Online auctions are rapidly becoming some of the most popular destinations on the Internet, but just as research figures start projecting a US boom, some players are attempting to cast their nets wider into international waters.
Media research firm, Jupiter Communications, projects that US purchases from online auctions in the business to consumer market will grow to 6.5 million in 2002 from 1.2 million last year.
And over the next four years, it estimates that consumers will spend $7.1 billion dollars this way. Retailers liquidating excess inventory will propel sales values to $3.2 billion by 2002, up from $460 million in 1998, although no international projections are available.
So far, eBay.com is the market leader in this space, and it has rapidly become the darling of Wall Street.
Earlier this week, its shares sailed up 37 per cent or $82.62 to $303.50, after topping analysts? fourth quarter estimates and declaring a three for one stock split.
Investors from all over the market jumped to buy its stock and analysts upgraded their estimates as it announced a fourth quarter profits increase of nearly 700 per cent year on year, to $2.6 million from $214,000. Revenues also climbed 650 per cent to $19.5 million from $2.6 million for the quarter and to $47.4 million from $5.7 million for the year.
Investment bank, BancBoston Robertson Stephens, told its customers: "We believe eBay's results highlight the company's dramatic growth potential and extraordinarily profitable business model among many profitless Internet peers."
And Ryan Jacob, portfolio manager for The Internet fund, adds: "There are two things that are really important for Internet companies - organic growth and scalability - and eBay has both."
But eBay realises it has some envious competitors.
Meg Whitman, the company?s chief executive, says: "We believe that competition will intensify as time goes on, but we continue to believe that the best response is to improve the eBay experience."
As a result, the online auctioneer plans to pump "significant resources" into presentation, building up its engineering and support capability too.
The company also says it is likely to pursue international expansion efforts on its own, especially in larger European countries, although it does not rule out joint ventures.
Jeff Lymburner, president of eBay competitor, Bid.com, claims his organisation, which is ranked number four worldwide among online auction Web sites, has beaten eBay to the punch, however, by announcing plans to launch into its Home Shopping Network into the European Internet community.
He says the firm?s European headquarters will be located in Dublin, Ireland and adds: "I think that will be our first foray into international business outside of North America, and that could easily extend to such far flung places as Australia."
He continues that the online auction house is gradually moving away from its core business and intends to launch a TV style online shopping network on the Internet in the next few months.
"Our arrangement with American Interactive Media puts us in the very exciting position of being offered as content, for what is going to be a very broad array of broadband distribution of opportunities," he says.
He adds that, while the online auction format will continue to grow in a fairly significant way, there are other elements of the business that are growing just as fast, if not faster. According to rankings made by www.100hot.com/auction, Bid.Com was fourth behind eBay, Onsale and Surplus Auction.
A rather more unusual online auction site will debut in February, however.
Robert White, president and chief executive of millionaire.com is looking for big spenders for his new uppercrust business.
Millionaire.com will provide users with access to the company's live auctions and enable them to take part in certain highly regulated Dutch auctions. The site will be supported by four offline auction houses and the Millionaire magazine, and will focus on selling luxury products to the extremely rich.
Auctions held by the company's individual auction houses, including The Global Emporium, Gatsby's Auction Gallery, the New Orleans Auction Galleries and the St Charles Gallery, will be accessible via the firm?s Web site.
"Our experience has not been with the Internet, but when we send catalogues out and have phone bidders, the bids are historically higher," says White.
An he believes the added capabilities of the Internet may attract even more customers.
The Internet Fund's Jacob, however, is sceptical that such a niche market is currently mature enough to sustain this model. While he believes the Internet can be an effective distribution channel for auctions, he thinks it may be three or four years before the demographic profile of the Web will support an auction site solely for the very rich.
Sotheby's agrees. Instead of offering users the higher end products that are sold by its traditional offline business, the company plans to sell lower value items, which are expected to go for under $5,000, on its upcoming site.
Fiona Swerdlow, analyst at Jupiter?s digital commerce group, reckons that 1999 will be the year that business to consumer auctions move beyond limited technology product offerings to a more diverse product mix, however.
She says that while consumers have so far mostly been male with technology savvy, the availability of other merchandise, including toys and apparel, on auction sites will attract more mass market consumers to the interactive sales format.
"First Auction and uBid are forging this path. First Auction is really particularly aggressive about offering products other than computers, jewelry, things women would be interested in," she explains.
First Auction, which is affiliated with the Internet Shopping Network (ISN), was launched on in June, 1997.
Kirk Loevner, ISN?s chief executive, says: "Our focus is computers, consumer electronics and general merchandise." Offerings include unique collectible goods and sponsored promotions and First Auction's partners include AT&T's Worldnet Internet access service, Time Warner's Pathfinder Web site, and Gannett's USA Today newspaper.
Vernon Keenan, a director at Zona Research, is positive about the firm?s future: "Auctions got real hot in the second half of 1997, and First Auction could turn out to be a real leader in online commerce," he says.
The research organisation is projecting revenue from online auction sites will rocket to $1.8 billion in 1998 from $335 million in 1997, although it has not yet completed its figures for the year.
First Auction is facing some competition, however.
Onsale, which was the first auction site to hit the Internet in 1995, sells PC equipment and accessories and is expected to pull in revenues of $87 million for last year.
Keith Benjamin, BancAmerica Robertson Stephens? managing director, says: "Onsale has a pretty big advantage in that it's the biggest and size means a lot."
Elsewhere, uBid, another firm that specialises in consumer electronic products and refurbished computer equipment, went public in December. Its first trade opened at $40 compared to its offer price, which was set at $15 per share. The share price jumped to a high of $67.
But business to business online auction houses are also spurring a fundamental change in pricing models.
While today, the large auction sites primarily provide entertainment for consumers with disposable income and free time, it is only a matter of time before they affect the price of everything from hotel rooms to engine parts.
As Ann Pearlman, chief executive of auction software publisher, Moai Technologies, says: "We thought the auctions would be used mainly as an inventory management tool and to set the price for surplus. And while many of our customers are using it for that, others are using it for new resources of revenue, realising they can carry new inventory or reach new customers."
But while most people are generally optimistic about the future of auction sites, the downside that needs to be addressed is fraud. With rumblings of action from law enforcement agencies, vendors are moving to try and police themselves.
EBay, for one, is making it easier for members to use an escrow service to hold money until goods are delivered, and will offer free buyers' insurance. The company will also prohibit sellers from bidding on their own merchandise and suspend users who repeatedly walk away from bids.
"While we do not have liability, we do have a responsibility to our community of users with respect to fraud prevention," says eBay?s Whitman.
Interestingly, Pierre Omidyar, eBay founder, feels the firm?s biggest challenge is to try and civilise cyberspace and he plans to build a forum where customers can rate vendors.
Fraud apart, it looks like online auction sites will be big business and there are still market opportunities for entrepreneurs.
Ted Julian, an IDC analyst, concludes: "The market is so young, I don't think any newcomers are being barred and there's no real incumbent."
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