How to run a bad electronic reverse auction

So  much seems to be written about how best to run an electronic reverse auction (including by yours truly) that I thought it would be entertaining to share some tips on what not to do.

The benefits electronic reverse auctions bring (clarity, rapid price discovery, low-cost sales channels for suppliers, etc) can be neutralised by managing them badly. Perhaps the simplest example is post-auction negotiations. It may sound counter-intuitive to recommend that buyers do not negotiate further on price after the auction finishes. After all, if there are a few $$ left on the table then why should the buyer leave them there? From a short-term perspective this is probably right. But from a long-term, economically sustainable perspective, this doesn’t work. As soon as suppliers wise up to this tactic they either refuse to take part in future auctions or they hold back in the expectation of post-auction negotiation. Bang, auction benefits neutralised for many years to come for that buyer.

Even eBay offers some basic advice to sellers on how to produce a listing and how to behave during and after an auction, so how much more important must it be for participants in $000,000 electronic reverse auctions to think carefully about their strategies in order to get the best result?

With that in mind, here are some top tips on how not to run an electronic reverse auction:

For the buyer (i.e. auction manager)

1. Make sure the Invitation To Auction (or whatever you call it) is as vague as possible. Fit it onto 1 sheet of paper, max.
2. If any bidders ask for clarifications then don’t answer them. After all, it will be more fun if all the bidders think they are bidding for something different.
3. Don’t waste your time qualifying suppliers before the auction. You want to leave as much work for yourself after the auction as possible. And, hell, chances are you want to stay with your incumbent anyway so there’s even less point finding out if the other bidders are serious.
4. Don’t communicate with the suppliers during the auction. You wouldn’t want any good old fashioned negotiation to get in the way of the technology, would you?
5. Obviously you have no intention of changing suppliers, you are just running the auction with the intention of beating down your current incumbent’s price. So why not call the incumbent up after the auction asking them to match the leading supplier’s bid?
6. Or, if you have fallen out with your incumbent, then treat the final bid from the auction as a starting point for negotiations with your preferred supplier.
7. Don’t tell the bidder who came first in the auction that she hasn’t been awarded the business until at least 3 months have passed. Until then don’t answer any calls from the bidder asking for updates on the contract award process.

For the supplier (i.e. the bidder)

Remember that the buyer is only running the auction as an information-gathering exercise and has no serious intention to award the contract based on the auction results.

1. Turn up on time to show some willing and place a few bids if prompted, but otherwise just sit tight and watch the other guys. If you’re lucky you might not have to bid at all and you’ll end up finding out your competitors’ pricing.
2. Make sure you wait until the auction is running before you ask any questions about the specifications or auction rules. Whatever you do, make sure that your interpretation of what you are bidding for is different to what the other bidders are bidding on.
3. Whatever you do, make sure you don’t come first. After all, what’s the point?
4. Wait until after the auction then call up the buyer offering to negotiate offline, perhaps even matching the leading price. This way other bidders won’t be able to respond to your offer – isn’t that great?

Users – smart or dumb?

Been on holiday for the past few weeks – the distance from work, and the clear blue seas, help give a new perspective on things.

One of these for me has been the common assumption techies have that users are fundamentally dumb. IT support people are well known for holding this view point. But then again, so do many software developers. For example, all those mega ERP-style systems that implement rigid processes assume that users can’t be allowed to think for themselves and that instead the system must do as much of the thinking for them as possible.

But the reality is that people are all actually pretty smart. If only technologists would start working from this assumption – assume that their users/customers etc are smart. If they can’t operate the technology then assume that it is the system that is dumb, not the users. This shift in mind set would not only help IT be seen to be more of an asset to the business (by reducing the amount of “them and us”), but would also allow technology to deliver more real value to the real users. Which after all is the point of technology in the first place, isn’t it?

It’s the data, stupid

Business 2.0 magazine has a feature on new occupations being created in the US.

My favourite one (apart from the Second Life lawyer) is the Information Engineer. As Web 2.0 companies like Paypal, Meebo and Slide find themselves increasingly awash with data they need people with the skills to be able to draw insights and conclusions from it (as opposed to people who just run reports).

What makes this particularly interesting is that data crunching has now been elevated, by the use of the word “engineer”, to the same level as the software engineers who write the actual code.

These companies are starting to see that the value is in the information, not just in the technology. Over time, the value of software itself trends toward zero, whereas the potential value of the information transmitted and stored by the software increases exponentially.

End users have always known this. People use MySpace or Facebook, not because they have the best technology, but because of who is already on it. eBay auctions are so successful because that is where buyers go to look for bargains, not because their auction software is the best.

In other words, here is another example that Web 2.0 is all about technologists catching up with what the users wanted Web 1.0 to be in the first place.