New World Economic Order
July 17, 2000
By Ephraim Schwartz, Dan Neel and Eugene Grygo

THE LEVEL business playing field promised by the rise of a new digital economy is finally starting to take shape.

For many small vendors without the resources to create their own Web presence, auction sites and digital exchanges have emerged as a viable way to compete against bigger rivals without incurring massive Web infrastructure costs.

For example, Brad Bishop, CEO of AVCOM, in Sunnyvale, Calif., which has sold more than $100 million in Sun hardware on auction sites, believes that, in time, the dynamic pricing model of auctions will shake up the buyer-seller relationship for companies of all sizes.

"This is a big change. It's so huge it will take time, because there is so much legacy on both the selling and the buying side ... [but] you'll have companies with no salespeople that auction everything," Bishop said.

Even industry giants are catching on to this trend. Palo Alto, Calif.-based Sun Microsystems will announce next week that it will authorize resellers to take advantage of new Sun hardware being auctioned at sites such as eBay, TecSell, and Mercata, said Alex Rublowsky, group manager for Sun's auction division. Sun also will announce that auction management company Andale will run its auction business.

Sun has been using auction sites for six months to boost its visibility because "Fifty percent of customers who've purchased Sun products from auction sites are new to Sun," Rublowsky said.

In effect, e-commerce is creating a Wild West atmosphere where big and small suppliers compete across channels or even in the same channel, said Munjal Shah, Andale's CEO.

"Most big companies are trying to get 100 feet off the ground by building their own buildings [Web sites], while small companies are moving into prebuilt buildings [auction sites]," Shah said.

Next week, Andale, in Mountain View, Calif., will merge with Honesty.com, based in Chicago, another auction support site. Andale claims 200,000 individual sellers, and Honesty.com claims to have 400,000 sellers using its free counter, which records the number of visitors to each auction sale. The combined companies will manage more than $2 billion worth of sales in the first year of operation, Shah said.

Whit Andrews, a senior Internet analyst at Gartner, in Omaha, Neb., said the impact of auctions on the business-to-business market has been underestimated.

"If anyone thinks auctions are merely a collection of single sellers, they're mistaken," Andrews said.

"Liquidity in transaction flows on these consumer auction sites are stunning. It's in the billions," added Vernon Keenan, Internet analyst at Keenan Vision, in San Francisco. "The thing most people overlook is that eBay, Amazon, and Yahoo are probably the biggest source of b-to-b liquidity."

For example, eBay said that 80 percent of its sales are made by 4 percent of its sellers. Sun Jewelry, a small jewelry retailer, sells about $200,000 of merchandise per month on eBay without advertising, according to Sun Jewelry officials. Its e-commerce sales are greater than Zales' e-commerce site sales, a Sun Jewelry representative said.

Although smaller companies have been the first to take advantage of auction sites as a sales channel, industry analysts are far from counting out the big retailers.

"People go to eBay to buy stuff. And if enough of them go, Zales will go to eBay and eBay will say, 'We welcome you,'" Andrews said.

Ironically, while larger vendors are learning a lesson from their smaller rivals and targeting auction sites for their own sales, they are also actively helping those smaller vendors compete in the arena dominated until now by only the largest players: online exchanges.

According to managers of online supply chains at the Covisint auto exchange, GE eXchange, and Nordstrom's private exchange – all of which have programs to help small companies use their services it makes good business sense to include as many suppliers as possible.

But what also may be driving their open approach is fear of intervention by the Federal Trade Commission, which is looking at whether the big players are using any exclusionary tactics.

"Hypothetically, if a single exchange becomes dominant in an industry, there is an antitrust doctrine [over access to that exchange] that might come into play," said Susan DeSanti, director of policy planning at the FTC. "It is not clear what the solution would be, but there are questions about should exchanges be obligated to let everybody in or should they be obligated to make the exchange nonexclusive so vendors can participate in other [exchanges] as well."

The auto exchange, still waiting for FTC approval before it goes live, is looking at ways to be inclusive.

"This is high in the minds of the planning team for Covisint. The broader its reach, the better the success it will be," said a representative.