Let's Start The E-Bidding At $50

Browse this: Some observers of auctions for surplus equipment now predict most of these activities will take place online by the end of next year. Auctions without some sort of Internet presence will never disappear, they say, but are destined to become increasingly few and far between.

It was only a year or two ago that online auctions were confined primarily to consumer items such as trading cards and memorabilia. Now businesses increasingly view the process of bidding via Web browser as an efficiency booster. It is easy to see why. Online auctions can attract bidders worldwide, regardless of where the goods physically reside. The parameters for acceptable bids can be spelled out clearly, and the duration of the bidding process can be relatively short.

It isn't just surplus equipment that is going up for bids on the Web. E-business now encompasses the process of extending requests-for-quotes on all manner of industrial goods and services. Perhaps not surprisingly, even business-to-business bartering is headed to browsers.

Sites aiming to provide a forum for auctions, RFQs, and barter exchanges are popping up at a feverish rate. One reason: Analysts who follow the industry say the "first movers," sites that are first to offer a specific business service, have a decided advantage over late comers.

"The sites need a critical mass of people bidding in an auction to provide some liquidity, so there are enough bidders to get a competitive price," explains Tim Clark, publishing and consulting vice president at Net Market Makers in Berkeley, Calif., consultants for net-based businesses. "Without enough bidders and without enough merchandise, the service won't take off."

Credited with being first online with industrial auctions is TradeOut.com in Ardsley, N.Y., founded in October 1998. No question the site is trying to make the most of its first-mover status. It is reportedly spending $1.5 million monthly on advertising in industry trade publications.

Nor is TradeOut just waiting for surplus inventories to find their way to its site. The company has hired a direct sales force that will sign up firms with goods to peddle. In its first five months online, TradeOut says it sold $22 million of assets and had 7,500 customers. Its sellers get charged a flat $10 for a listing and TradeOut takes a 5% commission on goods sold.

Still, the whole idea of buying big capital equipment on-line sight unseen makes many industrial managers hesitant. "We've bought a number of machine tools at conventional auctions over the years," says one experienced plant manager. "We've always been careful about going on-site and thoroughly inspecting equipment ourselves before we'd even consider bidding. I don't know how you'd get the same comfort factor with an online auction. It makes me a little skeptical."

Several auction sites recognize these doubts and have mounted efforts to deal with them. AsseTrade.com in St. Louis, spun off from Henry Butcher (the world's largest equipment auction firm), takes advantage of its parent company's experience in appraising and valuing assets before they hit the auction block.

In addition, sites catering to capital equipment sales frequently offer appraisal services to mitigate caveat emptor concerns. Typical services are those available through Equipp.com, a site which hosts both auctions and straight classified ad listings of capital equipment for sale. Equipp.com has certified and insured inspectors throughout the U.S. who examine equipment to a degree of thoroughness specified by a potential bidder. Typical inspection tasks include validating serial numbers and conditions, control accuracy, tooling accuracy, and checking CNC or laser calibration. The inspection firm then issues a report within a day or two.

DIFFERENT APPROACHES
Similarly, Dovebid.com in Foster City, Calif., gives potential bidders ways of contacting sellers directly to get more information. "We encourage sellers to provide some sort of warrantee, whether it's a 'No DOA' guarantee or something more encompassing," says DoveBid spokesperson Steve Pollock. "We've found you have to provide such services to give people a comfort level over the Internet. Most bidders are fairly comfortable buying commoditized items with a price point below $5,000, but not with equipment having higher values." To date, the item with the highest price tag to change hands at a DoveBid auction has been a $200,000 machine for making printed circuit boards.

DoveBid is making a connection between auctions over the Net and physical auctions. It will simultaneously accept bids both from online bidders and from parties on site who raise their paddle the old fashioned way.

"Every auction we've done since Feb. 1 has been a Webcast," says DoveBid's Pollock. During a DoveBid Webcast, online bidders use a phone to communicate with the auctioneer (punching one button to raise their paddle, another to lower it) and hear what's happening on the auction floor. "We use phones to get around the problem of latency on the Internet," explains Pollock. "If you get behind in the audio stream, the prices you hear won't be valid." Bidders standing on the auction floor can also see bids coming in from Internet attendees on a large-screen monitor displaying a map.

Auction sites such as TradeOut, AsseTrade, and DoveBid all handle industrial products in a variety of categories. But there are other sites that take a somewhat narrower approach. Among them is iMark.com in Austin, which focuses specifically on used manufacturing equipment, and two sites aiming at electronic components, bLiquid.com out of McLean, Va., and USBid.com in Melbourne, Fla. Even some consumer-oriented auction sites are trying for industrial business. An example is S/Rauction.com in Chicago which is associated with Ubid.com, where the merchandise runs more along the lines of books and videos.

Taking a somewhat different approach is OnlineAssetExchange.com which went live last month. Rather than host auctions over a limited time frame, the site serves more like a listing service for equipment dealers. "We are a true exchange, with bid and ask prices, much like the stock market," says company spokesperson Norm Pastine. "The problem with other auction sites is that they cut out the equipment dealers. We think the exchange model is the one that will work." The site does not charge a listing fee nor does it charge sellers a commission. Instead, it expects to get most of its revenue from ancillary services such as shipping, leasing, financing, escrow, and insurance, though buyers will also pay a small premium. "Before we went 'live,' we lined up 200,000 items and over $5 billion worth of equipment for sale on the site," says Pastine.

One way auction sites are trying to increase their usefulness to potential sellers is by providing ties to asset-management software. Several industrial sites are pursuing this strategy. "Auction sites want to integrate their operations with the software that companies use to run their businesses," explains Net Market Makers' Tim Clark. "If you know when a piece of capital equipment is fully depreciated, or when it is likely to need replacement, you can more easily figure out the location of the pieces you might want to auction off, and you can more easily make a posting on an auction site. That's the motivation."

To that end, AsseTrade purchased an intranet application that lets sellers track their inventory of assets, transfer them easily between divisions, and put them up for bidding online when the time comes. Similarly, iMark intends to field a package with analogous capabilities that streamlines the process of posting goods on its site.

REVERSE AUCTIONS
It isn't just surplus auctioneers that see value in melding with the work flow of their customers. Reverse auction sites are taking similar steps.

"RFP (request for proposal) sites map pretty well to existing company procurement systems," explains Dan Garretson, senior analyst for e-business at market analysis firm Forrester Research Inc. in Cambridge, Mass. "These sites greatly compress the time it takes to get RFQ bids out, from months down to a few hours, and there is a much greater visibility of information. The expectation is that this will lead to lower prices as a result."

Among the most recent developments in this area is an agreement between request-for-quote site SupplierMarket.com and Agile Software Corp. Agile will link its MyAgile.com site to SupplierMarket's online marketplace. MyAgile.com is a business portal offering services for manufacturing supply-chain collaboration. For example, a package called Agile Buyer lets users quote and order standard electronic components in Internet time. The agreement with SupplierMarket lets MyAgile users post product specifications for custom components in an Internet-based RFQ with a single click.

Connecting the two sites "lets our customers procure both custom and standard production parts online from a single location," explains Agile Corp. vice president of business development Greg Schott. Manufacturers will be able to use Agile to build their bill of materials and approved vendor lists, and submit an RFQ to the SupplierMarket marketplace, using XML-based data exchange.

Headquartered in Waltham, Mass., SupplierMarket is an Internet marketplace that lets buyers and suppliers of build-to-order parts get together to bid out contracts. Buyers submit RFQs detailing the parts they need and suppliers can register to bid on those RFQs. At this point the site handles all kinds of industrial manufactured products. The common thread among them is that they are built-to-order and sourced through RFQs.

To engender a trust factor, the site verifies information its customers supply by ringing them up directly over the phone once they register, and checking out the veracity of the data supplied.

Buyers and sellers on the site don't know the identity of each other until the deal is consummated, conditions typical of e-commerce auction sites today. But SupplierMarket does supply all relevant information buyers and suppliers need to know about each other to entertain a bid — company size, location, capabilities, certifications, ratings, and so forth. RFQ posters can purchase credit ratings of potential bidders through a deal the site has with Dun & Bradstreet.

In what resembles an online alternative to plant tours and "tire kicking," the site provides an online bulletin board attached to each posted RFQ. Potential bidders can pull up this bulletin board and see questions answered to date and, of course, post new ones. Competing suppliers can view their competitors' capabilities during the bidding session, but don't know their name.

Unlike a straight-out auction, a supplier interested in bid-ding on an RFQ asks to be considered, but the RFQ poster can nix the idea if the fit doesn't seem right. Once this initial nomination process has taken place, usually in less than a week, a typical bidding session will last 3 to 8 hr.

Successful bidders pay a commission to SupplierMarket, usually within about two weeks. The commission depends on the value of the RFQ. (They pay nothing on unsuccessful bids.) For example, a contract that totals $90,000 pays a 4% commission. Bigger amounts engender smaller percentages. Both buyer and supplier have a 30-day due diligence period to finalize the contract.

BUILD TO ORDER
Among the factors that make RFQ sites such as SupplierMarket attractive is the quest by manufacturers to shrink their finished inventories. The model often cited is that of Dell Computer: Instead of building to forecast, build to consumer order. Buying over the Internet is seen as a way of not only eliminating waste, but perhaps also of avoiding taxes now paid on materials.

To that end, General Motors chose Commerce One to run its e-commerce site, TradeXchange. Ford Motor Co. has a similar deal with Oracle Corp. to create AutoXchange, which would let Ford's 30,000 suppliers bid for its business online. AutoXchange is scheduled to go live this month.

Industry analysts estimate that doing business online might reduce Ford's costs by $3,000, on average, for a car carrying a $22,000 sticker. The savings are expected to come in the form of lower material costs.

Expectations are that manufacturers in other heavy industries could see similar savings. Consequently, trading marketplaces are popping up to address other niches. Recent examples include a site under construction by Chevron Corp. Dubbed the Petrocosm Marketplace, it will host electronic transactions in drilling equipment, valves, pipes, fittings, as well as RFQs for construction services.

Similarly, the Norwegian state-owned oil concern Statoil will work with SAP AG to develop a comparable site called mySAP.com Marketplace. SAP is also working with Industry to Industry Inc. (i2i), a start-up creating vertical market exchanges in sectors such as chemicals and energy. The deal will let large companies integrate data from i2i's various exchanges into their enterprise software systems.

Debuting recently as well is Flashline.com, a reverse-auction service for outsourcing development of software components. Separately, the Electronic Data Systems Corp. subsidiary CoNext, and Ariba Inc. of Sunnyvale, Calif., are in the process of developing procurement sites called Leveraged Sourcing Networks.

The networks are said to target goods and services that range from office suppliers to energy services. The first of these is slated to kick off in June. Participating buyers will install Ariba's software and electronic purchasing forms on their intranets and then use a browser to purchase supplies. Ariba develops automation software for online purchasing of nonproduction goods and services, and intranet-based software that lets businesses manage their acquisition cycles through product indexes, order forms, order routing, and approval processes.

Such developments point to the day when every industry will have a vertical Internet site or two for bids and quotes. If current sites are any indication, suppliers will offer goods in a catalog format or will make competitive bids to provide their services. This online format makes it possible for a larger number of suppliers to bid on business, boosting competition, and hopefully pushing down prices.

For example, Visteon Automotive Systems (an enterprise of Ford Motor Co.) used Internet auctions to negotiate the best possible price for four different types of printed circuit boards. On an RFQ site called eBreviate.com, 17 prequalified suppliers from Europe, North America, Latin America, and Asia competed for nearly $150 million in contracts in a 90-min online auction. Visteon says the online auction and preceding qualifying process cut several weeks off the sourcing time frame and let it realize substantial savings. The auction also turned up six new suppliers.

Also on San Francisco-based eBreviate, Sprint Communications Co. got online bids from 85 qualified suppliers for more than $75 million of telecommunications service contracts. The 4-hr auction let Sprint streamline the negotiation process by three weeks and expand its supply base. The telecom giant received 250 bids online in 50 min and improved average proposal prices by 5%.

Some large manufacturers that host online marketplaces see them as profit centers. GM, as an example, has said TradeXchange will charge as much as 1% for transactions there. Ford plans to make money on AutoXchange as well. It expects the site to generate revenues of between $500 million and $600 million by its second year of operation. Ford has also said it might take the venture public.

Finally, even bartering is becoming a target of industrial e-commerce. Based in Redwood Shores, Calif., BigVine.com serves as a forum for swapping industrial services and contracts. Similar endeavors are BarterTrust.com Inc. out of San Francisco and ShopNow.com in Seattle. Indications are that small businesses are likely to be the first to try swapping services over the Net, though promoters are trying to interest airlines and hotels in the idea.