Entry No.126

IT Writers Awards

Can online auctions turn the concept of e-commerce on its head? While they may resemble an online flea market, full of items of dubious provenance and questionable utility, Australian businesses have discovered another side to online auctions - as a channel to reach their customers.

The online-auction business is growing at 46% per year, according to Jupiter Communications, and by 2004 global revenues will hit $US4.6bn ($7.7bn). But thatís just the estimate of businesses using online auctions as a channel to reach consumers.

Other types of auctions, particularly those aimed at serving interest groups or facilitating ìdynamic pricingî relationships between businesses, are expected to grow even faster.

Online auctions offer distinct advantages as a channel for business to access consumers. One of the most attractive is that they allow sellers to set a base or reserve price, then the consumer takes over.

Price is much more reflective of demand. "It's an idea that has been used in classified advertising for a long time," says Imogen Boas, marketing manager at Commercial Dynamics, publisher of the Trading Post weekly classified newspaper and web site.

"The more savvy traders use classifieds as a conduit to get to their customers and then, if the item is in demand, more or less conduct mini auctions to find who is going to pay the highest price."

In the US, Wear America does a roaring trade selling designer goods using the pioneering Ebay auction site as its sole channel to consumers. It is expected to turn over more than $US30m within the next two years.

Unlike Wear America, Australian operations do not use online auctions as their sole channel to consumers. "The online auction was a negligible percentage of our business until a couple of months ago," says Sally McIntyre, web director for Queensland Tourism Supplies, wholesaler of a range of consumables including batteries, condoms and film to the tourism industry. "Now it's a growing percentage. Will we take our business 100% online? Probably not; our idea is to develop different strategies for different products."

Queensland Tourism Supplies uses Stuff Auctions. "They seem open to new ideas and the site is smaller and easier to get around," McIntyre says. Her sentiment seems counter-intuitive since the goal of any business should be to maximise its exposure to potential customers. This gets no argument from McIntyre. She says weekends are peak times for online auctions and that the online business is an adjunct to their business in "real space".

E-commerce is quickly becoming a force in the retail landscape. However, most of the shopping is at dedicated e-commerce sites, such as Greengrocer.com.au, Toyspot.com.au and others seeking to become forces in web retailing.

What we haven't seen are successful online shopping malls. The closest are online department stores, but even their future is open to question given that real-space department stores have had trouble fending off specialist retailers at one end and category killers at the other.

The online auction could provide a solution to the mall/department store conundrum by allowing retailers to sell their wares under an over-arching brand such as Ebay, Yahoo! or Stuff.

That's the plan by former St George rugby league captain Mark Coyne to establish a community site around the sale of celebrity mementos. "I was moving house last year and came across a whole bunch of my old jerseys," says Coyne, 33, who captained St George in his final season last year. "There's a long-established tradition of auctioning off celebrity gear for charity, but the number of people that have access to those type of auctions is quite limited.î

Coyne has a two-part strategy that focuses on driving people to his own site (http://www.yourbid.com.au) then bouncing them into Yahoo! auctions when they are ready to bid for an item. The owners, or party representing them, set a reserve price on the memorabilia for auction. If it sells, a set percentage (Coyne wonít reveal how much) goes to YourBid, the remainder to the owner, less the listing fee levied by Yahoo!

Does this mean e-commerce will be turned on its head? While online auctions are expected to reap $US4.6bn in global revenues in 2004, Jupiter estimates overall e-commerce revenues will top no less than $US2 trillion. And efficiency gains from e-commerce integration - such as integrating supply chains between businesses - are expected to offer savings of more than $US4 trillion, according to analysts Meta Group.

In other words, online auctions are not going to be a big money-spinner compared with the overall level of e-commerce, whether itís business-to-business e-trade or less lucrative business-to-consumer.

Where they do offer great opportunities is for small and medium-size enterprises not necessarily able to finance an independent e-commerce site. Alliances between mega portals such as Yahoo! and small or medium-sized businesses such as YourBid are symbiotic. Yahoo! supplies reassurance and an over-arching brand to encourage consumers to go to its site and do business with the merchants sheltering within.

The merchants, ensured by the Yahoo! brand, act in turn as microportals within the site, pulling in repeat traffic and boosting the volume of eyeballs receiving the Yahoo! message.

ìWe went with Yahoo! because they were open and flexible, and they were willing to take some risks,î says Coyne. ìWhatís more, theyíve got the brand and the recognition, which makes them a perfect partner for us.î

This type of symbiotic relationship, however, leaves little room for the efficiency gains outlined by Jupiter. Supply chain integration, buying co-operatives and the like may lead to cost reductions and efficiencies but only for big enterprises. Small and medium-sized concerns lack the scale or volume to re-engineer their organisations around net technology - e-commerce is simply a channel to the consumer, nothing more.

The rise of business-to-consumer auction sites reintroduces the notion, long absent in the western world, that the stated price is just a starting point. Unfortunately for the consumer, it marks only an upward movement in price because, unlike the bazaar of old, thereís no flexibility to allow dialogue between the vendor and customer.

The customer canít beat the vendor down on price, but must compete with fellow shoppers to snap up a bargain. Itís one-sided haggling, with the customer the winner only some of the time.

Online auctions arenít going to turn e-commerce on its head, particularly when the sales relationship is between business and consumer. But they will allow a business to establish an e-commerce presence without the expense of building its own site.

Both the online auction and the concept of using it as a customer channel originated in the United States. Ebay, founded by Pierre Omidyar in 1995, was the first auction site that, like many ideas beginning with the letter "e", was founded to "scratch an itch".

In this case, the itch was Omidyar's wife and her interest in collecting Pez candy dispensers. Her complaint was that there was no way for her to make easy contact with other collectors online. A light went on above Omidyar's head and Ebay was born. He's now worth several billion dollars - and his wife has more than 400 Pez dispensers.

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