Sites Specialize in Client Bidding

Monday, July 10th 2000, 12:00 am
By: News On 6

SAN FRANCISCO (AP) — Don't have time to search the newspaper or Yellow Pages for the best deals? A growing number of Web sites think they have an ideal solution for bargain-hunting consumers on the go.

With names like, and, these sites specialize in a relatively new e-commerce concept designed to draw merchants into bidding wars for a consumer's pocketbook.

It's a new breed of online bartering, known as ``reverse auctions'' or ``shopping by request.''

The idea blends elements of the bustling Internet auction site eBay, and the ``name your own price'' service popularized by

In a reverse auction, a consumer submits a request for a specific piece of merchandise or service. The Web site then passes the solicitation on to a network of participating businesses that respond with custom offers to fulfill the order.

Unlike Priceline, consumers in reverse auctions don't specify a target price, nor are they obligated to buy anything.

The reverse auction sites make their money by collecting referral fees from participating merchants.

``Doing business in a demand-oriented fashion is efficient for everyone involved,'' said Will Clemens, chief executive officer of Palo Alto-based ``The consumers get what they want and businesses get to deal with potential customers ready to make a purchase.''

To protect individual privacy, acts as an intermediary during the transaction and shields each shopper's identity from merchants bidding for the business.

Even as other e-commerce sites fall by the wayside, some heavyweight investors are betting reverse auctions will find a lucrative niche on the Internet. has raised $57 million in venture capital so far, including a second round of $45 million this spring. Backers include investment bank Morgan Stanley Dean Witter & Co., high-profile venture capitalists John Hummer and Bill Gurley, and former Netscape Communications chief executive James Barksdale.

Deep pockets weren't enough to save, a Redwood Shores-based reverse auction site that flopped despite the backing of two publicly held companies, Information Management Associates and CMGI. shut down July 5 and transferred its business to a rival site, Cupertino-based

Although he believes in the reverse auction concept, Barksdale acknowledged that and others entering the field have their work cut out for them.

``It's going to take awhile to find the sweet spot in this space,'' Barksdale said. ``The trick is to have the financial backing and staying power that you need to stay in business. For those that can (stick around), there is a marvelous opportunity here.''

Estimating the potential size of the reverse auction market is difficult because the concept still developing. Perhaps the best gauge is the growing number of consumers who use the Internet to alert auto dealers that they're shopping for a particular car model.

About 4.3 million online purchase requests were sent to car dealers in 1998, according to Jupiter Communications, an Internet research firm. In 2002, such requests should grow to 10.4 million.

Santa Clara-based claims to be the biggest reverse auction specialist with about 1.4 million unique monthly visitors.

This way of buying is sure to catch on with young consumers, said Carrie Johnson, an e-commerce analyst for Forrester Research in Cambridge, Mass.

``Any tool that appeals to price-conscious consumers should have legs,'' Johnson said. ``The challenge for and the others is to get the word out about what they do.''

First, they'll have to teach consumers what items and services are being sold. Generally speaking, the sites aren't looking to fill orders for mass-market items, such as the latest John Grisham novel or Tom Cruise video.

Instead, they fill requests for big-ticket items, such as customized cars and travel packages, or hard-to-find goods, like World War II memorabilia or rare records.

``The request needs to be valuable enough to be worth a merchant's time to respond to it,'' Clemens, of, said.

Making sure merchants respond to consumer requests quickly and adequately is another potential stumbling block. Many of the participating merchants are small businesses with limited resources to sort through a high volume of requests.

``If you are a merchant, you are going to have to assess how much time you are willing to invest in making a bid that you might not even get,'' Johnson said. ``If you are a shopkeeper who has four people browsing in your store and a request comes over the fax from a site, who are you going to serve?''


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