Saturday, May 28, 2011


Double auction.
Omar Sultan of Cisco generously took the time to comment on one of my recent Cisco posts. He made some good points. I posted some followup comments as well. The post and comments can be found here. Spending on innovation isn't the same as being innovative and what Omar's posts indicate to me more than anything is great engineering. As a general rule my experience with Cisco equipment has been very positive from the perspective of reliability. On their low to mid tier products (<=6500 series) I just don't see a lot of innovation though. I don't know enough about the higher end or data center stuff to have an informed opinion.

Hopefully people don't think I'm picking on Cisco here. In general I think they are a very good company and I've known a fair number of people who have worked there in a technical capacity. From what I can tell Cisco is a pretty good company to work for.

I'm a long time member of EBay. In fact my wife and I discovered EBay just months after it was launched. We've bought and occasionally sold a lot of stuff over the years. One of the things that's been bugging me for awhile now, at least from the perspective of being a seller is the fact that standard EBay auctions end at a particular time. You have some flexibility in specifying the number of days and there are other options such as "Buy It Now" and "Best Offer" but those are fixed price offerings. There's nothing wrong with that, but it's not an auction.

What is the problem with the fixed end time? If you're a buyer, not much. If you're a seller though it's an an ideal setup. Over time buyers have learned that the best approach to winning an auction on EBay is to step in at the very last minute and bid. This is referred to as sniping. It's completely legal but it tends to suppress bidding and thus reduce the final price. In real auctions bidding continues until nobody is willing to beat the current high bid. From a sellers perspective this is the ideal scenario. Since EBay makes a good chunk of their money off of commissions on the final sales price I just don't get it.

An additional factor in discouraging early bidding is the fact that as the current high bidder your money is tied up until the auction ends or you get outbid. With sniping your odds of getting out bid until the very end are very low if you make an honest bid. This means there is an opportunity cost to not gaming the system. That item you bid on today may prevent you from bidding on another tomorrow even though you'll ultimately lose on the first one. Sure, that money is available later but some deals really are once in a lifetime and it's frustrating to be in a situation where you have to risk over extending yourself when you see one.

The thought of selling big ticket items on EBay gives me an ulcer. I've been downsizing my very modest vintage guitar collection recently to fund my guitar building obsession and I've done all my selling through a dealer rather than EBay. I'd rather pay the commission than risk selling on EBay and dealing with all the hassle. Maybe I'm unique in this though?

What I want is an option to extend the duration of the auction so long as bids are still coming in. This is the way real world auctions work. I'm not sure this would encourage early bidding but it might discourage sniping since other bidders would have some time to rethink their maximum bid and push the price up. I'd be much more comfortable selling on EBay if this option were in place.

Apple has recently been in the news for filing and then instantly dropping a lawsuit to sue a NY teen who illegally sold dubiously sourced parts that allowed people to create a white iPhone 4 months before Apples official release. The coverage of this in the press has been less than positive in regards to Apple and it's easy to understand why this looks like a big bad company picking on the little guy.

I'm not a Lawyer, but I'm fairly sure Apple essentially had to file this suite. The parts in question had Apple trademarks and companies have to defend their marks if they want to keep them. Given the amount of press this case got I don't think Apple had a choice. the fact that they filed to have the suit dismissed immediately may show that they've settled already but reports seem to indicate that isn't the case. I suspect they simply wanted to cover the legal bases and this was the least violent way to do it.

Apple left open the option of reopening the case in their dismissal request so they still have a lot of leverage if a settlement is in fact in the works.

Image via Wikipedia
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  1. "In real auctions bidding continues until nobody is willing to beat the current high bid."

    Perhaps it's more valid to say that this is the way real world American (err English?) auctions work. Ignoring the fact that most Americans would be confused by an alternate auction system, Ebay could deal with this by simply implementing a different system altogether. For example, a silent auction would gain the seller a higher price.

    "Since EBay makes a good chunk of their money off of commissions on the final sales price I just don't get it."

    Do buyers go to Ebay b/c sellers are there? Or do sellers go to Ebay b/c buyers are there? It appears Ebay has made the choice that Ebay is a site for buyers. Sellers simply go there as a consequence. Sellers pay listing fees. Under many scenarios, sellers must accept Paypal.

    While some niches of Ebay could continue to exist if an extended auction time were implemented (niche collectible universes), I believe Ebay knows that buyers come b/c they feel they can get a deal on purchases. Otherwise, why would buyers bother to go there? I can pay a small premium and buy from tons of other sites.

  2. Al, you raise some good points and in general I don't disagree. Clearly EBay has decided to come down firmly on the side of buyers. While sellers may be feeling a bit unloved, you are right in that the customer base that EBay represents makes that essentially a moot point for most products.

    The exception is higher end things like vintage guitars. There sellers have a lot more power since the supply is very limited and the demand outside of EBay more than sufficient. Why should EBay care? because we're talking about single items that can go for tens or even hundreds of thousands of dollars. A 1942 Martin D-45 was recently posted to EBay with a Buy It Now price of $345,000. Given the rarity and condition of the instrument this was not an outrageous price. When this happens the instrument is almost always pulled and sold offline. In those situations EBay only gets the listing fee.

    If I were in charge of EBay I'd be looking for ways to make it more attractive for big ticket items, possibly by way of a premium EBay of some sorts.

    Right now a lot of these items are sold on commission through dealers and more traditional auction houses that take a lot more than EBay. There is certainly an opportunity here and EBay is well situated to take advantage of it.

  3. Isn't that a niche that's already covered by Sothebys, Christies, etc.? Part of the premium buyers get from them is the measure of authenticity, condition, etc. of an item. How many buyers really want to get such a high priced item on Ebay without verification? How many sellers will trust a 100K bid on Ebay? It's something that Ebay could get into, but I think it sort of deviates from their (likely) desire to not be a middle man (have to house item, have security, bidders want to see item in person, hire a team of appraisers, etc.)

    I imagine there could be a middle-tier that Ebay could cover and take away from auction houses, lets say 5K-25K items. Perhaps high-value verified sellers with certified goods (e.g. cgc for comics) can get some special treatment on a premium ebay. But when you start getting into 100K+ items, I'm not sure it's a game that Ebay really should get into.

  4. Al, I once bought a guitar from Christie's. Oddly it was actually a pretty good deal even with the buyers premium and shipping costs from NY. I suspect the seller was less than happy though since they got to pay a sizable commission to Christie's which was on top of the buyers premium I paid which was 25%.

    I couldn't afford to fly to NY to check out the guitar so I interacted with Christie's via email. They sent me some additional pictures but really didn't seem to know much about vintage Martin guitars.

    This turned out to be a sub $2000 transaction even with the shipping and buyers premium. If I were in a position to bid on a more expensive instrument I'd either fly out there personally or hire somebody I trusted to check the instrument out. From the buyers perspective Christie's doesn't add a lot of value in either of those scenarios. the value to the seller isn't that much in excess of what a reputable vintage guitar dealer can provide.

    I'm not saying Christi's doesn't have a place, but I think for the vast majority of transactions they are way overpriced. I always laugh when people complain about EBay's 10% commission. That's chump change compared to the auction houses.

    All of which gets us back to EBay and the fact that they could be making a lot of money higher end items with a bit of tweaking. Heck, it could even be a separate but related site that leveraged most of EBay's current infrastructure but added additional auction options and maybe some additional tools for buyers and sellers to interact.

    Where Christie's and their brethren really earn their keep is on the top 1/10th of 1 % of items. I think they become increasingly vulnerable as you move down from there.

    As an FYI, for high ticket items most people selling on EBay expect requests to inspect items in person before the bidding ends.