When the much touted US-based Pen computing outfit Go Corp folded in 1994 ? shortly after being hailed as the next big thing in computing ? founder Jerry Kaplan auctioned off its assets online. Nearly three years on, Kaplan and his new company, Onsale, is the driving force behind the burgeoning business of online PC auctions.
There are now at least 500 US auctioneers that have some kind of presence online, whether running virtual auctions or merely using the Web to showcase catalogues and list forthcoming events.
Online PC auctions are big business in the US. Onsale, based in Mountain View, California, estimates that it makes $700,000 a week in sales, a turnover of $35 million a year, selling overstock, end-of-life and refurbished PCs for dealers and manufacturers. It claims that prices are 50 to 70 per cent of the retail cost of an equivalent system, and that its internet site (www.onsale.com) gets 12,000 to 15,000 visits a day.
Most auctioneers make their cash by charging a buyer?s premium ? typically 15 per cent ? on the hammer price, giving Onsale a profit of over $2 million on its sales. Large numbers of US auctioneers have taken to the Web, mainly PC auctioneers selling online. Others are just putting up catalogues and listing details of their forthcoming auctions. But the trend is for more auctions to go online, changing the way that end-of-stock PCs are sold.
Rod Best, sales director of Witham-based Nationwide Computer Auctions (NCA), and former sales director of reseller Bonsai, says NCA will start running online UK auctions in 1997. Initially it is a case of putting its catalogue up on the Web, says Best, but full online auctions may well follow.
Best says he has used US and Australian online auctions to buy surplus kit from abroad himself, and that online auctions offer a way for dealers to get access to a wider range of kit. ?They will not replace conventional auctions,? says Best. ?But they widen the scope of where you can get kit from.?
There are some reservations about online auctions, though. One PC auctioneer says they could create problems over what PCs were sold. ?It depends who you are selling to,? he says. ?PCs are sold at auction as seen. It creates a problem if bidders are trying to buy kit that they have not seen.?
All auctioneers have viewings before sales and encourage prospective buyers to examine goods carefully before the auction. Most PCs are sold at auction without warranties (see box), so it is important that goods are checked beforehand.
One of the reasons that NCA sells its PCs at auction so cheaply is that its terms are no credit, cash only, no warranty and no support, says Best. NCA is the largest PC auctioneer in the UK, he adds. It runs twice-weekly auctions at 10 sites across the South, selling a combination of redundant kit from manufacturers such as Packard Bell, Olivetti and Panasonic and its own-brand Platinum system, built from components that NCA spot-buys cheaply. It also sells second-hand kit sourced from corporations.
The resulting PCs, says Best, are among the cheapest that can be bought anywhere. A new Pentium 166 Platinum PC with 1.7Gb hard drive, 16Mb Ram, 17in monitor, eight-speed CD-Rom and 14.4Kbps modem, sells for #650 plus VAT at auction. Best estimates that NCA sells 70 to 80 of its own PCs at each auction ? about 7,000 to 8,000 systems a year. The company?s turnover is #7 million a year, with #3 million from auctions and #4 million from trade.
Best says: ?Eighty per cent of the stuff that we sell at auctions is our own PCs. Most other PC auctioneers just sell third-party PCs and second-hand kit.?
He says that NCA could not make money on just being an auctioneer of other people?s kit, because the buyer?s premium of 15 per cent is lower than the margin that it gets from selling its own PCs. The other problem with selling other people?s PCs, says Best, is that the reserve price that the seller sets down ? below which they will not sell ? tends to be high.
?The seller wants to make 30 per cent margin,? he says, ?which would make the end user price too high after we have taken our commission.?
Best says NCA wants to branch out in two ways. First, it wants to increase trade sales. At present, 70 per cent of its sales are to end users, and the remaining 30 per cent to dealers and the trade. NCA runs two or three trade auctions a week at Witham, where PCs are sold by the pallet, with up to 150 PCs going in a single lot.
Second, it wants to expand into the North. There are only about four companies which hold big computer auctions across the UK. Last year, NCA bought Salisbury auctioneer Abtek Systems, to gain a presence in the South West. It is now looking to buy an auctioneer in the North.
Best reckons he can make margin on a 486sx sold for #399, and that he can undercut resellers and direct sellers because of his low support costs. At one of his early auctions in May 1994, Best took #62,000 in six hours selling 57 high-spec own-brand PCs.
Another auctioneer selling PCs is Wilson Peacock of Bedford, a subsidiary of Lloyds TSB. It holds monthly sales, one for PCs, in four showrooms. The auctioneer gets liquidation stock from businesses and bailiffs and sells systems on behalf of the Inland Revenue, Customs & Excise and private individuals. According to a company representative, a typical sale at Wilson Peacock contains up to 60 full systems, including some notebooks.
Other major auctioneers that advertise sales in trade magazines are Traderdesk of Birmingham and South West Computer Auctions. The geographic spread of the auctioneers seems logical, with little overlap. But auction houses can face competition from travelling shows and fairs that take out space in hotels to run specialist sales. Customers also tend to travel further to auctions than they would to a dealer or superstore. There are other tips too, say the auctioneers, for those dealers that want to put their kit into auctions.
The auctioneers that sell large numbers of second-hand systems tend to break up lots to make them easier to sell, and to stagger kit across a number of sales. This means it can take a while for a dealer to be paid if the kit it puts up for auction is sold across a number of sales. But auctioneers point out that sellers can get a higher return on kit at auctions than they would get selling to a computer broker, for instance. Auction prices for good 486 PCs are typically #500, and prices for 386s are about #200 to #300.
Systems are generally sold at auction without software, although they are powered-up before the sale to show them working. Sellers are advised to install a public domain graphics package ? for instance the cover disk from a magazine ? that can show the systems working. All other software should be deleted by the seller before the sale.
It is not normally the job of the auction house to do this. Auction house terms of business often specify that the buyer must delete any software left on the system.
The final concern for the seller is making sure that the auctioneer gets an exact list of the systems for sale and their specifications. If the lot is incorrectly described in the catalogue and subsequently sold, the sale can be invalidated. Good auction houses check the specifications of PCs that they sell, but it is up to the seller to make sure that they know the exact specs of PCs that they put up for auction.
Online auctions are not likely to replace their more conventional counterparts in the near future. They are very much at the experimental stage, trying out different formats to see what works. The biggest problems are that goods cannot be properly viewed before the auction starts, and that auctions are not in ?real time?, where one bidder can see what another is bidding and decide whether to top the bid.
In most online auctions, prospective bidders put in sealed bids for goods as described in the catalogue ? the highest bid within the time allowed gets the goods. As in any auction, prospective bidders have to register their details before they can bid, which in online auctions is done by filling in an electronic form when a bidder logs on.
The drawback of sealed bids is that the bidder does not know what others are bidding for the same lot and can bid too high. More sophisticated online systems, such as Onsale, have complicated back-end processes which can calculate demand for a product and adjust the price accordingly. Kaplan believes it took Onsale 18 months to get the interface right for the online auction software.
There are other variations on online auctions. Some systems are built around sophisticated video conferencing software. But the higher cost of such a setup means it is more likely to be used to link up auction houses with a single remote site ? for instance warehouses where goods are stored ? rather than scores of prospective bidders at remote sites.
Another potential drawback with online bidding is that an internet connection can never be guaranteed for a very busy site, which could mean users not being able to get through in time for an auction.
Although online auctions may not be much like a conventional sale, Kaplan says that the model is good for selling pretty much any type of goods. ?Auctions create a sense of excitement and put buyers in the mood,? he says.
Although it started with PC auctions, Onsale is keen to move out into auctioning complementary goods like consumer electronics.
Ultimately, the biggest drawback at the moment with the idea of online auctions is that the lack of a widely established secure method for electronic payments means there are still risks with sending credit card details over the internet.
Onsale uses encryption from Netscape, which is robust but has been hacked in the past, to encrypt payment information. As with any auctions, the online variety do offer bargains, but let the buyer beware!
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