Transcript Online Auctions and Marketplaces For Lo205 2005

Online Auctions and
Marketplaces
For Lo205 2005
Online Auctions
Auction Watch currently lists more than 1500
auction-related Web sites in 40 products categories.
•In Norway: QXL, Netthandel, Finn …. .no
 The number of items that are listed daily on
Ebay: 700,000+
•Ebay receives an 8% commision on each sale.
Sellers also pay to list items and for special features
in auctions. Their profits are much higher than
Google.com or Amazon.com, why?
•Why may the number of seller begin to decrease
on Ebay? What are the sellers doing instead?
What’s being auctioned
online?
Odd items…
Willie Nelson’s Tour Bus
Nike Ajax Surface-to-Air Guided Missile
Alien Fetus
People (ISP employees)
Elvis’s Dental Records
Tyrannosaurus Rex Skull
Human Kidney
http://www.disturbingauctions.com/
And also..
•
A Chad Collection from Palm Beach county ballot
Auction Models
Auction Types
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Auctions - one seller, many buyers
 English (straight)
 Dutch
 First Price
 Second Price
Characteristics
 Reserve Price
 Private
 Restricted Access
Reverse – one buyer, many sellers
Exchange – many buyers, many sellers
Auction Taxonomy
Auction Type Open Bidding Sealed
Bidding
Ascending
English
First Price
Descending
Dutch
Second Price
Vickrey
‘Regular’
Auctions
Reverse
Auctions
English
Open, Ascending. Highest
bid wins
Open, bids go down
– lowest bid wins.
Dutch
Open, price falls and the
highest bid wins
Open price rises and
highest bid wins
Sealed Bid
First Price
Sealed highest bidder wins
Sealed lowest bidder
wins
Vickrey
Highest bidder wins and
pays the next bidder’s bid
Lowest bidder wins
and receives the next
bidder’s bid
Market Types
Market Types
Participant
Model
One to Many
Many to
Many
B2B
B2C
C2C
Ingram
Micro
Mercata
Ubid
Egghead
Not
applicable
VerticalNet
BizBuyer
Priceline
Ebay
Amazon
Structure of an Auction
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Two factors determine auction market outcomes:
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Form in which bids are made
The sequence rules for bidding
Let us look at four basic types
The ascending bid auction (English Auction)
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Open, calling of bids.
Usually Oral, now electronic.
Bidders drop out one by one and the one remaining
bidder wins.
Most often used in B2C and C2C.
Online and Off Line - What Auction
Models Operate?
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Ascending Bid: Antiques, Artwork, some real estate
on eBay was sold recently using this method – C2C,
B2C, B2B.
Descending Bid: Dutch flower auctions, Commodity
procurement, eProcurement.
First Price Sealed Bid: sometimes used in B2B
procurement, mineral rights, real estate Software
Project Development contracts, etc.
Second Price Sealed Bid: Not a frequently seen
beast - stamps auctioned by mail.
Why Auctions?

Discovering Price
- Dynamic

prices
Experience

Exciting experiences:
• Increase repeat purchase rate
• Create sticky sites
• Assist in personalization
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People are willing to pay more for
experience
A better experience is a competitive
advantage that will benefit the bottom line
www.mercata.com
Benefits
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Buyers
 Obtain object of interest
 Increased access to goods
 Feeling of success
 Engaged in stimulating entertainment
 Part of a community
 Pay perceived value for an item
Sellers
 One man’s junk is another man’s treasure
 Additional sales channel
• Extended product reach
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Potential for greater financial return
• Efficient markets
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Customer acquisitions
Market exposure
Benefits for the Market
Inventory surplus selloffs (less
waist)
 Realize more efficient markets
 Realize higher average selling
price (higher value market)
 Potential for increased ROI on
products at various stages of the
product life cycle
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• New product intros, clearance goods,
overstocks, off-lease goods..(higher
value products)
Efficient Markets
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Increased revenues on inventory
Streamline processes
Decreased overhead costs
Elimination of costly middlemen
Increased inventory turns
Creation of new intermediaries
Ability to test pricing
Increased revenue with new and oneof-a kind items
Avoid paper trails and lengthy
communications
Customer Acquisition and retention
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Convert site browsers to registered users
One new customer from each bid
Valuable information gathered on losing
bidders
Losing bidders are great prospects
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Remarketing is straightforward
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Refer them to your site
Coupons
Newsletter
E-mail notification for next similar auction
According to Forrester Research, email sent to an in-house customer costs $2/sale
compared to costs up to $286/sale rented list and $100 using banner ads
Market Exposure
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Gain valuable customer information
• Registration
• Bid history
Instant knowledge of market demand
 Cost effective marketing campaigns
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• Branding & Visibility
• Test markets & Pricing Strategies
• Deliver more personalized content
Successful Auctions
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Sense of community
Trust
Sense of Community
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Part of the family
eBay café
 Bulletin boards
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Lifestyle
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Powersellers
Self policing
Neighborhood Watch
 Net Cops
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Trust
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Insurance Coverage
Escrow service (iEscrow)
ID Verification
Opinions/ Verification/ Grading
VeRO (Verified Rights Owner)
Dispute Resolution
Policies for users and items
• Rob’s Rules
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Feedback on users
iEscrow
Feedback
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Feedback on users
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Help determine reliability
• Positive / Neutral / Negative
Acknowledged common courtesy
 All sites have different feedback
systems
 Star rating system
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Auction Environment
Exciting vs. Annoying
 Novelty of traditional format
wearing off
 Jupiter predicts by 2004, online
auction revenues will more than
double to $19.6B, but other forms
of dynamic pricing will leap 7 fold
to $7B
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Business-to-Business
Dynamic Pricing models for business exists at two
points in the supply chain:
1) Sourcing - Buyer-Centric Web sites
• Procurement
• Includes long-term contracts and spot-buys
2) Selling - Seller-Centric Web sites
• Two product categories – perishable goods
and goods with depreciating value over time
Buyer-Centric Web Sites
Benefits To Buyer
•Opportunity to increase competition for buying dollars
•Better information about the marketplace
•Enhance the RFQ process and compress cycle time
•New supply management capability
Benefits To Seller
•Access to new customers
•New and timely information on state of the market
•Automating the RFQ process
•New demand management capability
Seller-Centric Web sites
Reasons for businesses to establish online
auctions:
 Liquidate surplus inventory
 Unload obsolete inventory
 Provide an additional marketing channel
 Off-load time sensitive products (ie. airline tickets)
Seller-Centric Web sites
Benefits To Seller (Company)
•Enhanced revenues
•Lowered costs and improved efficiency
•Access to a larger and more diverse group of buyers
•Real-time access to market demand information
•New channel to dispose of aged, unused, or idle assets
Benefits To Buyer (Trade Partner)
•Opportunity to lower price
•Lowered cost and improved efficiency
•Access to a larger and more diverse group of suppliers
•Better information about the market conditions
B2B Auctions
Third Party Auction Site
• Auction established by third party
• Surplus goods are taken on consignment
Proprietary Auction Site
• May be open to the general public or limited
to the existing customers (Ingram Micro’s
Auction Block)
• Set up own auction site using software or
service (www.moai.com)
Trust
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How to build trust in the global B2B
market?
According to Forrester Research, need to
build “trust infrastructure” by offering
insurance services to reduce risk of
online commerce.
Trust brokers
 Underwriters
 Information suppliers
 Quality assurers
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Technologies: Proxies and
Web Agents
Proxy Bidding
Bids are placed automatically on your behalf
Currently available on many auction sites, such
as www.excite.com
Agents
Software entities that have sufficient autonomy
to carry out tasks with little or no human
supervision and represents a particular owner
Proxy Bidding
Initial Bid on Item
Example: Opening Price is $36.00; Bid Increment
$4.00.
On the Bid Entry page, enter Max Bid: $60.
Your bid is confirmed.
Current Bid is:$36.00
The system processes your bid.
You are winning at:$36.00
Proxy Bidding
Competing Bid on an Item
Continuing from before , if another Bidder comes
along…
On the Bid Entry page, they enter Max Bid: $52.00
The system processes the bid.
Second Bidder is losing at: $52.00
You are winning at:$56.00
This Bidder's bid was maxed out because your first
bid ($60.00)
Is higher. You are therefore winning at one increment
above their
maximum bid ($56.00)
Agents
Used to automate several of the most time
consuming stages of the buying process
Different types of agents:
Search Agent
Collaborative filtering
Comparison
Negotiation
Search Agents
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Internet Auction List
Auction Products Search allows you
to search for products across
multiple auction sites, including:
Yahoo
 Collecting Nation
 Amazon
 Ubid
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Collaborative filtering
After identifying need to buy something,
agent assists in critical evaluation of
products.
 Enables consumers to narrow list of
products that best meet their needs.
 Recommends products through an
automatic ‘word-of-mouth’ mechanism
(by identifying shoppers with similar
tastes)
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Problems and Limitations
Time consuming to keep returning to site to
ensure your bid is winning
Locating desired items for bidding
Bidding for multiple items becomes
tiresome
Must wait to find out if you’ve won
Bidder Behavior and
Strategic Implications
Does the choice of auction format impact the
outcome?
 Does bidders’ response to certain kinds of
uncertainty result in frenzied over bidding?
 Do Reverse Auctions bring about results that
are very different from the regular auctions?
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The Winner’s Curse: A
Problem of Overly Aggressive
Bidding
15
10
5
0
Bids
Valuation
Spot
A Variety of Problems
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When different goods are sold on a Dutch
auction – there are two kinds of uncertainties
that bidders experience:
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Which product will competitors select if they
win the auction?
How many units will they (competitors)
specify when they place a winning bid?
One study compared items in a Dutch
Auction and the same sold them separately
in an English Auction one after another.
The results were that in the Dutch Auction,
uncertainty amplifies the winner’s curse.
Buyer Run Auction Markets
MRO Goods
Manufacturing Inputs
Maximum Gains
 suppliers will attempt to
aggregate.
 Presence of a few large
buyers can easily neutralize
seller aggregation.
 Reverse Auction.
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Spot Sourcing
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Systematic
Outsourcing
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Buyers can create
switching costs to lock in
suppliers.
 Buyers’ supply risk can
help suppliers protect profits.
 Sealed Bid – Reverse
Auction.
Buyers’ power diminishes as
 Suppliers are strong.
level of customization increases.  Buyer focus will be on
 Order fulfillment complexity
mitigating supply risks.
offers suppliers opportunity to
 Buyers’ power decreases
customize – “Deep Linking”.
with increase in product
 Reverse Auction for long term
complexity and specificity.
supply contracts – followed by
stable prices.
Supplier Run Auction Markets
MRO Goods
Manufacturing Inputs
Buyers’ supply Risks may
determine extent of seller
gains.
 Descending Bid Auctions.
Spot Sourcing
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Buyers are very strong.
 Presence of Spot Markets can
weaken seller’s pricing power.
 Suppliers will prefer to set up
ascending auctions / first price
sealed bid auction.
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Systematic
Outsourcing
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Suppliers’ pricing power
increases with extent of
customization.
 Suppliers will attempt to erect
entry barriers for other suppliers.
 Production capacity constraints
may be the chief reason for
auctions.
 Large, monopolistic suppliers will
gain disproportionate revenue.
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Suppliers’ gain increases
with increase in product
complexity and specificity.
 Buyer focus will be on
mitigating supply risks.
 Descending bid / First
Price Sealed Bid auctions
for long term contracts – or
multi-tier auctions.
A Summary of Auctions in B2B Markets
MRO Goods
Manufacturing Inputs
Spot
Sourcing
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Buyers are relatively
strongest.
 Reverse Auctions – Sealed
Bid favor buyers.
 Limits to the effectiveness of
Forward Aggregators.
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Buyers stand to gain more than
suppliers.
 Buyers  Reverse Auctions
Suppliers  Descending Bid
Auctions / Multi-tier English
Auctions.
 Extent of supply volatility may
determine buyer / seller gains.
Systematic
Outsourcing
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Suppliers’ pricing power
increases with extent of
customization.
 Sealed bid reverse auctions
for longer term contracts
favors buyers.
 Opportunity for Forward
Aggregators.
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Suppliers’ pricing power is
greatest.
 Descending Bid auctions.
 Product Specificity and
Customization determine seller
gains.
 Opportunity for Reverse
Aggregators.