NOVEMBER 2004 Government Garage Sales: Online Auctions as Tools for Asset Management S e r i e s David C. Wyld Mayfield Professor of Management and Director of the Strategic e-Government Initiative Southeastern Louisiana University E-Government E-GOVERNMENT SERIES Government Garage Sales: Online Auctions as Tools for Asset Management David C. Wyld Mayfield Professor of Management and Director of the Strategic e-Government Initiative Southeastern Louisiana University November 2004 TABLE OF CONTENTS Foreword ..............................................................................................4 Executive Summary ..............................................................................5 Introduction .........................................................................................8 The “Usual Suspects” .......................................................................8 “I Love Entrepreneurialism!” ............................................................9 Reverse Logistics and Public Sector Asset Management .................12 Auction Theory & Practice 101 ..........................................................15 Introduction ................................................................................... 15 The History of Dynamic Pricing ..................................................... 15 The Characteristics of Auctions ...................................................... 15 Information Asymmetry and Optimism .......................................... 17 Winners and Losers ........................................................................ 18 Online Auctions ............................................................................. 19 The Road Not Taken ....................................................................... 21 Reverse Logistics and Online Surplus Auctions ..................................22 The Reverse Supply Chain .............................................................. 22 Reinventing the Surplus Marketplace through Online Auctions ...... 24 The Public Sector and Online Surplus Auctions .................................27 Overview: The Quadruple Option .................................................. 27 Forward vs. Reverse Auctions ......................................................... 28 Why Now? ..................................................................................... 29 Federal Surplus ............................................................................... 30 eBay: The 800-lb. Gorilla of the Online Auction Market ...................33 Introduction: From Oddball to Hardball ......................................... 33 The Metrics of the eBay Marketplace ............................................. 34 eBay: “The Liquidation Machine” .................................................. 36 eBay’s Open Marketplace .............................................................. 37 Fraud and Trust ............................................................................... 37 Case Study 1: eBay and the Public Sector ..........................................39 Overview: eBay and Public Sector Sales ........................................ 39 Oregon Surplus .............................................................................. 41 Other States of eBay ....................................................................... 42 The Limits of eBay? ........................................................................ 42 Case Study 2: The Department of Defense and Liquidity Services, Inc. ................................................................45 Overview ....................................................................................... 45 Govliquidation.com ....................................................................... 47 Analysis ......................................................................................... 56 The Future of Military Surplus ........................................................ 57 2 GOVERNMENT GARAGE SALES Case Study 3: Bid4Assets—Taking Tax Sales off the Courthouse Steps .........................................................................59 Introduction ................................................................................... 59 The “Doonesbury” Idea .................................................................. 59 Bid4Assets and Tax Sales ................................................................ 60 The Kern County Experience .......................................................... 62 The Field Is Growing ...................................................................... 64 Case Study 4: Property Bureau—Transforming the Police Auction ....66 Introduction ...................................................................................66 The Property Bureau Model ........................................................... 67 Results ........................................................................................... 69 “Steal-It-Back” ................................................................................ 70 Case Study 5: The Demolition of Three Rivers Stadium ......................71 Introduction ................................................................................... 71 The Pittsburgh Auctions .................................................................. 72 Analysis ......................................................................................... 72 Summary ........................................................................................ 73 The Road to Online Auctions .............................................................74 Introduction ................................................................................... 74 How Much of the Effort Should You Insource/Outsource? .............. 74 To eBay, or Not to eBay, That Is the Question ................................. 77 A New Breed of Auction Intermediaries? ........................................ 79 Is There a Better Alternative to Public Online Auctions? ................. 80 Lessons Learned and Next Steps ........................................................81 Lessons Learned .............................................................................81 Next Steps: “Just Do It” ..................................................................82 Follow the Money ..........................................................................83 Online Surplus Auctions: A Profit-Leader for E-Government? .........84 Who’s Your Mike Plott? ..................................................................87 A Final Thought ..............................................................................87 Endnotes ............................................................................................89 Bibliography .......................................................................................90 About the Author .............................................................................104 Key Contact Information ..................................................................105 www.businessofgovernment.org 3 GOVERNMENT GARAGE SALES FOREWORD November 2004 On behalf of the IBM Center for The Business of Government, we are pleased to present this report, “Government Garage Sales: Online Auctions as Tools for Asset Management,” by David C. Wyld. From the local police department to state governments to the Department of Defense, public sector execu- tives across the nation are transforming the handling of surplus items from a drain on their budgets to a posi- tive source of revenue. Government agencies are succeeding at selling both everyday items and high-end goods via online auctions, as well as creating new markets for out-of-the-ordinary public properties, such as school buildings and airports. Professor Wyld lays the groundwork for this comprehensive and informative review on online auction sales by discussing the theory and practice of auctions, explaining how and why auctioning works, and why it is particularly effective when brought into the Internet age. He provides an overview of the size and scope of auctions and describes how government agencies are now using online auctions as a primary vehicle for proactively managing surplus. The report presents five case studies of how online auctioning is now being employed: eBay and the Public Sector; the Department of Defense and Liquidity Services, Inc.; Bid4Assets—Taking Tax Sales off the Courthouse Steps; Property Bureau—Transforming the Police Auction; and the Demolition of Three Rivers Stadium. The report presents a decision framework, or road map, that government executives can use in making decisions about the management of surplus assets in the public sector. Finally, the report presents a series of lessons learned. These lessons focus on the need to align the incentives of both multi-unit agencies and public-private partnerships to maximize the returns and overall effectiveness of online auctions. This report presents a “good news” story about how government leaders across the nation are transform- ing the traditional “burden” of managing and maintaining unneeded property into an opportunity to derive significant revenue and to shift more of their focus and attention to their primary missions and operations, rather than the disposal of property. We trust that this report will be informative and useful to government executives as they seek to better man- age their assets and proactively shift to the online auctioning of surplus, seized, and forfeited assets. Paul