Online auctioning technologies will match
millions of sellers with millions of
potential buyers in ingenious ways.
Businesses that want to sell to other businesses online find out quickly that Internet commerce is not set up for that kind of trade. The Net can easily accommodate retail transactions, where businesses sell to consumers at fixed prices. But trade between large businesses requires negotiations and is typically conducted through auctions and brokerages, which allow buyers and sellers to set the market price. Operating electronic versions of these systems poses complex challenges.
IBM Research is starting to meet those challenges by developing online auctions, brokerages and contract bidding systems that will enable businesses to negotiate and establish prices. "The projects under way are providing a common framework that will allow
IBM to create and serve all sorts of electronic marketplaces that bring together multiple buyers and sellers," says Anant Jhingran, senior manager for electronic commerce at Research.
The early work has led to a prototype business-to-consumer auction system that would operate over a company's Web site. The system schedules and advertises the auction, qualifies and registers buyers and sellers, sets up credit terms, accepts bids, informs participants of the current bid status, closes sales and settles payment and delivery schedules. It even integrates auction transactions with the company's back-office operations, such as accounting and resource planning. The system can also be used for business-to-business auctions.
The auction system can be downloaded from the Web for use with IBM's Net.Commerce family of software, which helps companies conduct electronic commerce. In particular, the software can aid companies in setting up their own customized auctions by letting them tune several variables to their environment and objectives. Like many commerce servers, Net.Commerce's current customers are mostly in the business-to-consumer arena. "That is where our auctions are targeted initially," says Manoj Kumar, head of Electronic Commerce Systems at Research. "But as business-to-business starts to dominate the Net.Commerce customer base, we would move there."
AUCTION THEORY
Kumar's team is working with economists, lawyers and auction experts from several universities to apply auction theory (akin to game theory) to understand the differences between live and electronic auctions and, if necessary, to develop new auction models. One vein of inquiry is determining which of the many types of auctions best suits a specific business purpose.
In the real world, for example, Dutch auctions, where an auctioneer starts at a high price and works down till bidders bite, are best for liquidating inventory and selling perishables by lot. Open-cry auctions, where buyers start low and bid each other up, are best for selling single items. But it remains to be seen whether such distinctions will hold true online. Another research question is how to expose different types of collusion, such as when a shill drives up the price. Kumar's group is also studying "reverse auctions," where a buyer tells sellers, "I want to buy X. Make me offers." A reverse-auction prototype is being developed for the bulk paper industry (see "Paper Profit").
The work will be expanded to other types of price negotiation, including
procurement, and to brokerages and exchanges that support multiple sellers and buyers. A prototype system for one-to-one negotiations has also been developed to augment other auction processes. For example, a company might accept three top bids in an open-cry auction, then negotiate on terms such as delivery and payment schedule to determine which deal is the best overall. Another goal is to create automated agents that examine these scenarios through queries and responses. At the same time, notes Jhingran, "it's possible that IBM could begin hosting auction sites or virtual marketplaces for other companies."
Kumar says the first business-to-business auction systems will target the paper and steel industries. It's possible that a future brokerage system could even operate like an online stock market. "After all," says Kumar, "the NASDAQ exchange is nothing more than a system to handle bids between multiple sellers and buyers."
Three case studies:
