GUEST SPEAKER Thursday, March 6 Emilio Collar IBM Global Services Topic: “The E-Transformation at IBM”

Where are we now? - STRATEGIC IMPACT OF IT - MANAGING IN THE MARKETSPACE - IDENTIFYING OPPORTUNITIES/ CREATING VALUE - EMERGING INTERNET MODELS - BUSINESS TRANSFORMATION - INTERNATIONAL ISSUES OF E-COMMERCE

What are auctions? An auction is “a market institution with an explicit set of rules determining resource allocation and prices on the basis of bids from the market participants.” McAfee & McMillan

Auction Characteristics Auctions restrict the bargaining to a single dimension, price. (Relatively easy for a software agent to manipulate). Item for sale is displayed, and the bidders may usually inspect it to gather its specifications. Items sold by auction are usually sold “as is,” (avoid need to trade off different variables). The strategy resolved from the seller’s standpoint.

Auctions Bids submitted in written form with no knowledge of bids of others. Winner pays the exact amount he bid. First-price, sealed bid. When multiple items are being auctions. Seller announces very high opening bid. Bid is lowered progressively until demand rises to match supply. Dutch, or descending-price. Open. Seller announces reserve price or low opening bid. Bidding increases progressively until demand falls. Winning bidder pays highest valuation. Bidder may re-assess evaluation during auction. English, or ascending-price.

Auction Characteristics of Onsale English/first-price hybrid Multi-item auction Differential pricing Simultaneous and sequential elements No royalties

Differences from a retail mkt. In traditional retail Company sets a price and quantity varies The greater the demand the better Buying is a chore – part of transaction cost Price is a black box Retailers control margins In Onsale’s case Company sets a quantity, price varies Huge demand can backfire Winning is fun – buying experience is part of the company’s value proposition Explicit price validation Buyers control margins

Differences with AtCost model In traditional retail Company positions itself as a supplier partner Company takes advantage of its ability to move products through the channel Company hides information from buyers in order to extract higher margins Company spends advertising dollars in order to move products In Onsale’s case Company positions itself as a buyer partner Company takes advantage of its ability to move information through the channel The company divulges information, and makes this part of its value proposition Company sells products in order to move advertising

Follow-Up Sep 99 Revenue Jan-Sep $242.4M (up from $148.8M in1998) People registered 1.544 M Nov 99 Merged with Egghead.com (Egghead.com shareholders own about 47%; Onsale founders own about 27%. March 29, 2000 Rated#1 Online Consumer Electronics by Nielsen/NetRatings PC Data Online, rated top web retailer of tech products in US Rated#1 Ease-of-Use Buying Services by Gomez.com

THE ONSALE CASE STUDY WERE: THE PRIMARY OBJECTIVES OF THE ONSALE CASE STUDY WERE: 1. To explore the role of “informediaries” on the Internet. Onsale is an “information broker” (facilitates information exchange not only from supplier-to-customer, but also from customer-to-customer. 2. The AtCost model illustrate how OnSale is using information to change the power dynamics between buyer and seller. (It is reversing the traditional channel incentive structure, and make its value proposition). 3. The auction model illustrate new forms of electronic promotion and and their role in marketing. 4. The case illustrate the fluidity of Internet business models, and the extent to which the Internet is inverting traditional marketing logic.

Other Interesting References “Cost Transparency: The Net’s Real Threat to Prices and Brands” by Indrajit Sinha, HBR, March-April 2000. “How to Fight a Price War” by AR. Rao, M.E. Bergen, and S. Davis, HBR, March-April 2000.