Andale heats up the auction action
By Julie Landry
Redherring.com
October 6, 1999

For entrepreneurs, the burgeoning online auction market has become a premier platform on which to start up a business. Among the newest players in Web auctions is Andale (pronounced ON-duh-lay), which raised $19.6 million this week from Accel Partners; Mohr, Davidow Ventures; Oak Hill Venture Partners; and individual investors. The company, founded in April of this year, will begin offering in November its auction management services targeted at frequent sellers it calls "power sellers." "Auction" seems to be a magic word when raising venture capital. Beneficiaries of such largess include Auctionwatch.com and Bidder's Edge, who offer cross-auction monitoring; software developers Moai and Opensite Technologies; and new auction network Fairmarket. Of course, the public market has rewarded eBay with a market cap of more than $18 billion. Moreover, a whole industry seems to be springing up around online auctions, for example, third parties offering such services as Web hosting for photos of auction items, credit card services for individual sellers, multiple auction "searches," auction-related software, and niche auctions. If such offerings really take off, it's a good bet that those companies will generate hefty profits or be acquired by a big Web auction company.

ANDALE ON THE WAY

Andale hopes to set itself apart by providing a wide range of capabilities for frequent auction sellers. "Our overall vision for the company is to be the backend for all Net merchants who sell on online auctions," says founder and CEO Munjal Shah. The company's site will enable sellers to post their items quickly to multiple auction sites, as well as manage inventory, customer communications, and transactions. According to Mr. Shah's research, 4 percent of eBay's sellers – the so-called "power sellers" – account for 80 percent of the site's transactions. Many individuals and small businesses have turned their high-volume auctioning into big business this way. Andale is targeting its technology at these sellers. Automating business processes for such users is a smart play, says Vernon Keenan of Internet advisory firm Keenan Vision. The market for e-merchant services will reach $49 billion by 2004, serving the 2.6 million small businesses conducting $1.1 trillion in transactions online, according to Keenan Vision. Andale's services could be a boon to auction sites. "EBay and Amazon.com can and will offer these same types of advisory and administrative services to sellers, either by investing in their current suite of services or acquiring firms like Andale," says Evie Black Dykema of Forrester Research. Andale claims that its service's value lies in its independent status, allowing users to post to a number of auction sites including eBay, Amazon.com, Bizbuyer.com, and reverse auction site Respond.com. "The underlying growth of the auction market is unlike anything we've seen," says Jim Breyer, partner with Accel Partners and an Andale director. "The need to address the front-office and back-office sellers will only increase dramatically over time. We firmly believe that if the company executes, there is a major public company to be built."

SOLD?

If the recent history of auction-related startups is any indication, Andale will likely be an acquisition target. In April, for example, Amazon.com acquired Livebid.com and Exchange.com to add to its own growing auction stable. In May, eBay dug into its deep public pockets to snap up person-to-person credit card payment startup Billpoint, just nine weeks after its funding by Sequoia Capital. Sources say eBay has already attempted to buy Andale, though Mr. Shah declines to comment. "EBay is creating an island," he says, noting that a comparable service offered by an auction site would lack the cross-market posting capability he believes sets Andale apart.

With the auction services arena heating up, Andale must be ready to fend off competition. "While there is a first mover advantage, the reality is this is all standards-based computing," says Harry Fenik, an analyst with Zona Research. "There's no proprietary technology there that can't be replicated."

Startups building services for auction sites must be wary. Auction aggregators Auctionwatch.com, Bidder's Edge, and Ruby Lane have discovered the hard way that eBay has some tricks up its sleeve. The sites have all been asked by eBay to leave its results out of their universal auction search results. Bidder's Edge and Ruby Lane have complied with the request, but Auctionwatch.com has resisted, despite eBay's threats to block Auctionwatch.com's IP address from its site.

Like Auctionwatch.com, Andale hopes to leverage a fragmented auction market, which by most accounts is consolidating rapidly. In the meantime, opportunities abound.