23 Business Services | Subscribe | Bookstore | Opportunities Search > How-To Guides > Newsletters > Bookstore > Small Business Center BUSINESS SERVICES Channels Competitive Pricing E-Business Franchise Zone Home Office Management Money & Finance Opportunities Sales & Marketing Start-Ups Technology Reverse online auctions will have suppliers racing to beat each others' bids. The Magazine Current Issue Archives Subscribe Interact Entrepreneur magazine - August 2002 By Mark Henricks If you've ever bid on an item on eBay, you've seen the way your business will probably someday purchase everything from office supplies to critical production materials--in reverse. Online reverse auctions, or downward price auctions, stand the traditional rising price or English auction on its head. Buyers put out specifications for what they want to buy, and sellers submit bids electronically until someone wins the business. Special Offers Ask The Experts Multimedia Center Online reverse auctions came into being about the time the Internet became popular. So-called dynamic pricing commerce, most of which is online reverse auctions, will top $45 billion or 15 Help & How-to percent of all e-commerce in 2002, rising to $500 billion in 2006, How-To Guides Resource Centers says Rob Rosenthal, e-commerce analyst at research firm IDC. Tools & Services Find It SmallBizSearch Listings Opportunity Finder Driving the boom is a desire for savings. Typical companies can expect savings of 10 to 20 percent on goods purchased through online reverse auctions, says Rosenthal. Purchasers also save time, compressing into hours price negotiations that normally take weeks. Buyers also reach new suppliers who, because of location or other reasons, never bid for their business before. Today, large companies get the most benefit from buying through reverse auctions. Exclusive information from Entrepreneur.com Starting A Biz Growing A Biz Special Offers The economics of these auctions also favor big buyers. Sellers are charged transaction fees ranging from 1 percent to 3 percent. Buyers normally pay relatively nominal sums to use the services. Another option, using do-it-yourself software to conduct auctions, can incur licensing fees of $50,000 a month or more. Get free information on Small Business, Franchises, Finance and more! e-Business Sales & Marketing Franchise News American Express Your e-mai ZIP Tech Future in Reverse Marketing Online reverse auctions will inevitably be widely used by smaller HTML Text 24 Insurance Entrepreneurs Starting Out Sales Franchises MLM E-Commerce your e-mail Zip Code firms, say observers. Max Scoular, vice president at Freemarkets.com, a leading firm in the industry, says his company is beginning to tailor products and services for firms with less than $100 million in revenues. Smaller enterprises are responding, he says. "It's happening with midsize companies on a scale that it wasn't two or three years ago. And I expect it to continue down the chain." Scoular says purchase size isn't the only factor determining suitability. "You have to have a good specification so that people know what they're bidding on," says Scoular. The second requirement is that there have to be enough suppliers to make a market of bidders. Third, the business needs to be sufficiently attractive for suppliers to compete for it. Generally, if you've purchased the product or service via bid before, you can do it in an online reverse auction. Sign Up! Reversal of Fortune Sponsored Links · AAMCO · Action International · Certa Pro Painters · Furniture Medic · Mail Boxes Etc · National Property Inspections · ServiceMaster Clean · Stained Glass Overlay Online reverse auctions sometimes have trouble delivering the benefits they promise. For one thing, switching suppliers incurs implementation costs-such as the added time to teach them your requirements-that cut into the cost savings. Suppliers also may resent being played against one another, and try to make up lost revenues sacrificed to outbid the competition by raising prices elsewhere, he adds. But online reverse auctions make sense for many purchases, almost everyone agrees. And it is only a matter of time before small companies use them. Online reverse auctions aren't going to go away, says Rosenthal. "And," he adds, "it will spread downward." NEXT STEP: Learn more about reverse auctions at Freemarkets.com and at Rensselaer Polytechnic's Center for Lean Business Management. · World Traders Association · WSI Internet Contact Source IDC (508) 935-4584, http://www.idc.com Related Content Tools: • Download Small Business & E-Commerce Legal Forms • Need Venture Capital? • Save $25 When You Incorporate or Form an LLC Online Subscribe Find the business of your dreams at Entrepreneur's Opportunity Finder. Categories Opportunity of the Week: Haircolorxpress 25 VOCABULARY: EBay1 = Known as the world's largest online marketplace, eBay is a company with an online auction2 site that enables people to buy and sell goods and services on a local, national, and international basis Auction = public sale of goods B2B auction =An acronym that describes business-to-business relationships or applications. B2C =An acronym that describes the thousands of e-commerce Web sites which sell products directly to the public C2C =An acronym used to describe the sale and purchase of an item from one individual to another reverse auction = An online auction in which sellers bid against each other to win a buyer's business. A reverse auction empowers the buyer (in this case, the enduser) to find the best deal. For example, Priceline.com sells airline tickets, hotel rooms, and additional products based on the price the consumer is willing to pay. Reverse = change completely Stand on its head = it is completely different Specifications = details dynamic pricing commerce = a fluid pricing scheme between the buyer and seller, rather than the more traditional fixed pricing. Dynamic pricing is a legacy from the past, that has lost its significance with the advent of the industrial revolution and mass marketing and mass communication. Before the industrial revolution, most trade occurred in markets, with many buyers and sellers bartering for goods. Driving = leading, causing transaction fees ranging = costs vary according to the transaction fee = A charge for services rendered. Option = possibility 1 eBay eBay, Inc. Known as the world's largest online marketplace, eBay is a company with an online auction site that enables people to buy and sell goods and services on a local, national, and international basis. Founded by Pierre Omidyar in September 1995 and led by CEO Meg Whitman, eBay has more than 29 million registered users and is the most popular shopping site on the Net (when measured by total user minutes). While Amazon.com is the poster child for e-commerce and Yahoo! the poster child for the first generation of the Internet, eBay has quietly become the only large, successful consumer Internet survivor to date. Every hour, for instance, 10 diamond rings, 120 PCs, and 1,200 articles of clothing are sold; a Corvette is sold on the site every three hours. In the year 2000, the eBay community transacted more than $5 billion in annualized gross merchandise sales, and, eBay has actually spawned a large number of people (see: intrapreneur) who have turned their part-time passions into full-time, well-paying jobs, simply by selling their goods online! If you have a comic collection, memorabilia, or some other kind of product that you're ready to sell, this is the place to post it. 2 online auction Similar to a real-life auction in which property or merchandise are sold to the highest bidder, an online auction takes place via a Web site, usually offering items for sale by the individual who owns them (C2C). For example, eBay is a popular auction site whose mission is to help anyone trade practically anything on earth. There are hundreds of online auction sites that on any given day list millions of items across thousands of categories, such as collectibles, jewelry, musical instruments, cameras, computers, furniture, sporting goods, tickets, and even automobiles and boats. There are also B2B auctions, B2C auctions, C2C auctions, and reverse auctions. 26 to tailor = suit, made for the needs of revenues = money a company receives from its business responding = are beginning to use this service midsize = medium size, neither big nor small switching = changing incur =imply resent = dislike QUESTIONS: 1.What are reverse online auctions? 2.How did they come into being? 3.Are they profitable? 4.Which companies benefit most from reverse online auctions? 5.What problems can they cause? 6.What does B2B stand for? 7.What does B2C stand for? 8.What does C2C stand for?