and configurations against what's available on other computer sites.

In the long run, MobShop's main function, like Mercata's, may be providing the technology to deploy the group-buying model at other Web sites. It claims to have licensed its technology to some 30 commerce sites, including Smalloffice.com, which offers office supplies through group buying. Mercata is pursuing the same strategy and provides group-buying technology for the Microsoft Network (MSN.com), Onlineofficesupplies.com, and several others.

It's hard to imagine that computers and software won't become more prevalent at group-buying sites, assuming that the model produces a critical mass of savings. But even Rose, certainly one of group buying's top advocates, cautions, "Consumers are only prepared to accept a certain number of purchasing environments."

The jury is still out on whether the mixture of computers and online group buying is one of them.

John Dodge is editor of PC Week and a weekly columnist for the Wall Street Journal Interactive Edition.


Please e-mail your comments to editors@inc.com.

Last updated: Sep 15, 2000




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