chapter 6: online auctions, virtual communities, and web portals
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Electronic Commerce
Chapter 6:Online Auctions, Virtual Communities,
and Web Portals
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Objectives
In this chapter, you will learn about:
• Origins and key characteristics of the seven major auction types
• Strategies for Web auction sites and auction-related businesses
• Virtual communities and Web portals
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Auction Overview• In an auction, a seller offers an item for sale,
but does not establish a price• Bidders
– Potential buyers• Bids
– Prices bidders are willing to pay for an item• Shill bidders
– Can artificially inflate the price of an item
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English Auctions• In English auctions, bidders publicly
announce their successive higher bids until no higher bid is forthcoming
• Open auction– Bids are publicly announced
• Minimum bid – The price at which an auction begins
• Reserve price– Minimum acceptable price
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English Auctions (continued)
• Yankee auctions– English auctions that offer multiple units of an item
for sale
• Disadvantages– Winning bidders tend not to bid their full private
valuations
– Bidders risk becoming caught up in the excitement of competitive bidding
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Dutch Auctions• Dutch auctions are also called descending-
price auctions
• Form of open auction in which bidding starts at a high price and drops until a bidder accepts the price
• Often better for the seller
• Good for moving large numbers of commodity items quickly
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Other Types of Auctions• Sealed-bid auctions
– Bidders submit their bids independently
• Second-price sealed-bid auction – Highest bidder is awarded the item at the price bid
by the second-highest bidder
• Open-outcry double auctions– Buy and sell offers are shouted by traders
standing in a small area on the exchange floor
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Other Types of Auctions (continued)
• Double auction– Buyers and sellers each submit combined price-
quantity bids to an auctioneer
• Reverse (seller-bid) auctions– Multiple sellers submit price bids to an auctioneer who
represents a single buyer
– Bids are for a given amount of a specific item that the buyer wants to purchase
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Online Auctions and Related Businesses
• Three categories of auction Web sites:
– General consumer auctions
– Specialty consumer auctions
– Business-to-business auctions
• Largest number of transactions occurs on general consumer auction sites
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General Consumer Auctions• Most common format used on eBay
– Computerized version of the English auction• eBay English auction
– Allows a seller to set a reserve price– Bidders are listed– Bid amounts are not disclosed until after the
auction – Allows sellers to specify that an auction be made
private
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Specialty Consumer Auctions
• Specialized Web auction sites meet the need of special interest market segments
• Specialty consumer auction sites gain an advantage by identifying a strong market segment with readily identifiable products – Golf Club Exchange, Cigarbid.com, and Winebid
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Consumer Reverse Auctions and Group Purchasing Sites
• Reverse bid– Buyer can accept the lowest offer or the offer that best matches the
buyer’s criteria
• Group purchasing site
– Seller posts an item with a price
– As individual buyers enter bids, the site can negotiate a better price with the item’s provider
– Posted price ultimately decreases as the number of bids increases
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Business-to-Business Auctions
• Liquidation brokers
– Firms that find buyers for unusable inventory items
• Online auctions
– Logical extension of inventory liquidation activities to a new and more efficient channel, the Internet
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Business-to-Business Auctions (continued)
• Ingram Micro – Major distributor of computers and related
equipment to value-added resellers– Often finds itself with outdated items that it
formerly turned over to liquidation brokers– Now it auctions those items to its established
customers– Auction prices it receives average about 60
percent of the items’ costs
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Business-to-Business Reverse Auctions
• The U.S. Navy and the federal government’s General Services Administration are experimenting with reverse auctions
• The need for trust and long-term strategic relationships with suppliers makes reverse auctions less attractive in some industries
• The use of reverse auctions replaces trusting relationships with a bidding activity that pits suppliers against each other
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Auction-Related Services• Auction escrow services
– An independent party that holds a buyer’s payment until the buyer receives the purchased item and is satisfied with it
• Auction directory and information services– Offer guidance for new auction participants – Offer helpful hints and tips for more experienced
buyers and sellers along with directories of online auction sites
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Auction-Related Services (continued)
• Auction software
– For sellers
• Software offers services that can help with or automate tasks such as image hosting
– For buyers
• Software observes auction progress and places a bid high enough to win the auction
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Auction-Related Services (continued)
• Auction consignment services
– Create an online auction for an item
– Handle the transaction
– Remit the balance of the proceeds
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Mobile Commerce
• Cellular-satellite communications technology can be packaged with:– Notebook computers
– Personal digital assistants (PDAs)
– Mobile phones
• Wireless Application Protocol (WAP)– Allows Web pages formatted in HTML to be
displayed on devices with small screens
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Mobile Commerce (continued)
• Electronic marketplaces can serve people who want to buy and sell a wide range of products and services
• AvantGo – Provides PDAs with downloads of Web site
contents, news, restaurant reviews, and maps
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Intelligent Software Agents• Intelligent software agents are programs that
search the Web and find items for sale that meet a buyer’s specifications
• Some software agents focus on a particular category of product
• Simon
– One of the best shopping agents currently available
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Virtual Communities• A virtual community is a gathering place for
people and businesses that does not have a physical existence
• They exist on the Internet in various forms:– Usenet newsgroups– Chat rooms– Web sites
• They offer people a way to connect with each other and discuss common issues and interests
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Virtual Communities (continued)
• Virtual learning community– One form of a virtual community
• Virtual communities can help companies, their customers, and their suppliers plan, collaborate, and transact business
• Google Answers – Gives people a place to ask questions that are
answered by an expert for a fee
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Web Community Consolidation
• Virtual communities for consumers can succeed as money-making propositions if they offer something sufficiently valuable to justify a charge for membership
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Revenue Models for Web Portals and Virtual Communities
• Web portals are so named because the goal is to be every Web surfer’s doorway to the Web
• One rough measure of stickiness is how long each user spends at the site
• Nielsen//NetRatings determine site popularity by measuring the number of unique visitors
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Revenue Models for Web Portals and Virtual
Communities (continued)• Web portals
– High visitor counts can yield high advertising rates
– Companies that run Web portals add sticky features such as chat rooms, e-mail, and calendar functions
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Mixed Revenue Portals and Virtual Communities
• Time Warner’s AOL unit
– One of the most successful Web portals
– Charges a fee to users and has always run advertising on its site
• Yahoo!
– Now charges for the Internet phone service originally offered at no cost
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Internal Web Portals• Run on intranets
• Can save significant amounts of money by replacing the printing and distribution of paper memos, newsletters, and other correspondence
• Can become a good way of creating a virtual community among employees
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Summary• Companies are now using the Web to operate
auction sites, create virtual communities, and serve as Web portals
• Consumer online auction business is dominated by eBay
• B2B auctions– Give companies a new and efficient way to
dispose of excess inventory • B2B reverse auctions
– Provide an effective procurement tool
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Summary (continued)• New companies have formed virtual
community on the Web’s ability to bring together geographically dispersed people and organizations
• Organizations are using mobile commerce to sell goods and services to users of handheld devices
• Companies are using internal Web portals to communicate with employees
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