Bidding runs hot in online auctions

Anissa S. Febrina ,  The Jakarta Post ,  Jakarta   |  Mon, 06/08/2009 11:10 AM  |  Sci-Tech

It used to be a concept to connect buyers and sellers online and simply let the market do the talking. But recently online auctions have been evolving into something else: A marketing tool for gadget businesses.

College student Arief Lukmansyah is among the first consumers to benefit from the evolution in online auctions. With several clicks of the mouse and a couple of hours online, he bought a Blackberry Bold for mere Rp 167,000 - the market price of the much-hyped gadget starts at Rp 6.5 million.

"Well, you just have to have luck. I spent less than Rp 200,000 bidding for that item on the website," said Arief, who found out about online auction website Swinde by word of mouth. Swinde offers various gadgets for auction through sessions every other day.

"I still have several points left over which my brother is now using to try his luck," said the resident of Depok, West Java.

Members like Arief are required to transfer a certain amount of money to buy points to join the bidding sessions, in which three gadgets are offered at a time. Each point that one uses to bid on a mouse click is rated Rp 5,000.

A member's mouse click will raise the starting price of Rp 5,000 by Rp 1,000.

What kind of business logic is at play here?

While Arief's point of view is that of someone who has won something at a great bargain, that is, the consumers benefit, a simple glance at the rules of the game reveals that the websites are doing well out of it too.

According to the website's founder, 20-year-old Dimas Surya Yaputra, it's just another innovative form of online business.

"We have to admit that during the first couple of weeks we suffered losses. But, now as bidding participants are picking up, we are starting to get a profit," said the college student, who started his business around two months ago.

Although in Arief's case the website earned less than a million rupiah and had to cover losses, in most cases it actually doubles its money.

Richi Ndolu, a member from Denpasar, Bali, who bought a Blackberry on the site for Rp 1.8 million, can point out the business logic behind this form of online auction.

From points that the members used to bid for the item alone, the website would have earned almost Rp 9.5 million. Add in the money that Ndolu paid, and the total would amount to more than Rp 11 million. Already there is a profit for the business.

With a significant proportion of its gadgets sold just slightly below retail market price, the website is able to maintain profitability. It plans to also place a motorcycle on bid in the upcoming sessions.

"Our business is based on trust. Once people trust you, it snowballs," said Dimas, claiming that the number of members on his website has grown from a few hundred during the first weeks to more than 12,000 as of today. He has increased the bandwidth capacity for the website three times to accommodate the growing interest.

Word of mouth surely helps. And the lure of bargain gadgets, of course.

"I learned about it from a friend. So far, I've played out my first Rp 200,000 deposit but haven't won anything," said 28-year-old Farrizky Putra.

"I am a bit skeptical about it."

Well, the smarter the consumer the better.

With Internet penetration rising from around 4 percent to 10 percent in the past five years, online businesses are on the rise again after quietening down after the dot com bubble burst in the late 1990s.

Most could not actually be referred to as online businesses as they do not involve actual online commercial transactions.

Rather, most online businesses in Indonesia are actually a form of using the Internet as a marketing and networking tool.

And online auctions, a relatively basic form of online business platform, are the most recent development. Currently, there are around 130 websites of this kind in the country, with Swinde - which has a slightly different version of online bidding - the most recently developed.

Conventional online auction websites such as Lalu Lelang, Indo Lelang or IZKey follow the rules of the game set by globally renowned site eBay. The large number of sellers and bidders that can be accommodated without time or geographical constraints is the main sustaining factor.

Each website becomes a place for those looking to sell and those looking to buy to meet up virtually.

The majority of such websites rely on a database to store user data, item data and transaction data, plus utilization of web servers such as Internet Information Service. Like any other online business, they do not need a lot of resources as long as there is a reliable server and web administrator.

Swinde, for example, has only four people to run the business daily.

IT researcher Rudy Adipranata from Petra Christian University highlights that the e-marketplace benefits both consumers and producers as it is an example of the law of supply and demand working at its best. If there are no interventions, that is.

For websites, there is also the threat of hackers.

"With a good system, we can easily detect IP addresses that could potentially threat the process and block their access," Dimas said.

With technological developments, auction sniping - a term that refers to last-minute intervention in an online bidding process through special software - becomes a gray area that is of little benefit to the honest, conventional consumer or bidder.

But consumers themselves are increasingly more literate about the online auction process.

"Take the time to focus on the bidding session during the last seconds," Farrizky said after learning more about how bidding websites work. "That increases the chances of winning and decreases the amount of money that we have to spend to bid."

Well, they do say that as technology evolves, people will adapt.

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