Startup Spotlight: QXL.com

Appearing on Wednesdays, Spotlight will show you the faces behind the news.

The US has its eBay, one of the biggest e-commerce sites around, and the UK's equivalent is QXL.com (QXL: quote ). The site hit the public markets not too long ago in a splashy debut, but has since struggled, along with other UK high-tech companies, to get the kind of recognition startups see in the US.

QXL runs online auctions, which have become a hit in America, where specialty collectors often have to travel thousands of miles to exchange their wares, but have yet to make it big in more compact Europe. Another factor inhibiting success in the UK is good old British propriety: people here just don't like to haggle.

techTrader spoke with Herbert Kim, QXL's UK managing director, about running a publicly-traded tech startup in the UK where his company goes next.

QXL has a business alliance with ZDNet, the publishers of techTrader.

Describe your business model and its appeal for consumers.

Our business model is formed from a combination of two things. The consumer to consumer aspect of our service constitutes sixty per cent of our business. People who want to sell their items use us to auction it off. We are effectively a new market maker. The second section of our business is QXL Shop, which is better known for its business to consumer focus. Here we work with retailers, distributors and manufacturers in order to sell off their excess inventory to the public.

QXL combines both of these models in into one interface. This offers the benefit of being able to find an incredible bargain, as well as the chance to purchase a number of items that you can't get elsewhere anymore.

Do you see auctions becoming as big a business as they are in the US? How does the market for auctions differ between here and the US?

There are a number of reasons that favour auctions within the UK. The cost of living here is much higher, yet we earn less at the same time. The average British consumer is therefore hungrier to get something for less than the retail price, or second hand. The potential for auctions within the UK is also increased due to cultural factors. British people don't enjoy having to haggle face to face. QXL therefore allows people to experience the process of auctioning through a computer interface, which effectively depersonalises the whole process.

Describe the challenges of operating in multiple languages and currencies. Is this a major hurdle or more of a routine management issue?

Any company that operates on a pan-European basis sees this issue as a major challenge. The multi-lingual, multi-currency, multi-legal systems are hugely complex and can be very costly. But, if you can do it right, it is possible to create a pan-European trading community. At present we see a huge amount of price disparity between different countries. If we can succeed at overcoming these obstacles, QXL could become a company that no other business can compete with.

Talk about the next steps in developing your business.

The "Safe Pay/ Safe Ship" initiative is the most important development to date, that is targeted at our consumer to consumer auction space. It is a value added protection layer that is branded by QXL. The consumer pays the money for their purchase initially into QXL, during which time we track the shipment of their merchandise and check that it is in the expected condition: if the customer is not satisfied, we can credit them their money back. This also provides a safeguard for the shipper, and can help to resolve cross-border issues, building trust and security into these transactions.

We have also recently recruited Hugh Skully from 'The Antiques Roadshow' onto our team, who effectively represents a key part of our business.

It's been suggested that you need to move away from an inventory-based model to one based on commissions. Why aren't you charging these commissions now and what must happen before you will start doing so?

An auction model displays a lot of network effects. The larger the trading community there is, the more value it has for everyone. Making sure that we build the critical mass is important to us. We decided to focus on growing first, before profitability comes and we start to charge commissions. In the UK there is a standard setting war, especially now that we have entered the age of the Internet community. In all likelihood, only one auction site will become a clear winner, and it is important that our priority is to win this position.

What's your opinion about the state of the investment community in the UK? Is it too conservative for tech companies?

The investment community in the UK is much more conservative than in the US. There is more investment money floating around in the US, since high-tech billionaires are willing to invest in other technology companies. The US is also less averse to risk. There is also a whole layer of day traders in the US, where trading is very inexpensive to do -- you don't see this in the UK.

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