Resellers have not yet warmed to the popular internet auction sites. Reduced legal rights and the idea of purchasing a product sight unseen are among the complaints making the conventional modes of these transactions unpopular in the IT community.
When asked if he would consider buying if the supplier was a trusted source, one reseller said that it would take a lot to change his mind. "Almost certainly not," he said.
"Even if the equipment is brand new. The price would have to be incredibly cheap to be worth the risk. My understanding is that even if it is brand new, the equipment would carry no manufacturer's warranty whatsoever, unless specified as otherwise, and the goods are effectively sold as seen, or not seen in the case of an internet auction."
Gordon Cameron, distribution manager at Sun Microsystems, said: "Auctions have quite an appeal. You can find out what price people are prepared to pay for a box, and it's a quick route to market. The problem is that there are many types of auctions, and many reasons to do it."
Alex Tatham, commercial director at Ideal Hardware, has been less than impressed as well. He said: "We have worked with all of them, but it has been an absolute waste of time. We have to employ a member of staff to manage the process, and I believe this is the main reason why they haven't taken off.
"The auction sites chase us daily for goods to put up onto a site, but rarely give feedback. We haven't made a sale. As time moves on, confidence is quickly lost, and it involves increased use of management time to continue supporting these guys."
This is perhaps why e-Xchange recently threw in the towel, and why other enterprises also seem to have failed to catch the imagination of the channel. Perhaps the most famous UK-based auction site, QXL, is up for sale, having made slow progress.
The initial hype about auction sites and exchanges came at the same time as concern about PC vendors selling direct. There was a lot of confusion about these sites, and few resellers really understood what was on offer and what it could mean.
According to a former employee of one of these online ventures, a combination of reseller wariness and lack of support from the major distributors led to companies such as e-Xchange, Hyperchannel and IT-xchange struggling to find a niche: "The channel has become a huge lumbering beast that is behaving like an oil tanker in terms of changing direction."
David Flack, group marketing manager at Memory Plus's parent company Torridon, said that the computer trade is not yet ready for business-to-business internet trading on auction sites.
"However, we have posted products to Inside-IT and have received a regular, although not massive, response. The format for Inside-IT also provides the subscriber with independent news stories which are of value to the reader," he said.
Inside IT has now dropped the auction side of the site and reverted to being an information portal for the trade. Marc Ambasna-Jones, editor of the site, said that there were a number of problems getting people to buy. It also takes a considerable investment to get the site working in the right way.
"Resellers would only go for the real bargain basement items," he said. "We are using the site to auction items for the IT Relief charity which is proving much more beneficial all round. I don't think it will work for sites such as ours. JustXS seems better equipped to make something happen."
As Ambasna-Jones points out, new sites with a slightly different approach are now appearing. The PST-backed online venture, JustXS, apparently did close to £500,000 worth of business in the first month of trading. Separately, but launching just days after JustXS, four industry veterans with long distribution and vendor backgrounds announced their own auction site, Xbidit.
But why should these companies succeed where others have failed? According to John Broderick, chief executive of JustXS, the service has been built on the results of extensive research and development by PST Group. With its parent company's name and reputation behind it, it has all the right ingredients.
"JustXS recognises the specific needs of both the seller and the buyer, protects the integrity of the channel and is backed by the leader in inventory management: a company that the industry knows and trusts," he said.
"We are a trading site offering two sales methods: fixed price and an auction element. However, following the initial launch, we have not implemented an auction. Customers find the fixed-price option provides the most manageable results. Auctions are perhaps seen as the last resort, allowing the market to determine the product price."
JustXS allows manufacturers to make products available to a selected group of potential buyers at an agreed price level. Certain types of buyers and buyers in specific countries can be included or excluded.
Products that do not sell after an agreed time can be bought at a renegotiated price from PST, which will then dispose of them though its usual channels. This guaranteed sale, Broderick claims, is unique to JustXS and gives the vendor the ability to act before stock positions deteriorate too much.
"JustXS provides manufacturers with the chance to offer smaller quantities of excess or surplus stock earlier in the life cycle and get a better return. It gives them more flexibility and the ability to plan ahead. Vendors need to maximise their income on everything they produce," Broderick said.
The Xbidit venture has been set up by former Ingram Micro vice presidents Alistair Handyside and Simon Aldous, former Nantucket managing director George Fletcher, and former UK boss of USR Clive Hudson. It is similar to JustXS in that it deals with excess stock and only with the trade, but with a more direct auction approach.
The Xbidit site is a live weekly auction and buyers know immediately if their bid is successful or not and can act accordingly. They can raise the bid if necessary and confirm product supply to end users. There is no minimum quantity of purchase and the site will only be accessible by vetted resellers.
Similarly, JustXS will also follow PST's maxim of dealing only with partners that operate outside of the vendor's normal channels. "JustXS will work with vendors, just as PST always has, to guard against any channel disruption. JustXS will be a closely managed trading site and there will be defined areas within it that only authorised customers will be able to view."
Aldous, who is business development director at Xbidit, said that his company's approach is very different from that at JustXS, and he believes there is plenty of room for both. "Together, the two sites offer a new route to market for vendors with excess stock," he said.
Their existence should promote the auction as a valid way to buy products in addition to the other options that are available. Xbidit offers both reseller and vendor a solid proposition, and as the message is marketed, it will raise the awareness of auctions as a valid procurement vehicle.
Being unique and having market awareness seem to be the keys to success here. The auction sites that have done well so far also have their particular traits. eBay is doing well in the UK, according to Paul Witten, director of business development, for a very simple reason.
"The problem with a lot of trading environments is that no-one knows who you are. eBay has a massive volume of traffic [18.9 million registered users worldwide], and that encourages buyers to visit the site and makes it more attractive to the seller. The problem these other sites have is that nobody knows they are there," he said.
Helga St Blaize, communications director at Acequote.com, said that her company spent six months piloting the system and visiting potential users before going live. It was not easy to get the message across, though.
"There was a lot of hostility initially from resellers and manufacturers who don't need us to go direct. But we marketed it by going to shows and with hard work," she said.
Although Acequote does have a small auction function that vendors can use, its approach is quite different to the traditional auction method, providing a type of reverse auctioning or tendering process for buyers, rather than a service for the seller.
Organisations place details of their requirements onto the site. Acequote then asks its subscriber members - all of whom pay £1500 to get the information - to submit bids and proposals. There are 4000 registered suppliers already, and the service is catching on.
eBay will not talk about its volume of business in the UK, but there are plenty of IT items on its site, and Witten claims that there is a healthy level of trading in IT products. But eBay has an open policy, so it is not a site that vendors will want to use for all their excess stock problems.
Aldous thinks that there is another, more fundamental problem: the attempts made so far have not really been dedicated to the channel. "Previously, you have had companies like Go-Industry who have 'Office Equipment' sections, but they are not focused on IT equipment. The structure of their auctions is too far removed from the traditional dynamics of IT procurement to be of commercial use to most companies," he said.
As far as the channel is concerned, the only company to have really tried an online auction is Inside-IT. Aldous said this is just an add-on to the main site and not part of the company's core business model.
"It is not marketed proactively as a place to visit to procure, and as such has not really seen much traffic. Additionally, the quality and volume of product offered is questionable to say the least," he said.
Getting the right products, in the right condition and quantity, is clearly a problem for auction sites. The financial aspect is why most never take title of the products they offer, and instead act more like auction exchanges. But even this is a problem, as there is serious doubt about the auction mentality of the UK channel.
Changing attitudes to auction sites will be key to their success, said Aldous. Resellers need to know when they are going to be able to deliver products. As a result, the approach of making products on a site available for a set period does not really work. Products must be more instantly available, and sites need to offer access to products that users would otherwise find impossible to obtain.
The right formula
Run-of-the-mill ideas just are not going to survive in the longer term, though. The apparent difficulties of QXL and failure of E-xchange have already been mentioned. It remains to be seen whether these new entrants into the market have in fact found a working formula.
"As the sites compete each other out of the market, a small number of winners will emerge, and they will have a stronger offering. I believe the industry will support them," said Tatham. "JustXS looks good and is trusted. But its guarantee to sell products means only that PST will buy the product at a rock-bottom price."
Broderick explained that this is not quite the case. JustXS will offer to buy any products not sold though the site after a certain period of time, and for an agreed price. "But that offer can be negotiated at any time. It's not a condition of putting stock onto the JustXS site. Vendors can decide if they want to take the guarantee option themselves, and they can do so at any time.
"We typically see that happening at some point way down the line. It happens a few days after the stock has gone onto the site perhaps, when it's becoming clear that sales are slowing down or that a lot of stock will be left unsold," he said.
The guarantee, Broderick points out, is a part of what makes JustXS unique, and PST is a key part of the whole offering. "We could not make any guarantees unless we had PST at the end of the line, but JustXS is certainly not a vehicle for getting lower prices off the vendors," he said.
"Indeed, it means that they will be able to move more of their excess stock earlier, and won't have as much for PST. It won't really affect the PST buying price. The only effect it will have will be a guaranteed value on the stock after a certain period. We think that's a real benefit for the vendor," he added.
Inventory disposal sites
For vendors there is undoubtedly sense in using excess inventory disposal. With services such as JustXS and Xbidit, there now seem to be at least two internet sites that suit reseller needs well. Both sites provide a controlled outlet for stock nearing the end of its life, and at the same time give the vendor the chance to maximise the value of those items.
In the case of JustXS, the site could also help avoid reappearance of stock in the channel and keep it from getting in the way of new product introductions. From the reseller's point of view, online auction sites may make products available that otherwise would not have become available through other routes.
- Resellers have been staying away from auction sites because they are concerned about quality, security and channel conflict. Also, they like doing business with their own contacts.
- Distributors have found auction sites wanting in terms of sales, and don't see a major role for independent auction sites.
- Sites that succeed have a unique element to them, and an established audience or reputation.
- New ventures such as JustXS and Xbidit that focus on trade-only sales of excess inventory are being well received, and in the case of JustXS, are already achieving good sales.
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