Chapter 6:

Online Auctions, Virtual

Communities, and Web Portals

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 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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 Auction Overview
• In an auction, a seller offers an item for
sale, but does not establish a price
• Stakeholders:
– Bidders (i.e., potential buyers)
– Sellers
– Intermediaries
• Shill bidders place bids on behalf of the
seller to artificially inflate ‫ ت ضخم‬the price of
an item

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 English Auctions
• In English auctions (open auctions),
bidders publicly announce their successive
higher bids until no higher bid is
forthcoming
– Minimum bid: The price at which an auction
begins
– Reserve price: Minimum acceptable price
• Yankee auctions
– English auctions that offer multiple units of an
item for sale

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 English Auctions
• Disadvantages
– For sellers, in many auctions the winning
bidders tend not to bid their full private
valuations
– For buyers, there is a risk of becoming
caught up in the excitement of
competitive bidding; that is, suffering the
winner’s curse

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 Dutch Auctions
• Dutch auctions (i.e., descending-price
auctions)
– Form of open auction in which bidding
starts at a high price and drops until a
bidder accepts the price

– Dutch auctions often are better for the seller

– An effective means of moving large

numbers of commodity ‫ ا لسلع‬items quickly

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 Dutch Auctions
• Jellyfish.com
(http://www.jellyfish.com/blog/)
• Target Clearance

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 Other Types of Auctions
• Sealed-bid auctions: Bidders submit
their bids independently and are not
privy to other bid values
– First-price sealed-bid auction: Highest
bidder is the winner
– Second-price sealed-bid auction
(Vickrey auctions): Highest bidder is
awarded the item at the price bid by the
second-highest bidder

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 Other Types of Auctions
• Open-outcry double auctions: Buy and sell offers are
shouted by traders standing in a small area on the
exchange floor
• Double auction: Buyers and sellers each submit combined
price-quantity bids to an auctioneer who then matches the
sellers’ offers with the bidders’ offers
– The NYSE uses Double Auction formats
• Reverse (seller-bid) auctions: Sellers compete to obtain the
business of the “buyer.”
– 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

• The largest number of transactions occurs

on general consumer auction sites

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General Consumer Auctions
• Most common format used on eBay
– eBay is a computerized version of the
English auction
• eBay English auction
– Allows a seller to set a reserve price
– Bidders are listed
– Bid amounts are not disclosed until after the
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 gain
an advantage by identifying a strong
market segment with readily identifiable
products
– Golf Club Exchange, Cigarbid.com, and
Winebid, Stubhub

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Consumer Reverse Auctions
and Group Purchasing Sites
• Reverse bids: Buyers can accept the
lowest offer or the offer that best
matches the buyer’s criteria (e.g.,
Respond.com)
– Priceline.com looks like a reverse bid
site, but it actually completes many of its
transactions from an inventory and
therefore operates more as a liquidation
broker ‫وسيط ا لتصفية‬
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 Consumer Reverse Auctions
and Group Purchasing Sites
• Group purchasing site

– Seller posts an item with a price

– As individual buyers enter bids, the site can

negotiate a better price with the item’s provider

– Posted price ultimately decreases as the

number of bids increases

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 Business-to-Business
Auctions
• Liquidation brokers ‫وسطاء ا لتصفية‬:
Firms that find buyers for unusable
inventory

– Ingram Micro

• Major distributor of computers and related

equipment to value-added resellers
(VARs) that often has outdated products
which it auctions those items to its
established customers

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 Business-to-Business
Reverse Auctions
• Numerous businesses and governmental
organizations use Reverse Auctions
– The need for trust and long-term strategic
relationships with suppliers makes reverse
auctions less attractive in some industries
– The use of reverse auctions replaces trusting
relationships with a bidding activity that pits
suppliers against each other

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 Auction-Related Services
• Auction escrow services‫ت لضمان‬
‫مزاد خدما ا‬
– An independent party that holds a buyer’s
payment until the buyer receives the
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

• Auction software
– For sellers
• Software and services that can help with or automate
tasks such as image hosting (e.g., Andale)

– For buyers
• Sniping Software is designed to observe an auction’s
progress and places a bid high enough to win the
auction (e.g., AuctionBytes)

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 Auction-Related Services
• Auction consignment services‫خدمات‬
‫ش حنة ا لمزاد‬

– Create an online auction for an item

– Handle the transaction

– Remit the balance of the proceeds‫ت حويل‬

‫رصيد ا لع ائدات‬

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 Intelligent Software Agents
• Intelligent software agents (bots) are
programs that search the Web and find
items for sale that meet a buyer’s
specifications
– MySimon

– BotSpot

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 Virtual Communities
• A virtual community is a gathering place
for people and businesses that does not
have a physical existence
– Usenet newsgroups
– Chat rooms
– Web sites
– Virtual Worlds and Gaming Communities

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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 and
offered its participants free Web page
space, chat rooms, news and weather
updates, and health information pages

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 Web Community
Consolidation ‫دمج‬
• Virtual communities for consumers
can succeed as money-
making ‫ت صنع ا لما ل‬
‫ مقترحا ل‬propositions
if they offer something sufficiently
valuable to justify a charge for
membership

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 Revenue Models for Web
Portals and Virtual Communities
• Web portals are so named because the
goal is to be every Web surfer’s doorway
to the Web

• One rough measure of stickiness is how

long each user spends at the site

• Nielsen//NetRatings determine site

popularity by measuring the number of
unique visitors
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Revenue Models for Web Portals
and Virtual Communities
• Web portals
– High visitor counts can yield high
advertising rates

– Companies that run Web portals add

sticky features such as chat rooms, e-
mail, and calendar functions

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Mixed Revenue Portals and
Virtual Communities
• Time Warner’s AOL unit
– One of the most successful Web portals

– Charges 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 a

virtual community among employees

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 Summary
• Companies are now using the Web to
operate auction sites, create virtual
communities, and serve as Web portals
• Consumer online auction business is
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 the 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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