The paper chase, online

Folio: The Magazine for Magazine Management, Dec 1, 1999 by Jo Bennett

While executives find online paper-buying intriguing they're still not entirely sold on the auction block.

Companies like Ebay, Amazon and Priceline.com have sold millions of consumers on bargaining for goods and services in Cyberspace, and the paradigm is equally prevalent on the business-to-business side. Recently, several companies have shored up their efforts to add paper to the list of items you might want to haggle over online.

For example, in October, Horsham, Pennsylvania-based VerticalNet, owner of more than 40 online b-to-b communities, forged an alliance with PaperExchange.com, a Boston-based online marketplace for buyers and sellers of paper. The partnership allows members of PaperExchange to access VerticalNet's paper industry-specific content, while members of VerticalNet's PulpandPaperOnline (not affiliated with the Miller Freeman title) are linked to PaperExchange's "floor." Launched in 1996, PaperExchange has more than 2,500 registered members, according to marketing director Wendy Ward. Many publishers are among the site's registered membership, she says, but she declines to give a percentage.

And in August, Portland, Oregon-based PrintBid.com spun off PaperDeals.com. Combined, the two sites have 4,000 members, according to Patrick White, director of sales and marketing. He estimates that 15 to 20 percent of PrintBid's registered users deal with publication-grade papers (including catalogs).

PaperExchange and PaperDeals are based on slightly different business principles. As the name implies, PaperExchange is similar to stock exchanges in that prices fluctuate depending on the volume of bidding or asking. PaperDeals follows the conventional auction-house model, where prices never fall below the price that's originally set.

Neither site charges membership fees, say spokespersons at each company. Once transactions are complete, sellers pay PaperDeals a 1 to 5 percent commission fee; PaperExchange collects 3 percent.

Market conditions ripe for start-ups

Online paper options for buying and selling excess inventories make sense--especially now. For example, many companies, in taking advantage of the hot market for custom-published titles, are looking for paper grades outside their normal realm. An average publication printrun might have a surplus of 5 percent of what was budgeted, according to Bert Langford, president of Denvile, New Jersey-based BNL Consulting Group, which specializes in print and production.

But perhaps even more critical to the bottom line for many publishers is that consolidations among paper manufacturers and subsequent plant shutdowns have taken a toll on the availability of paper. As a result, mills--which typically run at 93 percent capacity today--are maxed out, affirms Alfred Walden, vice president of Walden-Mott Corporation (publisher of Walden's North American Pulp & Paper Report).

Currently, PaperDeals.com's primary clients are sellers of paper, says White. But he projects that as the market for paper continues to tighten, auctions to buy--"reverse auctions"--will grow in demand. This model allows members to enter specifications for the product they seek. Suppliers are e-mailed and can then place bids at the site.

Many publishers not yet "sold"

Manufacturing and production executives have mixed reactions to these marketplaces. Some suspect that while the service might work well in sectors like commercial printing, magazines aren't likely to be the biggest clients. Thomas J. Fox, vice president of manufacturing for American Express Publishing Corp., points out that despite the many technological changes that the magazine publishing industry has seen over the past decade, "It's still a relationship-driven business."

Other publishers interviewed find the idea, particularly in the area of spot buys, appealing. "We purchased a surplus of paper for a job that printed six months ago, and we're paying for it to sit in a warehouse," says Rex Hammock, chairman of Nashville-based custom publisher Hammock Publishing Inc. "If there's a market-maker out there right now who can sell it to someone who needs it, we're in line to do that."

But Edward Egan, senior vice president of manufacturing for Primedia Consumer Magazines, says that while the technology is there, these sites need to attract more traffic to be viable options for publishers. Egan buys paper for the more than 220 print titles that New York-based Primedia Inc. publishes. He recalls going to PaperExchange to try to recoup some of the money that he faced losing on surplus inventory ordered for special projects requiring special stocks. He went to PaperExchange, but didn't receive any attractive bids, he says.

"It's not there yet as a true auction block," Egan says. "I just think it needs more exposure, a little more publicity and a lot more commerce."