Stop me if you've heard this one. An entrepreneur spies a process that people usually muddle through, and brings the Internet's time-and-space-shrinking properties to the table. Efficiency, and maybe a fortune, ensue.
So it is with cMarket, a Cambridge (Mass.)-based startup, that's standardizing charity auctions, those typically ad-hoc events held in barns, churches, and hotel conference rooms. Who knew overpaying for a meal at the local steakhouse is big business? Turns out it is. According to the National Auctioneers Assn., live charity auctions are worth about $14 billion per year. cMarket events can be exclusively online or lead into live events, where the thrill of competition can fire prices to higher levels.
Though cMarket has been selling its auctioneer services to nonprofits since 2003, perhaps its biggest challenge is to differentiate itself from eBay (EBAY). After all, the giant offers groups the largest pool of potential bidders (see BusinessWeek.com, 9/7/06, "EBay Sellers Go Back to School: 10 Tips").
Turning Art Into Science But cMarket, CEO Jon Carson says, is designed to give each group a "walled garden," as opposed to eBay's sprawling agora. With more items to choose from on eBay, he says bidders don't necessarily confine themselves to charity items. He adds that cMarket gives each group its own auction Web page, where it can also gain sponsorship revenue.
Having already raised $20 million in venture capital, Carson says the company is out to fine-tune the charity-auction process and develop a "national marketplace." He thinks a new beta program called SmarterAuction, which went live in October, could help.
In introducing the program, the company takes some of the guesswork out of planning an auction to perhaps attract more clients. In setting up an auction, one must confront a dizzying number of variables: What to sell? How much should it be worth? Is it better to sell a few big-ticket items or many more less expensive lots? Potentially, each of these decisions can affect the bottom line. Carson says charity auctions are now "more art than science, and we're turning it into a science."
Zeroing In on the Money Target Based on the 1,500-plus auctions that the company has conducted, SmarterAuction allows groups to tinker online with figures like the number of bidders and the price distribution of items for sale to determine what combination they will likely need to hit their goal. As users fiddle with the numbers, graphs display all the hypothetical scenarios. After the real sale, the results of an auction go into a database and can refine the process that much more for the next group.
Fun as it is to play with, the results from SmarterAuction are quite intuitive. The best way to increase returns is to increase the number of bidders. If an auction has only 20 bidders, piling on big-ticket items probably won't accomplish much. Of course, opening bidding to the online community, not just to those who can attend a live auction, is a good way to increase the number of bidders.
Donya Sabet, a board of trustees member at the Ethel Walker School in Simsbury, Conn., who brought the idea of online auctions to the school, says SmarterAuction will help her colleagues "visualize" how to increase proceeds when they have their second cMarket auction. Sabet says that before the first auction—which netted $53,000 for the school—cMarket advised selling travel packages but not jewelry. Even so, the startup is coyer about what sorts of prizes fetch the best returns.
"Priceless" Lots In addition to taking a cut of auction sale prices, cMarket gets paid a fee for connecting groups holding auctions with vendors selling discounted prizes, so it doesn't want to alienate the vendors selling those items.
Carson divulges that vacations tend to sell for the highest prices, hardly surprising since travel is expensive. On the other hand, he says that if "we [offered] a $100 gift certificate, we know the bidding is going to stop around $95." One key to successful auctions is convincing bidders to overpay, and that seems easier for prizes with a more ambiguous value.
Thus auctions on cMarket, like traditional charity auctions, can thrive on prizes that the company calls "priceless," a word all the more resonant for the ubiquitous MasterCard (MA) ad campaign (see BusinessWeek.com, 6/7/06, "Five Words to Never Use in an Ad"). In a recent auction, the Maryland SPCA sold a role in a TV public-service announcement for $825. And last year, someone bid $16,100 for lunch with Theo Epstein, the former Red Sox general manager.
Valuable Data Whether or not cMarket's SmarterAuction feature will be of great value in raising auction sales in the short term, collecting and mining auction data may be a way to raise future returns. For example, the company now sends out e-mails letting people know when they have been outbid. Deepak Malhotra, an assistant professor at Harvard Business School who sits on the company's advisory committee, says those e-mails brought in more fresh bids when they appealed to competitive instincts instead of a person's sense of charity.
Likewise, Carson says that while men tend to dominate live charity auctions, women are the majority of cMarket bidders. Apparently they have less taste for making a spectacle of themselves while bidding for a big prize. The next step might be to make a science out of the charity bake sale or raffle.