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10.28.98  
Entrepreneurs Hitch Their Ventures to Online Auctions
Virtual businesses from the burbs to the boonies are catching a cheap ride on the Web

Atlanta, Tex., can be a tough place for a small business. Ask Judy Williams. She lives in the 6,000-person town near Texarkana. Williams, a single mom, tried for years to run her own antique shop. But with bad health and slack sales, she had to seek food stamps to make ends meet. "The local population won't support a shop," Williams says.

Then last year, a friend told her about eBay, one of many online auction sites where people can sell just about anything they own. Williams charged a computer with a modem on her credit card and put a few things up for sale, including some old tape measures and jewelry. To her amazement, her merchandise sold right away. Within a month, Williams says she had sold enough to get off food stamps. Now, she says she sells about $400 to $500 a week on average. And her problems are more on the order of managing sales-tax records for a business that ships throughout the U.S. and abroad.

GOING, GOING, GONE. Williams is one of a growing number of small-business owners using online auctions sites as virtual storefronts to sell everything from baseball cards to automobiles. "More and more people realize they can start their own businesses out of their homes, and they can live wherever they want to live," says Steve Westly, vice-president for marketing and business development at eBay, one of the most successful consumer auction sites on the Web with nearly 1 million registered sellers.

The sites also allow people who may not have the money or the technical knowhow to set up their own Web store or site to do business on the Internet, greatly expanding their universe of customers. Auction sites also serve people who haven't been able to draw traffic to their own Web sites.

The Atlanta area has become a hotbed of online auctioning. Williams' friend, Reva Shaddock, a widowed ex-trucker and music teacher, sometimes grosses $3,000 a month selling things she finds at estate and garage sales. "If it can go in a box and it can go in a truck, I will ship it," Shaddock says. Judy Reynolds, owner of Judy's Books in nearby Queen City, thought she would have to close her bookstore after the local U.S. Army base shut down. After listing her wares on eBay and several online book club auction sites, Reynolds' online sales are totaling $400 to $900 a week.

This niche of the online auction world is called person-to-person. But it's becoming a bit of a misnomer. In reality, the Atlanta crowd and entrepreneurs like them use sites such as eBay, AuctionUniverse, or City Auction to sell merchandise directly to their customers. And plenty of customers turn out to be entrepreneurs, too, sometimes giving the person-to-person service a distinctly business-to-business flavor.

Most of the auction sites are mainly places on the Web to list goods. Typically, the sites charge a nominal listing fee, between 25 cents and 50 cents per item, and a 2% or 3% commission when something sells. Sellers list their goods with brief descriptions and often photographs. The seller also sets the starting auction price. Bidders contact the sellers via an E-mail link found above the item for sale. Auctions last between three days and a week. When the auction closes, the seller contacts the highest bidder, usually by E-mail or telephone, and the two parties work out the payment and shipping details.

Each auction site has a slightly different approach, depending on its specialty. OnSale, an exception in the online auction world, buys merchandise it auctions from manufacturers and resellers. eBay is an online exchange. OnSale, which has 820,000 registered buyers, guarantees the merchandise it sells for at least 30 days. eBay, which lists nearly 800,000 items for sale and closes 100,000 auctions a day, assures quality by relying on a seller rating method. Buyers have the opportunity to rate the sellers online. Sellers who get more than four bad ratings are thrown off the site.

CYBER-SAVINGS. With customers buying sight unseen from unknown sellers, the ratings system develops a sort of virtual goodwill for a business. Williams has 614 positive ratings posted where she lists her goods. Ratings or not, why would anyone buy on that basis? Price, for one thing. Bill Fanning, systems administrator for a small advertising agency in San Francisco, bought eight computers for $6,000 from OnSale this year. He says he saved 20% to 40% off retail prices on each computer. Fanning turned to OnSale because he had previously had a good experience with the site buying electronics for his personal use.

One peculiarity of the online auction craze has been its benefits to the dealers themselves -- especially in some rural communities. In Atlanta, for example, the dealers say they have sold to buyers as far away as New Zealand, Singapore, Amsterdam, and England. And the auctions can have a decidedly nonvirtual effect on local economies. In Lake Panasoffkee, near Tampa, Fla., Ray Geeck and his wife, Anne, say they have hired eight people in the last year to help them meet the demands of their skyrocketing antique doll business. They live in a seasonal resort town where their shop was not getting much traffic. Geeck says sales this year will reach $1 million. "My wife and I are seriously considering turning everything over to our employees next year and let them work," says Geeck. "We will kick back and relax."

What's the long-term outlook for small businesses based on these auction services? It depends to some extent on how voracious the global appetite is for Beanie Babies or Depression glass. Vernon Keenan, president of Keenan Vision Inc., an Internet market research firm in San Francisco, thinks the collectibles market is enormous and growing every year. In 1998, he expects person-to-person sales via online auctions will be about $500 million and will grow to around $8 billion in the next three years. The figures are based on his company's research.

Varda Lief, an analyst for Forrester Research, a market research firm in Cambridge, Mass., thinks collectible auctions will ultimately be little more than a footnote of a much bigger online auction world. "Business-to-business auctions are where the big money is," Lief says. She estimates that these auctions, ranging from commodities like electricity and crude oil to computers, will be a $52.6 billion market by 2002.

But Ross Viens, a 33-year-old seller of collectibles in Chicopee, Mass., thinks the online auction world will always have a place for him. Viens was making $300 a week as a customer-service rep for Home Depot before he quit in frustration. Now he says he makes four times that selling dishes, glasses, vases, and pottery on the Web. "It is human nature to gather and to have, and there are people who will always need to have stuff," he says. That's something the entrepreneurs of east Texas and other rural areas around the U.S. are taking to the bank each month.

By Jeremy Quittner in New York
jeremy_quittner@businessweek.com


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