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Purchasing
Business
By Michael Lawrence
The number of online auction marketplaces for Business assets has grown dramatically
with the adoption of the internet. While use of these B2B marketplaces has evolved a bit
slower than the consumer marketplaces, they are now clearly in full gear. For purposes of
this article we are going to focus on the purchase of used business assets, as well as
overstock and surplus business related products and components through online auction.
These are purely online events, rather than live events that are simulcast or “webcast” and
we are focusing on the forward auction sites, where buyers bid against each other to
purchase, rather than reverse auctions where vendors will compete to offer the best price
to a buyer. These online auction marketplaces are served by clicks and mortar auction
companies like GoIndustry and Dovebid as well as purely online marketplaces like
Liquidation.com and eBay.
Online auction of business assets has substantially changed the economics of
remarketing business assets as well as the businesses serving this industry. Over the
past 5 years many traditional auction companies have adopted online auction capabilities
and many purely online auction companies have entered the market. As a result, a
substantial volume of used industrial equipment, high technology manufacturing, used
process equipment, telecommunications gear, and other business assets are being sold
through online auctions. While we are not aware of any official statistic, we estimate that
over half of the used business and industrial assets, sold through live auction just 5 years
ago, are now being sold through online methods. This brings great opportunities to save
on capital equipment purchases through buying used or surplus equipment. Finding
specific, even specialized items is now easier than ever and you are able to bid virtually
from anywhere in the world. These great advances also introduce some challenges that
include new formats for buying, new forms of fraud, increased competition for items, and a
completely different strategic approach to getting the best deal in theses sales.
The Search
By having these events on the internet, finding a specific item you are looking for is now
easier than ever. This brings more than just a pricing advantage to buyers as this can be a
great way to secure a component that is back-ordered or out of production. Whereas 10
years ago, finding a specific item in auction meant paging through newspapers, and you
were limited to the coverage of those papers, now you can find assets in auction most
anywhere in the world. Many of the online auction sites are searched by Google and other
search engines, so a search on Google for a specific part you are seeking may very well
guide you to an auction containing that item. We’ve included a Google search bar here for
that purpose.
sales. Ideally you will be able to receive only notices for assets in a certain industry and global
region sent to you as some of these sites hold several major events a day, auctioning
thousands of items.
The online auction format
Many of the same purchasing challenges we discussed earlier still exist in the online auction
marketplaces. The terms on most sales involve full payment before the assets are released,
the buyer handling removal and logistics, and no warranty. As the online auction format is still
evolving, you will find significant differences in auction format and fee structure. eBay for
example does not charge a buyers premium in their purely online sales, however many online
auction companies do and it is not uncommon for this charge to be in the range of 15%. The
buyers premium is often overlooked by bidders and it is obviously important to factor this in
when considering how much to bid. Another difference between eBay and many of the B2B
auction sites is that each item lives individually on eBay however many of the industrial asset
auction sites have assets grouped by events so that everything from a particular company,
region or industry is grouped together in a sale. Like live auctions, many online auctions have
“reserves” established. Until you get familiar with how a particular seller handles reserves we
suggest not spending too much time on auctions with a reserve. We have certainly seen
sellers set very low reserves however we see too many sales where reserves are set above
market value. Since this is not known until the sale ends, it can often be a waste of everyone’s
time. Speaking of time, certain auction sites have automatic extensions on the bidding time
that are triggered by a bidder entering a bid in the final seconds. We’ve seen the extended
times continue for hours as each bidder enters last second bids to win. A common factor for
most of these sites is the ability to enter a proxy bid. This basically let’s you enter the
maximum amount you are willing to pay, and the system will bid against others for you. It’s
obviously important to understand how the online auction system you are using works, from
how reserves are identified, to buyers premium, as well as the rules and functionality.
Online Fraud
Well, with the good sometimes comes the bad, and there are bad sellers out there. Your
exposure to bad sellers can be dramatically limited by dealing with reputable auction
companies. Most auction companies that provide online auction services control the
collection and representation of data as well as the payment process and release of assets.
This is not the case for pure “exchanges” like eBay where individual sellers are able to post
their own items and your transaction is directly with that seller. In either event check out the
party you are buying from. If it is a pure exchange make sure they have at least 20 feedbacks
that include several transactions over the past month and a very high approval rating. If you’re
dealing with an auction company do some quick research to see that they handle at least 12
sales a year and hit the Google search with their name to see if anyone is broadcasting
complaints. For very large transactions you may be able to negotiate use of an escrow
service, payment on delivery, or payment at the time the asset transfers to your shipper. When
it comes to the item itself don’t make any assumptions. Most auction companies have
extensive terms and conditions that typically call for the asset to be sold as-is where is with
language that clearly places the burden of condition and suitability for application, on the
buyer. It can even be difficult to dispute a blatantly incorrect description. We strongly
encourage you to inspect in person where practical and to ask the seller questions to clarify
condition.
The first thing I’ll say here is that there are many different strategies people employ and the effectiveness of many of
them is debatable. Much like live auctions, bidding is like playing poker…I suppose that in this cast it’s like playing
online poker. You can’t see who you are bidding against but certain things like how quick you bid can send a message.
Unlike live auction we do not recommend steady constant bidding starting early. Instead, wait. You’ll want to bid, but
wait. Wait, wait, wait, and then in the final moments drop your bid. If you really want the item there are a couple of things
to keep in mind. First, you’re dealing with a computer and the internet which sometimes can choke on you. So, be
careful that you don’t wait too long. And understand how the bidding works so you don’t push “Bid” in the final seconds,
only to be brought to another screen that wants you to verify a credit card before submitting. Your last moment bid
should also be the maximum you are willing to pay, assuming the site will proxy bid in increments for you. If you are an
eBay bidder you can use a Sniping service that will handle this last second ambush on your behalf. Do we feel good
about pouncing at the last second, well no, but we do believe this is the best strategy. Think of it this way, every bid you
enter pushes the price up. Often times this push isn’t just by your bid, but your bid then prompts several others which
push up what your winning bid will need to be. In addition, if the bidding is slow on an item, by not bidding, and keeping
it slow, the other bidders may feel there is little competition and go low on their proxy bid, or get complacent in the final
rounds of bidding. You’re not going to win friends this way but it will help you win auctions at lower prices, and you don’t
really win friends bidding the other way. We’ll still be your friend.
So, we’ve reviewed these marketplaces in general, how to find the items you're looking for, some things to watch out for,
and our opinion of bidding strategy. This series of articles will continue with information on buying from Brokers and
Dealers. We hope you found it informative.
Other Sections of This Article Series
Business Purchasing
Live Auction Purchasing
Online Auction Purchasing
Broker, Dealer and Consignment
Services Please Contact US.
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