E-Commerce: The Second Wave

Fifth Annual Edition

Chapter 6:
Online Auctions, Virtual
Communities, and Web Portals
 Objectives

In this chapter, you will learn about:

• Origins and key characteristics of the seven
major auction types

• Strategies for Web auction sites and auction-

related businesses

• Virtual communities and Web portals

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 Origins of Auctions
• In an auction
– Seller offers an item for sale, but does not
establish price
• Bidders
– Potential buyers
• Bids
– Prices bidders are willing to pay for an item
• Shill bidders
– Can artificially inflate the price of an item

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 English Auctions
• Bidders publicly announce their successive
higher bids until no higher bid is forthcoming
• Open auction
– Bids are publicly announced
• Minimum bid
– The price at which an auction begins
• Reserve price
– Minimum acceptable price

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 English Auctions (Continued)
• Yankee auctions
– English auctions that offer multiple units of an
item for sale
• Disadvantages
– Winning bidders tend not to bid their full
private valuations
– Bidders risk becoming caught up in the
excitement of competitive bidding

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 Dutch Auctions
• Also called descending-price auctions

• Form of open auction in which bidding starts

at a high price and drops until bidder accepts
price

• Often better for the seller

• Good for moving large numbers of commodity

items quickly

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 Coldwater Creek Dutch Auction of
Closeout Merchandise

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 Other Types of Auctions
• Sealed-bid auctions
– Bidders submit their bids independently
• Second-price sealed-bid auction
– Highest bidder is awarded the item at the price
bid by the second-highest bidder
• Open-outcry double auctions
– Buy and sell offers are shouted by traders
standing in a small area on the exchange floor

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 Other Types of Auctions (Continued)

• Double auction
– Buyers and sellers each submit combined price-
quantity bids to an auctioneer
• Reverse (Seller-Bid) Auctions
– Multiple sellers submit price bids to an auctioneer
who represents a single buyer
– Bids are for a given amount of a specific item that
the buyer wants to purchase

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 Online Auctions and Related
Businesses

• Three categories of auction Web sites

– General consumer auctions

– Specialty consumer auctions

– Business-to-business auctions

• Largest number of transactions

– Occurs on general consumer auction sites

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 General Consumer Auctions
• Most common format used on eBay
– Computerized version of the English auction
• eBay English auction
– Allows seller to set a reserve price
– Bidders are listed
– Bid amounts are not disclosed until after
auction
– Allows sellers to specify that an auction be
made private

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 Specialty Consumer Auctions
• Specialized Web auction sites
– Meet the need of special interest market
segments
• Specialty consumer auction sites
– Golf Club Exchange, Cigarbid.com, and
Winebid
– Gain an advantage by identifying a strong
market segment with readily identifiable
products

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 Consumer Reverse Auctions and
Group Purchasing Sites

• Reverse bid
– Buyer can accept lowest offer or the offer that
best matches buyer’s criteria

• Priceline.com
– Completes many of its transactions from an
inventory
– Operates more as a liquidation broker

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 Consumer Reverse Auctions and
Group Purchasing Sites (Continued)

• Group purchasing site

– Seller posts an item with a price

– As individual buyers enter bids, site can

negotiate better price with the item’s provider

– Posted price ultimately decreases as number

of bids increases

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 Business-to-Business Auctions
• Liquidation brokers

– Firms that find buyers for unusable inventory

items

• Online auctions

– Logical extension of inventory liquidation

activities to a new and more efficient channel,
the Internet

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 Business-to-Business Auctions
(Continued)
• Ingram Micro
– Major distributor of computers and related
equipment to value-added resellers
– Often finds itself with outdated items turned
over to liquidation brokers
– Now auctions those items to its established
customers
– Auction prices received average about 60
percent of the items’ costs

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 CompUSA Auctions Home Page

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Business-to-Business Reverse Auctions
• U.S. Navy and the federal government’s
General Services Administration
– Experimenting with reverse auctions
• Need for trust and long-term strategic
relationships with suppliers
– Makes reverse auctions less attractive in some
industries
• Use of reverse auctions
– Replaces trusting relationships with a bidding
activity that pits suppliers against each other

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 Supply Chain Characteristics and
Reverse Auctions

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 Auction-Related Services
• Auction escrow services
– An independent party that
• Holds buyer’s payment until buyer receives
purchased item and is satisfied with it
• Auction directory and information services
– Offer guidance for new auction participants
– Offer helpful hints and tips for more
experienced buyers and sellers along with
directories of online auction sites

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 Auction-Related Services (Continued)

• Auction software
– For sellers
• Software offer services that can help with or
automate tasks such as image hosting

– For buyers
• Software observes auction progress and places a
bid high enough to win the auction

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 Auction-Related Services (Continued)

• Auction consignment services

– Create online auction for an item

– Handle the transaction

– Remit balance of proceeds

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 Portion of Andale Products Page

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 Virtual Communities and Web Portals
• Cellular-satellite communications technology
– Can be packaged with
• Notebook computers
• Personal digital assistants (PDAs)
• Mobile phones

• Wireless Application Protocol (WAP)

– Allows Web pages formatted in HTML to be
displayed on devices with small screens

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 Web Page Displayed on a PDA

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 Electronic Marketplaces
• Marketplaces

– Can serve people who want to buy and sell a

wide range of products and services

• AvantGo

– Provide PDAs with downloads of Web site

contents, news, restaurant reviews, and maps

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 AvantGo Channels Subscription Page

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 Intelligent Software Agents
• Programs that search the Web and find items
for sale that meet a buyer’s specifications

• Some software agents

– Focused on a particular category of product

• Simon

– One of the best shopping agents currently

available

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 Virtual Communities
• Gathering place for people and businesses
that does not have physical existence
• Exist on the Internet in various forms
– Usenet newsgroups
– Chat rooms
– Web sites
• Offer people a way to connect with each other
and discuss common issues and interests

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 Virtual Communities (Continued)
• Virtual learning community
– One form of virtual community
• Can help companies, their customers, and
their suppliers plan, collaborate, and transact
business
• Google Answers
– Gives people a place to ask questions then
answered by an expert for a fee

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 JA-SIG uPortal Home Page

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 Google Answers Page

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 Early Web Communities
• The WELL ( “whole earth ’lectronic link”)
– One of the first Web communities
– Predates the Web
• Tripod
– Founded in 1995 in Massachusetts
– Offered its participants free Web page space,
chat rooms, news and weather updates, and
health information pages

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 Web Community Consolidation
• Virtual communities for consumers

– Can succeed as money-making propositions if

• They offer something sufficiently valuable to

justify a charge for membership

• Web portal revenue models

– Strategies that build on a combination of

virtual communities and other activities

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 Web Portal Revenue Models
• Advertising supported web portals

– One rough measure of stickiness

• How long each user spends at the site

– Nielsen//NetRatings

• Determines site popularity by measuring the

number of unique visitors

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 Web Portal Revenue Models
(Continued)
• Web portals

– High visitor counts can yield high advertising

rates

– Companies that run Web portals

• Believe in the power of portals

• Add sticky features such as chat rooms, e-mail,

and calendar functions

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 Stickiness of Popular Web Sites

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 Mixed Revenue Portals
• Time Warner’s AOL unit

– One of the most successful Web portals

– Charged a fee to users and has always run

advertising on its site

• Yahoo!

– Now charges for the Internet phone service

originally offered at no cost

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 Internal Web Portals
• Run on intranets

• Can save significant amounts of money by

– Replacing the printing and distribution of paper

memos, newsletters, and other
correspondence

• Can become a good way of creating virtual

community among employees

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 Summary
• Companies are now using Web to
– Operate auction sites, create virtual
communities, and serve as Web portals
• Consumer online auction business
– Dominated by eBay
• B2B auctions
– Give companies a new and efficient way to
dispose of excess inventory
• B2B reverse auctions
– Provide an effective procurement tool

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 Summary
• New companies have formed that
– Capitalize on Web’s ability to bring together
geographically dispersed people and
organizations
• Organizations are using mobile commerce to
– Sell goods and services to users of handheld
devices
• Companies are using internal Web portals to
– Communicate with employees

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