Objectives

In this chapter, you will learn about:

• How companies use Web to do things they
Chapter 6: have never done before such as operating
auction sites and creating virtual communities
Online Auctions, Virtual • Origins and key characteristics of the seven
major auction types
Communities, and Web Portals
• Strategies for Web auction sites and auction-
related businesses
• Virtual communities and Web portals
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Auction Overview
Auction Overview
• An auction is a process of buying and selling
goods or services by offering them up for bid, • Private valuations
taking bids, and then selling the item to the – Amounts bidders are willing to pay for an item
winning bidder.
• Auctioneer
• Seller – People in charge of the whole auction process
– Offers an item for sale, but does not establish a price
• Shill bidders
• Bidders – People hired by the seller who artificially inflate the
– Potential buyers who bid for the item price of an item
• Bids
– Prices offered by bidders for an item

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 English Auctions English Auctions (continued)
• English auction • Yankee auctions
– Bidders publicly announce their successive higher
bids until no higher bid is forthcoming – English auctions that offer multiple units of an item
for sale (save time and fees)
– At that time the auctioneer pronounces the item sold
to the highest bidder – The items are allotted to all the successful bidders
starting from the highest bidder to the lowest
• Open auction bidder at the lowest bid price
– Bids are publicly announced
• Disadvantages of English Auction
• Minimum bid
– Winning bidders tend not to bid their full private
– The price at which an auction begins
valuations
• Reserve price
– Bidders risk becoming caught up in the excitement
– Minimum acceptable price that is not announced of competitive bidding
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Dutch Auctions
• Dutch auctions are also called descending-
price auctions
• Form of open auction in which bidding starts
at a high price and drops until a bidder
accepts the price
– Initially used by farmers in the Netherlands to sell
perishable goods
• Often better for the seller
• Good for moving large numbers of commodity
items quickly
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 Other Types of Auctions
• First-price sealed-bid auctions
– All bidders submit their bids in secret without knowing
others’ bids and the highest bidder wins
• Second-price sealed-bid auctions
– The same as above except the highest bidder is
awarded the item at the price bid by the second-highest
bidder
– Yields better returns for the seller because all bidders
tend to bid higher than they would in a first-price
sealed-bid auction
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Other Types of Auctions
• Reverse (seller-bid) auctions
– The role of the buyer and seller is reversed
– Multiple sellers submit price bids to an auctioneer
who represents a single buyer
– Bids are for a given amount of a specific item that
the buyer wants to purchase
– The prices go down until no seller is willing to bid
lower
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Other Types of Auctions
• Double auctions
– Buyers and sellers each submit competitve bids and offers to an
auctioneer simutaneously
• Open-outcry double auctions
– Buy and sell offers are shouted by traders standing in a small area
on the exchange floor (e.g. NYSE, AMEX
– Buyers and sellers can modify bids
– A match is made if a buyer and seller call out the same price
• Sealed-bid double auctions
– Buyers and sellers cannot modify their bids
– The auctioneer matches sellers’ offers (lowest to highest) to the
buyers’ offers (highest to lowest)
Online Auctions and Related
Businesses
• Online auction is a new idea and it provides
business opportunities that are perfect for Web
– Web site can charge both sellers and buyers
– Can sell advertising on Web pages
• Three broad categories of auction Web sites:
– General consumer auctions
– Specialty consumer auctions
– Business-to-business auctions
• Most transactions occur on general consumer
auction Web sites
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 General Consumer Auctions
• Allows people to sell/buy various types of goods
• eBay is the most successful general consumer
auction Web site
– Sellers/buyers must register
– Sellers pay a listing fee and a sliding percentage of
final selling price
– Buyers pay no fee
– Sellers can choose enhanced and extra-cost services
to help selling
– Rating system rates sellers and buyers
• Most common auction format on eBay
– Computerized version of the English auction
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Specialty Consumer Auctions
• Specialized Web auction sites meet the need
of special interest market segments
– Operation scale is much smaller
– Target buyers/sellers who are geographically
dispersed but share highly focused interests
– E.g. www.ubid.com (computers, electronics, etc.)
• Some specialty consumer auction sites gain
an advantage by targeting a strong market
segment with products desired by people with
relatively high levels of disposable income
– Golf Club Exchange, Cigarbid.com, and Winebid
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General Consumer Auctions
• eBay English auction
– Allows a seller to set a reserve price
– Bidders are listed
– Bid amounts are not disclosed until after the auction
(the last high bid is always shown)
– Allows sellers to specify that an auction be made
private (in case the item is highly collectible)
• Bidder identities are not disclosed
• It is very difficult to compete with eBay
• Auction Web sites that had retired
– Yahoo (http://auctions.yahoo.com)
– Amazon (http://auctions.amazon.com)
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Consumer Reverse Auctions and
Group Purchasing Sites
• Reverse bid (seller bid)
– Buyer fills a form to describe the item he/she wants
– Participating merchants reply with offers
– Buyer can accept the lowest offer or the offer that
best matches the buyer’s criteria
– E.g. http://www.respond.com/
• Priceline.com is thought to be a seller-bid site
– Visitor specifies price and gets offers if the price is
high enough
– Completes many of its transactions from an inventory
– Operates more as a liquidation broker
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Business-to-Business Auctions
• Companies periodically need to dispose of
unusable or excess inventory
– Large companies have liquidation specialists
– Small companies often sell their inventory to
liquidation brokers
• Liquidation specialists or brokers
– People or firms that find buyers for unusable
inventory items
• Online auctions
– Logical extension of inventory liquidation activities to
a new and more efficient channel, the Internet
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Consumer Reverse Auctions and
Group Purchasing Sites (continued)
• Group purchasing site
– Seller posts an item with a price
– Individual buyers enter bids (agreements to buy
one unit of that item, but no price is specified)
– The Web site can negotiate a better price with the
item’s provider as more buyers enter bids
– Posted price ultimately decreases as the number of
bids increases
– E.g. Tidewater Group Purchasing
(http://www.tidewatergpo.com/)
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Business-to-Business Auctions
• Ingram Micro (http://www.ingrammicro.com/)
– Major distributor of computers and related
equipment to value-added resellers who configure
computer hardware and software for business users
– Often finds itself with outdated items that it formerly
turned over to liquidation brokers
– Now it auctions those items to its established
customers
– Auction prices it receives average about 60% of the
items’ costs compared to 10-25% obtained from
liquidation brokers
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 Business-to-Business Reverse
Auctions
• Buyers ask suppliers to bid in order to reduce
cost (10% on average)
– Boeing, Sony, Raytheon, etc. use reverse auctions to
buy billions of dollars of materials and supplies
• Not all companies are enthusiastic about reverse
auctions
– The need for increased trust and long-term strategic
relationships with suppliers (a recent trend) makes
reverse auctions less attractive in some industries
– If enough important suppliers refuse to participate
(which is true in some industry), it is impossible to
conduct reverse auctions
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Auction-Related Services Auction-Related Services

• The growth of auction Web sites has created new
(continued)
business opportunities
• Auction software
• Auction escrow services
– An independent party that holds a buyer’s payment until the – For sellers
buyer receives the purchased item and it is what the seller
represented it to be • Software offers services that can help with or automate
tasks such as image hosting, multiple auction tracking,
– E.g. Escrow.com (charges fees from 1-10% of the item cost) etc.
• Auction directory and information services
– For buyers
– Offer guidance for new auction participants
• Software observes auction progress and places a bid
– Offer helpful hints and tips for more experienced buyers and
high enough to win the auction at the last moment
sellers along with directories of online auction sites
– E.g. Auctionguide.com
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 Auction-Related Services Mobile Commerce (M-Commerce)
(continued) • The buying and selling of goods and services
through wireless handheld devices (e.g. cell
• Auction consignment services phone, PDA, etc.)
– Companies sell items on auctions for people or
– Known as next-generation e-commerce
businesses who do not have the skills or time to
become a seller – Access the Internet without needing to find a place
– Take an item and create an online auction for it to plug in.
– Handle the transaction • Three key elements for mobile commerce
– Remit the balance of the proceeds – Cellular-satellite (mobile) communication technology
– Charge a fee ranging from 10% to 40% of the – Electronic marketplaces
selling price
– Software agents
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Mobile Commerce (M-Commerce)

• Cellular-satellite communications technology

can be packaged with:
– Notebook computers
– Personal digital assistants (PDAs)
– Mobile phones

• Wireless Application Protocol (WAP)

– Allows Web pages formatted in HTML to be
displayed on mobile devices with small screens
using micro-browsers
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 Mobile Commerce (M-commerce)

• Electronic marketplaces can serve people

who want to buy and sell a wide range of
products and services
• Most online marketplaces do not support
mobile commerce now, but experts believe
they are getting closer
• AvantGo
– Provides smartphones and PDAs with downloads
of Web site contents, news, restaurant reviews,
and maps
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Virtual Communities
Mobile Commerce (M-Commerce)
• A virtual community is a gathering place for
• Intelligent software agents are programs that people and businesses that does not have a
search the Web and find items for sale that physical existence
meet a buyer’s specifications • They exist on the Internet in various forms:
• Some software agents focus on a particular – Usenet newsgroups
category of product – Chat rooms
– Web sites
• Simon
– And others
– One of the best shopping agents currently
available
• They offer people a way to connect with each
other and discuss common issues and
interests
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 Virtual Communities (continued)
• E.g. – virtual learning community
– E.g. colleges open Web sites that offer online
courses and use Blackboard or WebCT for
student-instructor interactions
• Virtual communities can help companies,
their customers, and their suppliers plan,
collaborate, and transact business
• Google Answers
– Gives people a place to ask questions that are
answered by an expert for a fee

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Early Web Communities Web Communities in the Second

• The WELL ( “whole earth ‘lectronic link”)
– One of the first Web communities
– A online place for conversation and discussion
– Predates the Web
• Tripod
– Founded in 1995 in Massachusetts
– Offered its participants free Web page space, chat
rooms, news and weather updates, and health
information pages
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Wave of E-commerce
• Web Logs (Blogs)
– Web sites containing commentaries written by blog owners
– Visitors can participate in the discussions by adding comments
• Social Networking Web Sites
– Web sites for people to communicate and share information with
one another
– E.g.: MySpace, Youtube, Facebook, Craiglist
• Virtual communities for consumers can succeed as
money-making propositions if they offer something
sufficiently valuable to justify a charge for membership
– WELL charges its members a subscription fee
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 Revenue Models for Web Portals
and Virtual Communities
• Web portals are so named because the goal
is to be every Web surfer’s doorway to the
Web
• Web portals with high degree of stickness is
extremely attractive to advertisers
• One rough measure of stickiness is how long
each user spends at the site
• Nielsen//NetRatings determine site popularity
by measuring the number of unique visitors
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Revenue Models for Web

Portals and Virtual
Communities
• Web portals
– High visitor counts can yield high advertising rates

– Companies that run Web portals add sticky

features such as chat rooms, e-mail, and calendar
functions

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Mixed Revenue Portals and Virtual
Communities
• Time Warner’s AOL unit
– One of the most successful Web portals
– Charges a fee to users and has always run
advertising on its site
• Yahoo!
– Now charges for the Internet phone service
originally offered at no cost
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Summary
• Companies are now using the Web to
operate auction sites, create virtual
communities, and serve as Web portals
• Consumer online auction business is
dominated by eBay
• B2B auctions
– Give companies a new and efficient way to
dispose of excess inventory
• B2B reverse auctions
– Provide an effective procurement tool
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Internal Web Portals
• Run on intranets
• Can save significant amounts of money by
replacing the printing and distribution of paper
memos, newsletters, and other
correspondence
• Can become a good way of creating a virtual
community among employees
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Summary (continued)
• New companies have formed that capitalize
on the Web’s ability to bring together
geographically dispersed people and
organizations
• Organizations are using mobile commerce to
sell goods and services to users of handheld
devices
• Companies are using internal Web portals to
communicate with employees
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