Red Herring January 2000
Auctions
Selling to the Sellers

With so many of the Internet's commercial opportunities already discovered, few startups these days can claim they've identified an untapped market on the Net – especially in a crowded category like auctions. But that's precisely what Andale (AHN-duh-lay) claimed when it introduced itself to the world in September.

The company got its start four months earlier, when its five founders analyzed the popular auction site eBay. They noticed that 4 percent of the site's sellers accounted for 80 percent of its total sales. Slicing their results thinner, they found that 0.4 percent of eBay sellers (about 22,000 people) account for 35 percent of sales ($850 million annually). Their conclusion: a small group of people is making a full-time business out of selling stuff on Internet auctions – and therein lies Andale's market.

Most full-time auction sellers hawk their goods on several sites at once. "The more sites you sell on, the more confusing it gets," says Heidi LeVell, Andale's customer evangelist and a former full-time auction seller. With Andale's Web-based applications, sellers can manage all of their auctions simultaneously. Among other things, they can upload ads to many sites at once, monitor all of their auctions on a single screen, manage customer records, and perform basic accounting. "As ETrade is to NASDAQ, Andale wants to be to eBay, Amazon, and Yahoo," says Munjal Shah, Andale's CEO and the former head of electronic commerce for the German software giant Baan.

Just how many full-time auction sellers exist – and how much they're willing to spend on management tools – is uncertain. Vernon Keenan, president of the research firm Keenan Vision, predicts that there will be 2.6 million small "e-merchants" online by 2004, each with fewer than ten employees and less than $3 million in annual revenues. In the same year, those merchants will spend $49 billion on services like online marketplaces, hosting, marketing, financial services, and software tools. "I think Andale can get all those categories," Mr. Keenan says.

Andale charges sellers a fee of about 1 to 3 percent of the sale price for each item they sell on an auction site, depending on the size of the sale and the volume of the seller's transactions. The model protects customers from paying too much on small sales and Andale from making too little on large sales.

That business model convinced Mohr, Davidow Ventures and Accel Partners to invest $17.6 million in Andale in September – the company's first round of venture capital financing. (It raised $2 million in angel funding in April.) "Andale has the chance to be the Quicken for auction services," says George Zachary, a partner at Mohr Davidow.

Indeed, Quicken's QuickBooks accounting software is one product that could compete with Andale's services. In addition, auction sites like eBay could offer their tools for sellers – or make a bid for Andale. But they aren't likely to offer products that manage auctions on competing sites. Because the value of Andale's tools is in managing multiple auctions, the company is likely to stay independent of the big auction players - at least long enough to acquire lots of customers and a whopping valuation.

– Justin Hibbard