1. Chapter 6: Online Auctions, Virtual Communities, and Web Portals Electronic Commerce, Sixth Edition

2. 2 Objectives In this chapter, you will learn about: Origins and key characteristics of the seven major auction types Strategies for Web auction sites and auction- related businesses Virtual communities and Web portals

3. Electronic Commerce, Sixth Edition3 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

4. Electronic Commerce, Sixth Edition4 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

5. Electronic Commerce, Sixth Edition5 English Auctions (continued) 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

6. Electronic Commerce, Sixth Edition6 Dutch Auctions 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 of commodity items quickly

7. Electronic Commerce, Sixth Edition7 Coldwater Creek Dutch Auction of Closeout Merchandise

8. Electronic Commerce, Sixth Edition8 Other Types 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

9. Electronic Commerce, Sixth Edition9 Other Types of Auctions (continued) 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

10. Electronic Commerce, Sixth Edition10 Online Auctions and Related Businesses Three categories of auction Web sites –General consumer auctions –Specialty consumer auctions –Business-to-business auctions Largest number of transactions occurs on general consumer auction sites

11. Electronic Commerce, Sixth Edition11 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

12. Electronic Commerce, Sixth Edition12 Specialty Consumer Auctions Specialized Web auction sites –Meet the need of special interest market segments Specialty consumer auction sites –Golf Club Exchange, Cigarbid.com, and Winebid –Gain an advantage by identifying a strong market segment with readily identifiable products

13. Electronic Commerce, Sixth Edition13 Consumer Reverse Auctions and 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

14. Electronic Commerce, Sixth Edition14 Consumer Reverse Auctions and Group Purchasing Sites (continued) 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

15. Electronic Commerce, Sixth Edition15 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

16. Electronic Commerce, Sixth Edition16 Business-to-Business Auctions (continued) Ingram Micro –Major distributor of computers and related equipment to value-added resellers –Often finds itself with outdated items turned over to liquidation brokers –Now auctions those items to its established customers –Auction prices received average about 60 percent of the items’ costs

17. Electronic Commerce, Sixth Edition17 CompUSA Auctions Home Page

18. Electronic Commerce, Sixth Edition18 Business-to-Business Reverse Auctions 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

19. Electronic Commerce, Sixth Edition19 Supply Chain Characteristics and Reverse Auctions

20. Electronic Commerce, Sixth Edition20 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

21. Electronic Commerce, Sixth Edition21 Auction-Related Services (continued) Auction software –For sellers Software offers services that can help with or automate tasks such as image hosting –For buyers Software observes auction progress and places a bid high enough to win the auction

22. Electronic Commerce, Sixth Edition22 Auction-Related Services (continued) Auction consignment services –Create online auction for an item –Handle the transaction –Remit the balance of the proceeds

23. Electronic Commerce, Sixth Edition23 Virtual Communities and 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

24. Electronic Commerce, Sixth Edition24 Web Page Displayed on a PDA

25. Electronic Commerce, Sixth Edition25 Electronic Marketplaces 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

26. Electronic Commerce, Sixth Edition26 AvantGo Home Page

27. Electronic Commerce, Sixth Edition27 Intelligent Software Agents 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

28. Electronic Commerce, Sixth Edition28 Virtual Communities Gathering place for people and businesses that does not have a physical existence Exist on the Internet in various forms –Usenet newsgroups –Chat rooms –Web sites Offer people a way to connect with each other and discuss common issues and interests

29. Electronic Commerce, Sixth Edition29 Virtual Communities (continued) 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

30. Electronic Commerce, Sixth Edition30 Google Answers Page

31. Electronic Commerce, Sixth Edition31 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

32. Electronic Commerce, Sixth Edition32 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

33. Electronic Commerce, Sixth Edition33 Web Portal Revenue Models 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

34. Electronic Commerce, Sixth Edition34 Web Portal Revenue Models (continued) 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

35. Electronic Commerce, Sixth Edition35 Stickiness of Popular Web Sites

36. Electronic Commerce, Sixth Edition36 Mixed Revenue Portals 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

37. Electronic Commerce, Sixth Edition37 Internal Web Portals Run on intranets Can save significant amounts of money by replacing the printing and distribution of paper memos, newsletters, and other correspondence Can become a good way of creating a virtual community among employees

38. Electronic Commerce, Sixth Edition38 Summary Companies are now using the Web to operate auction sites, create virtual communities, and serve as Web portals Consumer online auction business is dominated by eBay B2B auctions –Give companies a new and efficient way to dispose of excess inventory B2B reverse auctions –Provide an effective procurement tool

39. Electronic Commerce, Sixth Edition39 Summary (continued) New companies have formed that capitalize on the Web’s ability to bring together geographically dispersed people and organizations Organizations are using mobile commerce to sell goods and services to users of handheld devices Companies are using internal Web portals to communicate with employees