E-Commerce: The Second Wave
Fifth Annual Edition
Chapter 6:
Online Auctions, Virtual
Communities, and Web Portals
Objectives
In this chapter, you will learn about:
• Origins and key characteristics of the seven
major auction types
• Strategies for Web auction sites and auctionrelated businesses
• Virtual communities and Web portals
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Origins of Auctions
• In an auction
– Seller offers an item for sale, but does not
establish price
• Bidders
– Potential buyers
• Bids
– Prices bidders are willing to pay for an item
• Shill bidders
– Can artificially inflate the price of an item
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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
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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
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Dutch Auctions
• Also called descending-price auctions
• Form of open auction in which bidding starts
at a high price and drops until bidder accepts
price
• Often better for the seller
• Good for moving large numbers of commodity
items quickly
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Coldwater Creek Dutch Auction of
Closeout Merchandise
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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
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Other Types of Auctions (Continued)
• Double auction
– Buyers and sellers each submit combined pricequantity 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
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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
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General Consumer Auctions
• Most common format used on eBay
– Computerized version of the English auction
• eBay English auction
– Allows seller to set a reserve price
– Bidders are listed
– Bid amounts are not disclosed until after
auction
– Allows sellers to specify that an auction be
made private
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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
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Consumer Reverse Auctions and
Group Purchasing Sites
• Reverse bid
– Buyer can accept lowest offer or the offer that
best matches buyer’s criteria
• Priceline.com
– Completes many of its transactions from an
inventory
– Operates more as a liquidation broker
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Consumer Reverse Auctions and
Group Purchasing Sites (Continued)
• Group purchasing site
– Seller posts an item with a price
– As individual buyers enter bids, site can
negotiate better price with the item’s provider
– Posted price ultimately decreases as number
of bids increases
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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
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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
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CompUSA Auctions Home Page
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Business-to-Business Reverse Auctions
• U.S. Navy and the federal government’s
General Services Administration
– Experimenting with reverse auctions
• Need for trust and long-term strategic
relationships with suppliers
– Makes reverse auctions less attractive in
some industries
• Use of reverse auctions
– Replaces trusting relationships with a bidding
activity that pits suppliers against each other
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Supply Chain Characteristics and
Reverse Auctions
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Auction-Related Services
• Auction escrow services
– An independent party that
• Holds buyer’s payment until buyer receives
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
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Auction-Related Services (Continued)
• Auction software
– For sellers
• Software offer 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
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Auction-Related Services (Continued)
• Auction consignment services
– Create online auction for an item
– Handle the transaction
– Remit balance of proceeds
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Portion of Andale Products Page
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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
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Web Page Displayed on a PDA
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Electronic Marketplaces
• Marketplaces
– Can serve people who want to buy and sell a
wide range of products and services
• AvantGo
– Provide PDAs with downloads of Web site
contents, news, restaurant reviews, and maps
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AvantGo Channels Subscription Page
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Intelligent Software Agents
• Programs that search the Web and find items
for sale that meet a buyer’s specifications
• Some software agents
– Focused on a particular category of product
• Simon
– One of the best shopping agents currently
available
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Virtual Communities
• Gathering place for people and businesses
that does not have 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
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Virtual Communities (Continued)
• Virtual learning community
– One form of virtual community
• Can help companies, their customers, and
their suppliers plan, collaborate, and transact
business
• Google Answers
– Gives people a place to ask questions then
answered by an expert for a fee
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JA-SIG uPortal Home Page
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Google Answers Page
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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
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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
• Web portal revenue models
– Strategies that build on a combination of
virtual communities and other activities
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Web Portal Revenue Models
• Advertising supported web portals
– One rough measure of stickiness
• How long each user spends at the site
– Nielsen//NetRatings
• Determines site popularity by measuring the
number of unique visitors
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Web Portal Revenue Models
(Continued)
• Web portals
– High visitor counts can yield high advertising
rates
– Companies that run Web portals
• Believe in the power of portals
• Add sticky features such as chat rooms, e-mail,
and calendar functions
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Stickiness of Popular Web Sites
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Mixed Revenue Portals
• Time Warner’s AOL unit
– One of the most successful Web portals
– Charged 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
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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 virtual
community among employees
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Summary
• Companies are now using Web to
– Operate auction sites, create virtual
communities, and serve as Web portals
• Consumer online auction business
– 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
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Summary
• New companies have formed that
– Capitalize on 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
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