Andale Hopes eBay's Fortunes Will Translate to Its Own Profit
By NICK WINGFIELD
Staff Reporter of THE WALL STREET JOURNAL
September 27, 2001

In July of 1999, well before Web companies started withering in numbers, Munjal Shah decided to hitch the fortunes of his start-up closely to that of Internet auctioneer eBay Inc.

The start-up, Andale Inc., devoted itself to providing software that helped eBay's armada of sellers list masses of items for auction on the site. Andale's selection of eBay turned out to be an auspicious choice. "I thought eBay would be successful," Mr. Shah says with a laugh. "What I didn't anticipate is that nothing else would be."

It might be a slight exaggeration to say eBay is the only successful e-commerce company born during the Internet boom. Internet retailers like Amazon.com Inc., for example, are trying to prove they can be profitable. EBay, on the other hand, has posted profits consistently since its inception.

Andale sought, in effect, to get a piece of eBay's action. The Mountain View, Calif., company's product, which is both a software program sellers can download to their computers and a service that operates from the Andale Web site (app.vendio.com), has functions that help eBay merchants start, close their transactions, then coax a buyer into bidding for more items. The company is aiming its product squarely at eBay's "power sellers," everyone from small operations to the corporations selling a minimum of $2,000 in goods on eBay every month.

First, Andale makes it easy for users to set up spiffy-looking auctions using different design templates. Sellers have access to a complete archive of their sales on the Andale Web site so they can swiftly post an auction identical to a past sale or simultaneously post lots of identical auctions – for 100 aluminum baseball bats, say – if they are trying to move loads of inventory. Sales can be scheduled up to six months in advance.

Sellers can also set up a customer checkout area on Andale's Web site so buyers can provide credit-card numbers and shipping addresses. A customer management function is designed to help eBay sellers get more business by allowing them to create e-mail marketing messages for past customers. Here, Andale says it abides by eBay's strict policies on how sellers can market to buyers (e-mailing losing bidders about another auction isn't allowed, but sending a message to a past buyer who has consented to receive e-mails advertising other auctions is permitted).

Last, Andale's product produces extensive reports on the performance of a seller's auctions. A seller can run a report on which products – say, first-edition Jack Kerouac novels or signed Tom Clancy thrillers – are producing the highest average selling prices. While eBay merchants represent the bulk of Andale's business, the company's software also helps customers sell on the auction sites of other Internet companies, such as Yahoo Inc. and Amazon.com, and on their own independent Web sites.

Andale's cut from the online sales it facilitates averages between 3% and 4% of the total price of each item. For eBay sellers who are getting by on thin profit margins already, additional costs aren't welcome. But Andale's proposition is rather simple: It will help merchants sell more than they can using eBay's auction tools, including its tools for listing items in bulk. "As long as my turnover increases substantially, it's easily worth it," says Mr. Shah.

Michael Green, president of 1A Auto Inc. in Pepperell, Mass., concurs. Mr. Green has sold auto-restoration parts on eBay, mainly carpet and weather stripping, for close to two years. Posting new auctions was a laborious process on eBay before he began using Andale. "It provides a lot of automation," Mr. Green says. "We were able to go from 500 auctions a week to 1,200 to 1,500 auctions a week without investing in our human resources."

Andale is competing in a crowded market. A whole cottage industry of software and services aimed at online auction sellers, ranging from small-time purveyors of "shareware" and venture capital-backed start-ups like Andale to a publicly traded company like FairMarket Inc., has evolved over the years. AuctionWatch.com Inc. (www.auctionwatch.com), ChannelAdvisor Corp. (www.channeladvisor.com) and Auctionworks.com Inc. are a few of the better known players. Another company, ReturnBuy Inc., warehouses goods for retailers and posts them for sale on eBay.

EBay's prosperity hasn't translated into overnight success for other companies in its orbit. But Jeetil Patel, an analyst at Deutsche Banc Alex. Brown, says Andale has an efficient method for acquiring customers that may give it an edge. Andale provides free counter software that tallies up the number of visitors who come to an auction on eBay. The counter, displayed on the bottom of an auction page, turns out to be a good way of getting merchants to upgrade to Andale's paid auction services since merchants need to visit the Andale Web site for a comprehensive tally of visitors to all of their auctions. Andale paid eBay an undisclosed fee to make the counter a standard feature merchants can add to their eBay auction pages.

Last quarter, Andale reached seven-digit sales for the first time. Mr. Shah expects the company to be profitable on an operating basis in the second half of next year, though net income is further away because of accounting for acquisitions. The company has raised a total of $61 million from venture-capital firms, including Accel Partners and Mohr Davidow Ventures.

Mr. Shah says Andale raised enough money at the right time. "The philosophy I had was to eat the appetizers when they're being passed around," he says, "not when you're hungry."