Low prices, casino ambience draws bidders.
In the past few months, MicroWarehouse, Insight, and other computer resellers have opened up auction sites on the Web, while more are expected soon. Fueling this growth are software packages, such as AuctionNet 2.0, that allow retailers to set up an online auction site for under $100,000.
The appeal of the process cannot be denied.
"It is a legalized form of gambling," said Craig Froelich, product marketing manager at WebVision, the developer of AuctionNet. "You see people competing against their friends. They will study each other's bidding habits. We even put a feature in there so they could send messages to each other, like 'J.L. in Huntington Beach, there is no way you are getting that ThinkPad!'"
While the volume of computers selling through Web auctions remains relatively small, it is growing rapidly. Onsale, which pioneered computer auctions on the Web, chalked up $24.5 million in overall revenue for the quarter ending in June, with a substantial portion coming from computer equipment. Insight, which started to auction products in June, is already garnering $150,000 a month through its site.
The product selection is growing as well, said John-Scott Dixon, director of electronic media at Insight. In June, when the company created its auction site, it sold only refurbished or discontinued products. Last month, Insight expanded to include items that weren't selling well on the regular site. As a result, the same item can occasionally be offered on the main pages of the site as well as on the auction page.
In addition, Insight has a page for "blue plate specials"--heavily discounted computers with cosmetic defects such as scratches or dents. The Blue Plate page pulls in approximately $150,000 in monthly revenue as well.
Price, of course, draws many of the bidders. Insight starts the bidding at 70 percent below its own cost. "It sells for between close to negative 50 percent [of cost] and negative 14 percent," said Dixon, with 35 percent below cost coming in as the average.
While anecdotal evidence exists that some people actually pay more for equipment in auctions than in a regular setting, a review of current sites proves otherwise.
For example, most direct marketers are selling the Compaq Presario 2200, which contains the Cyrix MediaGX processor, for $799. As you read this, R.T. of Huntsville, Alabama, and J.M. of Staunton, Virginia, have bids to buy the same new computer with the same configuration on MicroWarehouse's AuctionNet page for $601.
"Computers," R.T. noted in his bid, "get me off."
Among other current deals, an IBM ThinkPad 365 with a Pentium running at 133-MHz and 8MB of memory is holding a high bid of $849. In retail, the same configuration sells for $1,199. A refurbished HP Omnibook 5000 with a 90-MHz Pentium holds a bid of $751.
Price aside, Froelich notes that the entertainment function is always close to the surface. To foster this aspect, WebVision works with customers to create a distinctive atmosphere or bidding process that makes buying engaging. Some resellers, for example, will leave bids open for a week to cater to the more strategic thinkers. Others are holding lunchtime auctions. Resellers can also chose to post the entire bidding history or hold blind auctions.
"The last hour is where you see all the activity," he said.
How these different sites do remains a matter of debate. Asif Hudani, president of NovaQuest, a large reseller, said that companies like MicroWarehouse will start to eat into Onsale's revenue because they have larger inventories, which means larger inventories for auctions.
Abishek Gami, an analyst for Nesbitt Burns Securities, said conversely that Onsale is already countering this trend by expanding beyond computer equipment. Onsale has also signed distribution deals with America Online, among others, to ensure its visibility.