eBay sells traditional auction arm

eBay is ending its foray into the world of traditional auctions, selling its Butterfields unit to Bonhams, a U.K.-based rival.

The companies completed the sale late Wednesday, said Geoff Iddison, chief executive officer of Butterfields. He declined to reveal how much Bonhams paid for Butterfields, saying only that it was an all-cash deal.

eBay is selling the auction house because the two companies' strategies diverged, Iddison said.

"eBay purchased Butterfields to give eBay credibility in the high-end art and antiques market," Iddison said. "That business is largely independent of what Butterfields does now. eBay no longer needs to invest in an offline auction house to give it credibility in that space."

The acquisition of Butterfields will make Bonhams a global player in the traditional auction market, Robert Brooks, group chairman of Bonhams, said in a statement.

"Our acquisition gives Bonhams a great base from which to build our business," he said.

eBay and Bonhams representatives did not return calls seeking comment.

eBay the auction house, formerly known as Butterfield & Butterfield, in 1999 for $260 million in stock. But despite its overwhelming success in auctioning collectibles and smaller-ticket items online, eBay had struggled to compete with traditional auction houses in high-end auctions.

Not only did Butterfields initially have online sales made through eBay, but its affiliated sites on eBay--first , later as eBay Premier--had trouble attracting bidders and premium items.

To court sellers, eBay eventually a buyer's premium, an extra fee charged to bidders over the bid price that is common among traditional auction sales but was previously all but unknown on the e-tail site.

Earlier this year, eBay essentially threw in the towel, announcing a deal with Sotheby's, one of the two leading auction houses internationally. The companies their joint auction site last month, replacing Butterfields-based eBay Premier.

The revenue generated by Butterfields and eBay's other offline ventures fell sharply as the economy declined. Butterfields has seen several rounds of layoffs over the last two years and most recently 20 employees from its Los Angeles office in January.

Despite the troubles, Butterfields has gradually begun to see some online success, Iddison said. Online participants in its live auctions now account for some 30 percent of the company's sales, up from 9 to 10 percent last year, he said.

But Butterfields' experience suggests that high-end art and collectibles sell better when bidders have multiple ways to buy, such as being at an auction in person or participating over the phone, rather than working offered exclusively online, Iddison said.

A slow transition online
"Butterfields has not been converted into an online business in the way that perhaps it was intended to be when eBay bought it," Iddison said. "The transition of turning Butterfields into an online business takes time. The traditional community of traditional auction houses has started to overlap that of eBay's community, but it's still not wholly there."

When eBay launched Sothebys.com, it initially planned to include Butterfields as one of the sellers on the site. However, now that Butterfields is a part of Bonhams, it will not participate in Sothebys.com, Iddison said.

"Bonhams is a natural competitor to Sotheby's," Iddison said. "To compete in the same marketplace (with Sotheby's) doesn't make any sense."

Butterfields will continue to sell through eBay's Live Auctions feature, Iddison said. That feature allows online bidders to participate in auctions at traditional auction houses as they happen.

Such sales "have been really successful," Iddison said.

Butterfields has a contract with eBay to continue such sales through the end of the year, he said. It plans to renew that contract and add sales from Bonhams to the mix, he said.

Bonhams doesn't plan to layoff any of Butterfields' 154 employees following the acquisition, Iddison said. Iddison will remain CEO of Butterfields during a "transition period" of three to six months, then will return to eBay in an unspecified role, he said. Butterfields will continue to operate under its own name for the foreseeable future, he said.

Bonhams is buying only Butterfields and its occupied real estate. When eBay bought the company, it also bought the auction house's real estate business and the unoccupied real estate that it owned. Bonhams is not buying that unoccupied real estate, Iddison said.

Earlier this month, eBay decided to online payments company PayPal and phase out its own competing service, Billpoint. eBay Billpoint one month after acquiring Butterfields.