Consolidation prompting auctions to go international
With a spate of recent acquisitions, auction giants eBay and DoveBid have consolidated the domestic market. Now, the two are beginning what could be an international shopping spree.
Over the past two years, the two companies have snapped up dozens of smaller rivals. The latest acquisitions came last month, when eBay bought HomesDirect.com, a leader in selling foreclosed properties over the Web, for about $6.2 million in eBay stock.
Also last month, DoveBid, the leading commercial equipment liquidator, bought TradeOut, which specializes in selling transportation equipment, for an undisclosed amount. The deal, DoveBids 15th acquisition in the past two years, further solidifies its hold on the commercial equipment auction business.
But to continue growing, online auction companies must now move overseas. "More people and companies are going online, and e-commerce is becoming a worldwide phenomenon," says Rob Rosenthal, an IDC research analyst. "A company that focuses only on selling the U.S. wont see a lot of growth." Rosenthal says Western Europe is a particularly attractive area for auction companies both in the business-to-business and business-to-consumer sectors.
EBay has made it clear that more acquisitions are looming. In June, the company notified the Securities andExchange Commission that it has set aside 10 million shares of stock for potential acquisitions. At current prices, that designated stock is worth about $550 million.
Kevin Pursglove, an eBay spokesman, confirmed that the auction powerhouse is planning to expand. Currently, the company has sites in 17 countries. "Our goal for 2005 is to be in 25 international markets," he says, adding that the company may target more than just traditional auction companies for acquisition. "Because the eBay market has evolved, virtually any company that sells merchandise to consumers could be considered in the same arena as eBay."
EBays likely acquisition targets are in Asia, a market it has barely begun to tap. The company currently has sites in Japan and Korea. And while Pursglove wouldnt discuss which countries it will target next, it may make sense for the company to enter lucrative consumer markets like those of Singapore and Malaysia.
DoveBid, an old-line auction company that has remade itself with the help of the Internet, isnt as cagey when talking about where it wants to go. "We are definitely looking at Germany and were looking at Asia as well," says Daphne Li, DoveBids chief strategy officer. "EBay is rolling up the consumer side of things. We are rolling up the business side of things."
Another prominent auction company, FreeMarkets, is also expanding its overseas operations. Although its market focus is different from that of eBay or DoveBid, FreeMarkets, which provides online reverse auction procurement services, believes it must have an international focus if it is to survive. Last year, the company opened nine international offices, from Singapore to Monterrey, Mexico. This year, the firm opened an office in Taiwan, giving it a presence in 13 countries.
"United Technologies is a big company and they have suppliers all over the globe. Having the ability to find and source high-quality suppliers that can provide goods and services to United Technologies and other big companies thats key to creating our business," says Shane Tulloch, managing director of FreeMarkets Europe.
Tulloch, who is based in Brussels, says that Fortune 1000 companies are using FreeMarkets because they can see a quick return on investment that may result from discounts of up to 20 percent on the goods and services they buy through the reverse auction process. "The economy is tougher and people are trying to make the bottom line look better," he says.
While FreeMarkets acquires new products for the Fortune 1000, DoveBid handles some of the same materials at the other end of the process. And like FreeMarkets customers, DoveBids customers want it to handle all of its auction needs, whether the materials are in Amsterdam or Australia. Its an unlikely role for a family-owned company founded in 1937 that was, for decades, a niche player in the auction business selling the assets of failed companies in the San Francisco Bay area.
But in 1998, Dove Brothers began its transformation into DoveBid. Thats when company CEO Ross Dove and his brother Kirk were celebrating the sale of $1 million of manufacturing equipment. While toasting their successful auction, from which theyd made about $100,000, they saw a TV report that eBays market capitalization had passed $10 billion (today, its about $14 billion). They immediately began talking about how to transform the business started by their grandfather into a dot-com that would leverage the power of the Internet. Ross Dove later remembered telling his brother: EBay is "making billions of dollars selling whats in Grandmas attic. Imagine what you could do with IBMs attic."
Today, DoveBid is holding auctions both online and offline, almost every business day. On September 26, itll hold an online auction to sell some surplus electronic test and measurement equipment belonging to Agilent Technologies. A few days later, itll hold an offline auction to sell the assets of an automotive trim manufacturing plant in Kalkaska, Mich.
To achieve good online performance, DoveBid has had to build a substantial amount of infrastructure, because existing capabilities had too much latency. When ordering a book from Amazon.com, three or four seconds of wait time is acceptable. Thats not the case in online auctions, where every second counts. So DoveBid developed its own zero-latency technology for its online auctions.
DoveBid is an attractive option for a company wanting to sell assets that are in different locations. For instance, last week, DoveBid sold surplus assets owned by Textron. The merchandise, which included bolt makers and injection molding equipment, was spread around the world, in locations from Taiwan to Tempe, Ariz. Rather than try to bring bidders into one room, DoveBid publishes the auction catalog on the Web. It also allows potential bidders to preview the merchandise by setting up an appointment with the company to see the goods prior to bidding. Then, all bidding is done over secure servers on DoveBid.com. For a less complicated sale, DoveBid may Webcast an auction that allows people to bid over the Web or attend the auction in person.
Last year, DoveBid raised more than $100 million in venture capital to fund its expansion. And while its plans to go public have been shelved for the time being due to the collapse in the equity markets, the companys revenue is soaring and is expected to nearly double this year, to about $150 million. It also expects to reach profitability by years end.
"A good predictor of where we will be doing business is by looking at the most highly industrialized countries," Li says. That will likely mean an expanded presence in Japan, where DoveBid just did an auction for NEC. "Japan is six to 12 months behind the U.S. They are doing plant closures. And there have been changes in accounting laws that will force them to mark down assets," she says. "We believe auctions are about to take off over there."