Firm Aims to Provide Missing Component on the Web
At the head of a boardroom table, with his face half illuminated by the glowing projection of a computer screen, Sheldon Malchicoff cracks a satisfied smile.
He is pointing to the green bars and spreadsheets projected against the wall, real-time representations of the transactions his new company is conducting on the Web.
Watching these deals move through this Camarillo-based firm makes its founder happy. For Malchicoff, an engineer who gushes about business models and databases, it’s like watching horses come in at the track.
Malchicoff, the chief executive, chairman and founder of Data Exchange Corp., on Monday officially launched an Internet-based spinoff to his company called BidVantage. The new firm is a reverse-auction site for computer companies that need to find hardware--and find it quickly. Call it Priceline.com for PCs.
Executives and business experts say the company is another example of a traditional, established business--such as Data Exchange, which has repaired, tested and refurbished computer parts for more than 20 years--using the Internet to cut costs, streamline time-consuming transactions and connect buyers to sellers who would not have done business together in the past.
It works like this: A computer company needs to come up with some old circuit boards it no longer manufactures. So it posts a request on BidVantage. Hardware distributors then bid for the business. Whoever offers the circuit boards at the lowest price gets the deal. BidVantage takes a fee from the buyer for hosting the transaction on its Web site.
A bonus: The auctions on the site are anonymous, so competitors can buy parts from each other with no loss of face.
Potential uses for the business model are endless, Malchicoff says. Computer firms, large and small, are always looking to acquire components or liquidate inventory. BidVantage allows them to do that inexpensively and quickly, executives say.
“It’s like a buyer picking up the phone and having every supplier on the phone instantly,” Malchicoff said.
Silicon Graphics International, a Silicon Valley manufacturer of high-end computers, used BidVantage during its pilot phase, said Linda Forbes, the company’s director of global operations. The company was recently planning to buy older Silicon Graphics board assemblies. The acquisition was budgeted at $100,000. But a distributor agreed to sell the parts for $80,000 on BidVantage, saving the company $20,000, she said.
“You just watch the prices come down,” Forbes said. “It’s been so competitive. There is nothing like this.”
Malchicoff is particularly proud of the fact that some industry experts, including those at Harvard’s Business School, said an open market, reverse auction would never work because there was no way to ensure product quality. After three years of developing the idea, Malchicoff thinks he’s proven them wrong. Hence the smile.
Because BidVantage is an open-market, reverse-auction site, any company can sell computer parts through the service, so there was no way to ensure the quality of items changing hands. For example, if a company pays a distributor for 150 circuit boards on a conventional open-market, reverse-auction site, there is no guarantee that the company won’t end up with a heap of junk.
Malchicoff solved that problem by turning to BidVantage’s parent company, Data Exchange, which has an employee base of 400. Distributors who have yet to prove that they can deliver quality products are welcome to use BidVantage, but their products must be inspected in Data Exchange’s facility before they land on consumers’ doorsteps. Vendors who repeatedly ship junk get blackballed.
“This seemed to be a very clever approach to solving the inherent issues of reverse auctions,” said William A. Sahlman, a professor at the Harvard Business School, who has taught Malchicoff through an education program for executives.
But Sahlman, who has written about Internet technology’s effect on the economy, said the system isn’t foolproof. “If you end up with people reneging on contracts or have cheating of some kind in the system, you have real fallout problems from that,” he said. “Fear about the trustworthiness of the marketplace eliminates the marketplace.”
The computer parts supply business is a $25-billion industry, executives estimate. And the simple concept of using a well-established business model to make a new, Web-based idea work will be the key to BidVantage’s success, Malchicoff said.
Although the company launched officially on Monday, it has been operating on a trial basis for more than a month. During those weeks, the company garnered $1.5 million in revenue. This quarter, it expects to do $4 million, Malchicoff said. Profit is nothing impressive at this stage of the company’s development, he said, but he forecasts pretax margins of about 8%.
The amount of money that moved through the site during its pilot phase encourages Malchicoff. On a recent Friday morning, $312,000 worth of bids were up on the site. And Malchicoff hopes that number will go through the roof, as the company signs on more clients.
He won’t say what companies are signing up to use the site, but he says the firms are large and well-known.
Malchicoff said: “Our suppliers say, ‘You’re giving me free business. We used to have to send salespeople out to get that.’ ”
* INTERNET PACT
A Westlake Village online registry forms an alliance with a notary group. B8
* MORE BUSINESS NEWS: B8-11
