Hammer Time!

SAN FRANCISCO (05/01/2000) - Excess inventory, limited local markets, modest advertising budgets... Small businesses face a tough challenge in any market--and in today's go-go economy, the competition is even rougher. Luckily, help awaits just around the corner, in the form of online auctions. Sure, hobbyists and junk addicts love them, but online auctions can also open doors for businesses of many sizes.

"I have customers from countries I can't even find on a map," admits Perry Calton, a collectibles seller from Lawton, Oklahoma, and one of Amazon.com Inc.'s top-ranked online auctioneers. "I can be selling during prime time in England, or prime time in California. Online auctions give me a 24-hour business that works even while I'm sleeping." And it does work. Calton estimates that his gross reached six figures over an eight-month period in 1999, and he says that he expects to double or triple that figure this year.

Online auctions are hotter than the plains of Oklahoma in July--and for good reason. By selling to consumers via online auctions, businesses can boost sales, liquidate excess inventory, gain new customers without investing a ton of advertising or marketing money, and raise their Web visibility.

For small businesses, online auctions have become another sales technique, albeit an offbeat one. But you need a different set of tools for running a business-to-consumer auction than you need for handling a person-to-person auction. In particular, businesses require management software (to handle the deal's back end), low fees, and convenient payment methods.

Major auction sites provide some of those tools, and most try to attract high-volume sellers. For instance, Amazon offers an innovative payment method that lets buyers use their credit cards to close auction deals, without requiring the seller to have a merchant account--an agreement between a business and a bank for processing and paying credit card transactions. Yahoo, meanwhile, has begun blending its you-build-it e-commerce stores with its auction areas, letting businesses stock both spaces with the same goods so they can pursue auction and fixed-price retail selling strategies.

Success Stories

According to the sellers we talked to, online auctions work wonders. Mike Baker, a full-time online auctioneer from Springdale, Arkansas, runs more than 2000 auctions a week on three major sites, selling essentially one product:

8-by-10-inch (and larger) reprints of fine art. He wants to be a major player in his business, and with other online auctioneers now buying stock from him, he's well on his way. Antique dealer Lee Bernstein of Schererville, Indiana, uses Amazon's ZShops--a gallery of fixed-price online stores for new and used goods--to sell rare and out-of-print books.

Online auctions bring substantial benefits besides increased sales to the small-business table. With listing costs as low as 10 cents per item (and sometimes free), they're an inexpensive way to attract new customers. And if you already have an e-store, setting up a link to your own Web site at the online auction venue is a cheap way to draw eyeballs to your URL. "I'm getting more than 200 hits a day on my pages from auctions," says Calton.

But how can your business take advantage of online auctions? Years of experience with traditional techniques of selling might not help you if the closest you've come to an auction is PBS's The Antiques Roadshow. To find the best road to selling online, we picked the brains of several auction experts and four experienced high-volume sellers. We also took an extended look at six top business auction sites identified by Gomez.com, an independent online company covering e-commerce sites.

At each site, we evaluated the tools available for high-volume sellers, compared pricing structures, and gauged buyer traffic. We found that, while auction sites overlap in some features, they have individual differences that might make particular ones work better for some businesses than for others.

Using the experts' advice and our own experiences, we've put together a step-by-step guide for using online auctions in your business--from picking the right auction site to monitoring the dollars as they roll in.

With listing costs as low as 10 cents per item, online auctions are an inexpensive way to attract new customers.

Are Web Auctions Right for Your Business?

Your business is booming, but you want it to blow the doors off. Yet you've tapped out the local market, so there's not much left to squeeze from your current customer base without relocating. Online auctions sound enticing, but how do you know if they'll work for you? To find out, match your business against these profiles of a successful online auctioneer.

You sell to consumers, not to businesses: Though business-to-business auctions are taking off among companies that want to buy or sell raw materials, businesses that sell direct to the public should pay attention to the numbers that count: potential customers. These folks frequent consumer-oriented auction sites like EBay, Yahoo, and Amazon.

Your products have auction appeal: Auction experts like Dan Neary, vice president of marketing and sales at AuctionWatch.com, an independent Web-based company that provides auction services, say that certain goods do better than others. Prime candidates include collectibles, electronics, and items with narrow but intensive appeal like Bernstein's rare books. On the other hand, with millions of potential customers passing by, such commonplace goods as cookware and furniture may find an audience as well.

You already have an e-commerce storefront: No doubt about it: Online auctions are a fairly painless and inexpensive way to get into e-sales if your current business is strictly a brick-and-mortar operation. To make the best use of auctions, though, you'll want an e-store of your own that can direct customers to your nonauction inventory and strengthen your credibility in buyers' minds.

You're comfortable with the Web: It may seem obvious, but you have to develop some familiarity with the Internet to launch, stock, and maintain your business's online auctions. Most tools you'll use for creating and managing auctions are Web-based, too. If you're more comfortable scribbling in a ledger than working with a Web browser, steer clear--or hire someone to do the work for you.

You have time: You may dream of gathering your overstock at 10 a.m. and selling it by noon, but the reality is considerably slower. Running online auctions can burn up hours of work, even if you use auction management software to ease the chore of large-volume selling. If you don't have spare time to invest in this selling tactic, stick to your retail store.

Decide Where to Sell

From great white sharks like EBay and Yahoo to anchovies like Go Network Auction and Auctions.com, auction sites are proliferating. Hundreds of places let buyers bid at the blip of an electron. But if you're new to the game, you should settle on one auction site to start with.

Evaluating auction sites isn't simple, however, because of their sheer number and because uncovering differences between sites can be tricky. In appraising a site, consider the following traits.

Cost: You wouldn't sign a lease for a brick-and-mortar store without knowing the bottom line, right? Use the same approach with online auctions. Tally the listing fees--the nonrefundable charge for placing an item for sale (usually 10 cents to $2)--and then factor in the commissions. The latter run between 1 and 5 percent of the item's selling price, depending on the size of the winning bid. Compare costs by calculating the house's commission on an average-priced item. EBay's rate is among the highest, while Yahoo's is the lowest: zero.

Customer service: Responsive customer service is essential. To test a site you're considering, submit a query by e-mail or telephone and see how long the reps take to respond. Most of the sellers we interviewed praised Amazon's support, which includes a toll-free phone number and a live rep on duty around the clock. On the other hand, auctioneering message boards are rife with complaints about Yahoo's poor support (Yahoo doesn't provide an e-mail address specific to auction queries). Check a site's help files, too, since newbies won't bid if they can't figure out how the process works.

Feedback: With feedback ratings--report cards where buyers and sellers grade each other--you can find out whether buyers bidding for your wares are deadbeats, and learn the procedure (if any) for challenging a buyer's unjustified criticism of your after-sale performance. EBay, which pioneered online auction feedback, has the most robust mechanisms in place, including a clear but narrowly defined policy for removing false or misleading feedback.

Other auction sites copy EBay's feedback system, in spirit if not in specifics.

Form and function: Most big-time sites load quickly and are easy to use. EBay looks cluttered--perhaps that's part of its charm--whereas Amazon's auctions resemble the classy sections where the company sells its own wares, but both pass the form and function tests. The rest fall between those two extremes, though they lean toward Amazon's sleeker look. The search engine is another important factor: Buyers need to find the best deals easily.

Inventory: Since auction volume correlates to active buyers, you'll want to check the number of listings at a site. EBay takes the prize again, often holding more than 4 million auctions simultaneously. Go Network Auction, on the other hand, had a modest 1600 listings when we visited; that's fewer entries than in EBay's bicycle category alone. Use the site's search tool to find auctions featuring the kinds of products you plan to sell. If you fear getting lost in the shuffle at EBay's high-traffic auctions, visit less-active sites such as Auctions.com and Go Network Auction.

Price breaks: If you plan to use high-volume sellers, price breaks can be very helpful but tough to find. For instance, Amazon offers a Pro Merchant Subscription for $10 a month plus a $10 setup fee, with no posting costs. Given that its usual fee is 10 cents per listing, if you put up more than 100 items in a month, you save money. Auctions.com also charges sellers 10 cents per listing, and it levies a flat 2.5 percent commission on all sales. At Yahoo, the whole process is free, but sellers are stuck with bare-bones customer service.

Sellers' tools: An array of sellers' tools can make one site stand out from another. If you want to list many items at one time, demand a bulk loader (for definitions of this and other specialized terms, see "Learn the Online Auction Lingo," page 184). Most sites have one, though Go Network Auction doesn't.

EBay's Mister Lister tool is only available to businesses that have been selling for at least two months. If your business sells lots of unique products, you must fill out each list form individually. Other tools, such as personal watch pages for monitoring ongoing auctions, are available at all six sites. At Amazon's ZShops, you can sell fixed-price items--in large quantities--to the same folks who buy at the site's auctions.

Traffic: You can estimate a site's traffic by looking at the number of auctions it conducts and how often buyers bid. The 800-pound gorilla here is EBay.

According to data from Web measurement service Media Metrix, EBay attracts more visitors than any other auction-only site in the world. Other high-traffic sites include Amazon, Yahoo, and the FairMarket Network, a consortium of big Web portals such as Excite, Lycos, and MSN.com.

And try evaluating a site from the other side. As Perry Calton says, "Spend some time buying. Find out what it's like."

Pick a Type of Auction

Just as auction sites vary in quality from super to sloppy, auction types vary in small-business value from bonanza to bust. In choosing which auction style best suits your business, consider the way winners are determined.

Straight auctions (also called absolute or standard auctions) are the foot soldiers of a selling campaign. You list an item, specify an opening bid, and let the market decide what it's worth. Buyers understand the auction process because it resembles the one for most offline auctions. To manage multiple standard auctions, however, you'll need to use the site's bulk listing tools or third-party management software.

Dutch auctions, though uncommon, are the best way to unload a gaggle of identical goods. In a Dutch auction, all winning bidders pay the lowest successful winning bid price. Suppose that you list five identical chairs, and the top four bids are as follows: Buyer A bids $275 each for two chairs, Buyer B bids $225 for one, Buyer C bids $200 each for two, and Buyer D bids $190 each for three. Then buyers A, B, and C qualify as the highest bidders for the merchandise, and they all pay the lowest successful bid (C's offer of $200 per chair). Buyer D, who offered $190 per chair, gets nothing. Total to seller:

$1000. Dutch auctions favor buyers, since higher bidders pay less than the price they bid.

Yankee auctions resemble Dutch auctions, but in Yankees the winning bidders pay the amount they offered. In the preceding example, Buyers A, B, and C again get the goods, but this time they each pay their highest actual bid ($550 from A, $225 from B, and $400 from C), giving the seller a total of $1175. Yankee auctions favor the seller, who moves more items out the door at higher prices.

In both Dutch and Yankee auctions, sellers benefit from lower costs and reduced maintenance, mainly because of the volume of merchandise they can off-load quickly.

Localized auctions target local buyers rather than a global audience. EBay, for example, hosts local auctions in more than 50 cities, while Yahoo runs overseas-specific auctions in 17 countries. The advantage? You may be able to find local buyers for goods that would be hard to sell to long-distance customers, perhaps because of high shipping costs.

Featured auctions deliver a high-visibility position on the site's home page or at the top of a category. Stewart Mitchell, an insurance broker who moonlights as a CD and LP seller in Hamilton, Ontario, sometimes arranges to get featured positioning on EBay, but only when he's selling a big-ticket item. "I featured a Beatles LP box set from Japan," he says, "because I knew it was worth at least $500."

Fixed-price auctions allow buyers, who don't want to wait for the bidding to close, to purchase goods immediately. Some sites let sellers specify automatic winning bids; Amazon calls this the "take-it price," while Yahoo terms it the "buy price."

Private auctions hide bidders' identities (by concealing their e-mail addresses, usually). Private auctions are handy when buyers want privacy, such as for auctions of adult-themed items or high-priced art.

Reserve auctions ensure that sellers don't have to sell unless the bid reaches a preset threshold amount.

Write Listings That Sell

Since you have to work with the same set of tools as everyone else--a title, a description, and a photograph--you'll discover that preparing an eye-catching entry is tricky. The ideal listing would be a cross between a classified ad and a come-on.

All auction sites offer search engines for buyers to use in digging up items of interest, so composing a good title is the key to preparing a listing. "The right title is 99 percent of the battle," says Mike Baker. "The more words you can use that someone will search for, the more opportunities you have to sell."

Avoid symbols, all-caps, and clichés like "fantastic," "best deal ever," and "must-have." "No one searches for 'fantastic' when they're looking for auctions," observes Baker. Instead, pack the title with nouns that describe the product. At a minimum include the brand name and the type of item.

At most sites, a product description can be open-ended, and you create the advertising-style copy. "Write in sound bites," recommends Lee Bernstein. "You don't want to bog people down with too much text. And try to fit key words into the description, too, so buyers find it when narrowing their searches." For example, she's noticed that buyers search for phrases like "no reserve" and "credit cards."

Photos can sometimes tell the story better than Pulitzer Prize-winning prose, especially when an item's condition affects its price. "[Photos] make an incredible difference," says Mitchell. "I didn't have a scanner the first couple of weeks I was in business, but after I started scanning, I saw marked improvement, not so much in [sales] volume, but in dollars." Keep your photos' composition simple. Use a plain backdrop and concentrate on close-ups of the merchandise. Most auction sites host images at no cost, though EBay charges 25 cents per photo in its Gallery.

Set Your Price

Selling at auction sites may mean rethinking your pricing philosophy. First, you have to draw customers in. "You can't afford to turn them off with too high an opening-bid price," cautions Bernstein.

One major factor in setting an opening price is the demand you expect your listing to generate. Baker says that he calculates his costs--from the item's price to the time it takes him to pack and ship it--and then adds $1. "Don't get greedy," he warns. "Remember, the buyers are going to determine what they're willing to pay."

Check the competition, too. Go to auction sites, search for similar products, and note the opening and winning bid prices.

Monitor Your Sale

Running web-based auctions takes time and involves steps straight selling (offline or online) doesn't, including monitoring auctions, tracking when they close, and noting the highest bidder. Anything a site can do to lessen this load will help.

Bulk loaders can help if you post many identical items. Baker, who runs more than 2000 auctions each week on Amazon alone, loves bulk loaders. Bernstein, whose volume is 10 to 20 unique products a week, doesn't use a bulk loader.

Other tools include a seller-tracking page where you can monitor your auctions--far simpler than burning hours finding and viewing each auction.

Another option is to buy separate software for bulk loading or monitoring.

Predictably, more packages work with EBay than with any other Web auction house. The $199 AuctionAssistant Pro, for instance, integrates only with EBay's Mister Lister batch uploader to post scads of auctions with one click, and it includes tools for automating e-mails to buyers (at the conclusion of an auction, for example). Another program, AuctionTamer, is a $20 customized version of the Internet Explorer browser that monitors your auctions on EBay, Amazon, Yahoo, FairMarket Network, and other sites. It provides instant bid-history reports and lets you watch auction action in real time.

Andale (www.andale.com), a Web-based auction management service, offers a tool set that lists items for bidding (on EBay, Yahoo, and Amazon), creates listing ads, hosts images, and monitors ongoing auctions. Andale also provides back-end reports detailing your sales and accounts receivable, sends personalized e-mails to customers, and lets you store ads for reuse. You don't pay until you close. And fees are low--from 10 cents to $5, depending on the winning bid, plus a 2.95 percent commission on big-ticket items.

Inspire Buyers

Writing a great ad and using fancy tracking tools won't help if customers are afraid to buy from you. You must satisfy them that your business is legitimate.

The first line of security is to pick a site that accepts credit cards, since credit card companies secure online purchases. Many online auctioneers, particularly the small fry, don't take credit cards. And that makes buyers nervous, because it forces them to send a certified check or money order or to wait for you to ship the product after a personal check clears.

Fortunately, several online auction sites are taking steps to solve the problem. On Amazon, buyers can pay by credit card for any auction or ZShops item marked with the site's payments checkmark. Sellers need not obtain a full-fledged merchant account from Amazon to accept credit cards, and it costs just 25 cents per transaction plus 2.5 percent of the selling price.

EBay's Billpoint program has higher rates: 35 cents per transaction for items up to $10, and 35 cents plus 3.5 to 5.5 percent of the total price for anything over $10. In Auctions.com's BidSafe, the house acts as escrow intermediary, holding the buyer's payment for the seller until both parties approve the transaction.

Other online escrow services--ideal for reassuring skittish buyers of products costing more than $400 or so--include IEscrow (www.iescrow.com), SecureTrades (www.securetrades.com), and TradeSafe (www.tradesafe.com). For transactions of $101 to $25,000, IEscrow takes a cut of 2 percent (for cash) or 4 percent (for credit).

Free Web services are another option. PayPal.com and X.com (set to merge soon) accept credit card payments from buyers and deposit the funds in a special account. Sellers can then transfer money from their account to a checking account.

Insurance and guarantees are helpful tools, too. Most big sites offer either or both. Amazon's A-to-Z Guarantee promises to reimburse buyers up to $250 (or up to $1000 if they use the 1-Click purchase method) if the goods sold aren't up to snuff. And Auctions.com's BidSafe plan covers both buyers and sellers with a $3000 insurance policy.

Give 'em Stellar Service

Practice safe selling by giving buyers great service. "Customer satisfaction comes first," says Calton. "We do whatever we can," including shipping replacements when appropriate. "I want my customers to know that I'm here to stay." Such an attitude earns high feedback ratings.

You must also follow the letter of the law. Don't neglect to collect sales tax from buyers who reside in your state. Investigate any local or regional selling requirements; visit your state government's Web site and search for "online auction," "auction regulation," or something similar. Some states, including New Hampshire, require resident auctioneers--online included--to be licensed, which means completing an auction course of at least 80 hours. Violating this law is a felony. Read about auction-related news (including legal issues) at the Online Auction Users Association site (www.oaua.org) or at AuctionWatch's daily news page (www.auctionwatch.com/awdaily/dailynews).

Build Your Own Auctions

If you host an auction on your own site, you'll save money and encourage customers to gather at your online store.

Setting up an auction requires special tools. Bidland.com provides a point-and-click builder for customizing the auction to resemble your existing site. Bidland hosts the auction on its own servers and streams the data to your site. Setup costs $295, plus a $99 monthly service fee and a 5 percent commission per transaction. If you don't have a site, consider combining a Yahoo Store ($100 a month for the smallest shop) with that service's free Merchant Auctions. A pricey alternative is auction-builder software such as OpenSite's Auction 4.2 (at $5000 minimum).

Whether you take this leap or stick with prime sites like EBay and Amazon, online auctions can effectively and inexpensively push your business sales into new territory. "What a wonderful way to do business," says Calton. "Where I live, the [collectibles] market is saturated, but with auctions, I've opened the door to other parts of the country, other parts of the world."

Gregg Keizer is a freelance writer from Eugene, Oregon. He spends more time than he should haunting online auctions.

Two-way street: Most online auctions offer a feedback rating system so people can check the reputation of potential buyers and sellers.

B2B Auctions

Sell Your Stuff to Other Businesses

Business-to-Business (B2B) auctions have as much potential as business-to-consumer (B2C) auctions because they offer an outlet for companies that need to sell massive quantities of supplies and raw materials.

If you're looking to liquidate a large volume of inventory, check out sites like TradeOut.com (www.tradeout.com), DoveBid.com (www.dovebid.com), and EBay Business Exchange (www.ebay.com) that specialize in business-to-business auctions. Posting a product for auction on these sites entails the same process as auctioning goods at Amazon or Yahoo, so the tips and advice offered in the main story apply here as well. Fees are steeper at most B2B auctions. TradeOut taps you $10 per listing and 5 percent of the final selling price; DoveBid charges only the latter. EBay, on the other hand, has the same fees for B2Bs and B2Cs. Still, you won't want to put small lots of goods or dirt-cheap stuff on the block at a B2B.

Specialty Shops

If your business sells raw materials or specific products, try a niche-market auction. There are plenty of these. Some well-established sites--including FreeMarkets (www.freemarkets.com) and MaterialNet (www.materialnet.com)--match raw-material buyers and sellers. Specialized, industry-centered auction sites run the gamut of goods from wood products (E-Wood, www.e-wood.com) to cargo containers (The Intermodal Exchange, www.intermodalex.com). Most of these, however, have different ground rules from straight auctions: First you must register with the online house; then you await requests for proposals (RFPs) that buyers submit to you via the site. B2B auctions aren't for every small business--in fact, currently they're better suited to large companies.

Glossary

Learn the Online Auction Lingo

Bulk loaders are programs or Web-based tools that make creating and uploading multiple listings simpler and quicker.

Commission is a percentage of the selling price that compensates the site for handling the auction. It is levied at the successful conclusion of an auction sale.

Escrow services take the buyer's payment for an auction item, hold it in a safe place, and release it to the seller only after the buyer has received and approved the goods.

Insertion fees (also known as listing fees) are paid by the seller to post (or insert) the item in an auction. The cost for this service is generally low.

Opening price is the minimum bid the seller is willing to accept from a prospective buyer in selling an item at auction.

Relisting is reposting an item that didn't sell. Sometimes relisting must be done manually by the seller, but often it's handled automatically by the site.

Shilling is an unscrupulous practice in which sellers bid on their own items (or have a partner-in-crime do so) in hopes of boosting the bidding price or preventing sale to a third party for less than some predetermined amount.

Gain the trust of your customers by offering first-rate service and secure shopping transactions. Stay abreast of the latest auction-related news and legal issues.

Auction 4.2

Street price: $5000, OpenSite, 919/787-0200, www.opensite.comPRODUCT INFO NO. 610AuctionAssistant ProStreet price: $199, Blackthorne Software, www.blackthornesw.com/bthomePRODUCT INFO NO. 611AuctionTamer 4List price: $20, Envision Software, www.auctiontamer.com.

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