Question: IT at Work
Online Auctions for Commerce
An auction is a competitive process in which either a seller solicits bids from buyers or a buyer solicits bids from sellers. The primary characteristic 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 revenues for sellers by broadening the customer base and shortening the cycle time of the auction. Buyers generally benefit from online auctions by the opportunity to bargain for lower prices and the convenience of not having to travel to an auction site to participate in the auction. Auctions are used in B2C, B2B, C2B, and C2C commerce, and are becoming popular in many countries. Auctions can be conducted from the seller's site, the buyer's site, or from a third party's site. Auctions are divided here into two major types: forward auctions and reverse auctions. Forward Auctions Forward auctions are auctions that sellers use as a channel to attract many potential buyers. The most popular forward auction site is eBay. Like many e-commerce sites, eBay offers mobile apps that allow customers to participate in auctions from their handheld devices (see Figure 6.11.) Usually, items are placed at an auction site, and buyers can bid on items or services until the deadline. The highest bidder wins the items. Sellers and buyers can be individuals or businesses.
The popular auction site eBay.com conducts mostly forward auctions, but there are many B2C and B2B online auctions. Forward online auctions are used to liquidate excess inventory or to increase the scope of customers, particularly for unique products or services. For example, see liquidation.com as an example of an online liquidator. Reverse Auctions In reverse auctions, a company or government agency that wants to buy items places a request for quote (RFQ) on its web site or third-party bidding marketplace. Once RFQs are posted, sellers or pre-approved suppliers submit bids electronically. Reverse auctions can attract large pools of willing sellers, who may be manufacturers, distributors, or retailers. The bids are routed via the buyer's intranet to the engineering and finance departments for evaluation. Clarifications are made via e-mail, and the winner is notified electronically. The reverse auction is the most common auction model for large-quantity purchases or high-priced items. Everything else being equal, the lowest-price bidder wins the auction. Governments and large corporations frequently mandate this RFQ approach for procurements because competition among sellers leads to considerable savings. For Further Exploration: Why are auctions an efficient online sales channel? Visit liquidation.com. What types of items are sold via this auction site?
Review Questions: 1. What was the dot-com bubble? What lessons were learned from it?
2. List some benefits of operating as an e-business.
3. What are the requirements and challenges of e-business?
4. What is the importance of PCI DSS compliance?
5. Define the term "business model" and list five e-business models.