Online Auction Business Model

We all have at sometime or other visited a famous online auction site called e-bay. The site very successfully uses an Online Auction business model. In an Online Auction business model the respondents bid for the product through on the internet. The entire bidding process is regulated by software that is called the auctioning software. It controls all the business processes involved in the auctioning.

There are two kinds of auctioning models. One is called the Dutch auction model while the other is English Auction model. In English business model, the bidders start bidding for a product or service with the lowest price, later on the bid goes up as more bidders join in. The methodology of a Dutch auction is a bit different, in this edition of the online auction, many identical items are auctioned at the same time, with all the bidders bidding simultaneously, the highest bid is the winning bid and the entire winning bidders end up paying the highest price. The products are sold at the highest price. These days all online auctions utilize English auction methods.

The strengths of this business model are presented as follows:

No problem of time constraints. All bids can be placed 24 hours a day, seven days a week. It gives the purchasers enough time for searching for information, deciding and then bidding. An increase in the number of potential bidders is noticed due to this convenience.

No geographical restriction. Bidders and sellers can auction or bid on items from anywhere across the globe through internet access. This increases the reach of the provider and also reduces the cost of auctions. The management and transportation cost is also reduced as there is no need to ship the items to any central location.

Good response due to extra advantage of social interaction. It increases lot of interest as well as enthusiasm in the bidders while they wait for the results and hope to win the bid.

Large numbers of bidders. A large number of bidders are attracted due to the very low price.

Large numbers of sellers. The clubbed advantage of larger numbers of bidders and low operational cost there are larger numbers of sellers auctioning on the site.

Network economies. Cascading effects of increased buyers due to increased sellers and vice-versa make this model highly economically efficient.

Online auctioning business has attracted a lot of people into this domain ranging from laid off workers to old people and ladies so this model is successful in providing employment to people who cannot find mainstream employment.