From Furby Dolls to O.J.'s Heisman Trophy, Online Auctions are Attracting a lot of Bids
There is a guy I know, call him Fred Stamen, who collects fountain pens. To expand his considerable collection, Stamen purchases fountain pens wherever he can find them. He has frequented thrift stores and church sales, stopped at garage sales, marched down the aisles of flea markets, and attended fountain pen shows where other collectors go to trade. It was at a show in early 1997 where Stamen heard someone remark: "If I can't sell it here, I'll put it on eBay." eBay? Stamen never heard of it. But some months later, while poking around the Internet, Stamen realized he had another source for fountain pens, this one as near as his mouse.
eBay claims it has had over 46 million items for sale and over 171 million bids. On a recent afternoon, almost 1.
Virtual garage sales
eBay and its cousins are part of the worldwide electronic commerce market, whose potential for riches has industry analysts spewing out numbers so large, they are unfathomable. One analyst expects that people the world round will spend $26 billion shopping on the web by the year 2002. Internet National Data Corporation expects overall web business transactions to reach $333 billion by the year 2002. Most of these transactions, at least on the consumer side, have amounted to electronic versions of the paper shopping catalog, an institution that has been around at least since ---the 1880s, when Richard Sears began selling jewelry and watches through printed mailers, eventually turning it into the vast institution known as the Sears catalog. Sears shut down its mail order operation in 1993, but the shopping catalog as an institution remains more robust than ever, with electronic counterparts like the L.
eBay, on the other hand, comes from more informal traditions like the garage sale and flea market. Garage sales take place outside peoples houses-in the garage or on the front lawn, with all manner of bric-a-brac for sale: from clothes to coffee makers to paperback books. Flea markets are like vast garage sales, attracting buyers and sellers from all over the region. In both its large and small incarnations, these gatherings inevitably feature bargaining, which sometimes can be as heated as a mid-eastern bazaar.
Online auctions take advantage of the same sorts of impulses-the urge to buy and sell, to get a good deal, to eliminate the middleman-but extended to a much larger audience. And there certainly is an audience. Last December, Media Matrix, a firm that tracks web usage, ranked eBay as the second most popular site on the Internet when measured by total minutes per month. That puts the eBay site in competition with such megaliths as AOL and Yahoo!, whose respective offerings are much broader. Today, there are so many online auctions that meta-sites are now tracking the activity. One of them, Auction Watch (www.
Like the flea market owner, many of these sites act not as a seller, but as an agent-a neutral trading venue in which buyers and sellers can come together. The process is relatively simple. A seller describes the item for sale, sets the minimum bid, selects a category for listing, perhaps adds a picture, and waits. For the buyer it is even easier-select an item, make a bid, and stand by. eBay does not disclose the high bid, which takes some of the adrenaline out of the process, but encourages people to bid their maximum on the first try. An optional proxy bid feature will automatically increment the bid by a set amount until a set maximum is reached. Once the auction is over, the seller and high bidder are notified by e-mail, leaving the remainder of the transaction to be arranged between them.
Does this system work? "I'm really happy half the time, and pretty happy 80 percent of the time," reports Stamen about his eBay fountain pen purchases. He says about 10 percent of those purchases have been disappointments, and he has returned the goods. "Sometimes a seller will specify that the purchase 'as is' with no returns, but most purchases come with a three day return policy. You pay for their eBay sellers fees and the postage, and are refunded the rest."
Fraud prevention: who's responsible?
Online auctions assume a generous amount of inter-personal trust: a buyer that will pay and sellers that can and will deliver what they promise. If you buy a shirt from Land's End, the company has a reputation to maintain and a federal regulatory body to watch out for. Person-to-person transactions-especially "blind" ones over the net-seem much riskier. To help keep people honest, eBay buyers rank sellers based on how satisfied they were with the transaction. In a few cases, dishonest sellers have been kicked off the system. In addition, eBay has instituted an escrow service that will hold money on neutral turf until the seller has actually delivered. The site will also offer free buyers insurance, enabling it to sell more expensive goods. An eBay competitor, Auction Universe, says it will refund money if merchandise is not received or if buyers are unsatisfied with the quality. The company is charging buyers for this service, $19.
Just a week after eBay announced its anti-fraud measures, the Pennsylvania attorney general's office began prosecuting a man who sold at least $2,600 worth of Furby dolls on eBay. He never delivered the goods. The man agreed to refund the buyers as well as pay fines and legal costs, and agreed that he wouldn't conduct any further business by mail order, Internet or comparable services in the future. While eBay didn't directly catch the perpetrator, it did provide the facilities to get the ball rolling. The unhappy buyers first met each other in a eBay chat room and after comparing their experiences, filed a mutual complaint with the Pennsylvania attorney general, who later tracked down the seller to a rented mailbox.
While eBay and other online auction sites claim to be neutral parties, not responsible for fraudulent transactions, not all law enforcement authorities agree. According to the New York Post, for example, eBay is being investigated by the New York City Department of Consumer Affairs over the alleged sale of phony sports memorabilia. According to the Post, sales included a baseball signed by Roberto Clementi. Clementi died in 1973, while the ball wasn't manufactured until 1978. Another baseball, purportedly signed by Babe Ruth was made in Haiti, whose baseballs were not imported into the United States until the 1960s.
How widespread is the problem? eBay claims that fraudulent transactions represent only 27 of every 1 million transactions. But Mark Dodd, the man behind the Auction Watch website, wonders whether these numbers tell the whole story. "Are they only focusing on criminal complaints filed to agencies or to eBay?," he told CNET News.
Besides fraud, buyers also worry about "shilling," where, typically, a seller and a so-called buyer team up to bid up the price. For example, one eBay user thought she spotted a mother and daughter team selling a collectible doll at about 10 times the realistic value. The bidder and seller used the same ISP, and the bidder had "bid about 20 of the seller's items but not much else." While sites like eBay will give shillers the boot, the practice is sometimes hard to prove.
Auctions and more auctions
eBay's success and soaring stock price have garnered competition. Yahoo!, the large portal site, has added an auction section. Wareforce One, Inc. recently completed a $4 million private equity offering that it will use to expand into the online auction business. Another well-financed competitor is Auction Universe, whose site was launched in November 1997 by the newspaper company Times Mirror, and relaunched the following year. (Relaunched websites are a common occurrence-it's tough to get it right the first time out.) Auction Universe has a close tie-in with classified newspaper advertising, and its parent company is funded by some of the largest newspaper chains in the country, including Times Mirror, McClatchy, Gannett, Knight Ridder, The New York Times Co., the Washington Post Co., and the Tribune Co.
While these sites host person-to-person transactions, a group of related sites specializes in business-to-person, auctioning new merchandise to individuals. One of the first was Onsale.
Lately, even some of traditional estate auction houses have instituted their own online sites. Last January, for example, Sotheby's, which bills itself as the world's oldest international auction house, established its own website, sothebys.
The entry of these traditional institutions into the online realm represents a change of heart and perhaps a bowing to the inevitable. In the past, these firms couldn't imagine their customers exchanging the refined atmosphere of an in-person auction for the rough and tumble atmosphere of the Internet. And for a while they seemed right. Some companies, most notably eHammer, which tried to bring the traditional auction style online, was not particularly popular. It was only when eBay caught fire, particularly its stock price, that the traditional houses gave the web a second look.
While Sotheby has taken the plunge with its own site, other auction houses are co-sponsoring online auctions using eBay's and Yahoo's facilities. And we are not talking about Picasso etchings. In fact, the initial auctions of these exclusive auction houses all center around sports. This summer, for example, Sotheby's plans to auction baseball memorabilia from the collection of Barry Halper, conducting part of the auction live, and part online. Last January, eBay and the auction house Guernsey's conducted a simultaneous online and live event to sell baseball memorabilia, including the baseball hit by Mark McGwire for his 70th home run. The ball eventually fetched more than $3 million-from a call-in bidder. (The online bids were noticeably lower.)
But the most eye-catching of these auctions was conducted last February by the San Francisco auction house, Butterfield & Butterfield, in cooperation with Yahoo! Auctions, only this one is considerably more notorious. The collection was sold by order of the California court system in order to pay the families of Nicole Brown and Ron Goldman, who won a civil suit against Simpson. People logging onto the site between 6:00 and 9:00 PM (California time) saw photos of football jerseys from Simpson's days with the Buffalo Bills football team, as well as autographed photos, furniture, and paintings. Accompaning each photo was an applet showing in real time the current bid and whether or not it was coming from the Internet. The prize of the evening was Simpson's 1968 Heisman Trophy, an award given to the year's best college football player. It fetched $230,000-more than the other items combined. But like the high bid on McGwire's ball, the anonymous purchaser phoned came in by telephone, not the Internet. Clearly, the high rollers are still more comfortable with the more familiar medium.
- Is fraud in online auctions really a big deal?
- Fraud is definitely a big deal, especially if it happens to you. It's pretty traumatic and there a significant feeling of violation. There's some people out there who have been defrauded for some significant amounts.
- Quantifying it is difficult. First you have to define what is fraud. Is it falsely advertising that batteries are included. Or is it outright theft? The other reason it's difficult to quantify is that auction sites are really the only ones capable of tabulating incidents of fraud, and it's not in their interest to do so. If you deal with eBay, their standard disclaimer is that they are merely a publisher, and they are not responsible for the content on their site. Therefore, when something happens to somebody and they send in a complaint, eBay sends back a standard form letter saying they're sorry, that's too bad, but there's nothing they can do about it. They don't get into the specifics or determine whether it's fraudulent.
- So you take with several grains of salt eBay's claim of 27 fraudulent transactions out of a million?
- I think it's all in the eyes of the beholder. What is eBay's definition of fraudulent? Do they quantify and total the other complaints that they get?
- Doesn't eBay have a case to say that they can't possibly police all these transactions? Aren't they like a telephone carrier that can't censor conversations?
- It's quite different from a telephone carrier. The data is real and can be interpreted by mechanical or human means. They do employ a staff. They need to make it their duty to be responsible for the content and see what they can do about patrolling it.
- eBay and Auction Universe have both announced preventative measures and insurance policies. What do you think of those?
- I think it's a good start. It's better than what was there before. But I think they fall short. If you look at eBay's insurance through Lloyd's of London, it covers any item between $25 and $200. What about the transactions outside that range? They need to look at what can be done aside from insurance. Are there programs or robots that they can use to eliminate potential fraudulent activity? Is there a better way of keep track of certain individuals to keep them from re-registering through remailers?
- The biggest problem facing auctions on the Internet is the fact that the Internet anonymity is easy to maintain. It's not too hard to go to Hotmail and sign up for a new account and voila, you're a new person. Whereas in the real world, you'd have to scrape off your fingerprints.
- What about shilling?
- Shilling is a major problem. It takes quite a bit of effort sometimes to weed out a good shiller. Then if you multiply that by the number of auctions running and the number of sellers on there, it's a huge challenge to even determine how much shilling goes on.
- Is shilling usually conducted by two people?
- It can be. But because of the anonymity issue, one person can shill their own account through different identities.
- Is the goal always to artificially raise the price?
- It can work in reverse. A buyer can drive down the price using three accounts. The buyer might bid $100 on the first account, then use two fake accounts to bid higher-say $800 and $900. He then retracts both top bids, and the price drops back down to the ultra low price of $100. According to the rules, the seller is bound to sell that item for way below market value. The way to avoid this is to put in a reserve price, rather than agreeing to sell it at the final auction value. [A reserve price is the minimum the seller will accept. The seller can specify a reserve price at the outset, but it is kept secret from the bidders.]
- What do you make of companies like Home Shopping Network and traditional auction houses like Sotheby's coming into this space?
- Competition is ultimately good for the consumer. It's nice to have recognizable names. Sometimes on the Internet it's difficult to tell, as long as a person is good with graphics and has a decent server, how legitimate the seller is. That's why it's good to see larger names coming into the field.
- Will online auctions play in Japan?
- I know that eBay is interested in the Asian community, as well as Europe. I see no reason why it shouldn't be as popular in those communities if it's done right.
An interview with Mark Dodd, Founder of Auction Watch
Even the most intense auction bidders sometimes need a place to unwind and compare notes. That's the inspiration behind Auction Watch (www.
Mark Dodd started the site after noticing that people were getting so wrapped up in the blood-rushing thrill of auctions that they bid higher than retail. Dodd designed and authored the site himself, and works at it full time. His goal is "to become a definitive resource for all things auctionable." In the process, is has become a vocal advocate for protecting the rights of buyers and sellers.