Net auctions face hammer blow

The stock market may love them, but Robert Dwek is less than impressed with online auction houses

Last week online auctioneer QXL (www.qxl.com) reported its first post-flotation results.

The losses, of course, had grown dramatically from £11.1m in the quarter to September 30, compared with £3.65m in the first quarter – mainly thanks to the pre-flotation marketing blitz.

The gross turnover of auctioned goods through QXL – although up 86 per cent to £3.65m for the quarter – remains limited, while the company’s own turnover in the six months to September 30 was £3.16m – still paltry by comparison to a billion other companies.

Yet the share price shot up 150 per cent as investors blissfully ignored the bottom line and salivated at the apparently booming number of registered QXL users – a stock market reaction that is emblematic of what is happening in the online sector at the moment.

Traditional business language used to make much of “barriers to entry”. In the Internet gold-rush era the new mantra is “first to market”.

QXL has cleverly milked its “first to market” card to the maximum. Yet barriers to entry in the sector are as low as you can get, and the company has a whole pack of other online auction wannabes snapping at its heels – led by the likes of Loot, Yahoo! and eBay.

And, as a user of online auctions myself, it is tempting to feel amid this stock market frenzy that the end consumer has been bypassed.

I was one of the first registered QXL users and have successfully auctioned one item, a computer hard drive, and thought this was quite a cute little service.

Disillusion soon set in, however, when I wasn’t able to find a buyer for another computer item and then encountered a host of technical problems and questionable customer service.

The last straw was when I tried many times to unsubscribe myself from QXL’s overactive e-mail list, but continued to receive what had soon become very intrusive and time-wasting “spam”.

I’ve also used Loot – both placing ads online and running auctions – and Yahoo! Ironically, my bids from Loot came mainly from ads run simultaneously in its newspaper edition. And Yahoo! – although far and away the most technically and aesthetically impressive auction site – still failed to produce a buyer despite three continuous auctions of two weeks each. The item was a perfect online product – a computer priced at bargain basement levels.

In the South Sea-style bubble distorting all things Internet I may be dismissed as an irrelevant whinger, focusing on a few trivial teething problems.

Perhaps. But remember that my most successful “online” auction came from Loot’s quaint and hopelessly old-fashioned newspaper. In the short term at least, experience tells me that the traditional classified route remains the best route to market.

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