Big Blue Pounds The Gavel And Is Sold ... On Net Bids
Investor's Business Daily
Date: 4/19/99
Author: Doug Tsuruoka
Going once, going twice . . . sold . . . to Big Blue.
Can IBM Corp. find happiness in digital-age auctioneering? Officials at the company have raised their bidding cards in favor of the idea, thinking there are billions to be reaped from the concept. Hungry for more revenue, the world's largest computer maker is looking at online auctions as an outlet for growth.
IBM has something specific in mind when it talks about online bidding, though. It looks to create software that allows companies to buy and sell with each other over the Internet.
''This is going to be a very big deal, bigger than the flea-market sites you see on the Web today that sell Furbies or used watches,'' said Stuart Feldman, director of IBM's Institute for Advanced Commerce. ''The real action is in business-to-business technology where companies will be selling billions to each other online.''
Feldman oversees a group of 50 company scientists at the institute, which focuses on advanced business-to-business electronic commerce. He says IBM expects to sell $15 billion worth of mostly business-to-business e-commerce products this year, up from $2 billion in 1998.
Big Blue has spent years hunting for revenue outside its mainframe and personal computer businesses. It's focusing on software, computer parts and services like small-business technology.
As part of its initiative, IBM is taking a number of steps in the online auction arena. Last month, the company invited dozens of scientists to its research lab in Yorktown, N.Y., to examine online auctions. The conference drew software experts from top U.S. universities who detailed research they're doing to help companies negotiate in cyberspace.
''We were looking ahead five years to where we can take this technology,'' said Jeffrey MacKie-Mason, conference attendee and professor of economics at the University of Michigan.
Online bidding could involve anything companies use to keep running: raw materials, finished goods, services - even labor. Companies already haggle over such things, using purchasing managers or other specialists to get the best price.
MacKie-Mason says cost savings vary by industry. But in any case, the money saved will be ''substantial,'' he says.
''Business managers are going to see a lot more flexibility in buying supplies. You won't need so much long-term contracting. Getting supplies will be more adaptive and just- in-time,'' MacKie-Mason said.
IBM thinks companies already know this. A few of the companies expected to use online auctions are industrial and consumer product makers, hotels, airlines and farmers.
The biggest attractions are speed and, above all, cost. The cost of online bidding is lower than traditional auctions that require physical locations or deals that rely on agents or other professionals to oversee them. In- house methods for supplying companies also will lose importance as online auctions become popular.
Some analysts question how fast IBM can hit pay dirt with its auction concept.
''Online auctions are a very long- term thing. With a company the size of IBM, with over $81 billion in sales, it's tough for any one venture to (have a big impact),'' said Jeffrey Maxick, an analyst with Madison Securities Inc. in Chicago.
But MacKie-Mason says dialogue with scientists helps IBM improve its technology and get it up and running for corporate clients.
''They have a lot of foresight, putting people from academia and industry together on this topic,'' MacKie-Mason said.
IBM's Feldman says online auctions are an area where the company already makes money. He won't say how much, but he adds Big Blue is testing the technology with several big corporate customers.
Feldman thinks IBM's work in online auction technology will be part of a revolution that will impact all aspects of life.
''If you look out over the next 20 years, we're picturing there will be literally billions of people who will be in electronic contact. Online haggling will be the normal way of buying online goods,'' Feldman said. ''Your computer will broadcast your grocery shopping list, and three different tores) will be able to send back bids on your shopping basket.''
The idea appears to be taking root with consumers as well as companies. Things like toys, paintings, guns, cars and other personal possessions are being auctioned on the Web.
But IBM is focusing on business clients. Online auctions are part of a broad area IBM calls business-to-business technology. It includes any business activity between companies that's done online. It also fits a broader definition of what IBM calls electronic commerce, which includes things like online retailing technology.
San Jose, Calif.-based Cisco Systems Inc. and Santa Clara, Calif.-based Intel Corp. are among those involved in online business technology that sell billions in this market, analysts say.
Firms like IBM see big returns from online auctions because they can be applied to virtually any Internet-based business transaction.
''Auctioning is just a detailed, rule-based method for doing a business negotiation,'' MacKie-Mason said.
IBM believes online auctions work best if they're customized to client needs. IBM's Web-based software can simulate so- called ''Yankee auctions,'' where the high bid wins. They also can do things like ''Dutch auctions,'' where prices start high and go lower.
IBM also is working on auctions that depend on many factors, including time, place and type of product or service being sold.
''Our software tries to make it very easy to do the customizing in these auctions,'' Feldman said.
Feldman is tight-lipped about disclosing the companies using early versions of IBM's auction technology. But he says they're big makers of textiles, paper and metals.
The needs of these clients can be complex, Feldman says. One company is using online auctions to help sell off excess product inventories. For competitive reasons, though, the company doesn't want anyone to know it has a problem with excess inventory.
The answer was to develop a system that allowed buyers and sellers of these goods to remain anonymous, with IBM essentially brokering the deal online.
Feldman says anonymity also works well with companies selling distressed or damaged goods to buyers. This way, companies don't have to publicize the fact that they're dealing in such goods.
Like public auctions, the notion of keeping the identities of buyers and sellers confidential seems to appeal to many companies, Feldman says. Net auctions also can be conducted across international borders, as in the case of U.S. firms selling to foreigners or vice versa.
''They wouldn't even know what country was buying their product or what currency was being used, so long as the material gets delivered,'' Feldman said.
Some IBM clients are using auction technology to guide production schedules. This is because the Internet makes it easier to coordinate activities like online auctions with factory output, since many production schemes are already computerized and can be linked.
This means some firms might put out more products if they knew they could sell excess material through online auctions. Feldman doesn't think his predictions about the future of Internet auction technology are far-fetched.
''The reason I believe (it will become popular) is because of the plunging cost of communications and computing devices that can be linked to these auction systems,'' he said.
He says anyone with disposable income can be part of a global auction network that allows for customized construction and delivery of products and services.
''Computing technology will allow you to design and price it in real time,'' Feldman said. ''In some sense we're returning to the past, with its tradition of going to village craftspeople when you want something made. The only difference is it will be done in a global village and not a little village.'' |
