Sun Leading the Way in EBay's Hardware Auctions

Millions of users swarm to EBay's signature auction Web site in search of everything from Barbie Dolls to automobiles. A vintage cheerleader Barbie, however, does little to help an IT manager who is desperately trying to fill a couple of back-end hardware gaps in a corporate network.

That is one reason why Sun Microsystems decided to make an extensive range of servers and other hardware available to users on EBay -- a move that could help both small and large companies alike. For the smaller player, the auction format of EBay's site gives users the chance to set their own prices for hardware and maybe to pick up a re-certified, used machine at discount. Larger companies can also benefit from the hardware exchange through the ability to buy small numbers of machines on the fly to handle an unexpected crunch.

In his keynote speech at Oracle Corp.'s Open World event last month, Sun's Chairman and Chief Executive Officer Scott McNealy made a push for hardware auctioning as a way for both sellers and buyers to set the most accurate price for a server. McNealy called the auction method "dynamic pricing" and has had his company auctioning hardware since January.

While the Sun units sold on EBay make up a tiny fraction of the vendor's billions in revenue, the Palo Alto, California-based company has seen the approach pick up steam in recent weeks and now makes some products available only on EBay.

"Dynamic pricing allocates the product to the customer who wants it the most," McNealy said in his keynote address.

Alex Rublowsky, group manager for Sun's auction program, reiterated McNealy's sentiments and said that the company is considering all of its products as possible Web auction wares.

The company currently divides the items sold on EBay into five categories, Rublowsky said. First, Sun lists on EBay the servers that haven't sold as well as expected and so need to ship to free up warehouse space. The vendor then also auctions off last-generation products that might otherwise be retired due to technological advancements. One example from that segment came when the company moved from machines with 32-bit CD ROMs (read only memory) to ones with DVDs, (Digital Video Disks), Rublowsky said.

Sun also finds that some customers may put in orders for 500 specially configured units and later ask for 300 to be shipped one quarter and then 200 to come the next quarter. Sun will then sell the 200 units of the unique configuration on EBay and make another 200 to ship later.

The vendor also sells a few reconfigured used servers that it tests and provides with a new warranty. The items generally come back to Sun after a lease expires and are marked as reconfigured on the EBay site. In the last segment of hardware offerings, Sun puts a variety of new products up for grabs. Now, for instance, the SunBlade 1000 running at 600Mhz is available only through auction.

"The products that are up there change every week," Rublowsky said. "The more people that are interested, the more product we will be able to sell that way. There is no product that Sun makes that is off the table."

Sun just crossed the US$10 million mark in total sales of hardware through auctions. Some customers have paid more than $100,000 in a single order and, in recent weeks, the company found it can generate about $1 million [m] a week from EBay auctions.

"This is still new," Rublowsky said. "What we are doing here today is certainly not making a whole lot of people take notice on Wall Street."

Nonetheless, Rublowsky said his company finds an ever-increasing number of customers looking to the auctions to set their own prices on hardware and to get it quick. Sun delivers most units two days after the auction is over and thinks that learning how to do business over the Internet now will give the company valuable experience in the years to come.

Sun's competitors, however, seem less impressed with using EBay as a means to move excess inventory.

Hewlett-Packard Co. seems to be one of the few other hardware vendors even making an attempt at using EBay for hardware sales. Carly Fiorina, chairwoman, president, and chief executive officer at HP, recently said her company likes the auction model because it helps remove inefficiencies from supply chains, creating better markets.

"We're selling off excess inventory in online auctions," she said in a recent speech. "This gets us more money."

HP does not have many hardware products currently available on EBay but does sell some of its peripheral equipment like cameras and printers.

A spokeswoman at Compaq Computer Corp. said her company has not entered the online auction market yet and has no plans to do so in the future. In the hardware section of EBay, users will find a number of Compaq servers. However, resellers and not Compaq itself offer those products.

"We don't have anything to do with that," the spokeswoman said. "If people choose to sell our servers on EBay there is nothing we can do about it. We are content with the way our products are sold."

Dell Computer Corp. also turned away from the bidding wars on EBay and decided instead to auction hardware on its own Dell Auctions system.

The top hardware vendors prefer to have a variety of ways to sell their products, according to one market analyst.

"These large vendors want to have a mix in the way they can sell products," said Jean Bozman, research director at International Data Corp. (IDC), which is owned by International Data Group Inc., the parent company of IDG News Service.

"They want to sell direct and indirect," Bozman said. "They want to leverage the Internet to reduce costs."

Bozman, like other analysts, said the auction method is gaining speed but added that some customers fear a lack of service and support may be the downside to purchasing auctioned hardware.

Another analyst that preferred anonymity seemed less impressed with the auction approach.

"There are some people that thought this was absolutely marvelous, but I am not one of them," she said. "I think of it as something like making hardware seem like lawn furniture."

Sun's customers, however, seemed pleased with the service and support received thus far. Out of the last 162 auctions conducted by Sun on eBay only eight users registered a negative complaint, compared to 137 positive marks and 14 neutral submissions. The ones with complaints said Sun did not get the product to them on time and that the company sometimes offers products online that are not actually available.

The majority praised the vendor and said it kept its delivery promise.

"Great service, got it out the door fast, great to do business with! Second machine purchased," said one user.

"A great system at a good price, but for large systems shipping takes awhile," said one of the neutral respondents.

Sun Microsystems, in Palo Alto, California, can be reached at +1-650-960-1300 or at http://www.sun.com/.

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