Sites redefine buying online

How hot are online auctions?

"You have no idea how many companies have come in with a five-minute pitch: 'We want to be the eBay of Blank'--just fill in the blank for a country," said industry analyst David Baltaxe of Current Analysis. "That's the entire business plan."

Few overseas auctions are up and running, but the "eBay effect" is still young, driven by the online auction site's successful IPO in September, which took the company's stock from 18 points to a high of 321 in just a few months. Since then, stock prices have risen for virtually any publicly traded company that mentions "cyber-auction."

Not surprisingly, eBay has become the standard-bearer for online auctions, combining bits of technology, a measure of investor greed, a dollop of sound economics, a goodly portion of show biz, and a ton of Internet entrepreneurship. These auction houses are among a rare breed of Web-only phenomena, giving rise to businesses and even communities that could not exist anywhere else.

They are also emblematic of late-'90s culture and prosperity, which have given rise to such curious societal trends as 24-hour shopping networks, Internet compulsion, and Beanie Baby mania--obsessions that have all contributed to the meteoric rise of online bidding.

The nascent industry must address a raft of controversial elements before it can become a permanent fixture, including fraud, taxes, and the sale of regulated goods ranging from wine to weaponry. But so far, online auctions have faced surprisingly little pressure for regulation, even from consumer advocacy groups, as all parties are reluctant to stifle the boom.

As a result, online bidding is already changing the face of electronic commerce.

Auctions will be "an add-on to other businesses for online retailers," said Jill Frankle, e-commerce analyst with International Data Corporation. "It's another form of how these electronic retailers transact with the buyer."

Upscale gadget peddler Sharper Image said last week that it's doing just that--adding an auction component to its Web storefront as a way to build traffic. By auctioning off its own branded merchandise, Sharper Image adds yet another model to

CNET TV talks to eBay and Yahoo about online auction fraud 3M

the array of auctions now in operation. Several have companion retail sites, but most of them, unlike Sharper Image, sell others' products. That list includes Onsale; uBid, a spin-off of computer retailer Creative Computers; Surplus Auction, affiliated with online software store Egghead.com; and WebAuction, part of computer reseller MicroWarehouse.

These merchant auctions run largely on a surplus model: buy inventory, then auction it off. Some sell on consignment. eBay's person-to-person model is different, in that it simply hosts auctions for a fee but never owns the inventory or fusses with shipping and fulfillment.

There is also a "name your own price" model. Priceline.com, which eschews the auction label, lets would-be buyers name the highest price they'll pay for airline tickets, then checks whether major airlines will sell a seat at that price.

Business-to-business auctions are also growing and may eventually prove to be a bigger phenomenon than consumer-oriented auctions. In this model, companies sell surplus inventory or commodities like electric power, generally inviting only dealers or pre-screened partners to bid. A year ago, Forrester Research projected a staggering $52.6 billion in sales at Internet business auctions by 2002, eclipsing the $3.22 billion in merchant auctions that Jupiter Communications expects by then.

Those numbers are huge for an industry that has only been around for a few years. Most online auctioneers began by hawking surplus or refurbished computer gear, but they've been broadening the selection to keep buyers around. First Auction, owned by an affiliate of Barry Diller's USA Network, stocked lingerie and jewelry for the 1998 holiday season. Bidders vie for watches and sapphires on SurplusAuction and golf clubs on Onsale, and virtually anything--except firearms--is up for sale on eBay.

"It makes sense not to be overly dependent on computers and computer peripherals," said e-commerce analyst Fiona Swerdlow of Jupiter Communications. "Prices and margins are falling dramatically in the retail world."

Expanding their inventory to include a wider range of goods is also a way to keep buyers coming back. "If you're talking about consumers as individuals, how many computers does an individual buy?" Swerdlow added.

With a wider range of products comes a wider range of auctioneers. Real-world livestock auctioneers Cattle Offerings Worldwide (COW) has been online since 1995 and upscale auction houses are just now moving online, often in conjunction with Internet partners. In January, eBay and Guernsey's teamed to sell Mark McGwire's home run baseballs. Last week Butterfield & Butterfield collaborated with Yahoo Auctions to sell off movie memorabilia and items from O.J. Simpson.

Staid, 250-year-old Sotheby's Holdings, the second-largest auction house in the world, said last week it has signed up 1,500 art dealers for its auction site, due to launch in July. Christie's International has an extensive Web presence, but no online auctions.

Like their Web-only counterparts, traditional auctioneers recognize that the auction process fits particularly well with Internet technologies. "The unique attributes of the Internet match up one-on-one with the inefficiencies of the traditional marketplace," said IDC's Frankle, noting that garage sales, local classifieds, or dealers are neither cost-effective nor convenient.

"Internet technologies can redefine those processes--the Net can bring together people on a global basis," she added. Listing items is cheap at eBay, free at Yahoo, and for those auctions, individuals deal directly with each other.

eBay's market leadership enables it to charge listing fees, according to Frankle. "People are also invested as sellers," she said. "You find a lot of small dealers of collectibles and what they want is to build up a good rating." eBay lets buyers and sellers rate each other, and positive ratings are highly prized.

Yahoo has been a late mover in the auctions market, launching its site in September. Excite, bought online classifieds firm Classifieds 2000 in April, then launched auctions as a companion in June.

In October, Lycos debuted its AuctionConnect service that acts as a specialty search engine for auction items. It runs on back-end technology from BiddersEdge across Lycos's entire network. Lycos has said it eventually wants to offer person-to-person auctions, but nothing has materialized.

Beyond the big names, specialty auctions abound. Mobilia is a hub for car memorabilia, Auction Port does antiques and collectibles, and SportingAuction offers gear for inline skating, snow boarding, softball, and other active sports. Sandafayre caters to philatelists, and Patriot Auction to numismatists. And Auction Guide points would-be bidders to other niche auctions.

If those look a lot like categories for want ads, it's no surprise that Auction Universe, which is owned by a consortium of newspaper chains including Times Mirror and Knight Ridder, last week found significant interest at

Auctions come in a variety of formats, based on who owns the goods being sold, the target markets, and the business model of the online auctioneer. Person-to-person: Example: eBay Runs like an online flea market: Almost anyone can sell, almost anyone can bid. The auctioneer simply provides a gathering place. Sellers own their goods; the auction house may take a transaction fee but doesn't own the inventory. Business-to-consumer (merchant auctions): Example: Onsale The auction house owns the merchandise and puts it up for bid for a specific period of time. The items go to the highest bidder. A variant: Auctioneer sells goods on consignment. Name-your-own-price: Example: Priceline.com Buyers name their best price for goods and services such as airline tickets, autos and home mortgages. Then the service provider seeks an airline, for example, that will sell the ticket at that price for a specific day and route. Business-to-business: Example: Manheim Online Manufacturers and distributors are using private auctions for dealers to get rid of excess inventory, but online auctions are cropping up for commodities too, including the spot market for surplus electricity. Business auctions are typically restricted to known partners or customers.

an online newspaper conference in its software for running online auctions and classifieds.

"There's tremendous interest because this is one of the few models online that has proven an ability to make a profit," said Auction Universe marketer G. Patton Hughes.

Ticketmaster Online-City Search figures local auctions have a future too, shelling out stock worth $54 million last month to buy CityAuction, which runs auctions for specific regions.

"We think auctions intrinsically make sense locally for goods either too bulky or expensive to be sold in national auctions," said Charles Conn, CEO of Ticketmaster Online-CitySearch, which outbid at least two other CityAuction suitors.

But the sociological aspects of online auctions may finally be what drive their success. They create international markets and can link like-minded individuals on different continents in communities of interest. Some of the chat is inane, some is shoptalk, some sounds like talk radio, and some is heart-rending.

On eBay's Elvis Presley chat area last week, members worried about Ron and Kathy, whose house had burned, sending their Elvis memorabilia up in smoke. "If there is anything I can do to help Ron & Kathy, please just let me know," said one posting. "My heart and prayers go out to them."

In the trading card area, a seller asked for advice on handling a buyer who had reneged on a deal with the excuse that he had Parkinson's disease: "I left the conversation a bit angry. I haven't left negative feedback because I don't want somebody to leave me a negative out of spite. WHAT SHOULD I DO? PLEASE HELP?" the seller's posting read.

Although the social mores and appropriate business practices for the auction phenomenon are still evolving, with millions of bidders flocking to hundreds of sites, online auctioneers are learning--fast. 

CNET, which publishes News.com, acquired auction site AuctionGate on February 23.

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