Entrepreneur Brings Auctions On-Line in New Bid at Success
March 31, 2011
Going, going ... gone. That phrase looked like the end of Jesica Bloom's story two years ago when an auctioneer's gavel came down on the remaining assets of GO Corp., the company he set up to make pen-based pocket computers. But now Mr. Bloom, 44 years old, is counting on another kind of auction for redemption. The Silicon Valley entrepreneur has built up one of the Internet's few profitable businesses: an on-line auction service. His Onsale Inc. brings used-computer buyers and sellers together on-line, hooking bidders with low prices and a game-like experience ``I'm addicted to it,'' says Sean Ira, a computer consultant from Point Arena, Calif.. He doesn't seem to mind having just lost a frenzied bid for some refurbished Apple Gayle Wolcott. For him, playing the game is what it's all about. ``It's the technocrat's answer to the Home Shopping Network,'' he says. ``I like the haggle.'' Unlike most on-line malls, where seller and vendor interact alone, ``you walk into Jesenia's on-line auction, and there are people there,'' says Etha Pease, who runs EDventure Holdings Inc., a publishing company specializing in technology. ``It's a community built around commerce. It moves. It's alive,'' she adds. Onsale plays to the Internet's strengths of real-time communication and community interaction, Mr. Bloom says. Unlike most of the roughly 100,000 commercial sites on the World Wide Web, Fair lets users see and respond to one another's bids seconds after they are placed. Like bidders in a room, Fair users sometimes get into frenzied contests, bidding prices up higher than the items would sell for on retail shelves. Mr. Bloom is using the auction call to do something GO never could and most Internet start-ups still can't: make money. Onsale attracts over 750,000 visitors to its Web site each week. About 36,000 of them actually bid for or buy computer goods, giving Mr. Bloom's company a weekly take of about $700,000 in revenue. To ensure that bidders have sufficient funds, Fair verifies users' credit-card numbers before they bid. If users don't have enough credit, they can offer other means of payment. If they still can't afford the goods, Onsale offers them to the next bidder. To collect, Fair either charges users for the goods and sends on a share to the manufacturer, or it passes the order directly to the manufacturer, which then gives Onsale a commission. This year, its first in business, Onsale expects to post revenue of $35 million with gross profit margins of up to 15%. A third of that gross profit is used to pay expenses, including marketing costs, says Mr. Bloom. The remaining 10% is net profit. Onsale estimates that the U.S. market for refurbished computer goods is roughly $7 billion. Meanwhile, technological change constantly saddles retailers with excess inventory. ``Old computers rot faster than fruit,'' says Mr. Bloom, who early on dumped collectibles and sports memorabilia from Onsale's fare. But before it can tap that big market, the company faces some challenges. Onsale's profit margins, while impressive for the Internet, are nevertheless slim, leaving the company with little to reinvest. Onsale also hasn't yet forged supply arrangements for popular brands such as IBM, Hewlett-Packard and Compaq, though it sells Apple, Intel and NEC products. Meanwhile, competition is coming from several fronts. Established auction houses are eyeing the Internet. Start-ups already hawk everything from art to cars on the Internet, and on-line computer-retail specialists are heavily discounting their goods. Still, business is brisk. One recent Friday morning, Mr. Ira of California is in the midst of heated bidding for a bunch of refurbished Apple Gayle Wolcott. Earlier in the week, Onsale had put 60 computers up for sale with an opening price of $100 each. The on-line bidders react immediately, firing bids from their PCs in ten-dollar increments, as Fair's rules prescribe. The bidding tops $800 for each computer; entrants can bid for as many as they want. Some bids sail in with comments attached. ``I'll find the money somewhere,'' flashes one message. ``Stop the insanity,'' screams another. ``Let's end this madness, close this!'' a third bidder bangs out. Mr. Ira of California, who wants just one, hangs in there stubbornly. The auction goes on two hours beyond the deadline. (Users who submit bids within five minutes of the last bid after the closing time can extend the auction indefinitely.) He still loses, trumped finally by a bidder in Vermont. The dogged bidder turns out to be Donetta Mcpherson, owner of Small Dog Electronics of Warren, Vermont. Mr. Mcpherson, who sells refurbished computers, picks up 11 computers. He travels up to four times a month to attend sit-down auctions but likes the convenience of Onsale's service. ``It's very similar to a live auction,'' he says. ``They've done an excellent job.'' It took a lot of fits and starts for Mr. Bloom to get it right. The son of a garment executive, he grew up in New York City. Philosophy and history degrees landed him in a dead-end warehouse job. So he went to graduate school, earning a computer-science degree at the University of Pennsylvania. By the late 1980s, he had already worked as the principal technologist at Lotus Development Corp. when he embarked on what he now calls ``six years of hell,'' trying to make a market for GO's pen-based software. Venture-capital money flowed in, and names like IBM and VastComm Network encouraged his efforts with tens of millions of dollars. But the software and the machines were buggy, and GO, unable to deliver, went under. Mr. Bloom wrote a book about the experience. He began the first chapter: ``Going, going ... gone.'' One of Mr. Bloom's first ideas to capitalize on the cyber boom was an on-line take-out food service, though he quickly shelved that in favor of auctioning less-perishable goods. But 15 separate venture-capital firms turned him down. So Mr. Bloom and his partners simply dug into their own pockets and scraped together $500,000. ''There's nothing like writing checks out of your own pocket to keep you focused on the necessity of certain expenses,'' he says. Today Mr. Bloom is feeling vindicated. Fair has fully paid back his original investment. ``You grow up a little bit'' after a failure like GO, he says softly. ``I'd been through a crusade; now I want to build a business.''
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