Auctions in Cyberspace

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The bidorbuy business model boils down to a simple formula: make a web site and allow other people to trade on it among themselves. 

That does not mean that an online auction site and marketplace is easy to set up and maintain.

It hardly comes as a surprise that was recently proclaimed the best South African online auction site for the third consecutive year. Actually, bidorbuy has been the winner in its category ever since Jump Shopping, the local e-commerce comparison site, instituted the awards in 2006.

“bidorbuy has the words ‘Africa’s largest Online Marketplace’ displayed under the logo on the web site. So far, no one has challenged us on that assertion”, says bidorbuy director Andy Higgins. “We are, of course, thrilled to be voted the best in our category for the third time in a row”.

Established in 1999, bidorbuy is today a thriving marketplace where individuals list their wares and sell them to other individuals. In September 2007 bidorbuy had about 210,000 registered users and in September 2008 over 289,000, putting the year-to-year increase at about 38 percent. A year ago the monthly total turnover averaged about R9 million and today it reaches about R20 million per month. While the number of items listed for sale on the site does not show such dramatic increases, it surpassed the 100,000 benchmark in the first quarter of 2008 and currently stands at about 127,500.

About 80 percent of all transactions on bidorbuy are concluded in the auction format, with the remaining 20 percent accounting for the fixed price sales. In line with the perceived international trends, bidorbuy would like to see an increase in the fixed-price listings. “The move towards the fixed-price items seems the logical next step”, says Andy Higgins. “After all, some people prefer to come to the site, browse and buy. They don’t want to waste time on the lengthy bidding process at the end of which they may have nothing to show for it, because someone else might outbid them and walk away with the item they wanted to buy”.

However, bidorbuy sellers do not quite see it that way. Many maintain that they have a better chance of selling their merchandise, and at higher profits too, when they list them in the auction format. As for the buyers – their favourites are the auctions starting from R1, with no reserve. In fact, the R1, no-reserve auctions are so popular that bidorbuy has dedicated two days of the week to them: Crazy Wednesday and Snap Friday. Both Crazy Wednesday and Snap Friday are one-day auctions (although the Wednesday one really starts on Tuesday). These days, the Crazy Wednesday auctions attract close to 3000 items every week. Plus, there are always R1 no-reserve items on auction in the “regular” sections of the site, usually lasting for three to ten days.

Most of the R1 no-reserve items on bidorbuy are in the low to medium value category. However, every now and then a seller will stage a surprise and risk everything. For example, a two-bedroom apartment in Helderkruin, Gauteng was sold for R390,000 in November 2008 – and the bidding for it started at R1, without reserve.

For promotional purposes and in partnership with a big dealership, bidorbuy tried offering brand-new cars on the R1 auctions. All of them achieved prices well below retail.

“That confirms that auctions are not an efficient way of selling all goods. They do not always work well for items whose price can be anticipated in advance. But auctions do excel when they are called to set the price for items of indeterminable value, for example collectibles or used items. In those cases, the auctions provide a very good dynamic pricing mechanism”, says Higgins.

The sellers who have items of “indeterminable value” to sell but lack the nerve to do so on a R1 auction may opt to state the starting bid, under which they are not prepared to let go of the goods. They can even set a secret reserve – which is something buyers positively shun from, claims the bidorbuy director. While the sellers are not actively discouraged from setting a secret reserve price on auctions, they are restricted in the sense that the reserve can only be up to 20 percent higher than the publicly stated starting bid.

The major source of profit for bidorbuy are the success fees. The company charges sellers between 3.5 percent to the maximum of 5 percent of the value of each sale. Regular listings are free, while special and enhanced ones are charges between R5 and R100. Since one and the same item can feature in several “special listings”, the total bill can reach R180.

All in all, the bidorbuy business model boils down to a very simple formula: make a web site and allow other people to trade on it among themselves. As a company, bidorbuy has no contact with the goods traded on its site. It does not need to worry about warehouses and shipping and other complicated details.

That, together with the impressive data mentioned in the beginning of this article, begs one question: why are there not more similar online auction sites mushrooming in South Africa?

“A consumer-to-consumer online auction site and marketplace like bidorbuy may seem easy to set up and maintain, but only at first sight”, says bidorbuy director Andy Higgins. “The software that enables such a site to run is sophisticated and needs constant updating. That does not come cheap. Neither does all the bandwidth we need in order to accommodate more than 600,000 unique visitors, almost 1,5 million visits, and almost 20 million page views per month. Then there is the customer support, the expenses related with advertising the site, and so on. On top of all that, bidorbuy has devoted years to building its community of buyers and sellers, and a community is what makes an online auction site and marketplace.”