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October 4, 1999

Going, Going, Gone!

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TechWeb Next Wave Of Internet Commerce?
USBid's Ormesher expects other companies to follow suit and use auctions and exchanges to liquidate inventory on the Web. "All business-to-business markets tend to have some excess inventory that's often considered waste," he says. "The problem is that the inventory is stuffed in warehouses around the world and nobody knows it exists. The Internet provides a communication medium for access to that."

Reverse Auctions
Auctions are also used on the buy-side, where they are sometimes referred to as "reverse auctions." Visteon's $150 million auction in August was for printed wire boards for climate control and braking systems in automobiles. The auction was hosted by A.T. Kearney and allowed bidders, using an Internet browser, to see the lowest bid but not the identity of the bidder.

CIO Bent says that in addition to faster turnaround time, Visteon secured the components from a broader and more competitive base of suppliers that are also screened for their ability to meet Visteon's quality and delivery requirements. "We saw some double-digit savings," says Bent. Visteon also reached suppliers it didn't know existed before.

As auctions and other forms of dynamic pricing proliferate across the Web, they're no longer confined to dedicated sites. Witness the deal last month involving Excite, Lycos, Microsoft, and Ticketmaster-CitySearch Online, all of which have Web sites involved in a new auction network hosted by Fair Market Inc. "You can put an auction wherever the eyeballs are," says Susan Zaney, FairMarket's VP of marketing.

Many industries are doing just that. The ChannelPoint Commerce exchange provides a place where insurance brokers, consumers, and underwriters get together to research, buy, and sell insurance policies. Beginning this week,Recruit Dynamics will use online auctions to recruit contractors and consultants. Last month, Flashline. com unveiled a reverse-auction service for outsourcing development of software components.

Michael Fix, president of Industry to Industry Inc., a new company, known as i2i, that's creating vertical market exchanges in sectors such as chemicals and energy, sees "the world moving toward dynamic pricing." Last week, i2i unveiled two of the newest exchanges. Also, the National Retail Federation said last week it will join with i2i to build and operate an electronic marketplace where retailers buy and sell common goods such as store fixtures; it's slated to begin operating in January. The startup is also collaborating with SAP AG so that large companies can integrate data from i2i's various exchanges into their enterprise software systems.

bar chart Also, i2i is creating the Chemicals Exchange, which appeals to companies such as Neste Chemical Co., a unit of Neste Corp., an industrial company in Helsinki, Finland, with about 15,000 employees. Neste Chemical now goes through trading companies when it has a surplus of a certain product and wants to unload it or has a supply shortage and needs to buy. "A normal commission for letting someone else be the middleman would be 2%," says Neste Chemical business manager Mats Larsson. "We hope to save that 2%." Posting products it wants to buy or sell on the Internet is also an easy way to reach potential partners in India and other parts of the world where Neste doesn't have a strong physical presence.

In absolute terms, the auctions are still small, but that's expected to change quickly. Dynamic pricing today accounts for 15% of the total $81 billion in E-commerce, according to analyst Vern Keenan at Keenan Vision. But by 2004, that amount is forecast to be 40% of $1.4 trillion in total online transactions."It's one of the fastest-growing segments of E-commerce," says Keenan. Besides current online markets, Keenan anticipates exchanges to flourish for freight and logistics services, container shipping, air travel, advertising, and IT professionals.

Squeeze On Middlemen?
Clearly, some companies will benefit more than others from the new pricing dynamics. "This is a threat for the trading companies," says Larsson of Neste Chemical.

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