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

1. Chapter 6:Online Auctions, Virtual Communities, and Web Portals Electronic Commerce, Seventh Annual Edition

2. 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 Electronic Commerce, Seventh Annual Edition

3. Auction Overview • In an auction, a seller offers an item for sale, but does not establish a price • Bidders • Potential buyers • Bids • Prices bidders are willing to pay for an item • Shill bidders • Can artificially inflate the price of an item Electronic Commerce, Seventh Annual Edition

4. English Auctions • In 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 Electronic Commerce, Seventh Annual Edition

5. 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 Electronic Commerce, Seventh Annual Edition

6. Dutch Auctions • Dutch auctions are also called descending-price auctions • Form of open auction in which bidding starts at a high price and drops until a bidder accepts the price • Often better for the seller • Good for moving large numbers of commodity items quickly Electronic Commerce, Seventh Annual Edition

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8. 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 Electronic Commerce, Seventh Annual Edition

9. 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 Electronic Commerce, Seventh Annual Edition

10. 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 Electronic Commerce, Seventh Annual Edition

11. General Consumer Auctions • Most common format used on eBay • 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 Electronic Commerce, Seventh Annual Edition

12. 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 Electronic Commerce, Seventh Annual Edition

13. Consumer Reverse Auctions and Group Purchasing Sites • Reverse bid • Buyer can accept the lowest offer or the offer that best matches the buyer’s criteria • Priceline.com • Completes many of its transactions from an inventory • Operates more as a liquidation broker Electronic Commerce, Seventh Annual Edition

14. Consumer Reverse Auctions and Group Purchasing Sites (continued) • 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 Electronic Commerce, Seventh Annual Edition

15. 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 Electronic Commerce, Seventh Annual Edition

16. Business-to-Business Auctions (continued) • Ingram Micro • Major distributor of computers and related equipment to value-added resellers • Often finds itself with outdated items that it formerly turned over to liquidation brokers • Now it auctions those items to its established customers • Auction prices it receives average about 60 percent of the items’ costs Electronic Commerce, Seventh Annual Edition

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18. Business-to-Business Reverse Auctions • The U.S. Navy and the federal government’s General Services Administration are experimenting with 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 Electronic Commerce, Seventh Annual Edition

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20. Auction-Related Services • Auction escrow services • 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 Electronic Commerce, Seventh Annual Edition

21. Auction-Related Services (continued) • Auction software • For sellers • Software offers 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 Electronic Commerce, Seventh Annual Edition

22. Auction-Related Services (continued) • Auction consignment services • Create an online auction for an item • Handle the transaction • Remit the balance of the proceeds Electronic Commerce, Seventh Annual Edition

23. 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 Electronic Commerce, Seventh Annual Edition

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25. Virtual Communities and Web Portals (continued) • Electronic marketplaces can serve people who want to buy and sell a wide range of products and services • AvantGo • Provides PDAs with downloads of Web site contents, news, restaurant reviews, and maps Electronic Commerce, Seventh Annual Edition

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27. Intelligent Software Agents • Intelligent software agents are programs that search the Web and find items for sale that meet a buyer’s specifications • Some software agents focus on a particular category of product • Simon • One of the best shopping agents currently available Electronic Commerce, Seventh Annual Edition

28. Virtual Communities • A virtual community is a gathering place for people and businesses that does not have a physical existence • They exist on the Internet in various forms: • Usenet newsgroups • Chat rooms • Web sites • They offer people a way to connect with each other and discuss common issues and interests Electronic Commerce, Seventh Annual Edition

29. Virtual Communities (continued) • Virtual learning community • One form of a virtual community • Virtual communities can help companies, their customers, and their suppliers plan, collaborate, and transact business • Google Answers • Gives people a place to ask questions that are answered by an expert for a fee Electronic Commerce, Seventh Annual Edition

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31. 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 Electronic Commerce, Seventh Annual Edition

32. 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 Electronic Commerce, Seventh Annual Edition

33. 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 Electronic Commerce, Seventh Annual Edition

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36. Revenue Models for Web Portals and Virtual Communities (continued) • 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 Electronic Commerce, Seventh Annual Edition

37. 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 Electronic Commerce, Seventh Annual Edition

38. 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 Electronic Commerce, Seventh Annual Edition

39. 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 Electronic Commerce, Seventh Annual Edition

40. Summary (continued) • 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 Electronic Commerce, Seventh Annual Edition