TradeOut.com Peddles Bargains

As market segmentation emerges in business-to-business auctions, TradeOut.com knows just where it wants to be in the food chain.

As market segmentation emerges in business-to-business auctions, TradeOut.com knows just where it wants to be in the food chain. Founder Brin McCagg set out to build the business-to-business equivalent of eBay, and he's got a decent start on that goal. The Ardsley, N.Y.-based company went live in July and has since moved more than $10 million worth of surplus merchandise, with an average transaction value of $25,000.

"A buyer looking for a truckload of candles or a used 1-megawatt generator can find what they need here," McCagg said. "A seller can move its excess stock, whether it's office furniture or a pallet of laptops. You don't want those rapidly diminishing assets burning a hole in your balance sheet." TradeOut.com also offers escrow, fulfillment, marketing and other services.

McCagg said the privately held, venture-funded company has about 150 employees and should be profitable by late next year. The plan is to get an eBaylike grip on the market to become the site of choice for both buyers and sellers. "We want to tie up the supply of basic surplus inventory from large companies, plus buyers and liquidators," McCagg added.

But is this broad-based offering the most useful way for businesses to buy?

A rival format, the industry-specific auction site, could make it hard for horizontal sites such as TradeOut.com to gain critical mass in certain vertical markets. If you know that a Bethlehem Steel is selling through MetalSite.com, for instance, that may be the first place you look.

An entirely different model is offered by FreeMarkets, the Pittsburgh-based auction-service pioneer that recently filed to go public, and A.T. Kearney, the venerable management consultancy, which says it will help clients procure $1 billion in goods and services this year via Web-based auctions. These companies conduct Web auctions as the end-point of a strategic procurement process in which requests for proposals can be made available to a global pool of suppliers.

"The auction services business is going to be very attractive to consulting firms that have procurement practices," Aberdeen Group analyst Tim Minahan said. "A lot of people are going to be doing this."

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