Learning Objectives (Cont.) E-Bay: World's Largest Auction

Learning Objectives

1. Define the various types of auctions Chapter 11 and list their characteristics. 2. Describe the processes involved in conducting forward and reverse Auctions auctions. 3. Describe the benefits and limitations of auctions.

Learning Objectives (cont.) Learning Objectives (cont.)

4. Describe some unique auction models. 8. Describe auction deployment and 5. Describe the various services that support auction implementation issues. 6. Describe the hazards of e-auction 9. Analyze future directions of fraud and discuss possible mobile auctions. countermeasures. 7. Describe bartering and negotiating.

E-Bay: E-Bay (cont.) World’s Largest Auction Site The Opportunity The Solution eBay is one of the most profitable Online auction house with millions e-businesses of unique auctions in progress and over 500,000 new items added each Pam Omidyar—collector of Pez day dispensers had the idea to trade The initial business model of eBay them over the Internet was to provide an electronic Her husband came up with the infrastructure for conducting mostly e-business auction concept C2C auctions entirely managed by technology

1 E-Bay (cont.) E-Bay (cont.)

On eBay, people can buy and sell The auction process: just about anything seller fills in the appropriate The company collects a registration information submission fee upfront posts a description of the item for And a commission as a sale specifying a minimum opening percentage of the sale amount bid

E-Bay (cont.) E-Bay (cont.)

If a successful bid is made, the seller In 2001, eBay started to auction fine and the buyer negotiate art in collaboration with: the payment method icollector.com of the United shipping details Kingdom; and warranty Sotheby’s (sothebys.com) other particulars Due to lack of profit eBay and Sotheby’s discontinued separate online auctions eBay is the interface through which and began placing emphasis on sellers and buyers can conduct promoting Sotheby’s live auctions business through eBay’s Live Auctions technology © Prentice Hall 2004 9 © Prentice Hall 2004 10

E-Bay (cont.) E-Bay (cont.)

eBay operates globally Some eBay sites (eBay Motors) Buyers from more than 150 other concentrate on specialty items countries participate Trading can be done from anywhere, eBay operates a business exchange in at any time which SMEs can buy and sell new and Wireless trading is possible used merchandise in B2B or B2C modes

2 E-Bay (cont.) E-Bay (cont.)

eBay Seller Payment Protection (2002) Other specialty sites offers: half.com, the famous discount e- tailer credit card chargeback protection PayPal.com, the P2P payment guaranteed electronic checks company secure processing eBay Stores are rented to individuals privacy protection and companies eBay started e-tailing at fixed prices sell from catalogs conduct auctions

E-Bay (cont.) E-Bay (cont.)

In 2002, eBay introduced the Business The Results Marketplace (ebaybusiness.com) Brought a limited-access off-line business model to the desktops of consumers All business-related listings on eBay worldwide by using the Internet into one destination Consistently generates a profit and Makes it easier for small businesses promotes a sense of community to find the equipment and supplies 50 million registered users by fall 2002 they need Transacted over $14.7 billion in sales in 2002

Fundamentals of Dynamic E-Bay (cont.) Pricing and Auctions

What we can learn… Auction: Market mechanism by which eBay demonstrates the success of a buyers make bids and sellers place company that implemented an EC offers; characterized by the business model that took off very competitive and dynamic nature by rapidly which the final price is reached some of the ideas of auctioning auctions can be an online-only Electronic auctions (e-auctions): e-commerce channel or they can be a Auctions conducted online supplementary channel

3 Fundamentals of Dynamic Types of Auctions Pricing and Auctions (cont.)

The flexibility offered by online auction One buyer, one seller trading may offer innovative market use negotiation, bargaining, or bartering processes Major manufacturers and e-tailers use auctions to sell products and services Dynamic pricing: Prices that are determined based on supply and demand relationships at any given time

Types of Auctions (cont.) Types of Auctions (cont.)

One seller, many potential buyers Vickrey auction: Sealed-bid auction in Forward auction: An auction in which the item is awarded to the highest bidder, but at the second-highest price which a seller offers a product to that was bid (in the case of selling items) many potential buyers Sealed-bid auction: Auction in which each bidder bids only once; a silent auction, in which bidders do not know who is placing bids or what the prices are

Types of Auctions (cont.) Types of Auctions (cont.)

One buyer, many potential sellers B2B reverse auctions Reverse auction: Auction in which Gaining popularity as an online the buyer places an item for bid mechanism for selling and especially (tender) on a request for quote (RFQ) for buying goods and services system, potential suppliers bid on C2C reverse auctions the job, with price reducing Mostly forward auctions, but sequentially, and the lowest bid increasingly reverse auctions are wins; used mainly in B2B and G2B e- being used in C2C commerce

4 Types of Auctions (cont.) Types of Auctions (cont.)

”name-your-own-price” model: Auction Many sellers, many buyers model in which would-be buyers Buyers and their bidding prices are specify the price (and other terms) matched with sellers and their they are willing to pay to any willing asking prices based on the seller; a C2B model, pioneered by quantities on both sides and the Priceline.com dynamic interaction between the buyers and sellers Stocks Commodities

Benefits of E-Auctions Benefits of E-Auctions (cont.)

Benefits to sellers Benefits to buyers Increased revenues Opportunities to find unique items Optimal price setting and collectibles Removal of expensive Chance to pay less intermediaries Entertainment Better customer relationships Anonymity Liquidation Lower transaction costs Convenience Lower administrative cost

Benefits of E-Auctions (cont.) Limitations of E-Auctions

Benefits to e-auctioneers Possibility of fraud Long cycle time Higher repeat purchases Limited Monitoring time A stickier Web site participation Equipment for Expansion of the auction business Security buyers Auction software

5 Strategic Uses of Auctions “Name-Your-Own-Price” and Pricing Mechanisms C2B Model

Dynamic pricing allows buyers and Priceline.com pioneered this model sellers to be able to adjust pricing Enables consumers to achieve strategies and optimize product significant savings by naming their inventory levels very quickly own price for goods and services Suppliers quickly flush excess inventory and liquidate idle assets Buyers obtain the power to procure goods and services at the prices they desire

“Name-Your-Own-Price” “Name-Your-Own-Price” C2B Model (cont.) C2B Model (cont.)

Limitation Priceline.com has offered multiple When a buyer names their own price products and services: for airline tickets, they are not told travel services what airline they are going to fly personal finance services with, how many stops are involved, automotive service that offers new or what time of the day the flight cars for sale will depart until the buyer accepts the offer and pays credit cards long-distance calling

Auction Process and Auction Process and Software Support Software Support (cont.)

Phase 1: Searching and comparing Phase 2: Getting started at an auction Finding when and where an item will Registration and profiles be auctioned Listing and promoting (software) Auction aggregators and notification Advertisement Wizard Auction aggregators: Companies that use Auction Assistant software agents to visit Web auction sites, Auctiva Mr. Poster find information, and deliver it to users Pricing Browsing site categories Basic and advanced searching

6 Auction Process and Auction Process and Software Support (cont.) Software Support (cont.)

Phase 3: The actual bidding Phase 3 (cont.) Bid watching and multiple bids Proxy bids Sniping Proxy bidding: Use of a software system to place bids on behalf of buyers; when Entering a bid during the very last another bidder places a bid, the seconds of an auction and outbidding the software (the proxy) will automatically highest bidder (in the case of selling raise the bid to the next level until it items) reaches the predetermined maximum price

Auction Process and Auction Process and Software Support (cont.) Software Support (cont.)

Phase 4: Post-auction follow-up Phase 4 (cont.) Post-auction notifications User communication Bidding notifications Chat groups End-of-auction notices Mailing lists Seller notices Message boards Postcards and thank-you notes Feedback and ratings Invoicing and billing

Auction Process and Auction Process and Software Support (cont.) Software Support (cont.)

Phase 4 (cont.) Additional terms and rules Payment methods Reserve price auction Electronic transfer service Vertical auction Auction that takes place between sellers Escrow service and buyers in one industry or for one Credit card payment commodity Shipping and postage Auction vortals: Another name for a Internet shippers vertical auction portal Internet postage Bid retraction Featured auctions

7 Auctions on Private Networks Double Auctions

Flower market in the Netherlands Single auction: Auction in which at least one side of the market consists of Pigs in Singapore and Taiwan a single entity (a single buyer or a single seller) Livestock in Australia Double auction: Auction in which multiple buyers and sellers may be making bids and offers simultaneously; buyers and their bidding prices and sellers and their asking prices are matched, considering the quantities on both sides

Double Auctions (cont.) Bundle Trading

Bundle trading: The selling of several related products and/or service together

Prices in Auctions: Prices in Auctions: Higher or Lower? Higher or Lower? (cont.)

Compared to competitive markets, Pricing strategies online prices in auctions tend to be higher, Sellers have the option to use reaching monopoly level when there is different auction mechanisms, such only one seller or one product as English, Dutch, sealed-bid first Auction prices are lower when: price, and sealed-bid second price A seller is liquidating a product Buyers need to develop a strategy Online auctions are usually an regarding how much to increase a alternative selling channel rather bid and when to stop bidding than an exclusive selling

8 Auction Fraud and Auction Fraud and Its Prevention Its Prevention (cont.)

Types of e-auction fraud Fake photos and misleading Bid shielding descriptions Having phantom bidders bid at a very Improper grading techniques high price when an auction begins; they Selling reproductions pull out at the last minute, and the Failure to pay bidder who bid a much lower price wins Shilling Placing fake bids on auction items to artificially jack up the bidding price

Auction Fraud and Auction Fraud Its Prevention (cont.) Prevention (cont.)

Failure to pay the auction house Protecting against e-auction fraud High shipping costs and handling User identity verification fees Authentication service Failure to ship merchandise Grading services Loss and damage claims Feedback forum Switch and return Insurance policy Other frauds

Auction Fraud Bartering and Prevention (cont.) Negotiating Online

Escrow services Bartering: The exchange of goods and Nonpayment punishment services Appraisal services Electronic bartering (e-bartering): Physical inspection Bartering conducted online, usually by Verification a bartering exchange

9 Bartering and Bartering and Negotiating Online (cont.) Negotiating Online (cont.)

Online negotiation: A back-and-forth Technologies for bartering electronic process of bargaining until Search the buyer and seller reach a mutually The buyer or seller gathers information agreeable price; usually done by about products and services and locates potential vendors or customers software (intelligent) agents Selection The buyer or seller processes and filters information in order to select a product or trading partner

Bartering and Bartering and Negotiating Online (cont.) Negotiating Online (cont.)

Negotiation Major benefits of electronic The two parties interact with bids and negotiations: offers until an agreement is made Continuing selection and negotiation Buyers and sellers do not need to The previous steps are repeated determine prices beforehand sequentially, if necessary, until an Intelligent agents can negotiate agreement is reached and a contract is written both price and nonprice attributes Transaction completion Transaction completion The buyer pays for the product and the seller ships the product to the buyer © Prentice Hall 2004 57 © Prentice Hall 2004 58

Issues in Auction Issues in Auction Implementation Implementation (cont.)

Using intermediaries Auction rules Popular third-party auction sites: Three major categories General sites: auctions.amazon.com, bidding rules auctions.yahoo.com clearing rules Specialized sites: baseball-cards.com, information-revelation rules oldandsold.com B2B-oriented site: freemarkets.com, Rules provide definitions, restrictions, bid4assets.com and timing constraint

10 Issues in Auction Issues in Auction Implementation (cont.) Implementation (cont.)

Strategic issues Building auction sites—a complex which items (services) to auction; what process type of auction to use whether to do the auction in-house or to The number of necessary features use an auctioneer (and which one) can be very large how long to run each auction B2B auctions must be integrated how to set the initial prices with the back-end offices and with how to accept a bid the legacy systems of participating what increments to allow in the bidding companies what information to disclose to the participants © Prentice Hall 2004 61 © Prentice Hall 2004 62

Issues in Auction Issues in Auction Implementation (cont.) Implementation (cont.)

Mobile Auctions Mobile Auctions (cont.)

Limitations of mobile auctions Visual quality Benefits of mobile auctions Memory capacity Convenience and ubiquity Security Privacy Simpler and faster

11 Future of Auctions Future of Auctions (cont.)

Global auctions Selling art online in real-time auctions Companies that seek to serve the Icollector.com international market may face all Butterfields.com the regular problems of selling Sothebys.com online in foreign countries Strategic alliances Major impact on competition and on industry structure because they put sellers and buyers together more directly, cutting out intermediaries

Managerial Issues Managerial Issues (cont.)

1. Should we have our own auction site 5. What would we auction? or use a third-party site? 6. What is the best bartering strategy? 2. What are the costs and benefits of 7. How can we promote our auction? auctions? 8. Should we combine auctions with 3. What auction strategies would we other models? use? 4. What about support services?

Summary Summary (cont.)

1. The various types of auctions and 6. Hazards of e-auction fraud and their characteristics. countermeasures. 2. The processes of forward and 7. Bartering and negotiating. reverse auctions. 8. Auction deployment and 3. Benefits and limitations of auctions. implementation. 4. Unique auction models. 9. Future directions and the role of mobile 5. Services that support auctions. auctions.