Big Bid'ness - Mercata.com, EBay Inc - Company Business and Marketing

Industry Standard, The, Dec, 2000 by Jennifer Couzin

Following eBay's success, a flock of auction and swap sites are introducing novel ways of buying and selling.

EBay has come a long way from its first sale, a Pez dispenser, to this recent item: "The Midwest country home of your dreams." "Walk out from vaulted living room through Pella doors," the description reads, "Japanese soaking whirlpool tub for one to three people ... Convenient to everywhere in USA." The first bidder committed $150,000, and later bids topped $300,000 for the 12-room lakefront property -- all inspired by a handful of photos posted alongside the text. And real estate is just one of several big-ticket categories that recently have made their debut on eBay. Looking for a hot tub? The latest bid is $2,750 for a Palm Beach Elite Hydro Spa.

With 1,100 bids logged every minute for the 5 million-plus items listed on eBay, the site has attracted nearly 16 million registered users. That number of users ensures that people from Minnesota to Munich will be constantly placing bids, buying and posting items.

Spurred by eBay's success (the site was profitable from the start and is aiming for revenues of $3 billion by 2005), Yahoo, Amazon and hundreds of others have jumped into the game, including smaller copycat sites specializing in everything from boats to Beanie Babies. The online auction boom has also ignited the imaginations of entrepreneurs who envision new ways of buying and selling online, such as bidding an item down rather than up, group buying and swapping goods of similar value. Will shoppers embrace these types of commerce as enthusiastically as they have Pez dispensers?

Maybe. But success will come to eBay's competitors only if they're able to attract large numbers of warm bodies to their sites. Without lots of customers, none of these buying and selling methods can work.

Mercata, a reverse-auction site launched in May of 1999, employs unusual approaches to attract a large volume of buyers and sellers. The company forms relationships with merchants -- it's gained access to 400 brands so far -- and convinces them to list popular products on its site. A batch of DVD players goes up on the site at a price comparable to that found in stores, then the bidding begins. The more customers who express an interest in buying one, the further the price drops. When the sale doses at a predetermined time, the price is set at whatever it has fallen to. Mercata calls these group buys "power buys."

Tom Van Horn, CEO of Mercata, says that on average buyers save between 20 and 50 percent off the list price. That may be optimistic. On Mercata recently, a Sony MiniDisc recorder was priced at $149.82 with about 12 hours remaining. The latest bid on eBay for the same model was $150.50 with about eight hours left. A Northern California Best Buy was charging $179.99.

A huge group of people recently took part in Mercata's largest power buy ever, for a phone card that stored 120 calling minutes. The price for the card dropped from about $12 to $6; nearly 10,000 people snagged one.

Mercata, which has filed for an IPO, would not release revenue figures, but its prospectus reported 1999 revenues at $6.3 million and net losses at $36 million. The company has sought to boost income by creating a division to help businesses of all sizes orchestrate power buys on their own Web sites. The company's largest client is Sun Microsystems, which has power buys running for processors and workstations, some costing more than $5,000.

Mercata's strategy taps into a larger trend: Increasingly, businesses big and small are using auctions and other methods of selling online. "Rather than try to bring every customer back to your site, you're putting your goods out in a marketplace," says Rodrigo Sales, co-founder and CEO of AuctionWatch, which helps businesses sell on major auction sites. Sales believes that alternate ways of selling their goods will help companies, especially those based exclusively on the Web. EBay executives agree. They are seeing a growing number of mostly small businesses selling on the site. If the one-off hot tubs offered on eBay aren't what you're looking for, you can click straight through to Dolphin Bay Distributors to browse the Florida company's complete inventory.

Not only are businesses attracting new customers by listing on eBay, they're also using the site to buy supplies and equipment. Setting up a private medical practice? EBay's specialty site, Business Exchange, offers professional stethoscopes starting at $37.99; or you can go directly to Stethoscopes4U.com. EBay's Business Exchange also has mini-sites devoted to agriculture, construction, even industrial equipment. "We're finding that a lot of people are buying for their small business," says Jeff Jordan, senior VP of eBay United States.

If eBay's mission is connecting buyers and sellers who might not otherwise find each other, Web sites that specialize in swapping are like online trading posts. Swapping is the grown-up version of school-yard trading: my Pokemon card for 15 minutes on your Razor scooter. Swap sites hope to tap into our perennial desire to bargain and exchange goods.