Sunday, June 19, 2005

EBAY AND THE FUTURE OF ONLINE AUCTIONS

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The Economist is a good source for coming up with business related posts. June 11th - 17th issue had an interesting technology quarterly special. The cover story was titled, "Happy eBay birthday - Lessons from the ten-year-old darling of e-commerce." I must admit that I haven't done any business via eBay or some other online auction, e.g., Jittery, yet. I have placed an eTray auction box on my blog (see under the Support category) in order to get a feel for what's happening with online auction business model, and to give my readers another way of supporting my blogging by clicking on the displayed deals.

Professionally I am interested in the development of Business-to-business electronic commerce. From my experience, the B2B auctions in the field of for example, raw materials, haven't catched on yet. One problem could be the difficulties in creating standardized contracts and specifications, and how to value and putting a price on the service by the middle-man / auction site. Here is an excerpt from a five year old article (Beyond the e-auction hype) on Purchasing.com.

Economic theory behind auctions and exchanges is well established, but theory and experience behind e-procurement is still evolving. As the thinking goes, online auctions and exchanges reduce transaction costs for buyers and sellers. The cost of finding suppliers, negotiating prices and fulfilling orders falls. Purchasing, logistics and inventory tasks are streamlined. This reduction in transaction and follow-up costs creates what economists call "economic surplus." From an e-procurement perspective, the idea is that buyers in the new networked global economy should capture most of this surplus in the form of lower prices.

To date, most research on Internet and auction prices has been done in the consumer market. There, researchers generally agree that lower prices are to be found on the Web. But B2B is a different animal. "In business-to-consumer sites, we've found clear answers, but business-to-business is less clear," says Vakrat. He and Professor Seidman have only recently started to study the price effects of online business-to-business auctions. "The quantities being traded in business-to-business auctions are huge, so the savings from each individual transaction are less dramatic than in the consumer world," Vakrat says. "I think we will see discounts, but the significance of those discounts remains to be seen." (Purchasing.com, 03/23/00.)


I am interested in getting in contact with individuals and companies who have plans to set up online auctions dealing with raw materials. I am also interested to hear from readers who want to share their experiences from dealing with eBay and other players on the online auction market. I have heard about individuals who are buying and selling on eBay as their main source of income.

The article, Meg and the power of many, is premium content so you have to become a subscriber to the Economist if you want to read the whole article. Here is an excerpt from the article, Anniversary lessons from eBay.

The remarkable tale of eBay's growth points to some important lessons for any business trying to operate online?and today that includes, one way or another, most firms. The commercial opportunities presented by an expanding global web seem almost limitless. But the pace of change is rapid, and so is the ferocity of competition. To succeed, firms need agility, an open mind and the ability to reinvent themselves repeatedly. Most of all, they need to listen carefully to their customers, paying close attention to what they do and don't want. (Economist.com, 06/09/05.)


I must point out that I don't agree with their talk about monopolies, but that I have to save for another post in the future! In short, a monopoly situation could only occur in a state regulated economy, and not on a free market. The online auction case is a clear example that it always be room for new players entering the market. Online auction is basic trading done in a high tech manner. It is fascinating how this online business has evolved. Take eBay's recent acquisition of Shopping.com as an example. Last year, PriceRunner.com, was bought by ValueClick.

For some thoughts on eBay, read John Naughton's post, American phenomenon stumbles into a rat trap.

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