BW ONLINE DAILY BRIEFING

News Analysis	April 20, 1999

This time last year, online auctions were much like a precocious five-year-old: They had begun to beg for attention, but about all they got from either customers or investors was an occasional glance. Today, these electronic bazaars are a testament to the fact that a Web idea can go from childhood to robust adulthood in only a year. In fact, online auctions are now a familiar concept to millions of Web surfers -- from manufacturers and distributors to dealers, retailers, and probably your neighbor down the street. They're also becoming a necessary component to any successful E-business venture.

"I don't have to justify the auction business model as much anymore," says Michael Brader-Araje, founder and chariman of OpenSite Technologies, which makes software for running auction sites. "The question is no longer 'why' to get involved but 'how' -- and will the market be saturated by the time I get there?"

So far, the spotlight has focused on person-to-person auctions, such as IPO starlet eBay. However, most analysts think that over the long-term, the consumer-to-consumer market isn't where the riches lie.

Declares Varda Lief, an analyst at Forrester Research Inc.: "Business-to-business auctions will dwarf anything being done in the consumer arena." In fact, business-to-business auctions, including commodity, private, and independent auctions, generated an estimated $8.7 billion in transactions in 1998, according to Forrester. Lief estimates that by 2002 business auctions will handle $52.6 billion in transactions, while the total for consumer auctions is expected to reach only $12.3 billion by 2002, vs. about $1.4 billion presently. And of the future consumer auction market, some 61% of transactions -- about $7.5 billion -- is expected to be from business-to-consumer auctions.

PRETENDER. Those numbers are sparking a battle among makers of software used to run auction sites. For now, the main combatants are OpenSite, which has a wide lead in the consumer auction market, and Moai Technologies, which, with a handful of recent deals, has made itself the pretender to the throne in software for business-to-business auctions.

Both companies have two trends going for them. "One of the things about packaged applications for auctions is that...they can lower the cost of adding an auction component to a site," notes Chuck Shih, an analyst with Gartner Group. "So I think [demand for them] will pick up over the next couple of years." Moreover, adds Forrester's Lief : "Private [business-to-business] auctions will flourish as companies seek more control over their brand and their customers." Forrester estimates that within the business-to-business auction market, $14.9 billion in goods will be auctioned via private auctions alone by 2002, as companies try to bring back in-house the up-selling and cross-selling opportunites they currently lose by selling products through independent auctions. Instead of letting the Priceline.coms of the Web sell their surplus products or services, for instance, companies may do it themselves.

Moai, based in San Francisco, is already catching this wave. Industry pundits are calling the 16-month-old company a player to watch. Moai's biggest and most lucrative client is Ingram Micro, one of the world's largest wholesale software and hardware distributors, which finds itself with $1 million to $4 million worth of excess inventory each month. "Within a few weeks of using our software, Ingram saw a 25% return on its [$95,000] investment," boasts Moai CEO Anne Perlman, a number that Ingram confirms.

Perlman hopes such testimonials will launch Moai onto a high-growth trajectory this year. "The number of inquiries into licensing our software increased six times from December to January," she says. "And we plan on more than doubling the number of employees this year, which says a lot considering the fact that I was the fourth to come on board a year ago." Moai currently has 30 employees.

"MORE CONTROL." Moai rival OpenSite, based in Research Triangle Park, N.C., has expanded from offering fee-based hosting services for would-be auctioneers to developing its own consumer auction software, with the hope of reaching the business-to-consumer and business-to-business markets. The evolution of Open Site's strategy highlights an important trend: Companies will increasingly prefer using auction software to using a service, says Moai's Perlman, to ensure that they own the customer data. That in turn will enable companies to evaluate buying trends, create marketing campaigns, and establish new sales channels. "It also gives companies more control over their inventory and payment methods and allows them to create a seamless system with other database applications," she adds.

"Moai is just a little bit ahead of the industry," says Ron Rappaport, an analyst with Zona Research Inc. "They've been developing a technology suited for an application of E-commerce that's geared for a specific business segment rather than bathing in the giddiness of the market." Now, advises Rappaport, Moai needs to boost market share quickly. "Sell, sell, sell," he urges. "There's nothing that turns heads to new technology like a big fat client list."

Especially when the competition already has one. OpenSite Chairman Brader-Araje claims more than a 50% market share, with about 260 clients including Broadcast.com, electronics gadgets retailer Sharper Image, bicycle manufacturer Cannondale, and its newest strategic technology partner, CNet. Moai usually discloses just two clients -- Ingram and advertising industry reseller AdAuction -- prompting analysts to speculate that its client list is about that short. OpenSite also secured $24 million in a financing round completed at the end of March, while Moai has secured only about $6 million. However, in the past month, Moai has added online shoe catalog aggregator iWork Networks and rare book and music auctioneer Exchange.com to its customer list.

Still, notes Forrester's Lief, "Moai got [to the corporate auction arena] first, and they started with an important client. OpenSite hasn't done things on the same scale that Moai has with Ingram." Lief thinks it's also important that Moai was chosen for Ingram Micro by USWeb, a respected systems integrator. This tells business auctioneers that its software is reliable, she says. Lief adds: "Consumer auctions are like going to Vegas to gamble, while businesses buy and sell at auctions for efficiency. The dynamic is totally different." Business-to-business auctions need "complex, sophisticated [technology] for engaging buyers and sellers," says Gartner Group's Shih. "They also must be assured that the software meets certain security requirements."

CODE YOUR OWN. That's why a lot of business-to-business auctioneers create their own software. Forrester has found that 95% of E-commerce sites with auction capabilities built the technology themselves, which means there remains a huge untapped market left to attract. To make a play for such customers, both Moai and OpenSite have released new versions of their software within the past month -- Moai's is called LiveExchange 2.2, OpenSite's is called Auction 4.0.

While OpenSite added features that allow a company to liquidate its own merchandise as well as an outside seller's inventory, Moai moved more toward public-style auctions by adding multiple formats such as ascending (English) and descending (Dutch) price formats, proxy bidding, reserve pricing, and technology that allows for last-minute bidding. Both companies say their new releases create an audit trail for order-tracking, and both claim to have several layers of security. While it makes sense that OpenSite would try to grab as much of the business-to-business auction pie as it can, why would Moai extend its strategy to include public business-to-consumer auctions?

To buy some time. As Zona's Rappaport explains: "Moai needs to do something while it treads water and waits for the industry to catch up. Developing business-to-business E-commerce, especially auctions, isn't going to happen overnight."

Whatever their strategies, Moai and OpenSite had better act fast. Within three years, Forrester expects major players such as IBM and Microsoft to start selling Web auction software and services. By yearend IBM hopes to fold a new auction component into the next release of Net.Commerce, its E-commerce server application package (a current beta version -- compatible only with the most recent version of Net.Commerce -- is available for downloading on the company's site). Microsoft has also recently released an auction toolkit for its Site Server Commerce Edition. Other competitors, such as Trade'ex, Perot Systems' TimeQ, and the three-week-old startup TradingDynamics, are also gearing up invade Moai's and OpenSite's turf.

OTHER ENTRANTS. Moreover, new competitors are vying to provide both auction software and services. In between OpenSite, whose shrink-wrapped software starts at $5,000 and is geared toward small businesses looking to create stand-alone auctions, and Moai -- whose software is aimed at medium to large-size businesses and costs $95,000 and up -- is WebVision. Its AuctionNet software, which starts at $30,000, is used by both retailers such as MicroWarehouse for public business-to-consumer auctions and by companies such as Toshiba for private, dealer-only auctions. Auctioneers can also license WebVision's BIDtropolis software or buy its services to conduct reverse auctions.

Industry analysts think business auctions will proliferate because they're emerging as a trend within vertical markets. In fact, some think an auction component will soon be expected on E-commerce sites. "Today, [auction capability] is the differentiator; tomorrow, it will be the point of entry," says Karl Salnoske, IBM's general manager of E-commerce.

Moai's Perlman agrees and is pushing hard to enter several vertical markets -- the first being apparel. iWork Networks, a network market provider, has launched its first vertical marketplace on the Web using Moai's software. Called Shoe.net, the site aggregates online catalogs and operates essentially as an exchange for footwear distributors, says iWork Networks CEO Todd Ricci.

Brader-Araje says OpenSite has its own plan to enter the vertical business marketplace. Starting in May, it will launch a new site called Bid Stream.com, which will be a hub -- or search engine -- for the auctions of OpenSite clients.

Who'll win this war -- or how many winners there'll be -- won't be clear for years. Of course, that could be Internet years.

By Stefani Eads in New York

_ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _

BACK TO TOP