Online Auctions are slowing – here’s why.

Online Auctions are slowing, but ecommerce sales are expanding exponentially – why are online auctions on the verge of going away?

I have posted an article previously about the upcoming estate sale implosion.  With the large number of people who downsizing and the larger number of people who are not buying items, the implosion will not just be at auction, it will be with estate tag sales, live auctions, and online listing and simulcast auctions.   As a follow up,  there are indications that the online auction and listings are slowing – here’s why.

It was bound to happen.  In 1998 when eBay launched their bidding platform, that started the world in what live auction attendees knew for ages.   There was nothing better than to bid and win on an item that you wanted, pay for it with this new online thing called PayPal, as companies like Leasecomm were selling an overpriced micro-financed credit card solution, and taking people to court over non-payment as they were not making enough to satisfy their fees.

As the online world grew, it became more splintered and segregated. X.com, now known as PayPal was invented to make all of that easier than having to take payments over more expensive options.   eBay copies popped up and fell down.  e-commerce started becoming a thing with the launch of Amazon.com as well as other sites that promised a good online buying experience.  And then – the explosion of online everything came about.

Auctioneers were looking for a way to build up their audiences with dwindling attendees, as well as supplant what they were selling with the opportunity to encourage private sales of products.  They started to put forward the belief that an online solution would be helpful in increasing their income flow.   And they were correct.   For a period of time.

With many new options popping up.  Highbid, Bidwrangler, Proxibid, and other solutions that either dovetail into those online bidding applications to help solve a specific issue in the lotting process to shipping companies that helps with the end of auction shipping tasks, there was billions to be made with the different varieties of options that 20 years of auctioneering brought forward.

Let’s face it, one of the major hurdles that most companies have is shipping.   The online market places have buyers trained that if you buy something online, you get free shipping, and clearly with the cost of shipping forever going up, it is not a sustainable business model.  Amazon must continually go to a well of investors in order to offer free shipping as they lose $7 Billion a year.

A recent article by the Atlantic, Rich Pedroncelli reported “Some analysts think that the rising cost of shipping is going to be a problem for Amazon down the road. After all, shipping is a “variable cost,” which means the more physical goods the company sells, the more it has to spend to mail them. (Fixed costs, by contrast, stay the same no matter how much a company sells or doesn’t sell.) “I see no end in sight for the escalating fulfillment costs for Amazon,” Robert Hetu, a research director with Gartner, wrote me in an email. “I see this as a tremendous risk for Amazon because at some point they will have to make it much more expensive to be a Prime member and at that point lose a major part of the value equation for the customer.”

Something with a lot of impact happened in 2008.   The economy imploded, and much of the thinking shifted from using online sources like eBay to more “professionally” branded sites that could be white labeled.  But as more auctioneers and estate tag sale companies came into the fold utilizing or building their own technologies, they started the process of internal improvements.  Auctioneers started formulating their own LEAN process in order to find performance improvements.   Lotting times, auction practices, times for certain items to go to the block, online simulcast best practices, you name it – they went from going out to pick up estates to having best practices for their business.

Some companies picked up on it, other smaller companies went into diversifying their product streams by Estate Tag sales, or other methods of shoring up the increasingly smaller numbers coming to live auctions.  Many of the small single auctioneers were shut out of the industry due to the always shifting sand.

At some auctions, there has been an explosion of people, primarily those which have autos, farm equipment, and other larger equipment, but for the most part, your personal property sales such as estates, commercial restaurant equipment, and special collections have seen lower attendance as a trend, bring in lower returns.   As with some storage auction companies going to online venues, as we have experienced, only one person shows up for the live auction versus the trove of potential buyers as you see in Storage Wars.

As the heuristics of the entire process changed, there was also a change on many of the e-commerce sites.   An increase in con artists on the seller and buyer side, and increasing expectations as to when something was going to be shipped by the seller.   Today, we see customers expect same day shipping of multiple items (100+) the day it is shipped.  Something that is not realistic if you are a two-person company working on a budget and multiple estates.

But in the back ground, something nefarious was going on.   The number of fraud complaints from sellers was going higher.  Con artists lurk in the dark corners of the online marketplace scamming buyers.   Auction platforms are having to deal with the persistent specter of fraud, and unable to keep on top of it all.  Most of the time, making the decision to always side with the buyer, even if 96% of the fraud is perpetrated by the buyers, with one recent case where An Amazon buyer has been indicted after Feds accused him of committing fraud using 501 allegedly false Amazon accounts to place approximately 1227 orders. The government alleges he obtained over $200,000 in merchandise, replacements, and refunds by falsely claiming the merchandise had not been delivered or was damaged.  

As eBay and Amazon attempt to crack down on that particular level of fraud, as a reference, some sellers are showing fraud rates of 50% or less, there are several other varieties of fraud, including extortion that happens in the background.   As these crack downs are found, the cons migrate from one place to another.  So when they are banned from eBay, they migrate to Etsy, and as it happens there they find other places to go.

Auctioneers being overly stern with Terms and Conditions, Shipping and handling costs that are overly unreasonable, and the immense amount of fraud which some believe is seriously harming buyer participation and sales in this very popular and large e-commerce medium.    At the local auctioneer who has perhaps a staff of five – they post items online with no shipping available, and when they get a phone call from a perspective buyer out of the local area, they tell them they have to come and get the items or forfeit them.   In some buyer’s eyes, that is also a method of fraud.

The U.S. government has also identified fraud in online auctions as a real problem. On Feb. 1, the U.S. Federal Trade Commission (FTC) in its “National and State Trends in Fraud & Identity Theft” study for 2015-2018, reported that online-auction fraud last year made up 25.5% of all consumer complaints, second only to non-delivery at 32.9%.

So what is happening with the end user at the other end of the transaction?   

For the most part, people who are buying online go back to the places that they have had a good experience with.   eBay is finding that sellers and buyers are leaving their platform due to the fraud, and many buyers move over the Amazon.   Some who have been part of the online auction industry since it’s inception have been able to keep ahead of the fraud curb.   Auctioneers and Tag Sale Companies have been able to curb much of the fraud seemingly will come out of the shift unscathed with a few changes.  If an auctioneer is performing online auctions and can be seen locally with a live auction, it adds credibility to buyers, and they will flock to them more than just a logo and a online listing.

Buyers are flocking to name brand companies that have a brick and mortar presence that they are aware of or custom on a regular basis.  If they can buy online and pick up within a few hours, it is all part of the new economy.   When a buyer buys and it never shows up, then that buyer never comes back.  If they have had successfully completed transactions previously, it means more in the credibility of a company than testimonials.   If they have one bad transaction, then they go to the brick and mortar store in order to not repeat the bad experience.

ComputerWorld reported in 2005 concerns that Overstock.com CEO stated “in that there is a tipping point at which a critical mass of users can sour on an online auction marketplace, an executive warns. This is why online auction sites have to be as vigilant and aggressive as possible, said Patrick Byrne, chairman and president of e-commerce provider Overstock.com, which launched its online auction business, Overstock.com Auctions, in September and has seen it grow steadily. “Fraud is like a weed. Once you have too much of it in the marketplace, then you don’t know who to trust anymore. The whole thing starts getting very shaky,” Byrne said.”

Auctioneers should adjust their business models to take into account shifts in the market.