An introduction to online auction business
This paper will explain the concept of online auction business, its background, how it works, how can it be implemented in Swaziland and its hindrances. Online auction business model is one in which participants bid for products and services over the internet. The functionality of online auction is made possible through the use of auction software which regulates the various processes involved. Thus it has rapidly become one of the most successful forms of electronic commerce. Online auction sale can take place between individuals, between consumers and merchants, or between businesses.
The earliest web-based auctions appear to have been Onsale, opened in May 1995, and eBay opened in September 1995. These were the first to take advantage of the technologies offered by the web, including the use of automated bids entered through electronics forms and search engines and clickable categories to allow bidders to locate their items of interest. Onsale started as a merchant site, selling its own goods, mainly refurbished computers and electronics. The value of goods and services traded through consumer online auctions doubled from $3billion in 1999 to $6.4 billion in 2000.
In 1997, Onsale began to supplement its merchant site with an auction listing services similar to that of eBay, latter transferring this person to person auction services to Yahoo! While eBay has grown very rapidly, at a rate of approximately 12% per month and during the month of July 1999, eBay hosted just under 10million different auctions, with a total dollar volume of $190million.There are other auction sites with similar business models, but none has come close to the size of eBay, these includes Amazon and yahoo!. These two large web-based companies have also announced their own person to person auction services very much like eBay's.
According to Kottler (2009), there are several types of online auctions but most widely used is the English auction and Dutch auction. In an English auction, the initial price starts low and rise up due to competition among bidders whereas in Dutch auction, with all winning bidders paying the same price which is the highest price at which all items will be sold. In running any of the online auctions a company can choose either to use person to person auctions or business to consumer actions. Person to person auctions such as eBay, Lycos auction, facilitate the trading of items between individuals, items that are auctioned in this type of auction ranges from used appliances to fine arts and antiques. On the other hand business to consumer auctions enable retailers to offer products at reduced prices to interested buyers, here the buyer bid for brand name, this includes sites as online .com and ubid .com.
How online auctions work?
The process of buying and selling in an auction format is made possible through the use of auction software, which regulates the various processes involved. Auction software is application software that can either be deployed on a web server for online auctions or as stand alone software for commercial or charity live and silent auctions.
The online process auctioning differs from local process in that, at online auctions you are required to register at a site before you can buy or sell an item. The registration is required to keep track of items you bid on and items you sell, keep up with the bids. The information from registration is also used to determine the running bids and building a database on seller and bidder feedback. When you enter an auction to place a bid, the site's computers determine the amount you need to bid in order to become the highest bidder, you can accept this amount or you can enter your own bid. For every additional bid that is placed, the computers orchestrating the auction compare your bid against the current bids and determine if your bid is the winner.
The registration information can also be used to create a rational database which keeps track of items, bids and the winners. The online auction databases are constructed of three relational tables. There is the registration table- which contains all user information. There is also the item listing table- which the item, description and lot number. Finally there is the transaction table- which is used to store each bid records. These tables work constantly together to track bids on an item.
So that you do not have always place a bid after you have seen the highest bidder, many sites employ software known as a proxy bidder- which automatically places bids on your behalf. In using the proxy bidder you designate the maximum amount you wish to spend on the item. Then each time a bid is placed higher than yours, the proxy bidder gets in and places a bid for you, it will increase your bid amount by as much as it is necessary to top the current bid and will not exceed the maximum amount you stated, unless you instruct it to do so.
There is a schedule time for each auction and once the scheduled time elapses, the bidding for each auction closes. In the case of sales of multiple lots, the participants with the highest bids at the close of the auction are obligated to buy the items, but if no one bids at or above the reserve price, the auction closes without a winner. At the end of a successful auction, the buyer and the seller communicate, usually by email, to arrange for payment and delivery of the goods.
Once the deal is done, the buyer needs to get the product and the seller needs to get paid. Buyers have several payment options to use, these includes credit cards, debit cards, personal check, cashiers check, money order, cash on delivery and escrow services, however the seller can chose which one to accept. Because of the fraud in buying and selling online, escrow services are used to combat this problem. These services generally take the buyers payment, hold it in a safe place and release payment to the seller only after the buyer has received and approved goods. Current escrow services include I-escrow and Escrow.com. Before signing on to any of the services, you need to be careful which one you chose, since some services are not licensed.
How online auction can be implemented in Swaziland
Online auction can best be implemented using the following steps;
- Identify and train resources:
- A system administrator to instill and configure the software.
- A data administrator to maintain the data in the auction system, and
- Content administrator to customize the templates in order to provide the look and feel of the auction site.
- Instill and configure the software:
- The organization need to understand the market, the customers that will be participating in the auction and the customer purchasing habit. For example, users such as brokers or inventory liquidators require a real time interface and an efficient way to handle their portfolio bids, these users will be actively bidding until the closing of the auction. These factors indicate that the auction software should be tailored to best suit the customer's needs without being an administrative burden for the organization.
- Security is another key consideration in any internet-commerce application. Auction software should let the administrator set security for individual users and groups allowing different levels of access to the system. This includes setting security that allow individual and group access to specific set of auction with in the system. This type of security model allows administrators to develop highly focused groups of auction and users. This focus helps eliminate channel conflict and allows for effective targeted marketing of the auctions. The web site must have an SSL certificate to make sure that information transmitted to the website is encrypted so that no one can hake in and steal it. It also helps the organization and its customers feel safer.
- Flexibility is also a key consideration in online auction software. The user interface of the system should be easy to customize and brand with new company's identity, without limiting the flexibility in designing the look and feel of the system. The auction formats themselves should be based on a set of parameters that the administrator can easily modify, including the conditions upon which the auction will close.
- Another important fact to consider in selecting auction software is the amount of resources required to deploy, customizes and maintain the auction system. Hardware and network resources required for an auction system vary based on the volume of activities on the system. Personnel resources should be minimal as the auction system should be highly automated.
- Design and implement the website:
- Design and implement supporting interfaces:
- Test the system:
- Advertise or market the system:
The important aspect of this step is to identify the resources and ensure that they have the proper training. It is necessary to have internal resources that can administer the online auction system. The online auction will contain an easy to use graphic administration tool. Administration should take minimal effort and minimal training, allowing existing personnel to be quickly trained on the product. Most auction software requires three roles:
It very important that the organization select the appropriate software to use for its online auction. There are a number of factors which can help an organization in selecting the appropriate software for the online auction the factors are as follows:
The next step is designing the look and feel of the site. This process is often led by the business units responsible for the inventory and may involve the organization's marketing group and the web group. It should be decided what colors and format to use before launching the site. Wrong colors can look horrible in the browser.
While the software is being instilled and the web site is being developed, the organization should focus on data flows required for the new system. It is important to understand how inventory items and customers will flow into the system. It is also important to understand how orders for items will be fed back to existing system for organizations that wish to integrate the auction system with existing systems. A true enterprise level system will allow the data flows to be handled in several ways. Depending on the level of automation required, the system should allow manual processes or automated processes. The more sophisticated auction systems will allow automation either through access to the system's database or through an open API. Once the data flows are understood, the organization can define the manual processes or implement the automated processes and integrate them into the existing environment.
Once the site design has been approved and initial customizations made, a small group of users should be consulted to gauge the design's visual effectiveness, the level of user friendliness, and general usability. Following this initial approval testing there is typically a round of final user interface approval by the business unit developing the system and the marketing group. After the design has been approved the functionality of the site should be tested internally to make sure everything is functioning correctly. All aspects of the system should be tested including the manual and automated processes. Each component of the workflow, from inventory entry to fulfillment, should be thoroughly tested. All reports created to analyze the system bidding pattern and trends should also be run and examined for suitability of use at this time. The system should also be tested under expected peak user loads and data volumes.
After the system has been successfully tested, it is time to publicly market the site. This is usually done by sending out initial emails with account information such as user ID and password. People will be aware of your site without spending too much money on advertising. The company needs to know its competitors this will help the company to make the best possible decision.
Hindrances on implementing an online auction
The high costs associated with the implementation of online auction business can be a hindrance. A small business in Swaziland which may be interested in starting online auction business may be restricted by the high costs. These costs include the costs of building your own website- you may need to purchase a domain name, which creates the address of your site, another costs includes the cost of buying the auction software, cost of acquiring IT specialist, advertisement cost.
Lack of resources
One of the requirements for starting online auction site include having the latest computer model with broadband connection, so if a company in Swaziland lack this kind of computer it would be impossible for if to implement online auction system. Other resources includes mobile phone, a digital camera to be used to take pictures of the items you will put up for auction in the internet, this camera should be one of the state of the art to take good pictures. Another resource includes professionally build website with database capabilities and mobile internet connectivity, so without this online auction system can not be implemented.
The need for IT specialist
To run any online business, the company needs to be in touch with IT specialist to attend to problems of the system which may need urgent attention. So the shortage of IT specialist in Swaziland can make it difficult for one to start an online auction business in that he would fear that if the system encounter problems, it would be difficult to get an IT specialist on time and thus the business as fails before it even starts.
As always when people collaborate, different interest may give rise to conflict. In particular, some people are interested in making change in the business whereas others would like to stay in the old way of doing business. In case of an organization in Swaziland which may decide to integrate online auction system in their business, the can be emotional refusal of the internet among the management, in that they may not trust the capabilities of the internet in conducting safe trading and thus the conflict can be huge hindrance in implementing online auction system in the organization.
Most Swazi people are some years back in IT skills, in that they have little interest in acquiring knowledge about this field. This can be a hindrance in the effective implementation of online auctions, in that even if the online auction site is the in Swaziland, the people will be reluctant to use the internet. Some have little access to a computer.
Online auction business is a great business opportunity that exists in Swaziland for investors to come and invest in the country. Online auction reduces the cost of attending an auction place; it enables sellers and bidders to participate from anywhere as long as they are connected to the internet.
- Kotler, P. and Keller, P. (2009), Marketing Management, Prentice- Hall, Upper Saddle River, New Jersey, 13th edition.
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- www.http://couponing.about.com/od/onlineaucton/p/howauctionswork .htm.9/09/2009