COM 125 Week 2: Online auctions

Introduction

Online auctions are a recent phenomenon that has increased in popularity due to the expansion of the Internet, which has enabled transactions online. An online auction is essentially an Internet-based version of a traditional auction – without the fast talking auctioneer and fellow bidders being in different physical locations (Miller, 2003). Some examples of online auctions are eBay and Yahoo! Auctions. eBay remains the largest online auction with 49.7 million registered users as of mid 2002 (Miller, 2003, p.8).

How did eBay came about?

Pierre Omidyar in his Silicon Valley house started online auctions on Labor Day, 1995 (Cohen, 2000, p.5) when he tried to sell his laser pointer. Back then, eBay was known as AuctionWeb and was made in a rather simplistic fashion. Although his personal site was considered an idea that would not work, within a few years, Omidyar was worth $4 billion and the company he founded, eBay, was the most successful e-commerce site in history. Once a tiny auction site overrun with Beanie Baby listings, today eBay is a commercial powerhouse where millions of users buy and sell everything from antique pickle jars and record albums to Ford trucks and $40 000 computer servers (Cohen, 2002).

eBay Headquarters in San Jose

Why online auctions are so popular

Everyday, millions of people purchase long-lost treasures or everyday items at bargain prices. They are able to make money out of items that they no longer require and have fun doing so (Gralla, 2000). People buy and sell varied merchandise through an auction website (such as eBay or Yahoo! Auctions) and such transactions can be made with other users worldwide. Hence, the popularity of online auctions continues to flourish as it enables ordinary people to become instant businessmen. Furthermore, it allows consumers to conveniently purchase an endless variety of goods at a price that they want. Such an event was possible when online auctions came about.

How online auctions thrive: The business model

The business model that online auctions center on increases its attractiveness to the sellers as it allows an instant business to be set up. From the seller’s perspective, its attractiveness is centered on low start up cost, potentially high sales volume and freedom from “geographical constraints” (wikipedia.org) with the help of the Internet. Such advantages make it easier for an entrepreneur to set up a business online. Unlike a store, its low operational cost stems from not requiring a physical space since storage can be done at home. It also does not require any employees and this saves on labor costs. With the broad reach of the Internet to allow quick movement of goods, an exponentially large consumer base can also potentially raise prices and increase profits. In addition, online auctions allow the seller a greater flexibility to sell alternative items should his current stock of goods be sold out. Thus, this allows the seller the option to diversify his products. Furthermore, an effect of cumulative causation occurs when the large pool of customers attracts more sellers to sell their wares and this in turn attracts more potential bids from buyers (wikipedia.org). This increases the value of the business model and hence, attracts entrepreneurs to online auctions as compared to a brick and mortar store.

Reaching to the common masses

The growing popularity of online auctions can be seen with the convergence of two unlikely worlds in terms of technology. With the help of the Internet, online auctions have attracted the most unlikely sellers online. One case study to show the convergence of two unlikely worlds with the help of the Internet is that of Sungei Road and eBay. Sungei Road, an open-air flea market, is home to a large collection of second hand and collector’s items that remain unsold for some time. At first glance, eBay and Sungei Road are worlds apart in terms of the level of technology used by the respective businesses. However, they share the similarity of being a market place for used goods and collectables. Through the word of mouth, some of the peddlers have jumped on the bandwagon and have listed their wares on eBay. These middle aged men who have peddled their wares on Sungei Road for over 10 years learn how to list their items in the hopes of tapping into the large pool of potential customers online rather than the handful of customers who usually browse through their items on sale. Those who resort to selling through the Internet claim to do so as “collector’s items” tend to sell slowly at Sungei Road (The Straits Times, July, 2005). This shows that even those who are computer illiterate are willing to learn how to apply technology to their livelihood in the hopes of improving their sales of second hand goods. By incorporating technology with their business, these peddlers are empowered with the ability to keep track on their inventory and sales and it makes it easier for them to increase their chances of engaging in more transactions.

Convergence of technology: I-mode and the acquisition of Skype by eBay

Online auctions will continue to flourish due to improvements in communications and information technology. This improves the ability of sellers to tap into a larger potential customer base as well as improve customer relations. The acquisition of Skype (a peer-to-peer Internet telephony software) by eBay highlights that modern technology ensures transactions through online auctions are becoming less of a hassle when both parties communicate (Today, September 2005). With the acquisition of Skype, improvement in communications can be made since the buyer is unable to physically deal with the seller and vice versa. Communicating effectively and efficiently plays an important role in the way businesses are carried out today. It plays a crucial role in online auctions since buyers have to purchase items that cannot be inspected beforehand. Thus, transactions can be speeded up as eBay ensures that bidders and sellers have a cheaper and a more convenient way of talking to the other party about payment and delivery issues. With Skype, it aids in further reducing any potential misunderstandings.

The improvement of technology in mobile phones also allows one the convenience of purchasing any item online. “In Japan, when student Gilda Su wanted to purchase a skirt, she simply whips out her mobile phone and taps a button. After a few seconds, the screen brings her to a “live” auction website where she can bid for clothes” (The Sunday Times, October 2005). The use of such cell phone Internet services called i-mode is beginning to pick up around the world, and soon it will not be necessary to confine oneself to a computer to access online auctions. Such convenience saves one time and the hassle of making a trip to the mall. Hence, advancement in technology and improvement in communications exemplifies that budding entrepreneurs have various way to expand his operations and reach out to the diverse audience.

References

Cohen, A. (2002). The perfect store: inside eBay. Boston, USA: Little, Brown and Company

Chia, V. (2005, September 22). More Stress in a ‘Smaller’ World?. Today, News Comment, p. 3

Gralla, P. (2000). Sams teach yourself today e-auctions: Bidding, buying and selling at eBay and other online auction sites. Indianapolis, Ind.: Sams.

Miller, M. (2003) Absolute beginner's guide to eBay. Indianapolis, Ind.: Que Publishing.

Online auction business model (n.d.) Wikipedia.org. Retrieved November 19, 2005, from http://en.wikipedia.org/wiki/Online_auction_business_model

Siew A. (2005, October 23) And, Yes, call too. The Sunday Times, Think, p.28

Tsang, S. (2005, July 12). Sungei Road bargains on eBay. The Straits Times: Digital Life, p. 3-4

(Mr Lim,

I'm sorry about the indenting and erratic large and small headings. There seems to be a problem when I copy and paste from Word to Blogspot. I've tried to make the Referencing indenting regular but it doesn't come out right. I can send you the original version on WORD. DOC if you prefer that option. Thank you!)