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Going Once...Going Twice...

Seller Beware

Of course, there are some downsides to auctioning products, such as what Rothberg calls a "perception problem." While auctions may sometimes drive up a product price, buyers' tendencies to devalue items on auction may keep the price down or result in no sale at all. The key is to maintain realistic expectations and be sensitive to these views. "People expect to pay next to nothing [at auctions], and they're often disappointed when the price is too high," Rothberg says. That might result in a backlash against the seller, which means negative feedback.

Auctions are also time-consuming. Small businesses must be prepared to devote time to posting the listings; answering hundreds of e-mails; and dealing with billing, shipping, payment collection and other management responsibilities.

Many larger sites, like eBay, Amazon.com and Yahoo!, have tools to assist with some, but not all, of these responsibilities. One new business, Andale in Santa Clara, California, is carving out its niche by providing these much-needed auction-management services to small businesses in the form of Web-based tools. "Entrepreneurs are experts in their products and the domain, but not necessarily in managing their auction sites," says Andale's CEO, Munjal Shah.

Rothberg warns of one other disadvantage, particularly for small businesses collecting money without going through a credit company. "You sell the item to the highest bidder," she says, "and they might not come through. They may never send payment."

One line of protection against this is an escrow service, offered by many top auctions, where a third party holds the buyer's money until the product is shipped and determined to be in good condition. While this affords some protection to the seller, says Rothberg, it's mostly designed to protect the buyer.

Rozanski believes Amazon.com's auction handles this problem nicely with its 1-Click function, where bidders pay with their credit card. "Amazon.com takes care of the financial element of the transaction, so you're not having to run a credit card through your machine," he says. "It saves you the labor of doing that, and the credit card charge."

Merchants still need to pay a fee that's slightly higher than what a credit company would charge, but it's effective for smaller companies that don't already have credit card arrangements.

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This article was originally published in the February 2000 print edition of Entrepreneur with the headline: Going Once...Going Twice....

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