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Technology Stocks : OnSale Inc.
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To: Doug Fowler who wrote (3515)1/20/1999 6:37:00 AM
From: Maxwell  Read Replies (2) of 4903
 
Onsale AtCost vs. Auction:

Yesterday Onsale announced a pre-earning number of $59M in sales for the Q4. This number was well below the street expectation of $62M. Part of the problem was Onsale's inability to secure a huge order of surpluses for the Christmas season. This is an indication that the business is supply limited instead of demand limited. With the increase in competition among other new auction warehouses, the supply will be even tougher to obtain. Thus Onsale introduced a new business model called Onsale AtCost.

At first AtCost seems like a suicide model that would directly compete with Onsale auction business and reduced Onsale profit margin. Further thoughts indicate that AtCost complements Onsale auction business. Here are the reasons.

1) Onsale auction primarily sales refurbished and old model items. According to Kaplan this represents only 5%-10% of people actually wanted.

2) AtCost targets the other 90%-95% to people who want NEW items at the best price. Auction is still the best deal for those who don't care for the latest item.

3) AtCost model is a SERVICE model similar to EBAY. Onsale makes money based on a small fee of $10 per transaction and through advertising revenue. AtCost model also targets primarily for medium/big business who wants volume at discount price. AtCost primarily targets for the OTHER sector that Onsale auction is not covered.

4) AtCost is the only way to increase in revenue in a competitive auction business where supply is limited. AtCost brings an infinite source of goods when surplus and refurbished items are constraint.

5) AtCost gives Onsale a competitive edge over other auction houses.
It will be the "one shopping stop" where anyone can buy anything and everything.

6) AtCost will lower the over all margin of the business (assuming if Onsale reports sales of AtCost as the over sales of Onsale) but revenue growth will accelerate as people on this thread have hoped for.

7) AtCost will redefine the retailer sector and Onsale is ahead of everyone.

Maxwell
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