Online Auctions An auction is a competitive process in which either a seller solicits bids from buyers or a buyer solicits bids

from sellers. The primary characteristics of auctions whether offline or online, is that prices are determined dynamically by competitive bidding. Auctions have been an established method of commerce for generations, and they are well-suited to deal with products and services for which conventional marketing channels are ineffective or inefficient. Electronic auctions generally increase revenue for sellers by broadening the customer base and shortening the cycle time of the auction. Buyers generally benefit from e-auctions by the opportunity to bargain for lower prices and the convenience of not having to travel to an auction site to attend the auction. They can also find rare and collectors items online. The internet provides an efficient infrastructure for executing auctions at lower administrative cost and with many more involved sellers and buyers. Individual consumers and corporations can participate in this growing form of e-commerce. There are several types of online auctions, each with its motives and procedures. Auctions are divided into two major types namely forward auctions and reverse auctions.

Forward Auctions Forward auctions are auctions that sellers use as a selling channel to many potential buyers. Usually items are placed at a special site for auction, and buyers will bid continuously for the items. The highest bidder wins the items. Sellers and buyers can be individuals or businesses. For a example the popular auction sites eBay.com conducts mostly forward auctions. Again there are two types of forward e-auctions. One is to liquidate existing inventory and the other one is to increase marketing outreach and efficiency. Customers in the first type seek the lowest price on widely available goods or services, customers in the second type seek access to unique products and services. For the auction holders forward auctions can help them on achieving below tasks

Acquire new customers and extend geographic reach Test new products and establish price points Dispose of excess inventory quickly Price according to demand and stock levels Reduce sales costs by minimizing marketing spend

For bidders forward auctions can help them on achieving below tasks

Buying through forward auctions reduces procurement costs. Source non-critical supplies, like stationery and office furniture Acquire specialist, second-hand equipment inexpensively Reduce the time spent on procurement by setting up automated searches and bid alerts.

Reverse Auction In reverse auction there is one buyer, usually an organization that wants to buy a product or service. Suppliers are invited to submit bids. Online bidding is much faster than conventional bidding, and it is usually attracts many more bidders. The reverse auction is the most common auction model for large purchases in terms of either quantities or price. Everything else being equal, the lowest price bidder wins the auction. Government and large corporations frequently mandate this approach for procurements which may provide considerable savings. Reverse auctions gained popularity in the late 1990s as a result of the emergence of Internet based online auction tools. Pioneer of online reverse auctions, FreeMarkets, was founded in 1995 by former McKinsey consultant and General Electric executive Glen Meakem after he failed to find internal backing for the idea of a reverse auction division at GE. Meakem hired McKinsey colleague Sam Kinney who developed much of the intellectual property behind FreeMarkets. Headquartered in Pittsburgh, PA, FreeMarkets built teams of "market makers" and "commodity managers" to manage the process of running the online tender process and set up market operations to manage auctions on a global basis.[citation needed]. The company's growth was aided greatly by the hype of the dot-com boom era. FreeMarkets customers included BP plc, United Technologies,

Visteon, H.J. Heinz, Phelps Dodge, Exxon Mobil, and Royal Dutch Shell, to name a few. Dozens of competing start-up reverse auction service providers and established companies such as General Motors (an early FreeMarkets customer) and SAP, rushed to join the reverse auction market space. [citation needed] Although FreeMarkets survived the winding down of the dot-com boom, by the early 2000s it was apparent that its business model was really like an old-economy consulting firm with some sophisticated proprietary software. Online reverse auctions started to become mainstream and the prices that FreeMarkets had commanded for its services dropped significantly. This led to a consolidation of the reverse auction service marketplace. In January 2004, Ariba announced its purchase of FreeMarkets for $493 million. [http://en.wikipedia.org/wiki/Reverse_auction, accessed on 14-02-2012: 21.35p.m.] Ariba is one of the most common e-sourcing platforms currently available in the market. Buying, selling managing trading partners and cash. On the surface, it seems pretty simple. But business commerce is anything but. Each year, companies like yours spend millions streamlining and automating processes within their four walls. But when it comes to collaborating with other companies, youre probably still hampered by inefficient processes. And its costing youand your trading partnersbig money. There is a better way. For more than 15 years, Ariba has helped companies drive more productive, effective, and collaborative commerce. Whether youre looking to control supply chain costs, increase sales, minimize risk, or enhance cash flow and operations, Ariba delivers the technology, capabilities, and global community of trading partners you need to do it better than ever before. More than 700,000 companies around the globe use the Ariba Commerce Cloud to simplify inter-enterprise commerce and enhance results. In the pages that follow, you can read many of their stories and learn how the Ariba Commerce Cloud can help you transform your results by controlling and optimizing your business relationships for maximum efficiency and effective financial performance. For the auction holders reverse auctions can help them on achieving below tasks Auction mechanism replaces time-intensive negotiations with suppliers.

 Procurement departments save time sourcing and negotiating with suppliers. Materials can be sourced from a larger pool of suppliers.

For suppliers reverse auctions can help them on achieving below tasks

They are popular with major customers who have large budgets. Competing on price isn't the only way to win business - factors like service, quality and reliability can count in your favour. You gain access to customers who are ready to buy quickly, without having to launch a sales campaign. Bidding aggressively can be a quick way to offload stock or build market share. Even unsuccessful bidders gain valuable market information.

An outline of how the technology/application actually works In general with major industrial purchasers it became soon apparent that complete e-Procurement strategies are a time-consuming task to define and implement. On the one hand, aligning a whole purchasing department with electronic procurement is tiresome and brings an extra load of work. On the other hand, the desired effects of more efficient purchasing processes pay off only in the long run. However, it also became apparent that identifying the commodities with high purchase volume and buying them via auctions could significantly reduce the prices spent for these commodities, and, what is most important, leads to a high and immediate return on investment. From that point of view, an initial set of requirements for online auctions was defined: It was evolved and enhanced during the past years. In the following, the most important of these features have been described. Also other technical issues of interest, such as flexibility, ease of use, security, performance, robustness and compatibility to existing systems, both on the buyers as well as the suppliers side also need to be considered.

The software is capable for online auctions, both the normal English format and the reverse format, thus allowing to auction goods for buyers and demands for suppliers.

An intuitive graphical user interface is accessible through the web without any installation necessary. Being able to support access to online auctions without any installation proved a great success factor, since it is often rather difficult to install new software within company networks.

Auctions are running in real-time. This means that clients always have current information visible. This is especially important for short time (approx. 30 minutes) auctions, where the frequency of bids is relatively high.

An auction may consist of several slots, allowing the buyer to split the material desired among several suppliers. This allows to prevent a dependency on a single supplier only, as well as to split for different delivery points. There should be a mechanism to automatically extend the auction time in order to ensure competitors to be able to react on incoming bids. However this extension time will get shorter as the auction proceeds. We need to consider the auctions where the bids could be arrived within seconds.

Different auctions may depend on each other. For example, depending on the results of simultaneous auctions, the buyer purchases percentages of competing materials. The auction system must reflect this dependency, e.g. by additional messages that describe which of the competing materials will be bought.

Persons may participate in an auction in different roles: the auctioneer, the bidders, the originator of the auction (buyer in reverse auctions, seller in the normal auctions), and guests shall be admitted. In particular, the role of guest is useful to show potential and not fully convinced participants how online auctions work, without revealing any information on auction details (neither currency, nor value, nor the buyer, nor the kind of traded goods).

Different roles get different information at hand. Only the auctioneer can co-relate the bids to their bidders during the auction. Bidders appear to each other anonymously, but know how many competitors there are. Furthermore, bidders see their ranking. External observers following the auction see percentage values instead of real currency.

Reverse auctions may have a historic and a target value. The historic value describes what the buyer paid for the auction goods so far, whereas the target value describes what he would like to pay this time. If the auction result hits the target value then the buyer is obliged to sign the contract. If the target prize is not hit the buyer is free to choose.

A login mechanism is imperative. Passwords are distributed through safe channels.

A report on the auction result is provided for all participants. This report allows the participants to reflect the auction result. The winner has evidence of his success. The other bidders have evidence that they have been over-bidden and perhaps should think about the pricing structure of their product.

Setting Up an Online Auction Setting up an online auction requires a business to make a number of choices in order to establish the rules and conditions under which the bidding will take place. Hosted auction sites usually offer sellers some options, while auction software packages vary greatly in the number of options they provide. Either way, businesses should have input into the basic parameters of the auction process. For example, a typical online auction requires the registration of both buyers and sellers and the collection of sale items, along with digital images and descriptions. The seller may be able to establish the start date and end date of the auction, as well as determine which auction method to use. It is also important to select preferred payment methods and establish a process for delivering items to customers. A business involved in an online auction may also have input into various settings that control the way the auction works. Auction settings are incorporated into most software packages and can be adjusted through most host sites. Sellers can thus specify the minimum bid, or the lowest acceptable starting price for a particular item; the bid increment, or the minimum amount by which a new bid must exceed the previous bid; the minimum current bid, or the lowest acceptable bid at any point in time, given the minimum bid and bid increment settings; the reserve price, or lowest price the seller will accept for the item; and the start and end date, which define the period when bids are accepted. It is also often possible to set the type of auction (open call or sealed bid, for example), and the process for resolving ties. The seller should always establish the settings prior to the beginning of the auction and never change them once the bidding process has begun. Although individuals comprise the majority of current online auction participants, the future growth of the industry is expected to be driven by business-to-consumer and business-to-business auctions. Online auctions offer potential benefits to all types of businesses. "Many companies wonder when and why they should use online auctions as part of their business trading strategy,"

Lori Mitchell wrote in Info World. "The short answer is, if you sell goods and services or if you purchase items to run your business, online auctions can work for you. Companies of practically any size and within any industry can benefit from them." Internet analysts note that online retailers who incorporate auctions into their sales activities tend to see a higher level of repeat visits, more frequent purchases, and increased promotional opportunities compared to other online retailers. Auctions also offer advantages for those businesses interested in selling to or buying from other businesses. Some businesses choose to host closed or private auctions for their existing business contacts. But online auction companies may be able to assist companies in enlarging the audience for auctions by analyzing the bidding patterns of previous auctions to identify potential new customers. The strategic advantages of the online auction:

No time constraints. Bids can be placed at any time (24/7). Items are listed for a number of days (usually between 1 and 10, at the discretion of the seller), giving purchasers time to search, decide, and bid. This convenience increases the number of bidders.

No geographical constraints. Sellers and bidders can participate from anywhere that has internet access. This makes them more accessible and reduces the cost of "attending" an auction. This increases the number of listed items (i.e. number of sellers) and the number of bids for each item (e.g.: number of bidders). The items do not need to be shipped to a central location, reducing costs, and reducing the seller's minimum acceptable price.

Large number of bidders. Because of the potential for a relatively low price, the broad scope of products and services available, the ease of access, and the social benefits of the auction process, there are a large number of bidders.

Large number of sellers. Because of the large number of bidders, the potential for a relatively high price, reduced selling costs, and ease of access, there are a large number of sellers. Network economies. The large number of bidders will encourage more sellers, which, in turn, will encourage more bidders, which will encourage more sellers, etc., in a virtuous circle. The more the circle operates, the larger the system becomes, and the more valuable the business model becomes for all participants.

Captures consumers' surplus. Auctions are a form of first degree price discrimination. As such, they attempt to convert part of the consumers' surplus (defined as the area above the market price line but below the firm's demand curve) into producers' surplus.

Three reasons your business needs to take advantage of online auctions: 1. Online auctions provide instant, low-cost exposure to new markets and opportunities. 2. Auctions help you enhance brand loyalty and develop a brand experience among your online audience. 3. It is virtually certain that your sharpest competitors are already there

An assessment of the online auction usage and how we would expect to see the develop in the next few years Experts tend to agree on at least two predictions. The Internet will continue to get bigger and more pervasive in American and world society, and much of the action will happen out on the edge of the Net as computer users increasingly employ smaller, more mobile, more powerful devices. A bigger, more pervasive Internet will mean greater availability of Web commerce at all levels of buying and selling. It will also mean that online auction sites will have more buyers and sellers competing with each other. Several groups and organizations, including Internet2 which is a consortium of more than 200 universities working with industry and government. They are trying to develop new network services and applications and ensure their rapid transfer to Internet users., are looking ahead to the so-called next-generation Internet, which may start appearing within a few years. For example, the National Science Foundation has proposed basically starting over, viewing the current Internet as a clean slate in its Global Environment for Networking Investigations (GENI) initiative. GENI is expected to focus on improving Internet security, as well as making the Internet easier to access and more useful for monitoring sensors and controlling devices within a building or home. Internet changes may be years away from having any impact on your online auction business. Or, they could start arriving much faster than you think. Always keep one eye on

the outside world while you stay focused on building your auction business and providing topnotch customer service. Greater mobility, however, will ensure that you will be able to combine travel and pleasure more easily with running online auction sales. As you find new items to sell, you will simply pull out your wireless multifunction digital device, take the necessary photographs, create the descriptive text, post the listing, watch for bids, handle other transactions, send and receive e-mail, and make voice phone calls. As long as you don't misplace or lose your Miracle Multi-communicator device, you will be fine. The panic you feel now when losing a cell phone certainly would be multiplied because of the number of other functions supported by the future device. Imagine yourself running your auction business while hiking in the Grand Canyon. It could happen soon. Now picture yourself suddenly and completely cut off from your auction business because you have just dropped your Miracle Multi-communicator into the Colorado River. That could happen, too. Adopt new technology as it fits your needs, but always have a backup means for keeping your business going. (http://www.netplaces.com/online-auctions/whereto-go-from-here/the-future-of-web-commerce.htm access on 14-02-2012 at 22.00 p.m)