Auctions cheap way to get corporate gear

Millions of users swarm to eBay's signature auction Web site in search of everything from Barbie Dolls to Chevrolets. A vintage cheerleader Barbie, however, does little to help an IT professional who is desperately trying to fill a few back-end hardware gaps in a corporate network.

That is one reason why Sun decided to make an extensive range of servers and other hardware available to users on eBay - a move that could help small and large companies alike. For the smaller player, the auction format of eBay's site gives users the chance to set their own prices for hardware and maybe pick up a recertified, used machine at discount. Larger companies can also benefit from the hardware exchange through the ability to buy small numbers of machines on the fly to handle an unexpected crunch.

In fact, Sun just crossed the $10 million mark in total sales of hardware through auctions. Some customers have paid more than $100,000 in a single order and, in recent weeks, the company found it could generate about $1 million per week from eBay auctions.

In his keynote speech at Oracle's Open World event last month, Sun CEO Scott McNealy made a push for hardware auctioning as a way for sellers and buyers to set the most accurate price for a server. McNealy called the auction method "dynamic pricing" and has had his company auctioning hardware since January.

While the Sun units sold on eBay make up a fraction of the vendor's billions in revenue, the Palo Alto company has seen the approach pick up steam in recent weeks and now makes some products available only on eBay.

"Dynamic [auction] pricing allocates the product to the customer who wants it the most," McNealy said in his keynote address.

Alex Rublowsky, group manager for Sun's auction program, reiterates McNealy's sentiments and says the company is considering all its products as possible Web auction wares.

The company currently divides the items sold on eBay into five categories, Rublowsky says. First, Sun lists servers that haven't sold as well as expected and need to ship to free up warehouse space. The vendor also auctions last-generation products that might otherwise be retired due to technological advancements. One example in that category came when the company moved from machines with 32-bit CD-ROMs to ones with DVDs.

Sun also finds that some customers may put in orders for 500 specially configured units and later ask for 300 to be shipped one quarter and 200 the next quarter. Sun will then sell the 200 uniquely configured units on eBay and make another 200 to ship later.

The vendor also sells a few reconfigured used servers that it tests and provides with a new warranty. The items generally come back to Sun after a lease expires and are marked as reconfigured on the eBay site. In the last area of hardware offerings, Sun puts a variety of new products up for grabs. For instance, the 600-MHz SunBlade 1000 is now available only through auction.

"The products that are up there change every week," Rublowsky says. "The more people that are interested, the more product we will be able to sell that way. There is no product that Sun makes that is off the table."

Rublowsky says his company finds an ever-increasing number of customers looking to the auctions to set their own prices on hardware and to get it quick. Sun delivers most units two days after the auction is over and thinks that learning how to do business over the Internet now will give the company valuable experience in the years to come.

Sun's competitors, however, seem less impressed with using eBay as a means to move excess inventory.

Hewlett-Packard is one of the few other hardware vendors even attempting to use eBay for hardware sales. Carly Fiorina, HP CEO, recently said her company likes the auction model because it helps remove inefficiencies from supply chains, creating better markets.

"We're selling off excess inventory in online auctions," she said in a recent speech. "This gets us more money."

HP doesn't have many hardware products currently available on eBay but sells some of its peripheral equipment, such as cameras and printers, on the site.

A spokeswoman at Compaq says her company has not entered the online auction market yet and has no plans to do so in the future. In the hardware section of eBay, users will find a number of Compaq servers offered by resellers.

"We don't have anything to do with that," the spokeswoman says. "If people choose to sell our servers on eBay, there is nothing we can do about it. We are content with the way our products are sold."

Dell also turned away from the bidding wars on eBay and decided instead to auction hardware on its own Dell Auctions system.

The top hardware vendors prefer to have a variety of ways to sell their products, according to one market analyst.

"These large vendors want to have a mix in the way they can sell products," says Jean Bozman, research director at IDC. "They want to sell direct and indirect. They want to use the Internet to reduce costs."

Bozman, like other analysts, says the auction method is gaining speed but added that some customers fear a lack of service and support may be the downside to purchasing auctioned hardware.

Another analyst who requested anonymity seemed less impressed with the auction approach.

"There are some people that thought this was absolutely marvelous, but I am not one of them," she says. "I think of it as something like making hardware seem like lawn furniture."

Sun's customers, however, seemed pleased with the service and support received thus far. Out of the past 162 auctions conducted by Sun on eBay, only eight users registered a negative complaint, compared to 137 positive marks and 14 neutral submissions. Those with complaints said Sun did not get the product to them on time and the company sometimes offers products online that are not actually available.

The majority praised the vendor and said it kept its delivery promise.

"A great system at a good price, but for large systems shipping takes awhile," one of the neutral respondents said.

Vance is a correspondent with the IDG News Service's San Francisco bureau.