ONLINE AUCTIONS, VIRTUAL COMMUNITIES, & WEB PORTALS
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
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
*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
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 ofcommodity items quickly
Other Type 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
*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
Online Auctions & Related Businesses
Three categories of auction Web sites:
1. General consumer auctions
2. Specialty consumer auctions
3. Business-to-business auctions
*Largest number of transactions occurs on general consumer auction sites
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
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
Consumer Reverse Auctions & 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
*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
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
*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
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
Supply chain characteristics that support reverse auctions:
– Suppliers are highly competitive
– Product features can be clearly specified
– Suppliers are willing to reduce the margin they earn on this product
– Suppliers are willing to participate in reverse auctions
Supply chain characteristics that discourage reverse auctions:
– Product is highly complex or requires regular changes in design
– Product has customized features
– Long-term strategic relationships are important to buyers and suppliers
– Switching costs are high
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
*Auction software (for sellers)
– Software offers services that can help with or automate tasks such as image hosting
*Auction software (for buyers)
– Software observes auction progress and places a bid high enough to win the auction
*Auction consignment services
– Create an online auction for an item
– Handle the transaction
– Remit the balance of the proceeds
Virtual Communities & 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 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
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
Virtual Communities
*Virtual community
– Is a gathering place for people and businesses that does not have a physical existence
– They offer people a way to connect with each other and discuss common issues and interests
Virtual communities exist on the Internet in various forms:
– Usenet newsgroups
– Chat rooms
– Web sites
*Virtual learning community
– One form of a virtual community
– 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
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
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
The Second Wave of Electronic Commerce: Social Networking
As the Internet and Web grew:
– Experiences of online communication faded
– New phenomenon in online communication began
– Internet no longer focus of community (became a tool)
– Enabled communication among community members
*Social networking sites
– New Web site category designed to facilitate interactions among people
*Web logs (Blogs)
– Web sites containing individual commentary on current events or specific issues
– Form of social networking site
– Encourage interaction among people
– Visitors add comments
Early blogs focused on technology topics:
– 2004: blogs used as political networking tool
– 2008: all major candidates using blogs (communicating messages, organizing volunteers, raising money)
*Idea-based virtual communities
– Create communities based on connections between ideas
– More abstract, participants more engaging
*One-word bookmarks tags describe Web pages
*Focus
– Ideas, contributions of all community members
– Show promise for re-creating essence of original Internet communities
Revenue Models for Web Portals & 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
Stickiness of Popular Web Sites Accessed from Home Computers
Stickiness of Popular Web Sites Accessed from Work Computers
*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
Mixed Revenue Portals & 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
E-COMMERCE 