Description
It describes the Sotheby’s a prominent name in the fine arts auction business, had recently entered the online auction business.
SOTHEBYS.COM - SUMMARY
Sotheby’s a prominent name in the fine arts auction business, had recently entered the online auction business. Nearly 80% of the merchandise of Sotheby’s includes low end products which cost less than 5000$. The fixed costs associated with auctioning an item in the traditional process, renders dealing in these items unprofitable. Sotheby’s expects the online channel will help increasing the customer base for these low cost items and reduce the associated costs, thus enabling Sotheby to derive profit out of these low cost high volume items. The focus of the case is evaluating the profitability and sustainability of their e-business venture. Impact of the online business on costs and revenues: ? Two major costs for Sotheby’s are: o Acquiring antiques and authenticating them o Selling these antiques: acquiring buyers and conducting auctions Of these the first cost is the bigger chunk. This will not be reduced in the online model. The cost of acquiring buyers will be reduced as the cost of distribution of catalogues is reduced. On shifting to the online mode, the cost of conducting auctions physically will be reduced but this will be compensated by the website hosting costs and the costs for bidding software. The overall impact of the online business on cost will be limited. ? The revenues sources for Sotheby’s include o Sellers were charged for displaying their items in the catalogues. Also they had to pay seller’s premium.
o Buyers paid commission on the purchase transactions. In the online model, sellers did not pay any premium. Only the buyers paid premium. Thus the revenue for Sotheby’s form a single transaction will be reduced. However Sotheby’s believed that easy accessibility will increase the customer base for the low end products which formed about 80% of their total merchandise. Thus sales may increase and hence the revenues. Probable flaws in the current online-auction business model: ? ? The auctioneer manages to capitalize on the emotional aspect of competitive bidding. In case of online auction, the settlement price might tend to be lower than that in a physical auction. Sotheby’s allows Associates to upload lots for online auction, however they are not charged for uploading lots. Buyers are charged commission whenever they purchase any item. There is an inherent flaw in this model. Sotheby’s incurs cost on authenticating the lot put up by the associates. However the associates are not charged for it. The buyers are getting charged, when Sotheby’s is not incurring any major cost on account of the buyers. The website provides information about the seller and his contact details. In such a scenario it is possible that buyers will use the website only for selecting items and carry out the transaction offline directly with the seller. Thus Sotheby’s may not get paid for all the transactions.
doc_780865730.docx
It describes the Sotheby’s a prominent name in the fine arts auction business, had recently entered the online auction business.
SOTHEBYS.COM - SUMMARY
Sotheby’s a prominent name in the fine arts auction business, had recently entered the online auction business. Nearly 80% of the merchandise of Sotheby’s includes low end products which cost less than 5000$. The fixed costs associated with auctioning an item in the traditional process, renders dealing in these items unprofitable. Sotheby’s expects the online channel will help increasing the customer base for these low cost items and reduce the associated costs, thus enabling Sotheby to derive profit out of these low cost high volume items. The focus of the case is evaluating the profitability and sustainability of their e-business venture. Impact of the online business on costs and revenues: ? Two major costs for Sotheby’s are: o Acquiring antiques and authenticating them o Selling these antiques: acquiring buyers and conducting auctions Of these the first cost is the bigger chunk. This will not be reduced in the online model. The cost of acquiring buyers will be reduced as the cost of distribution of catalogues is reduced. On shifting to the online mode, the cost of conducting auctions physically will be reduced but this will be compensated by the website hosting costs and the costs for bidding software. The overall impact of the online business on cost will be limited. ? The revenues sources for Sotheby’s include o Sellers were charged for displaying their items in the catalogues. Also they had to pay seller’s premium.
o Buyers paid commission on the purchase transactions. In the online model, sellers did not pay any premium. Only the buyers paid premium. Thus the revenue for Sotheby’s form a single transaction will be reduced. However Sotheby’s believed that easy accessibility will increase the customer base for the low end products which formed about 80% of their total merchandise. Thus sales may increase and hence the revenues. Probable flaws in the current online-auction business model: ? ? The auctioneer manages to capitalize on the emotional aspect of competitive bidding. In case of online auction, the settlement price might tend to be lower than that in a physical auction. Sotheby’s allows Associates to upload lots for online auction, however they are not charged for uploading lots. Buyers are charged commission whenever they purchase any item. There is an inherent flaw in this model. Sotheby’s incurs cost on authenticating the lot put up by the associates. However the associates are not charged for it. The buyers are getting charged, when Sotheby’s is not incurring any major cost on account of the buyers. The website provides information about the seller and his contact details. In such a scenario it is possible that buyers will use the website only for selecting items and carry out the transaction offline directly with the seller. Thus Sotheby’s may not get paid for all the transactions.
doc_780865730.docx