CACM 1998 article about why CIOs need to understand the challenges of web-based auctions.

1. Eric van Heck and Peter Vervest
How Should CIOs Deal With
Web-Based Auctions?
E
xploiting the Internet for commer- systems. This requires multicriteria auctioning sys-
cial benefit has become a key theme tems that optimize on price as well as other criteria
for Chief Information Officers at such as product quality, delivery time, and reliability.
most organizations. Significant Web-based Many-to-Many Auctions: Many sup-
advantages are to be gained for both pliers offering to many potential buyers. Example: The
sellers and buyers. Savings are made Arizona Stock Exchange (www.azx.com) offers a call
by reducing transaction costs, auction for stocks. In a call auction, trading takes place
increasing the circle of potential customers as well as only at certain prearranged times—the “calls.”
by improving the search-and-find capabilities for all Between calls, orders accumulate. At the call, a price
parties concerned [1, 2, 4]. Web-based auctioning is is established by identifying the supply and demand.
a rapidly expanding application of the Internet. The Bringing sellers and buyers together at the same time,
matching of demand and supply at the best price at and at a single price, avoids the market spreads and
one specific point in time is the additional benefit of random turbulence common in continuous markets.
a Web-based auction. The advantages, however, must Current understanding of Web-based auctions is
be considered against lower switching costs for auc- still limited. There is a significant theoretical base for
tion participants. Are auctions always beneficial to traditional auctions [5], but the pervasive impact of
the company? In particular, which technical and advanced electronic communications is usually not
business arrangements must the CIO satisfy to give addressed. Recent research suggests that almost any
the organization a lasting advantage in this new field good or service can be put forward for electronic auc-
of electronic commerce? tioning to the advantage of the business concerned,
The following types of Web-based auctions can be but this is not without risk [3]. However, the impli-
distinguished as shown in Figure 1 and are further cations for the information and communications sys-
described here.
Web-based Sales Auctions: One seller offering to as Figure 1. The use of auctions in electronic commerce
many buyers as allowed into the auction. Example:
“Onsale” (www.onsale.com) offers 24-hour, interactive
auctioning for all types of computer equipment and
Buyers
consumer electronics by means of an innovative One Many
arrangement called a “Yankee-auction.” Bids are
sorted in order of price, then quantity, then bid time. Negotiations Web-based
When the auction closes, the highest bidder is consid- One using EDI sales auctions
ered the winner.
Web-based Procurement Auctions: One buyer ten- Sellers
dering his procurement needs via the Internet. Exam-
ple: General Electric (www.tpn.geis.com) tenders its Web-based Web-based
procurement needs to a selected set of suppliers via the Many procurement many-to-many
auctions auctions
Internet and subsequently uses auction techniques
before issuing orders. Many more large companies as
well as government bodies are currently considering or
implementing these types of Internet-procurement
COMMUNICATIONS OF THE ACM July 1998/Vol. 41, No. 7 99

2. tems of the organization are of major importance. In both selling and buying goods and services.
particular, CIOs must: Telecommunication and information systems’
researchers should combine forces with marketing,
• Ensure the integrity and robustness of electronic purchase, and auction theorists to provide the mul-
trade procedures. As the number of potential tidisciplinary support CIOs now require. c
trade partners increases, new technology must be
used that ensures automatic auditing and certifi- References
cation of trade procedures. 1. Bieber, M. and Isakowitz, T. Designing hypermedia applications. Com-
mun. ACM 38, 8 (Aug. 1995), 26–29.
• Design and manage the communications and 2. Kambil, A. Doing business in the wired world. IEEE Comput. 30, 5 (May
information interfaces between trade systems and 1997), 56–61.
3. Klein, S. Introduction to electronic auctions. Int. J. Electronic Markets 7,
the organization’s own procurement and logistical 4 (Dec. 1997), 3–6.
systems. Managing the “front-office-to-back- 4. Malone, T.W., Yates, J., and Benjamin, R.I. Electronic markets and elec-
office” interfaces will become a major challenge. tronic hierarchies. Commun. ACM 30, 6 (June 1987), 484–497.
5. Milgrom, P. Auctions and bidding: A primer. J. Economic Perspectives 3, 3
CIOs must direct the design and realization of (Summer 1989), 3–22.
order fulfillment systems that can handle the new
requirements of managing physical delivery, pay- Eric van Heck (eheck@fac.fbk.eur.nl) is an assistant professor of
Business Telecommunications in the Department of Decision and
ment and settlement, tracking and tracing, and Information Sciences at Erasmus University, Rotterdam.
problem handling. Peter Vervest (vervest@mms-nl.nl) is a professor of Business
• Demonstrate the advantages and disadvantages of Telecommunications in the Department of Decision and Informa-
Web-based auctions from a technical and business tion Sciences at Erasmus University, Rotterdam.
point of view to the marketing, sales, finance, man-
Permission to make digital or hard copies of all or part of this work for personal or class-
ufacturing, purchase, and logistics departments. room use is granted without fee provided that copies are not made or distributed for
profit or commercial advantage and that copies bear this notice and the full citation on
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Web-based auctions are a new way for an organiza- lists, requires prior specific permission and/or a fee.
tion to interact with its market. They will have a
profound impact on the profitability of the firm in © 1998 ACM 0002-0782/98/0700 $5.00
100 July 1998/Vol. 41, No. 7 COMMUNICATIONS OF THE ACM