1. Pricing and Place © 2001 Ann Schlosser, University of Washington Business School

2. Onsale Customer franchise WOMAuctionAtCost Sell ads Prices up Volume up, costs down $$$

3. Onsale Auction Model vs. Traditional Retail Onsale Set quantity Price varies High demand could backfire Limited selection Buying (“Winning”) is fun Traditional Retail Set price Quantity (demand) varies High demand is desirable Wide selection Buying is a chore (transaction cost)

4. Onsale AtCost Model vs. Traditional Retail Onsale Buyer partner Divulges price information (“unbundling” = value proposition) Move information through channel Sell products to move ads Traditional Retail Supplier partner Hides price to extract higher margins Moves products through channel Ads used to move products

5. Is Onsale performing well? Benchmarks for performance Q1Q2Q3Q4 (est)Growth/qtr Net revenues $40.2m$50.8m$58.1mNAUp 14-26% Net income ($3.4m)($4.0m)($3.0m)NA-- Daily visitors NA97k/day114k/day139k/dayUp 17-22% Reg. Customers NA667k822k1mUp 22-23% Orders placed NA331k350k355kUp 1-6%

6. Onsale’s Average Customer Stickiness Spends 42 minutes at the site per visit Places 20 bids per year Spends $800 per year

7. Acquisition Costs For first-time customer $1.2million/6.75 million (per quarter) = 18 cents/visitor For new registered customer $1.2million/178,000 (per quarter) = $6.74/visitor Efficiencies due to: –Experiential marketing –Viral marketing (10% of traffic are traceable to referral site) –Email marketing (targeted emails have 30% response rate)

8. Efficiency of Onsale Relative to Other Public E-Tailers Sales/employee/qtrSales/registered user/qtr Onsale$304k$60 Amazon$153k$34 eBay$161k$11 *Dell$271kNA Yahoo!$134k$2 *Dell includes non-Internet sales

9. Problems With Onsale’s Auction Model If bids get too high, potentially lose positive WOM –Need to facilitate feeling of “winning” As community gets larger, likelihood of a registered user having the winning bid falls –Need critical mass but an upper bound given limited supply Constrained by supply –Supply is unpredictable and counter-cyclical

10. 2.6% conversion rate Converting Traffic into Orders First time daily visitors = 6.75 million/qtr New registered customers (1m – 822k) = 178k/qtr Additional orders (355k-350k) = 5,000/qtr 2.8% conversion rate (a 1.4% increase in total orders) (66% arrive with specific purchase item in mind)

11. Onsale’s Share of Wallet Average buyer spends $800/year –10% spend an average of $4,400/year (similar to 80/20 rule) –90% spend $400/year Who are the top 10%? Likely small business buyers –19% buy from Onsale for business use/resale –Spend $3k-6k on IT-related purchases (=$36k-$72k/year) If assume top 10% are small business buyers who could purchase most/all of IT-related products from Onsale, then share of wallet is 6-12%

12. The AtCost Model Revenues come from: –Fixed commissions ($5-10) –Advertising Risks –Jeopardize supplier relationships –Increased competition (e.g., Dell, CDW and loss leaders) –Brand confusion –Increase marketing expenditures to create awareness

13. Onsale Update Dec. 31, 1998: 971,000 registered bidders (up 18% from Q3) and 139,000 new visitors a day (up 22% from Q3). Jan. 1999: Unveils AtCost model and stock drops 10% July 1999 – announce that egghead.com and Onsale will merge –Use egghead.com domain 2001 auctions at egghead: –Express auctions –Free freight auctions –Mega-auctions

14. Boston.com Should Boston.com “upsell” classified ads? What should Boston.com’s marketing strategy be? Should they invest aggressively in customer acquisition and brand building? Why or why not? Is Boston.com being run as a hawk or a dove? Do you agree with the decisions made by Globe management regarding organizational reporting relationships and the coordination of activities between the Globe and Boston.com?

15. Onsale and Macromedia