Online Auctions, Virtual Communities, and Web Portals ISM 4480 University of South Florida

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Online Auctions, Virtual Communities, and Web
PortalsISM 4480University of South Florida
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Objectives

• Origins and key characteristics of the seven
  major auction types
• Strategies for Web auction sites and
  auction-related businesses
• Virtual communities and Web portals

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Auctions

• One of the most popular e-business models that
  combines
• Market-making Locating buyer or seller for a
  specific item.
• Price discovery Discovering the right market
  price for that item.
• How it works
• Seller offers an item for sale, but does not
  establish price.
• Seller set a minimum bid at which the auction
  starts, and an optional reserve price below which
  the item may not be sold.
• Potential buyers bid on that item.
• The last (highest) bidder wins the item at the
  bid price.
• Problems
• Shill bidding can artificially inflate the price
  unlawful.
• Deadbeat bidders not following through with their
  winning bid.
• Sellers not shipping the product as advertised or
  on time.
• Illegal items being auctioned.

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Types of Auctions

• English auctions
• Ascending-price, single-item auctions highest
  bidder wins.
• Yankee auctions Multiple-unit English auctions.
• Disadvantages
• Winning bidders may not bid their full private
  valuations.
• Winners curse Bidders outbidding their private
  valuation.
• General auctions eBay, Yahoo, Overstock, uBid.
• Specialty auctions Golf Club Exchange,
  Cigarbid.com.
• Dutch Auction
• Descending-price, single-item auctions.
• Price drops until first bidder (winner) steps in.
• Final bid price closer to bidders private
  valuation.
• Often used with expensive items such as cars and
  antiques.
• KlikKlok, Clearwater Creek.

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Coldwater Creek Dutch Auction
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Types of Auctions (cont).

• Sealed-bid auctions
• Each bidder submits one closed bid highest
  bidder wins.
• Bidders cannot share bidding information
  (collusion).
• E.g., most corporate bids (defense, networking,
  oil exploration).
• Second-price sealed-bid (Vickrey) auctions
• Similar to sealed-bid auctions, but highest
  bidder pays the price bid by the second-highest
  bidder.
• Encourages all bidders to bid full private
  valuation, since they are partially protected
  from an erroneously high bid.
• Higher returns for seller reduces collusion.

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Types of Auctions (cont.)

• Double auction
• Buyers and sellers each submit combined
  price-quantity bids.
• Auctioneer matches bid to asks until spread
  exists.
• E.g., NYSE (for trading stocks).
• Reverse auctions
• Multiple sellers (not buyers) bid for a buyers
  business.
• Prices go down until no seller is willing to bid
  lower.
• Works well with perishable products.
• E.g., Priceline.com (airline and hotel prices),
  Respond.com.

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Business-to-Business Auctions

• Industry exchanges
• Chemconnect (chemicals industry).
• E-Steel (steel).
• Fastparts.com (electronics components).
• Band-X (telecom bandwidth).
• Liquidation brokers (seller hubs)
• Ingram Micro for selling excess PCs, disk drives,
  etc.
• Generates 60 of item costs (vs. 10-25 from
  offline brokers).
• Reverse auctions (buyer hubs)
• Increasingly popular way for direct materials
  procurement.
• GE Lighting, Motorola, Owens Corning, Boeing,
  Honeywell, etc.

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B2B Reverse Auctions

• Suitable for
• Highly fragmented/competitive supplier base.
• Commodity products with clearly specified
  attributes.
• Unsuitable for
• Highly complex or custom products.
• Long-term strategic buyer-seller relationships
  important.
• High switching costs.

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Auction Tools/Services

• Auction hosting/management software Freemarkets,
  Ariba.
• Escrow services Escrow.com, SafeBuyer.com.
• Auction directories AuctionGuide.com,
  AuctionBytes.
• Price monitoring services PriceSCAN, Price
  Watch.
• Auction consignment services AuctionDrop,
  QuickDrop.
• Wireless/PDA services AvantGo (news), Garmin
  (GPS).
• Wireless Application Protocol (WAP) displays HTML
  web pages on PDA or handheld devices.

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Portals/Virtual Communities

• Online meeting place for people and firms.
• Offers a way for people to connect with each
  other and discuss common issues and interests.
• Can help firms, their customers and suppliers
  plan, collaborate, and transact business.
• Use multiple Internet tools to connect members.
• Usenet newsgroups
• Chat rooms
• Web sites
• Yahoo Geocities, Tripod.

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Portal/Community Revenues

• Mostly advertising supported
• Revenue CPM rate Number of eyeballs (or time
  spent).
• Targeted ads have higher CPM rates.
• Number of eyeballs based on site popularity
  (rated by Nielsen//NetRatings).
• Time spent based on stickiness How long each
  user spends at the site.
• Portals use sticky features to retain customers
  on websites
• Chat rooms, e-mail, message boards.
• High stickiness translates into high advertising
  revenues.
• Ad revenue has been hard to accomplish.
• Firms migrating to mixed-revenue models.

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Stickiness of Popular Web Sites