Taking Your Business to the Net

Going, Going, Going...

Conversely, Auctions by the Bay Inc. is all about selling-antiques, to be precise.

The business was conceived as an offshoot of a popular antiques and collectibles fair in Alameda, California, in part to clear out goods that didn't sell. But co-founder Allen Michaan sought a bigger audience for his two monthly auctions than local crowds could create. So despite witnessing the failed online efforts of several venerable East Coast auction houses, he turned to eBay, where he and his wife, Sandra, 35, had made numerous purchases of their own. Says Allen, 52, "It was an absolutely logical move for us to put all of this on eBay, live."

"All of this" refers to the 22-person company's art deco-style theater in Alameda Point's former Navy facilities, where up to 450 bidders can view images of each item projected onto a movie screen as it is put up for bid. Simultaneously, employees manage bids submitted over the eBay Live Auctions service. Online bidders view the items via an electronic catalog that is uploaded to eBay prior to each event. For this service, Auctions by the Bay is subject to two fees: It must pay $1,500 for each catalog (up to 10,000 lots) that it uploads for an auction, and it is charged a final value fee of 5 percent of the final sales price to successful internet bidders. For 2004, Allen projects sales of about $4 million.

According to Allen, clients choose the showroom or eBay depending on the weather and the size of lots being auctioned. "If we have a large variety of small merchandise, we tend to sell more on the internet," he says.

That's because shipping fees can escalate quickly for delicate, yet sizable, antiques. Early on, Allen's team began warning online bidders to investigate the costs beforehand, after receiving some negative eBay feedback from buyers shocked by the delivery charges. The priciest item sold to an internet bidder was about $12,000, Allen recalls. "When you start getting into tens of thousands of dollars, it's less likely [for delivery to be a problem]. If there is something they want that badly, they'll show up in person," he says.

One drawback to adding the eBay component is that some bidders who show up in person are overwhelmed by rivals who aren't even in the room. Still, don't assume that gives the locals a disadvantage: Allen relates that some successful internet bidders will show up in person within 15 or
20 minutes to pick up items they've won.

Demographic Diversity

Although it wasn't conceived as part of her original business plan, Gwen Richardson, 46, says customers of her 6-year-old site, Cushcity.com, seek out her local storefront when they're in Houston.

Cushcity.com, named for the biblical figure Cush, offers what Richardson claims is the internet's widest selection of African-American-centric products, from books to calendars to toys. She started the venture with her husband, Willie, 56, when she found it difficult to find books for their daughter.

The last three years have been rough, and the Richardsons' business-expected to generate $1.5 million in 2005-hasn't grown as fast as Gwen would have liked. She says most of the mistakes made in the business resulted from her lack of previous retail experience. For one thing, Gwen initially invested in too much inventory; she has since learned to stock only the most popular items. Many of Cushcity.com's 34,000 customers actually pick up the phone when they order, and the staff takes that opportunity to find out what's hot. "They like to talk, and we listen," Gwen says. "The fact that we take calls and talk to our customers has really saved us money."

Cushcity.com's biggest puzzle right now is a technical one. When the Richardsons created the site in 1998 with about 700 items, they opted to use an application called Bookware, designed for bookstores. Now Cushcity.com's inventory has ballooned to more than 20,000 products. Although the Richardsons want to add what are now considered to be standard e-commerce features, such as letting a customer log in to his or her account to make a quick purchase or check order status, they are faced with doing this through custom programming. Gwen says that's because many off-the-shelf e-commerce software packages can't support the number of products Cushcity.com carries.

Another issue for the Richardsons: The way most other software programs create product pages could entail a complete overhaul of the way their site is designed and, as a result, could hurt their search page rankings. Cushcity.com doesn't plan to move its site to different software for the time being, although Willie is evaluating its options, which include looking to outside experts who can build new functionality into the existing technology.

The Buddy System
When it comes to online transactions, don't go it alone-see if PayPal can help.

With more than 50 million members, the PayPal online payment service from eBay may provide one of your biggest consumer pools. PayPal works by linking to a buyer's credit card, bank account or debit card, which means that information doesn't get exposed on the internet during a transaction. That has the advantage of helping your buyers feel more secure. With a program called PayPal Buyer Protection, eBay has taken security a step further. The program provides coverage of up to $1,000 for nondelivery of items purchased on eBay (or for items that aren't as described).

For sellers, PayPal also offers a number of benefits. It can be used in transactions that require recurring fees. Or it could prove useful if your customer demographic, such as teenagers or college students, typically doesn't have a credit card.

Exclusive research commissioned by PayPal in summer 2004 found e-commerce businesses that set up shop in cyberspace within the last three years were more likely to offer PayPal as a payment alternative. The research, conducted by Ipsos-Insight on behalf of PayPal, also compared the perceptions of PayPal merchants with those that use other methods for completing transactions. In particular, PayPal sellers were more likely than their counterparts to believe their transaction methods allowed them to receive payments quickly and easily.

Historically, PayPal has been used on eBay and by smaller merchants. Ipsos-Insight's research found that the majority of respondents that use PayPal as their transaction method generate less than $1 million in annual revenue. However, PayPal is being adopted more broadly, as evidenced by electronic payments provider CyberSource's recent decision to add PayPal as another option to the types of transactions it supports.

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This article was originally published in the January 2005 print edition of Entrepreneur with the headline: E-Tail Therapy.

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