In a deal that could bring online auctions into the mainstream among electronics multinationals, eBay Inc., the biggest name in online auctions, has teamed up with FreeFlow, an Intenet-auction service provider that has, until now, focused in the high-tech sector.
The partnership will allow eBay (San Jose) to expand its eBay Private Marketplaces business-to-business offering to companies that wish to outsource the operational aspects of auctioning surplus materials, while giving FreeFlow, a five-year-old startup from San Jose, a boost into non-tech segments such as chemicals, paint, and apparel.
By combining capabilities—the technology platform, network infrastructure and name recognition of eBay with the pre- and post-auction services of FreeFlow—the companies aim to provide what they called end-to-end private marketplace capability. While eBay's Private Markeplaces is a distinct business from its consumer-oriented public auction site, customers have the option to open bidding to all of eBay's resellers.
Financial terms of the deal have yet to be disclosed, however, the companies are engaged in a "pilot" with one customer that will launch on Jan. 2, and six other customers are also said to be gearing up to open private auctions early next year.
FreeFlow executives called the potential business opportunity "enormous," considering that high-tech companies generate some $22 billion of excess every year.
"If you consider the standard multinational, high-tech manufacturing company has a forecast accuracy of 80 percent at best, then 20 percent of everything they manufacture is 'at-risk,'which means that inventory needs to be promoted—either through existing internal retailers or distributors—or liquidated through external parties," said Alan Scroope, chief executive of FreeFlow, in a telephone press briefing. "There is no company that we're aware of that has the systematic capability that this eBay-FreeFlow relationship will provide."
Scroope said that when he founded FreeFlow in 2001, customers mainly used Internet auctions to liquidate obsolete or returns inventory when they had no other option. Today, he said, auctions are becoming strategic, both in channel sales and supply chain management. An increasing number of customers, he said, are improving their inventory turns and cash flow by using private marketplaces to set up bidding between their channel partners, to move excess new stock, and to sell refurbished products and support them with warranty.
The services FreeFlow will provide to the partnership including identifying at-risk inventory and it's likely value at auction, deciding an auction strategy and generating a market for the materials. After the auction is closed, FreeFlow will handle administration, fulfillment/logistics, and financial settlement processes.