Old Equipment Gets New Life Online
Linda Kelly earns plenty of frequent-flier mileage traveling to corporate auctions where she bids on such industrial-strength used equipment as Class 100 clean rooms and nitrogen belt furnaces. But as the $100-billion business of disposing of excess corporate assets moves online, the Microsemi Corp. executive plans to spend more time in her Santa Ana office.
“Not as much sitting on airplanes, not as many nights spent in hotel rooms--I love it,” said Kelly, who conducts major equipment purchases for the semiconductor manufacturer. “This is absolutely the best thing that’s happened in this part of the business.”
Corporate auctions of old and unwanted assets are being pushed online by the same wave of Internet change that’s sweeping through the business-to-business sector. The value of online “B2B” transactions will grow to $2.7 trillion by 2004, up from $17 billion in 1998, according to Forrester Research.
Whether buying raw materials or unloading old machinery, companies such as Ford Motor Co., Boeing Co. and General Electric Corp. expect online marketplaces to dramatically cut paperwork and expenses. Buyers and sellers are betting that corporate garage sales will undergo the same metamorphosis that occurred when EBay Inc. gave consumers a new way to buy and sell Beanie Babies.
Sellers envision a cost-effective way to move aging but still-serviceable equipment out of warehouses--or divert it from the junkyard. Buyers anticipate easier access to auctions now out of geographical or financial reach. But what’s uncertain in the fast-changing B2B world is who will control the process: traditional auction houses or online newcomers.
Buyers and sellers won’t have to wait long for answers. “We think the winners will be determined in the next nine to 12 months,” said Steve Ellis, a San Francisco-based managing director of Bain & Co., a consulting firm. “The key to success is grabbing the right elements from the analog world and making them relevant in the digital world.”
Traditional auctioneers are scrambling to keep abreast of technological changes. The Newton Highlands, Mass.-based Industrial Auctioneers Assn. has added a Web site, and the National Auctioneers Assn. invited Amazon.com Inc. and EBay to share their view of the future at last summer’s annual meeting.
“Three years ago, 90% of all auction houses were in denial, and most didn’t have a Web page,” said Kirk Dove, chief auctioneer for Foster City, Calif.-based Dove Brothers, an industrial auction house that in November changed its name to Dovebid.com. “My guess is that now, fully half still won’t believe that you can effectively sell equipment over the Web.”
Dovebid hopes to leverage existing contracts with companies such as Raytheon Corp. and General Dynamics Corp. as it moves its operations online. The family-owned business, which recently filed for an initial public stock offering, has drawn nearly $100 million in private funding from investors such as Softbank Capital Partners and Fremont Group.
Turning the 60-year-old auction house into a “dot-com” could be a bumpy process. Dovebid cautions in regulatory filings that it might never become profitable online if it can’t quickly establish a dominant position in the rapidly evolving marketplace.
Traditional auctioneers face growing competition from such newcomers as OnlineAssetExchange.com, a San Diego-based company that has hired former automotive industry executive Lee Iacocca as its pitchman.
Such companies as FreeMarkets Inc. also are targeting the online asset disposition business. The Pittsburgh-based company is establishing online marketplaces where buyers and sellers of raw materials can strike deals. But many corporate asset disposition departments report to purchasing, “so there’s a natural tie-in, and we’ve been seriously growing this part of our business since last summer,” said FreeMarkets Chairman and Chief Executive Glen T. Meakem.
There are signs that a consolidation already is underway in the fledgling online auction sector. FreeMarkets in March paid $339 million in stock for IMark.com, an Austin, Texas-based auction house. Dovebid also has been on a buying binge, scooping up auction houses and ancillary businesses it deems necessary for long-term survival.
Competitors also are honing systems to ensure that sellers’ and bidders’ needs are met. Dovebid, for example, has been geared toward live auctions and is opening them to online bidding. The company also is pursuing the Nasdaq-style system favored by OnlineAssetExchange and FreeMarkets, in which assets are sold around the clock through a bid-and-ask system.
In the past, industrial auctions were severely limited by geography. Equipment placed on the auction block changes constantly, and auctioneers spend heavily to advertise upcoming sales. That’s an expensive process, and far-away buyers often remained out of the loop.
Online auctions also are designed to appeal to frustrated executives who’d rather focus on their business than sell unwanted assets. “When I was at Chrysler, we were constantly getting rid of old equipment,” Iacocca said. “But I was always getting 20 cents on the dollar, and in many cases I ended up scrapping perfectly good machinery.”
Iacocca discovered the matchmaking potential of online auctions during a tour of Chinese hospitals. Although MRI machines were in short supply, U.S. hospitals were jettisoning serviceable machines for state-of-the-art equipment. “The secret is finding that guy in Beijing who wants and needs your machinery,” Iacocca said. ‘The Internet can make that information immediately available.”
Linking potential buyers with sellers “can be a very long and laborious process,” said Frank Berlage, president and chief executive of OnlineAssetExchange. “I’ve seen people get on the telephone and start dialing to try and find equipment--and they don’t even know that it might be in the plant next door.”
Often, equipment gathers dust in warehouses because corporate owners are hesitant to sell machinery below its depreciated value. Bain’s estimate of a $100-billion market swells to as much as $450 billion when cars, trucks, office furnishings, computers and the mountains of equipment headed directly to the scrap yard are included.
Would-be buyers, particularly at smaller companies with limited budgets, suspect that they’re being shut out of potentially sound deals. They’re hoping to find a pot of industrial gold at the other end of their modem.
Kelly and other bidders still will travel to inspect expensive purchases. But online technology eventually will allow buyers to inspect serial numbers and repair records online. And once bidders have traveled to inspect merchandise, they won’t have to make return visits to bid in person.
In the past, buyers have used fax machines to send maximum bid limits. “But they don’t always work very well,” Kelly said. “Say you estimate the value of a piece of equipment at $1,000 and someone tops you with $1,100. With the proxy, you’re out of the game.”
Online bidding is a relatively simple process. Dovebid outfitted Kelly’s PC with a sound card and proprietary software. The computer screen displays the information that on-site bidders are viewing. Kelly follows the action on a telephone line and remains in the bidding until she hits the “#” key.
Auction houses hope to lure new bidders to the process by offering such online services as financing, escrow services and insurance. They also hope to use accumulated data from sales to provide accurate pricing information--in essence, an industrial Kelley Blue Book.
A recent Dovebid auction conducted for Raytheon drew bidders from as far away as Germany. During another auction, an online buyer from New Jersey took home a high-tech microscope with a high bid of $25,000.
“Before, I was reluctant to travel to auctions if there were only one or two things we might be interested in,” Kelly said. “But since [Dovebid] went online, I’ve gone to every auction. It’s a very easy way to deal.”
