Going once, going twice

From...

By Mark Leon

(IDG) -- In the beginning it sounded like science fiction: intelligent agents crawling the Web and using sophisticated analytics to get the best possible deal for buyers and sellers.

But this vision of hypercapitalism in cyberspace never quite got off the ground. Pierre Mitchell, an analyst at AMR Research in Boston, says that part of the vision survives and thrives in the more mundane process of dynamic pricing: "Corporations are blown away by what they can buy on eBay," Mitchell says.

Added excitement

And sell. For example, West Marine, the giant marine sporting retailer in Watsonville, Calif. West Marine launched a retail Web site in 1997. "Initially it was a brochure site," says Tony Gasparich, vice president of Internet services at West Marine.

In 1999 it got serious and purchased WebSphere from IBM. "It was a significant upgrade," Gasparich says. "We created a true e-commerce system."

But as so many learned in those heady days of e-everything, customers won't come just because you have a great Web site; West Marine wasn't getting the desired volume.

So Gasparich and his team decided to go where the action is. "In November of last year we started selling on eBay," he says, "and the results were impressive."

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But success came at a price. "We were generating good volume, but it was difficult to manage," Gasparich explains.

The reason for this, according to Erik Swan, CTO of CommerceFlow in San Francisco, is that sites such as eBay aren't designed for folks such as Gasparich. "These sites were built with the buyers in mind, not the sellers. The assumption was that if the buyers are there, the sellers will come," Swan says.

Whereas that may be true when the seller is an individual with a small inventory to unload, things are different for a business such as West Marine. "It takes at least 10 [minutes] to 20 minutes to post a single item on eBay," Gasparich says. "Imagine posting 500 items each week. That's a lot of overhead."

Companies such as CommerceFlow are in fact making a business out of managing this overhead for clients. "[Overhead] is a big problem for sellers," Swan says. "They like the idea of using outlets like eBay, but they can't spare the resources to manage the process."

West Marine uses the services of one of CommerceFlow's competitors, Research Triangle Park, N.C.-based ChannelAdvisor. "Here is what [ChannelAdvisor does] for us," Gasparich explains. "We give them a list of SKUs [Stock Keeping Units] that we want to sell on eBay; they grab all the necessary information and post it for us."

And there is a lot of action under the hood. West Marine's inventory information is all kept in a DB2 database. So ChannelAdvisor has to have hooks into this back-end system.

It is the kind of industrial-strength systems integration that would have required a long implementation cycle just a few years ago. But ChannelAdvisor CEO Scot Wingo says that times have changed.

"Four years ago we would have had to send a team to the client site to sort out all the integration touch points," Wingo adds. "And there is no telling how long the actual work might have taken. But now we can do it all in about four days, and we rarely have to send anyone out into the field."

Two things, Wingo explains, make the difference. The first is XML and related Web standards, which simplify application integration. The second is consolidation. "There are really only a handful of top financial systems now -- Oracle, SAP, and PeopleSoft, to name a few," Wingo says. "It is relatively simple to build connectors to these. You rarely have to spend a lot of time figuring out how to map one system to another."

The difference this makes to the client is substantial. Wingo says the integration work required for a typical implementation today costs between $10,000 and $25,000. But five years ago, he says, it would have been 10 times as much. "It is an open question whether or not we could hope to build a business with integration costs that high," he continues.

ChannelAdvisor also works with the client to make certain marketing decisions, such as what the initial bid should be. "We have algorithms in our software to help decide these kinds of issues," Wingo says.

Once the auction for a particular item is closed, the winning bidder receives an e-mail notice congratulating them on his or her victory. But, more importantly, the e-mail contains a link back to the West Marine Web site.

"The customer clicks on that link," explains Gasparich, "and arrives at the checkout station on our Web site with the item already in the shopping cart at the winning bid price."

The beauty of this is that no more integration work is required because West Marine has already tied its Web store into all of its back-end systems. And Gasparich likes it for another reason: "At that point the customer could easily decide to add more items to the shopping cart," he says.

West Marine started working with ChannelAdvisor early this summer, and the entire implementation took less than 60 days.

Gasparich won't say how much business the company is currently doing through the eBay channel, but he does say the results are more than satisfactory. "Our Internet business is growing and profitable. And the value that this [eBay and ChannelAdvisor channel] brings is added excitement and a way to reach more customers."

Starting with auctions

Dasan Networks, the Korean manufacturer of routers, switches, and xDSL access devices, has established a U.S. beachhead in Santa Clara, Calif. "Last year we did about $24 million in Asia," says Dr. Gil Ahn, CEO of Dasan. "We hope to get started this year in the U.S. at about a $3 million run rate."

Some of that may come from auctioning products online -- Ahn is currently thinking about getting professional help from CommerceFlow to make it happen.

"We are thinking that selling through sites like eBay would be good for us," Ahn says. "It would reduce unnecessary margin costs that normally go to distributors, and it would be a way for us to find new customers in the U.S. and Canada."

As does any good businessman, Ahn is weighing the issues of costs. "You have to be careful," he explains. "If we hire CommerceFlow, they will take 10 [percent] to 15 percent of every transaction, and this is on stuff you have already marked down."

On the other hand, Ahn continues, it could be money well spent because the cost of managing your own inventory on eBay is high. "It is very labor-intensive to do this yourself," he says. "CommerceFlow would also take care of all the integration with our back-end ERP systems and our CRM software."

One of the reasons Ahn thinks the time may be right to sell sophisticated networking equipment to businesses through auction sites such as eBay is that the market has changed. "It isn't just that the economy has slowed and people are looking for bargains," he explains. "But it is also the case that the network equipment market is somewhat commoditized now. It used to take a team of high-level salespeople from Cisco to sell a router. But now customers are far more educated, and the market is somewhat saturated."

In other words, when people know what they want, there is nothing to prevent them from shopping for bargains on the Web -- where dynamic pricing is king.

And in the midst of a down cycle in technology, when so many hopeful Web-commerce initiatives have gone bust, it all adds up to a somewhat surprising fact that AMR's Mitchell summarizes well when he says, "eBay is the largest b-to-b site out there."