Auction Services Consolidate
The Webmergers.com Update
Volume II, Issue 22, July 25, 2000

Andale, Inc., a fee-based auction management tools for high-volume online sellers, acquired advertising-based Honesty.com, an auction tools and community service with 400,000 merchant members.

Andale (Ahn-du-lay)said it valued Chicago-based Honesty.com based on its expected next venture round value, but did not reveal a dollar amount. Honesty.com's primary value to Andale is its large customer base, according to Andale President and CEO Munjal Shah in an interview.

"Our folks were ecstatic [about Honesty.com's user base]," said Shah. "Honesty.com is cash-flow positive...and let's say we have a $100 customer acquisition cost and are bringing in 11,000 new customers a month [total for both sites]....fundamentally, I would have been spending $1.1 million a month on the same kind of customer acquisition."

The combined companies will boast 600,000 registered merchants who conduct a total of $1.7 billion in auction transactions a year or the equivalent of about 30% of the total volume on eBay alone, Shah said. He compared the volume of auction transactions to those in the highly touted B2B space, noting, "$1.7 billion might well be more dollar volume than all the B2B marketplaces combined."

One of Honesty's strongest features is its active community section, the Online Traders Web Alliance (OTWA), which enables merchants to exchange hands-on advice and information on auctions – including, in recent days, critiques of Andale's services. Honesty also brings a variety of auction tools – for example, it produces the auction counters used on eBay, Amazon.com, and Yahoo.

The combined companies offer a variety of tools including volume-auction-management tools, image storage, expert advisory networks and other services. Andale's challenge will be to convert Honesty members into paying customers for auction management services whose fees range from almost three percent of final value for low-priced items to just under one percent for items over $1,000 in value.

Honesty.com and its 30 employees will for now remain a separate subsidiary in Chicago, Shah said. Andale had 120 employees before the acquisition. Competitors in the crowded space include such services as AuctionWatch and AutionRover.

Honesty.com was founded in 1999 and had been seeking an additional round of $5-$7 million in venture funding earlier this spring after raising about $1.35 million in its first round through Chicago investment bank Sucsy Fischer & Co.

Andale has received $62 million in financing from Bowman Capital Management, Texas Pacific Group's (TPG) Tarrant Venture Partners, Accel Partners, Mohr Davidow Ventures, Oak Hill Venture Partners and other angel investors. Brobeck, Phleger & Harrison advised Andale on the deal.