The Auction Model

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The Auction Model

• David C. Wyld
• Associate Professor of Management
• Southeastern Louisiana University

2
The Auction Model How the Public Sector Can
Leverage the Power of E-Commerce through Dynamic
Pricing
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The Auction Model

• October 1999 Proposal
• Science Fiction
• Notion of Online Exchanges Just Emerging

             
 
       
 
 
 
 
 
 
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The Auction Model

• 3 Areas Examined
• Procurement Activities
• Disposition of Used/Surplus/Seized Assets
• Internal Management

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The Auction Model

• Bill Gates, writing in 1995 in The Road Ahead
• The Internet will enable all buyers and sellers
  in a market to know each others price positions,
  making possible a new world of low-friction,
  low-overhead capitalism, in which market
  information will be plentiful and transaction
  costs lowand societys resources would be
  distributed more efficiently.

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The Auction Model

• Hal Varian, coauthor of Information Rules,
  commented
• One of mankinds oldest inventions, the market,
  is being irrevocably transformed by one of its
  newest, the computer

   
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The Auction Model

• Evolutionary Stages of Internet Exchanges
• (C2C) Consumer-to-Consumer

 
   
 
 
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The Auction Model

• Evolutionary Stages of Internet Exchanges
• (B2C) Business-to-Consumer

       
 
 
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The Auction Model

• Evolutionary Stages of Internet Exchanges
• (B2B) Business-to-Business

       
 
 
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The Auction Model
 

• The Projections that Launched a Thousand
  Business Plans

 
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The Auction Model
   

• Mark Gimien, writing in Fortune
• The B2B boom still largely appears to be in the
  Promised Land stage of development, where all
  charts trend upward (and) all numbers have many
  zeros

 
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The Auction Model

• 2000
• Suddenly, The Internet has made procurement
  sexy
• B2B Investment Boom

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The Auction Model

• Glenn Simpson, Writing in The Wall Street
  Journal, Called Government The Final
• Frontier of the e-Commerce Revolution.
• The trajectory for e-government is following
  much the same path as has the overall growth of
  commerce on the Internet.

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The Auction Model

• Consumer Applications
• Don Tapscott
• Citizens are seeing and experiencing the
  remarkable customer-centric changes that are
  occurring in the private sector (such as
  one-click ordering, automatic reminders, online
  bill payment, etc.), and today, they are
  beginning to demand that government
  bureaucracies be equally user-friendly.

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The Auction Model

• Consumer Applications
• Donna Morea, Director of E-government solutions
  for the AMS State and Local Government Group
• Citizens are increasingly wanting to be able to
  have the same 24-7 access to government as they
  are coming to expect in the private sector.

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The Auction Model

• Business Applications
• Jeffrey Birnbaum, writing in Fortune
• The biggest benefits to government agencies
  involve online procurement.

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The Auction Model

• Why Business Applications?
• Potential to Drive Out Costs
• Purchase Orders
• Transaction Costs
• Chinese Math
• 1-2 of Billions in Purchasing

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The Auction Model
     
 
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The Auction Model
   
 
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The Auction Model

• Governmental Chinese Math
• Cost-savings
• The 50 Billion Dollar Challenge
• (half of projected private sector savings)
• A Revenue Model for Third-Parties

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The Auction Model

• All Rooted in the Concept of Dynamic Pricing

   
 
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The Auction Model

• Fixed versus Dynamic Prices - History
• 500 B.C. to eBay
• Fixed Prices as a Historical Anomaly
• Paul Saffo of the Menlo Park, California-based
  Institute for the Future
• He forsees a time a decade or two in the future
  when the notion of a standard retail price will
  be a scarcity, because there will be few standard
  things to sell
• Ideal Market Prices
• Stock and Commodities Markets as Examples

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The Auction Model

• Dynamic Pricing Concepts
• Airline Tickets a Quintessential Example
• Yield Management
• Value as an Amorphous Concept

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The Auction Model

• Dynamic Pricing Concepts
• Jay Walker, Founder of Priceline.com
• Personal Elasticities of Demand

     
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The Auction Model

• Dynamic Pricing Concepts
• Jay Walker, Founder of Priceline.com
• Personal Elasticities of Demand

 
   
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The Auction Model

• Taking Personal Elasticities of Demand Too Far?
• Coca-Colas Former CEO, Doug Ivester
• Paul Saffos Restaurant Examples
• Tokyo and the time spent eating
• Paris and the ordering of other diners
• The Future
• Babysitters on Saturday Nights
• AC Repair in the Summertime
• Restaurants and desirable slots/tables

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The Auction Model

• Four Types of Dynamic Pricing
• Auctionone entity selling to many buyers
• Haggleonly one buyer and one seller bargaining,
  or haggling, to reach an agreed-upon price
• Exchangemany buyers and sellers negotiating
  prices
• Bidding Processa single buyer with multiple
  sellers offering varying prices to supply goods

     
 
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The Auction Model

• What Furbies and Beanie Babies Taught Us?

       
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The Auction Model

• The eBay Model
• Return of the Bazaar
• Internet exchanges enable linkages of buyers and
  sellers
• Network Effects Business Model
• More buyers attract more sellers in an exchange,
  and in turn, this attracts more buyers and
  sellers to the auction site

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The Auction Model

• The eBay Model
• Tibbetts and Bernstein
• Online auctions offer a prime example of a
  venerable institution with centuries of
  accumulated wisdom being retooled for the
  Internet Age.

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The Auction Model

• The eBay Model
• Chip Bayers
• Much in the same way that the creation of
  village and regional markets transformed
  commerce, creating a capitalist society in Europe
  over five hundred years ago, today, were
  getting a chance to reconstruct commerce on a
  global scale. Yet, many of the same issues
  confront participants who online auctions today
  as those 500 years before us namely deciding
  just what the ground-rules for the exchange and
  for the participants will be.

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The Auction Model

• Managing in the Marketspace
• Based on Jeffrey Rayport and John Sviolkas 1994
  article of the same title in the Harvard Business
  Review.
• 1994 delusional
• 1998 Rayport denied tenure at Harvard
• 2000 Ideas seen as prescient

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The Auction Model

• Managing in the Marketspace
• Jay Walker, Founder and Chairman of
  Priceline.com
• For the first time, pricing in online exchanges
  means that the information component of the
  economic activity is handled separately from the
  physical component.

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The Auction Model

• Managing in the Marketspace
• Mohanbir Sawhney
• Most products consist of a physical component
  and an information component. In the offline
  world, information typically is bundled with the
  physical product, and the core product is often
  sold along with complementary productsThe
  Internet enables the separation of information
  (bits) from the physical product (atoms), and the
  core product from complementary products.

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The Auction Model

• The Hype and Reality of B2B Exchanges
• Gary Hamel and Jeff Sampler
• The Internet is the foundation for a new
  industrial order.
• Chris Farrell
• The Internet is a revolutionary communications
  technology driving a global transformation.(and)
  at its most basic level, capitalism will work
  better than ever.
• Peter Henig
• Online B2B exchanges were touted as being the
  single greatest creation since Henry Ford
  invented the assembly line.

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The Auction Model

• The Hype and Reality of B2B Exchanges
• AMR Research
• Among leading companies in many sectors of the
  economy, 60-100 of their B2B transactions can be
  expected to move online by 2003.
• Forrester Research
• Estimates that by 2006, almost 40 of all B2B
  commerce will be transacted online.
• Albert Pang, IDC Research
• Annual Cost Savings from Participation in Online
  B2B exchanges
• 1999 - 200 million
• 2003 - 100 billion

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The Auction Model

• The Hype and Reality of B2B Exchanges
• Boston Consulting Group
• B2B e-commerce will boost productivity by 9 over
  the next five years.
• Goldman Sachs
• Total business costs could fall by 12.5 over the
  same time frame due to savings resulting from
  lower labor, supply, operating, and
  transportation costs.

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The Auction Model

• The Hype and Reality of B2B Exchanges
• Patricia Seybold
• The transformation of virtually all
  business-to-business processes over the next 5 to
  10 years.
• E-marketplaces will become the dominant players
  in the sourcing of both fixed-price and
  nonfixed-price goods and services for most
  businesses.

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The Auction Model

• Important Questions
• Growth Rate of Such Exchanges?
• How Much of the Volume on the Exchanges will be
  Dynamically Priced?

     
 
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The Auction Model

• Forrester Research
• In 2000, over 70 of all companies engaging in
  B2B commerce will at least try online auctions
  for their sales or procurement activities.

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The Auction Model

• The Move to e-Marketplaces
• Two Main Reasons for Buyers Participation
• Experiencing cost-savings from conducting
  transactions online
• Taking advantage of liquidity and competition in
  marketplaces to drive costs down

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The Auction Model

• The Move to e-Marketplaces
• Supplier Relationships?
• Value in long-term suppliers, but
• Narrow supply chain to supply web
• Role of Wholesalers, Brokers, and Other
  Intermediaries?
• Downfall of firms and whole categories of
  businesses whose business models are based on
  information arbitrage
• Akin to travel agencies in the consumer
  marketplace

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The Auction Model

• Dynamic Pricing in B2B Marketplaces
• Robert Hof
• There has been a startling shift in the
  commercial balance of power To a greater extent
  than ever before, the customer is king and the
  buyer runs the show on the Net.
• Jay Kinsgley, a Partner with the Chicago-based
  Internet Consultantcy, Diamond Technology, Inc.
• Online auction and exchange models are shifting
  power away from those who manufacture to those
  who buy. In the process, this is transforming
  the supply chain into a demand chain.

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The Auction Model

• Dynamic Pricing in B2B Marketplaces
• Glen Meakem, founder and CEO of FreeMarkets.com
• He believes firmly that blue-chip buyers ought
  to hold all the cards.
• Early Returns from Online B2B Reverse Auctions

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The Auction Model

• Dynamic Pricing in B2B Marketplaces
• Early Returns from Online B2B Reverse Auctions
• General Motors - 150 million savings from a
  single auction
• Quaker Oats - 8.5 million in savings on
  ingredients and transportation services
• FreeMarkets.com Bidding Events
• Visteon Automotive Systems
• Sprint
• State of Pennsylvania
• Aluminum for license plates
• Coal for heating state buildings
• Computer furnishings

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The Auction Model

• Dynamic Pricing in B2B Marketplaces
• Time Compression versus Negotiations
• Screening of the mob of potential suppliers
• Weeks or Months to Hours

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The Auction Model

• Two Basic Forms of Procurement Exchanges
• Independent-led Exchanges
• Industry Consortium-led Exchanges

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The Auction Model

• Two Basic Forms of Procurement Exchanges
• Independent-led Exchanges
• Industry Consortium-led Exchanges

       
 
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The Auction Model
First Mover Advantage

• Goal of Independent-led Exchanges
• Dave Perry, CEO of Ventro
• The goal of all start-up independent exchanges
  is to essentially place themselves in the middle
  of a market that already exists and facilitate it
  by setting up an e-commerce site.

       
 
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The Auction Model

• Independent-led Exchanges
• A proliferation of these industry-specific
  marketplaces
• Many are at the press release stage of their
  business plan.
• Many have not conducted their first meaningful
  trade or established firm partnerships with major
  industry players.
• Especially crowded in potentially lucrative
  areas
• Chemicals
• Health care

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The Auction Model
The Race is On

• Only a few players will emerge from the scrum of
  hours-old e-companies as the marketplaces of
  choice.
• As the consensus is that only 1 or 2 exchanges
  will survive in any given industry, the race is
  on to become the de facto exchange for every
  area of the economy

       
 
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The Auction Model

• Two Business Models for Independent-led
  Procurement Exchanges
• Single Industry-Focused Exchanges
• Multiple Market-Focused Exchanges

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The Auction Model

• Two Business Models for Independent-led
  Procurement Exchanges
• Single Industry-Focused Exchanges
• Multiple Market-Focused Exchanges

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The Auction Model

• auction-it.net - used or obsolete items
  computer-related parts and equipment
• Bidcom.com project management services
• BLiquid.com construction equipment
• Buzzsaw.com design services
• ChemAnalysis.com laboratory and research
  equipment
• ChemBid.com chemicals
• DoveBid.com surplus merchandise, used capital
  equipment
• EqualFooting.com construction materials
• eSteel.com steel
• Farms.com farm products, including cattle,
  pigs, feed, and grain
• Freightquote.com shipping
• Medibuy.com used and surplus medical equipment
• ercata.com - aggregates buyers on an ad-hoc basis
  to secure volume discounts
• Questlink.com electronic components
• SciQuest.com laboratory and scientific
  equipment
• Shipping-auction.com multimodal shipping
  services
• TradeOut.com selling excess inventory, used
  capital equipment
• uce.com - used or obsolete items
  computer-related parts and equipment

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The Auction Model

• Two Business Models for Independent-led
  Procurement Exchanges
• Single Industry-Focused Exchanges
• Multiple Market-Focused Exchanges

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The Auction Model

• Multiple Market-Focused Exchanges
• Examples

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The Auction Model

The 57 e-Marketplaces Established to Date by
VerticalNet   Communications o       Digital
Broadcasting.com o       Fiber Optics
Online o       Photonics Online o       Premises
Networks.com o       RF Globalnet o      
Wireless Design Online o       Wireless Networks
Online  
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The Auction Model

The 57 e-Marketplaces Established to Date by
VerticalNet     Energy o       ElectricNet o      
Hydrocarbon Online o       Oil and Gas
Online o       Power Online   Environment/Utilitie
s o       Pollution Online o       Public
Works.com o       Safety Online o       Solid
Waste.com o       Water Online  
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The Auction Model

The 57 e-Marketplaces Established to Date by
VerticalNet    Financial Services o      
Property and Casualty.com   Food/Packaging o      
Bakery Online o       Beverage Online o      
Dairy Network.com o       Food Ingredients
Online o       Food Online o       Meat and
Poultry Online o       Packaging
Network.com      
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The Auction Model

The 57 e-Marketplaces Established to Date by
VerticalNet      Health care o      
E-Dental.com o       Home Health
Provider.com o       Hospital Network.com o      
Long Term Care Provider.com o      
Nurses.com o       High Tech o       Electronics
Web.com o       Embedded Technology.com o      
Medical Design Online o       Semiconductor
Online o       Test and Measurement.com
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The Auction Model

• Manufacturing/Process
• o  Adhesives Sealants.com
• o Chemical Online
• o Pharmaceutical Online
• o Pulp Paper Online
• o TextileWeb

The 57 e-Marketplaces Established to Date by
VerticalNet      Manufacturing/Discrete o      
Aerospace Online o       Auto Central.com o      
Machine Tools Online o       Metrology
World.com o       Plant Automation.com o      
Surface Finishing.com o       Tooling Online    
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The Auction Model

The 57 e-Marketplaces Established to Date by
VerticalNet      Public Sector o      
GovCon   Science o       Bioresearch
Online o       Drug Discovery Online o      
Laboratory Network.com   Services o       HR
hub.com o       Logistics Online o       Purchasin
g Network.com  
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The Auction Model

• Two Basic Forms of Procurement Exchanges
• Independent-led Exchanges
• Industry Consortium-led Exchanges

       
 
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The Auction Model

• Industry Consortium-led Exchanges
• Bigger Purchasers Are Simply Asking Why Do You
  Need a Middleman at All?
• Independent-led Exchanges Simply Take a
  Percentage of the Cost Savings

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The Auction Model

• Industry Consortium-led Exchanges
• Consortia-Developing Quickly Across Many
  Industries and Even Across Borders
• At least 60 consortium exchanges have been
  announced, comprised of almost 300 companies.
• Represent a combined 3 trillion in annual
  purchasing expenditures.

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The Auction Model

• Examples of Emerging Industry-Specific
  Consortia-led Exchanges
• AUTOMOBILE INDUSTRY Name Covisint
• DaimlerChrysler
• Ford
• General Motors
• Renault/Nissan
• Toyota
•  
• AEROSPACE INDUSTRY Name Aerospace and Defense
  Global Trading Exchange
• BAE Systems
• Boeing
• Lockheed Martin
• Raytheon
•  

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The Auction Model

• Examples of Emerging Industry-Specific
  Consortia-led Exchanges
• COMPUTER AND COMMUNICATIONS PRODUCTS INDUSTRY
• Name Hightechmatrix
• Advanced Micro Devices
• Compaq
• Gateway
• Hitachi
• Hewlett-Packard
• Infineon Technologies
• NEC
• Quantum
• Samsung
• SCI Systems
• Solectron
• Western Digital
•  

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The Auction Model

• Examples of Emerging Industry-Specific
  Consortia-led Exchanges
•  
• ENERGY INDUSTRY Name Energy and Petrochemical
  Exchange
• BP Amoco
• Dow Chemical
• Equilon Enterprises
• Mitsubishi Electric
• Motiva Enterprises
• Occidental Petroleum
• Phillips Petroleum
• Repsol YPF
• Royal Dutch/Shell Group
• Statoil
• Tosco
• TotalFina Elf
• Unocal
•  

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The Auction Model

• Examples of Emerging Industry-Specific
  Consortia-led Exchanges
• FOOD AND BEVERAGE INDUSTRY - Name Transora.com
• Coca-Cola
• Diaego
• Earth grains
• Kraft Foods
• Procter Gamble
• Sara Lee
• Unilever
•  
• FOREST PRODUCTS INDUSTRY - Name Forest Express
• Georgia Pacific
• International Paper
• Weyerhauser
•  

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The Auction Model

• Examples of Emerging Industry-Specific
  Consortia-led Exchanges
• RETAIL INDUSTRY - Name Worldwide Retail
  Exchange
• Albertsons
• Auchan
• Best Buy
• Casino
• CVS
• Jusco
• Kingfisher
• Kmart
• Marks Spencer
• J.C. Penney
• Royal Ahold
• Safeway
• Target
• Tesco
•  

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The Auction Model

• Examples of Emerging Industry-Specific
  Consortia-led Exchanges
•  
• TRUCKING INDUSTRY - Name Transplace.com
• Covenant Transport
• J.B. Hunt
• M.S. Carriers
• Swift Transportation
• U.S. Express
• Werner Enterprises
•  

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The Auction Model

• Concerns about Consortia-Based Exchanges
• Any Room for Independent Exchanges?
• Most companies will want to deal with only 1-2
  exchanges at most for their purchasing
• Harder to Amazon the competition
• Possible Supplier Backlash
• Price pressures in buyer-led exchanges
• Intensifies monopsony power
• The fox running the henhouse

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The Auction Model

• Concerns about Consortia-Based Exchanges
• Federal Trade Commission (FTC) Concerns
• Oligopolistic cooperation in industries
• Potential for price signaling and abuse of market
  power
• Already FTC concerns over Covisint
• Counterargument May Actually Benefit Small
  Businesses
• Exchanges working to recruit small suppliers to
  alleviate FTC concerns and widen network of
  suppliers

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The Auction Model

• Exchanges in Bridge Areas of B2B and B2G
• Utility Deregulation
• Electric Power Exchanges
• Health Care Industry Purchasing
• Almost 150 billion annually in procurement
  expenditures, most through Group Purchasing
  Organizations (GPOs)
• Active area for Independent-led Exchange
  Development (40-plus established/planned)
• Health Care and Other Group Benefits

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The Auction Model

• Exchanges in Bridge Areas of B2B and B2G
• Health Care and Other Group Benefits
• Auctions or Bidding Events for Large Employers
• Hewitt Associates Pilot Project in San
  Francisco Bay Area
• 2-8 Savings

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The Auction Model

• Exchanges in Bridge Areas of B2B and B2G
• Dynamic Pricing Applications Throughout Health
  Care
• Dynamic e-Marketplaces for Providers, Equipment,
  Services Both Within and Between Health Care
  Organizations and Networks
• Potential to Drive Out Costs in Public and
  Private Sector Health Care in an Era of Declining
  Reimbursement

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The Auction Model

• B2B Auction-Based Exchanges for Used and Surplus
  Assets
• Anne Perlman, CEO of Moai Technologies
• Excess and obsolete equipment is a big and
  painful problem for most organizations.
• In the United States - approximate 18 billion
  market
• Worldwide - 350 billion market

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The Auction Model

• B2B Auction-Based Exchanges for Used and Surplus
  Assets
• Online auctions give businesses a new way to make
  money on items and equipment that otherwise would
  be thrown away or sold in the corporate version
  of an estate sale.
• Internet auctions have brought approximately 25
  more than traditional in-person auctions

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The Auction Model

• B2B Auction-Based Exchanges for Used and Surplus
  Assets
• One-to-Many Model
• Software solutions from vendors such as Moai and
  Ariba
• Companies can set up auction marketplaces where
  they can auction off their excess inventory and
  obsolete equipment.
• Such companies are not yet participating in true
  B2B e-marketplaces, instead, working in a
  business model that is based on one reaching out
  to the many.
• Companies can sell off items on an as needed
  basis.
• Software technologies allow for small lots of
  used and surplus equipment to be moved through
  these emerging online marketplaces, rather than
  in the large lots required for physical
  auctions.

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The Auction Model

• The Alternative Creating New Marketspaces for
  Used and Surplus Items
• Virtual eBays
• Current Examples
• Used Equipment
• Dovebid.com
• Computer Equipment
• ITParade.com
• Uce.com
• Scientific/Lab Equipment
• Going-going-sold.com

   
 
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The Auction Model

• The Alternative Creating New Marketspaces for
  Used and Surplus Items
• Near-Future Applications
• Health Care
• Great promise
• Capital Equipment
• Sophisticated used car marketplace as a model

   
 
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The Auction Model

• Blending Live and Online Auctions
• Complete onvergence of live and online auctions
  as in art and antiques
• Increased Returns
• Dovebid.coms results
• Bidders rise 50
• Auction returns up 30
• Easier, more cost-effective means for auction
  participation

   
 
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The Auction Model

• Applying the Auction Model to Government
• Three Applications for B2G Commerce
• Governmental Procurement
• Disposition of Used/Surplus/Seized Governmental
  Assets
• Internal Allocation of Resources

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The Auction Model

• Applying the Auction Model to Government
• Three Applications for B2G Commerce
• Governmental Procurement
• Disposition of Used/Surplus/Seized Governmental
  Assets
• Internal Allocation of Resources

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The Auction Model

• Governmental Procurement

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The Auction Model

• Governmental Procurement
• 3 Exchange Types
• Independent Exchanges
• Government-led Consortium Exchanges
• Industry-led Consortium Exchanges

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The Auction Model

• Governmental Procurement
• 3 Exchange Types
• Independent Exchanges
• Government-led Consortium Exchanges
• Industry-led Consortium Exchanges

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The Auction Model

• Governmental Procurement
• Independent Exchanges
• Likely First-Wave of Exchange Development
• Attracting Entrepreneurs Seeking to Position
  Themselves Between Parties in the B2G Marketplace
• Attraction of Chinese Math in an Over 500
  Billion Marketplace

89
The Auction Model
     
 
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The Auction Model

• Nascent Examples Already

     
 
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The Auction Model

• Governmental Procurement
• Independent Exchange Options
• Specialized Marketplaces, Based on Either
• Governmental Procurement Needs
• Medical Equipment
• Computers
• Furniture
• Governmental Agency Type
• Health Care
• Safety
• Defense
• Such Marketplaces Would Be Defined by a Central
  Buying or Selling Need, Making Them Readily
  Definable

92
The Auction Model

• Governmental Procurement
• Independent Exchange Options
• Wide-Ranging Marketplaces
• Mirroring the VerticalNet and FreeMarkets
  approaches
• Could be one-stop shopping for governmental
  purchasing needs
• Could also be a single point of entry a
  procurement portal for all businesses seeking to
  be governmental suppliers

93
The Auction Model

• Governmental Procurement
• Independent Exchange Options Viable?
• If substantial cost-savings produced, push to
  move in house as in B2B arena

94
The Auction Model

• Governmental Procurement
• 3 Exchange Types
• Independent Exchanges
• Government-led Consortium Exchanges
• Industry-led Consortium Exchanges

95
The Auction Model
 
 
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The Auction Model
 

• Government-led Consortium Exchanges
• Led by Consortia Made Up of Combinations of
  Governmental Agencies and Perhaps Even Between
  Levels of Government

 
97
The Auction Model
 

• Government-led Consortium Exchanges
• Benefits
• Combined Purchasing Power
• Creating Even More Blue-Chip Buyers in the
  Public Sector
• Suppliers Can Deal with Governmental Units
  Through a Single Portal
• Encouraging Wider Participation by Small and
  Disadvantaged Businesses

 
98
The Auction Model
 

• Government-led Consortium Exchanges
• Nascent Examples at the Federal Level

 
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The Auction Model
 

• Government-led Consortium Exchanges
• The Multi-State E-Mall Online Procurement System
• Pilot Project Lead by the State of Massachusetts
  in 1998
• Joined by
• Idaho
• New York
• Texas
• Utah

 
100
The Auction Model
 

• Government-led Consortium Exchanges
• The Multi-State E-Mall Demonstrated That Such
  Collaborative Purchasing Could
• Markedly cut administrative costs
• Secure more favorable prices from suppliers
• Reduce purchasing cycle times from weeks to days
• Slash the time required to issue purchase orders.

 
101
The Auction Model
 

• Government-led Consortium Exchanges
• Aftermath of the Multi-State E-Mall Project
• Only Massachusetts continues today
• Other states opting for their own solutions

 
102
The Auction Model
 

• Government-led Consortium Exchanges
• Potential Future Developments
• Limitless combinations at both the intra and
  intergovernmental levels
• Example Health-care purchasing consortia could
  be established between any or all federal, state,
  and local agencies working in that area.
• Increased purchasing power amongst cooperating
  agencies
• Limited only by willingness for intragovernmental
  cooperation.

 
103
The Auction Model

• Governmental Procurement
• 3 Exchange Types
• Independent Exchanges
• Government-led Consortium Exchanges
• Industry-led Consortium Exchanges

104
The Auction Model
Industry-led Consortium Exchanges
 
 
105
The Auction Model

• Industry-led Consortium Exchanges
• Gary Lambert, who is presently a Senior Principal
  with American Management Systems and who was
  formerly a prime mover behind the multi-state
  E-mall project while employed by the state of
  Massachusetts
• He believes that while all levels of government
  have an interest in the savings and efficiencies
  that can be gained through collaborative
  procurement efforts, the main push towards
  setting up such e-marketplaces may come from
  suppliers themselves. Indeed, as states move
  toward various form of online procurement,
  suppliers will push for a common platform through
  which to do business with them.
• Various supplier groups will take a great
  interest in forming such supply-side
  e-marketplaces in the near future.

106
The Auction Model

• Applying the Auction Model to Government
• Three Applications for B2G Commerce
• Governmental Procurement
• Disposition of Used/Surplus/Seized Governmental
  Assets
• Internal Allocation of Resources

107
The Auction Model

• Disposition of Used/Surplus/Seized Governmental
  Assets
• Analogous to B2B in the Private Sector
• Emphasis on Creating Online Exchanges for New
  Items
• Great Potential for Applying Dynamic Pricing
  Concepts and Creating New Marketspaces for
• Used Equipment
• Surplus Items
• Seized Assets

108
The Auction Model
 
 
109
The Auction Model
 

• Present
• Online Applications for Governmental Auctions
  Lacking
• The Courthouse Steps or The Storage Yard

 
110
The Auction Model
 

• Near Term Future 1
• Implementing the One to Many Model
• Merging Physical and Online Auctions
• Streaming Video
• Examples from Fine Art and Used Cars

 
111
The Auction Model
 

• Near Term Future 1
• Public Sector Initiatives
• GSA Auctions
• Local Efforts

 
112
The Auction Model
 

• Near Term Future 1
• Private Sector Partnerships
• Demonstrating Increased Asset Recoveries

 
113
The Auction Model
 

• Developing Future 2
• Infomediaries
• A New Class of Web-based middlemen?
• Aggregating Information
• Facilitate Transactions
• end-to-end solutions

 
114
The Auction Model
 

• Developing Future 2
• Virtual eBays for the Public Sector
• Gbay Project for the Federal Government
• Internal and Interagency Marketspaces for Used
  Equipment and Surplus Items
• One persons trash is anothers gold
• First Looks Inside Government Before Items Go
  Outside for Bid

 
115
The Auction Model

• Applying the Auction Model to Government
• Three Applications for B2G Commerce
• Governmental Procurement
• Disposition of Used/Surplus/Seized Governmental
  Assets
• Internal Allocation of Resources

116
The Auction Model

• Internal Allocation of Resources
• Based on the Ideas of Michael Schrage of the MIT
  Media Lab
• A NEW MBA
• MANAGEMENT BY AUCTION

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The Auction Model

• Internal Allocation of Resources
• Management By Auction
• Applying dynamic pricing concepts to the internal
  allocation of an organizations physical,
  financial, and human resources within a firm to
  allocate not only physical assets, but also
  personal services within organizations.

118
The Auction Model

• Management By Auction
• Managers, both within and between parts of a
  larger organization, may go to internal
  e-marketplaces, essentially engaging in online
  auctions to acquire or retain both physical and
  human resources.

119
The Auction Model

• Management By Auction
• Michael Schrage
• A firm is a marketplace, so why not exploit
  market mechanisms like auctions as network
  technologies make them cheap and easy to use.The
  best way of conquering external markets may be to
  create better internal ones.
• Market prices, rather than transfer prices, will
  be used for internal resource allocation

120
The Auction Model

• Management By Auction
• Applications
• Purely Internal Models
• Hewlett-Packards Web Agent for allocation of
  employees

   
121
The Auction Model

• Management By Auction
• Applications
• Purely Internal Models
• Masuda and Whangs (1999) dynamic pricing model
  for the internal allocation of limited computing
  services within an organization

   
122
The Auction Model

• Management By Auction
• Applications
• Digital e-Marketplaces for Project Work

       

123
The Auction Model

• Management By Auction in the Public Sector
• Constraints
• Budgeting Guidelines
• Civil Service Rules
• Public Sector Unions
• Considerations
• A Totally Internal Marketspace?
• Potential to Allocate Resources Between Agencies
  and/or Levels of Government in New Ways?
• A Role for Independent Exchanges in Internal
  Marketspaces?

       

124
The Auction Model

• Management By Auction
• A Final Thought
• Hal Varian, author of Information Rules
• Two alternate visions for the future
• of organizations and work based
• on the development of these
• e-marketplaces for talent
• Organizations will hollow out and get smaller
• The return of the Command-and-Control
  Corporation(as) history likes thick markets
  and thick institutions

125
The Auction Model

• Applying the Auction Model to Government
• Three Applications for B2G Commerce
• Governmental Procurement
• Disposition of Used/Surplus/Seized Governmental
  Assets
• Internal Allocation of Resources

126
The Auction Model
   
 
127
The Auction Model

• Factor 1
• E-Business Becomes Business

   
 
128
The Auction Model

• Factor 1
• E-Business Becomes Business
• By 2005, it is estimated that B2B e-marketplaces
  are expected to account for over a third of all
  business-to-business transactions.
• By 2006, Forrester Research anticipates that
  almost 40 of all B2B commerce will be transacted
  online.

   
 
129
The Auction Model

• Factor 1
• E-Business Becomes Business
• Patricia Seybold
• We will likely see the transformation of almost
  all business-to-business processes during this
  decade, as B2B e-marketplaces become the dominant
  mode for both fixed and dynamically-priced
  transactions between businesses.

   
 
130
The Auction Model

• Factor 1
• E-Business Becomes Business
• Stewart Alsop
• The "e" in e-business will soon be
  irrelevante-business is not so much e-anything
  as it is figuring out how to use technology to
  move stuff around efficiently. In the next wave,
  in other words, businesses will make "e" such a
  core part of their business that the difference
  between "e" and everything else will be
  nonexistent. Or they won't be businesses any
  more.

   
 
131
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A Sweeping Change of History
 
132
The Auction Model

• Factor 1
• E-Business Becomes Business
• The Challenge
• - Strategic Creativity
• Thinking Out-of-the-Box

   
 
133
The Auction Model

• Factor 1
• E-Business Becomes Business
• The Alternative
• - A Potentially Dismal Alternative Future for
• Government?
• - Don Tapscott
• A coming era of market meritocracy

   
 
134
The Auction Model

• Factor 1
• E-Business Becomes Business
• The Alternative
• - Downside Potential
• as e-business becomes business, the public
  sector will be left to deal with only those
  suppliers who also have not adapted to their role
  in an information-based, dynamic and
  increasingly dynamically priced economy David
  Wyld

   
 
135
The Auction Model

• Factor 2
• Public Attitudes

   
 
136
The Auction Model

• Factor 2
• Public Attitudes
• As Don Tapscott recently remarked
• These are still early days in e-government, but
  the landscape is changing daily. As governments
  leverage the power of the Internet, they are
  discovering that the process of transformation
  doesnt stop at government services. We are at
  the cusp of an era of profound change not simply
  in how government works, but in what government
  is all about.

   
 
137
The Auction Model

• Factor 2
• Public Attitudes
• A Continuously Improving Government
• - Leveraging e-Commerce Technologies
• - According to Borrus
• the overall economy could benefit due to
• the fact that as the cost of delivering
  government declines, governments might be
  better able to hold the line on tax increases,
  despite population growth.

   
 
138
The Auction Model

• Factor 2
• Public Attitudes
• A Government for a Nation of Traders
• - The Public Mindset
• Stock Ownership
• Ebay

   
 
139
The Auction Model

• Factor 2
• Public Attitudes
• The Triumph of what Colvin terms
• the Business Culture
• The Rise of the TQM Voter

   
 
140
The Auction Model

• Factor 2
• Public Attitudes
• Former Speaker of the House Newt Gingrich
• e-customers will begin to carry
  (internet- inspired) attitudes into their
  relationship with bureaucracy, and as e-voters,
  they will favor politicians who work to make
  their lives easier, and therefore more
  convenient.

   
 
141
The Auction Model

• Factor 2
• Public Attitudes
• We will be moving towards an era where truly,
  political officials and governmental managers
  may be evaluated by the outcomes they produce
  (in terms of speed, efficiency, savings,
  increased revenue, etc.), rather than producing
  paperwork and more bureaucracy. --- David
  Wyld (2000)

   
 
142
The Auction Model

• Factor 3
• Cultural Changes

   
 
143
The Auction Model

• Factor 3
• Cultural Changes
• Hamel and Sampler (1998) wrote that
  Companies that are quick to try, quick to
  learn, and quick to adapt will win. Those that
  learn the fastest, and keep learning, will stay
  ahead. Companies that take months to assess what
  theyve learned, whose internal processes dont
  run on Internet time, will get left behind.

   
 
144
The Auction Model

• Factor 3
• Cultural Changes
• Need for A Learning, Entrepreneurial
  Government

   
 
145
The Auction Model

• Factor 3
• Cultural Changes
• Newt Gingrich
• - Silicon Valley Model versus the Washington
  (no offense) way of doing things.
• - The apparent paradox that government must
  find a way to behave with the agility of tech
  companies.

   
 
146
The Auction Model

• Factor 3
• Cultural Changes
• Job changes
• - Bureaucracy
• - Unions

   
 
147
The Auction Model

• Factor 3
• Cultural Changes
• A Wired Governmental Workforce
• - e-Government Needs e-Workers
• - Federal Workforce Digital Access Act
• (mirrors private sector initiatives to provide
• federal workers with computers and Internet
• access)

   
 
148
The Auction Model

• Factor 3
• Cultural Changes
• Fluid Marketplaces
• Thick Government

   
 
149
The Auction Model

• Factor 4
• Legislative and Regulatory Changes

   
 
150
The Auction Model

• Factor 4
• Legislative and Regulatory Changes
• Danger in the Transition Period
• New Ethical Problems

   
 
151
The Auction Model

• Factor 4
• Legislative and Regulatory Changes
• The Transparent Marketspace
• The Demise of the Good Old Boy Network

   
 
152
The Auction Model

• Factor 4
• Legislative and Regulatory Changes
• Richard Rierder, CEO of Weirton Steel
• - The winner is not going to be the guy whos
  the best backslapper, or the guy who unloads the
  most money at the golf course.
• Glen Meakem, co-founder of FreeMarkets.com
• - The world has changed power is shifting
  from
• schmoozy salesmen to the buyer.

   
 
153
The Auction Model

• Factor 5
• Governmental Cooperation

   
 
154
The Auction Model

• Factor 5
• Governmental Cooperation
• Within and Between Agencies and Levels of
  Government
• - Consortia-Based Learning
• - Knowledge Exchange

   
 
155
The Auction Model

• Factor 6
• Technology

   
 
156
The Auction Model

• Factor 6
• Technology
• Four Drivers
• 1. The linking of e-marketplaces
• 2. The compatibility of ERP and accounting
  systems with dynamic pricing
• 3. The emergence of shopping technologies
• 4. The development of metamarkets and
  metamediaries

   
 
157
The Auction Model

• Factor 6
• Technology
• Four Drivers
• 1. The linking of e-marketplaces
• 2. The compatibility of ERP and accounting
  systems with dynamic pricing
• 3. The emergence of shopping technologies
• 4. The development of metamarkets and
  metamediaries

   
 
158
The Auction Model

• Factor 6
• Technology
• Exchange-to-Exchange (E2E) Commerce
• - Metaexchanges
• - Uberexchanges

   
 
159
The Auction Model

• Factor 6
• Technology
• E2E Benefits
• - Greater Liquidity and Participation
• - Greater Economies of Scale
• - Greater Access for Small and Minority-Owned
  Businesses
• - A Single Portal

   
 
160
The Auction Model

• Factor 6
• Technology
• Four Drivers
• 1. The linking of e-marketplaces
• 2. The compatibility of ERP and accounting
  systems with dynamic pricing
• 3. The emergence of shopping technologies
• 4. The development of metamarkets and
  metamediaries

   
 
161
The Auction Model

• Factor 6
• Technology
• Transforming Supply Chains into Supply Webs
• - ERP Challenges
• - Accounting Systems and Dynamic Pricing

   
 
162
The Auction Model

• Factor 6
• Technology
• Four Drivers
• 1. The linking of e-marketplaces
• 2. The compatibility of ERP and accounting
  systems with dynamic pricing
• 3. The emergence of shopping technologies
• 4. The development of metamarkets and
  metamediaries

   
 
163
The Auction Model

• Factor 6
• Technology
• Mark Rodin, CEO of Marshall Industries
• - Before long, software agents will comb the
  Web for product and price information.Ultimately,
  there will be some new agent technologies that
  will begin to change the value stream of online
  marketplaces.

   
 
164
The Auction Model

• Factor 6
• Technology
• Don Tapscott
• - He sees that the presently predominate form
  of B2B exchange, which is a price-based
  reverse auction, will mature quickly,
  allowing a further dialogue between buyer and
  seller. This is due to his belief that many
  transactions between companies cannot
• be reduced to a series of reverse
  auctions(when) factors like
• product quality, customer support, credit
  terms and shipping
• reliability often count for more than
  price.

   
 
165
The Auction Model

• Factor 6
• Technology
• Bots or What Ron Paulson, General Manager
• of FindMRO.com, termed industrial personal
  shoppers.
• - These will scour all forms of e-marketplaces
  including both fixed and dynamic pricing
  environments to find the best prices and
  the best terms for needed equipment,
  supplies, and services in shorter cycle
  times

   
 
166
The Auction Model

• Factor 6
• Technology
• Owen Jelf, a partner with Anderson Consulting,
  sees the development of dynamic pricing
  engines
• - These will allow buyers to specify and
  sellers to bid on
• variables beyond price in a dynamic
  environment. These factors may include all
  facets of a B2B
• transaction, including

   
 
167
The Auction Model

• Factor 6
• Technology
• Price
• Quality
• Time
• Supplier performance history and reputation
• Transport costs
• Lead time
• Warranty lengths and coverages
• Acceptable usage of scrap items
• Restocking periods

   
 
168
The Auction Model

• Factor 6
• Technology
• Yanni Bakos, a Professor at MITs Sloan School
  of Management
• - Its like an arms race, where you give a
  more
• powerful weapon to both sides.

   
 
169
The Auction Model

• Factor 6
• Technology
• Four Drivers
• 1. The linking of e-marketplaces
• 2. The compatibility of ERP and accounting
  systems with dynamic pricing
• 3. The emergence of shopping technologies
• 4. The development of metamarkets and
  metamediaries

   
 
170
The Auction Model

• Factor 6
• Technology
• Metamarkets
• Metamediaries
• Thought-Leader - Mohanbir Sawhney

   
 
171
The Auction Model

• Factor 6
• Technology
• A Metamarket for Governmental Services?

   
 
 
 
172
The Auction Model

• Recommendation
• A Call for Governmental
• Participation in the Internet Revolution

173
The Auction Model

• Jay Walker, founder of Priceline.com
• The starting gun (for the Internet Revolution)
  hasnt fired. The race hasnt even begun.

174
The Auction Model

• Ira Magaziner, the head of President Clintons
  policy studies on the Digital Economy
• This revolution is going to play itself out
  over a couple of decades a much more intense
  period of change than other revolutionsWe
  havent gone 10 of the way. And this revolution
  will be every bit as profound as the Industrial
  Revolution. But because it is happening more
  quickly, the effect is going to be more intense
  on peoples lives. Its going to alter the way we
  organize human societies, as well as the basis of
  our economy, and it is going to take us to a new
  level of material well-being.

175
The Auction Model

• Ed Pfeiffer (2000) commented
• Hype was present at every other major
  technological revolution in the past. The
  telegraph, the telephone, electricity, and the
  railroads were all going to increase democracy
  around the world, create a new utopian society,
  and build Eden on earth. They were going to make
  the world and America more American.

176
The Auction Model

• A Darwinian Environment
• Period of Great Expansion of B2B Exchanges to
  be Followed by a Great Contraction
• - Hundreds or Even Thousands of Exchanges
  Created .Will be Reduced to Perhaps Dozens in
  the Near Future

177
The Auction Model

• Potential Savings for The Public Sector
• The projected savings that can be achieved by
  private
• sector firms have