ch.6 Key Concept

Key Concept
This chapter discusses a new options brought on by the internet for supply chain management and procurement. It discusses a variety approaches that companies have taken with regards to obtaining materials and selling products online.

Origins of auctions
-earliest records of auctions-Babylon (500 BC)-men bid against each other for the women they wished to marry.
-Auctions became common activities in 17th century England (taverns held regular auctions of art and furniture)
-bids -price willing to pay for an item.
-private valuations- amounts bidders are willing to pay for the item
-Shill bidders-People employed by the seller or the auctioneer can make bids on behalf of the seller
-English auctions: bidders publicly announce their successive higher bids until no higher bid is forthcoming-item sold to the highest bidder. (aka ascending price auction, open auction). Minimum bid is the price at which an auction begins. If no bidders are willing to pay that price, the item is removed from the auction. A minimum acceptable price-reserve price.
-Yankee auctions: English auctions that offer multiple units of an item for sale and allow bidders to specify the quantity they want to buy. The highest bidder is allotted the quantity bid. If items remain after satisfying the highest bidder, remaining items are allocated to successive lower bidders. Successful bidders only pay the price bid by the lowest successful bidder.
-Dutch auctions: open auction in which bidding starts at a high price and drops until a bidder accepts the price – descending price auctions.
-First price sealed bid auctions: bidders submit bids independently and are prohibited from sharing info with each other and the highest bidder wins. Successive lower bidders are awarded the remaining items at the prices they bid.
-Second price sealed bid auctions: the highest bidder is awarded the item at the price bid by the second highest bidder. Encourages all bidders to bid the amount of their private valuations-vickrey auctions.
-Open outcry double auctions: buy and sell offers are shouted by traders standing in an area on the exchange floor called a trading pit.
-Sealed bid double auctions: buyers and sellers each submit combined price quantity bids to an auctioneer. The auctioneer matches the sellers’ offers to the buyers’ offers until all the quantities offered for sale are sold to buyers.
-Reverse (seller bid) auction: multiple sellers submit bids to a single buyer. The prices go down as the bidding continues until no seller is willing to bid lower.

Online Auctions and related Businesses
-General consumer auctions: most successful consumer auction today – eBay. Third party assurance provider- provide assurance that the privacy policies of the websites meet certain standards (ex: eTRUST). Sellers and buyers must register – sellers pay eBay a listing fee and a sliding percentage of the final selling price and buyers pay none to eBay. eBay is a computerized version of the English auction-allows the seller to set a reserve price. The main difference between eBay and a live English auction is that bidders don’t know who placed which bid until the auction is over. It has a minimum bid increment, amount by which one bid must exceed the previous bid. eBay offers a platform called eBay Stores within its auction site-sellers can establish eBay stores that show items for sale. Yahoo! success early in attracting large numbers of auction participants because it offered its auction service to sellers at no charge – less successful in attracting buyers, resulting in less bidding action. Amazon also added auctions to its list of products and services. Marketing tactics: Auctions Guarantee – addressed concerns raised in the media by eBay customers about being cheated by sellers.
Buyers of more expensive items can protect themselves by using a third party escrow service which holds the buyer’s payment until he or she receives and is satisfied with the purchased item.
-Specialty consumer auctions: identify special interest market targets and create specialized web auction sites.
-Consumer reverse auctions and group purchasing sites: visitor fills out a form that describes the item or service in which he or she is interested. The site then routes the visitor’s request to a group of participating merchants who reply to the visitor by email with offers to supply the item at a particular price.
-Group purchasing site – the seller posts an item with a price – as individual buyers enter bids on an item the site can negotiate a better price with the item’s provider. The posted price ultimately decreases as the number of bids increase.
-Business to business auctions: Large companies sometimes have liquidation specialists who find buyers for these unusable inventory items. Smaller businesses often sell their unusable and excess inventory to liquidation brokers, firms that find buyers for these items.
-Auction related services: growth of eBay auction sites has encouraged to create businesses that provide auction-related services of various kinds – these include escrow services, auction software and auction consignment services.
-Auction Escrow services: when purchasing high value items, buyers can use an escrow service to protect their interests. An independent party that holds a buyer’s payment until the buyer receives the purchased item and is satisfied that the item is what the seller represented it to be.
-Auction directory and info services: guidance for new auction participants and helpful hints and tips for more experienced buyers and sellers along with directories of online auction sites.
-Auction software: companies sell auction management software and services for both buyers and sellers. For sellers, these companies offer software and services that can help with or automate tasks such as image hosting, advertising, page design, bulk repeatable listings, feedback tracking and management, report tracking, and email management. For buyers, a number of companies sell auction sniping software. Sniping software observes auction progress until the last second and as the auction is about to expire, the sniping software places a bid high enough to win the auction. Auction consignment services take an item and create an online auction for that item, handle the transaction, and remit the balance of the proceeds after deducting a fee.

Wireless application protocol allows web pages formatted in HTML to be displayed on devices with small screens, such as PDAs and mobile phones.
Mobile Business-Revenue models for mobile business can be developed once mobile phones, notebook computers with wireless internet connections, and online marketplaces are interconnected in ways that let people switch among modes of access seamlessly. Intelligent Software Agents–programs that search the web and find items for sale that meet a buyer’s specifications. Simon is one of the best shopping agents currently available.
Virtual Communities-gathering place for people and businesses that doesn’t have a physical existence. Various forms, including Usenet newsgroups, chat rooms, and websites – offer people a way to connect with each other and discuss common issues and interests. Virtual learning community (ex: WebCT).
Early web communities-one of the first web communities was the WELL-whole earth electronic links – series of dialogs– members pay a monthly fee to participate in its forums and conferences.
Web Community Consolidation-virtual communities for consumers can succeed as money making propositions if they offer something sufficiently valuable to justify a charge for membership.
-Web log: websites that contain commentary on current events or specific issues written by individuals. Most of the early blogs were focused on technology topics or on topics about which people have strong beliefs (political or religious issues).
-Social networking websites: sole purpose of community-useful tools for persons who want to make new local friends, established acquaintances before moving to a new location, obtain advice of various kinds, or who are looking for a job.
-Idea Based Virtual Communities: Other web sites create communities based on the connections between ideas.
- Revenue Models for Web Portals and Virtual Communities-by the late 1990s, virtual communities were selling advertising to generate revenue. Beginning in 1998, a wave of purchases and mergers occurred among these sites- emerged still used an advertising only revenue generation model and included all the features offered by virtual community sites, search engine sites, web directories, and other info providing and entertainment sites.
-Advertising supported web portals and virtual communities: because web portals ask their members to provide demographic info about themselves, the potential for targeted marketing is very high. Second wave portal strategies are based less on up front site sponsorship payments and more on the generation of revenues from continuing relationships with people who use their portal sites. The larger portals that have survived are turning to mixed models.
- Monetizing refers to the conversion of existing regular site visitors seeking free info or services info fee paying subscribers or purchasers of services.
-Internal web portals and virtual communities: growing number of large organizations have built web portals to provide info to their employees. Internal web portals run on the intranet – save significant amounts of money by replacing the printing and distribution of paper memos, newsletters, and other correspondence with a web site.

Application
Hedgehog is an online company that works with e-procurement. It develops industry specific auctions and exchanges. It is a company that helps bring suppliers and buyers together and offers a variety of auctions such as: multi-format reverse auctions, Dutch auctions, and sealed bid auctions. In addition, the company provides information for businesses interested in being involved in auctions.