The following article appeared in  the November edition of The Podium, the official Journal of the Industrial Auctioneers Association.

When I joined the auction business full time in April of 1980, there were about six national industrial auction firms and several UK and European firms that dominated the industrial auction business.  Industrial Plants Corporation, David Weiss, Rabin Brothers, Thomas Industries, Max Rouse & Sons, Continental Plants, Henry Butcher and Norman Levy Associates.  There was no Auctioneers Association, no fax machines, no internet, no cell phones, no personal computers, CD’s, DVD’s or digital cameras.  Airline tickets were still hand written on red wax carboned paper and travel agents would change them with small yellow stickers. If you weren’t careful and got it on your shirt, the bright red carbon looked a lot like lipstick and undoubtedly got more than a few good gentlemen in serious hot water with their spouses.  You could buy large knives, scissors and other cutlery at the Hoffritz stores at the airport to be packed in your free carry-on luggage before boarding your plane.  We still used IBM Selectric typewriters, record players and telex machines.  Warner Swasey AC chuckers and turret lathes, Bullard Mult-Au-Matics, Cincinnati Hydrotels and Brown & Sharpe screw machines still sold for large sums of money. 

The used equipment dealer network was well established and while it fed leads to and partnered with auction firms on equity deals, there was a definitive demarcation between auctioneers and dealers.  Auctioneers were not dealers and dealers were not auctioneers - avoiding the inherent conflicts that the dealer come auctioneer of late create.  There were strong relationships and extreme loyalty between the two factions and the ownership of each of the firms were typically married to their partners and would not work with anyone other than their chosen compadres.  Auction companies would never partner with other auction companies and the appraisal business for asset based lending was just being born and not many firms cared to practice this soon to be lucrative business.

There were huge communication inefficiencies in the market place whereby sellers did not readily have the tools or know-how to connect to the retail market place.  This disconnect ultimately supported the profitable arbitrage between wholesale and retail that the dealer network and certain auction firms profited from.  Auction companies became the catalyst that provided the connectivity between sellers and end users, with the dealer network establishing a predictable pricing floor.

The cost of entry into the auction industry was much higher then than it is today.  It required human talent in the form of a fast thinking, nimble, charismatic auctioneer who possessed specific product knowledge within a specialized industry supported by a marketing department who could bring the assets to market and accounting systems to track sales, invoice and report.  Given the new technology afforded by the internet today, the barrier to entry has been virtually eradicated.  Everyone can be an auctioneer and the lines between dealers and auctioneers have been obliterated.

Most auction companies today all use the same data services to learn of new opportunities and market their sales.  There are new automated information sources developing every day that provide better detailed and customized search results delivered at the speed of light.  Google key word alerts for words like “plant closure, layoffs and bankruptcy” simultaneously signal all of the web connected auction company business development personnel to ready the drones for a multi-faceted assault on the decision makers who control the surplus assets.  These sellers become inundated with calls and service offerings from dozens, if not hundreds of auction companies selling their services.  How does one decide with whom to engage?  It is time consuming, confusing and expensive for sellers to manage the cattle calls and more so for the auction companies who choose to respond.

The dramatic increase in the number of auction companies intensify the competitive nature of our business and the associated pricing pressures slim margins demanding increased fiscal responsibility for survival and reasonable returns on committed capital.  In doing so, numerous auction companies have shed core departments responsible for the execution of critical activities that were once the defining and differentiating attributes of the primary auction companies.  Outsourcing critical and essential auction activities such as marketing, site preparation and clearance, online and webcast broadcast services have become the new norm of today’s model of the virtual auction company in an attempt to reduce and limit overhead.  New, more specialized service providers, have proliferated providing these critical services to the auction industry.  Similar to the dawn of the virtual airline in the 1990’s when major airlines like British Airways sold off their equipment to financial service companies only to lease it back, the majority of the auction industry has done the same.  Many auction companies today have become consolidators of others’ technology and services rather than developing and using their own, losing their ability to differentiate themselves from the rest.

Sometimes it works and in the case of David Phinney of Orin Swift Winery, he has become one of the most successful vintner who does not even own a vineyard.  He buys only the grapes he wants from the vineyards that have the best harvests without the risk of drought, blight or a bad crop.  He remains able to pay more than anyone else because he keeps his overhead low and is not saddled with debt laden immovable inflexible infrastructure.  His model, which echoes that of the new breed of fast moving companies, remains nimble.  The two assets he has that empower him to be wildly successful are his nose and his ability to blend just the right amounts of various grapes to make magic in a bottle, all leveraging others’ investments in brick and mortar.

Bidspotter, ProxiBid and NextLot provide online and webcast auction services that facilitate the delivery of more bidders through the use of technology.  Their model is different than that of the traditional auction company as they each strive to become the information superhighway that all auction companies use, rather than to be an auction company itself.  They each claim to have invested millions of dollars in their systems to attract the auction companies who fill their pipelines with product.  These companies have enabled just about anyone to conduct an auction sale and in doing so have unwittingly commoditized the auction industry to a point that it is now very difficult for the untrained eye to discern who is the best qualified, conflict free auction company for a particular project.  The webcasts provided by these service providers are all basically the same, a human interface broadcasts to the web the number that the auctioneer is asking for and the bidders click on the bid now button on their screen which in turn is relayed back to the auctioneer.

It is not all bad however.  These companies have honed their wares to a new level of sophistication resulting from better focus on their core activities through specialization and some hefty investments of capital.  They have been the enablers to many new auction companies by providing affordable and viable software solutions to anyone who has anything to sell.  Early investors in search of the next internet Holy Grail including Amazon, flocked to fund these companies that developed these so called frictionless and scalable internet based solutions to only find that the financial returns were not as significant as hoped for.  Even though their traffic volumes seem impressive, each of these companies has endured financial struggles, been for sale, and created survival promulgated alliances that appear to be the next best advancement, all to find that without the full service auction company, they will undoubtedly only eke out a living, merge or cease to exist.  Their market place is too small for the amount of competition that they provide to each other and they are in fact too specialized, limited and have not figured out how to successfully analyze and monetize the data that they possess given the somewhat narrow use of their collective data.  The implementation of webcasts still requires human interaction which limits scalability to exponential growth.  To their collective dismay, they have become as much of a commodity as they have helped to make the rest of the auction industry.

Prior to the advent of online and webcast technologies, there was a limit to the number of auction sales that could be conducted in a week based on the buyers’ ability to travel to auction sales.  Conscientious auctioneers used to share and compare auction calendars when scheduling dates to avoid conflicts to circumvent impairment of attendance.  Auction sales were social events where more than just lots were sold.  Friendly, but competitive relationships between auctioneers, dealers, machinery movers and end users were formulated and nurtured in these unique but frequent catered transactional forums.  While these aggregating technologies have multiplied the daily limit of the number of sales that can be conducted, increasing the diameter of the pipeline has eliminated the practice of conflict checking.  The internet has de-personalized the social aspects of the auction sale and buyers now attend multiple sales simultaneously eliminating the burgeoning travel costs along with the decimation of the benefits of the social market place.  The used equipment dealers have also adapted the way in which they fill their inventory pipelines by augmenting their purchasing prowess by spending their days glaring into multiple computer screens bidding on the numerous sales per day.  The unwanted result of this rapid availability of information has been the commoditization of certain assets and the leveling of their selling prices.

Unfortunately, instead of becoming the industry disrupters that they wanted to become, these new specialized data broadcasters who provide cheap connectivity between auctioneers and buyers by packaging technology, have become commoditizers without reaping the benefits typically experienced by exponential innovators.  Not until they figure out how to harness the information that they are close to, will these companies transform themselves into the vision that energized their creation. They are hindered by the existing paradigm of how the industrial auction industry works, being tied so closely to the reticent to change age old profession.  The speed of transformation has hit a wall and continues to lag behind other industries disrupted by the transition from the deep-rooted physical time and effort model of traditional linear organizations to that of an exponential growth based information model.

Over the last ten years, we have seen explosive and exponentially disruptive growth in many industries, some of which did not even exist a decade ago.  According to Richard Foster of Yale University, the lifespan of a Fortune 500 Company has decreased from sixty seven years in 1920 to a mere fifteen years today, and is decreasing every year.  In 2011, Babson’s Olin Graduate School of Business predicted that in ten years, forty percent of Fortune 500 Companies would cease to exist due to competition from a new breed of companies that harness exponential technologies.[1]  In years past, it would take a fast growth company approximately twenty years to reach a billion dollar market cap.  In today’s world, it took a mere 18 to 24 months from inception for Google, YouTube, Instagram, Twitter, Snapchat, Uber and Waze to swell to as much as a $50 billion market cap.  The 21^st Century gold rush!

At the point in time that we were able to transition from analog to digital, or molecules to bytes, industries like music, photography and publishing inevitably and irretrievably changed forever.  The photographic industry has gone through an irrevocable industry altering transition annihilating with it behemoth companies like Kodak and Polaroid.  These companies were not prepared to respond to the crippling attacks on every aspect of their vertically integrated and diversified analog business models that the new digital frontier provided.  The obliteration of the manufacturing of film and paper, the processing of negatives and photographs in company owned labs and the distribution of finished photos due to the global adoption of new highly accessible, free and efficient technology was signaled but not heard.

Like the auctioneer with the microphone, the publishing industry has been hugely impacted by the phenomenal reduction in costs and the ease of distribution of digitized text, photographs, and now audio enhanced video.  There are magazines and newspapers that have completed the transition from traditional print media distribution to purely electronic distribution.  These electronic formats provide the ability to make changes and corrections to online content and facilitate immediate eco-friendly dissemination.  It is a lot faster and cheaper to move a byte, than it is to assemble, store and distribute an organized collection of un-editable molecules.  The ability to click directly on imbedded hyperlinks to instantly access additional information, opposing viewpoints, manufacturer’s and service providers’ websites and a slew of international retailers, wholesalers and brokers for delivery of products within mere moments impacts credibility of the source and diminishes profit margins.  Herein lies the viral characteristics that this new global communications forum provides to the fortuitously positioned.

One of the best known household brand name magazines is in the process of re-imagining itself to combat the effects of the disruptor breeding like a malignant cancer within its original and sustaining core foundational attributes.  Playboy Magazine readership has plummeted from 5.5 million readers per month to less than 800,000 due to the readily available online pornography sites.  In an effort to increase readership, Playboy has decided to eliminate nude images from all of its publications.  This could be perceived as a high risk move, but it may pay off.  According to CBS, when Playboy removed nudity from its website, the unique visitor count increased from four million to sixteen million per month.

The melding of two simple devices into one - the cell phone and the camera - was evidence of the successful marriage of multiple industries merging through a common utilizable technology to create something much larger than the sum of each individual component.  This forewarned the potential for unprecedented growth acceleration that has affected many industries.  The cost of a single photograph has gone from $1 to virtually free along with a 36 exposure limit expanding to the unlimited.  The quality, reliability and ease of use of today’s digital cameras has replaced many professional photographers with the “Do it yourselfers and Friends with Cameras”.

This huge downturn in longevity and the forecast of decimation of forty percent of the Fortune 500 Company list seems like a series of large opportunities that insure viability for those in the valuation and monetization service industry, at least in the foreseeable future.  Given the advent of new technology and the proliferation of new indistinguishable service providers that result in the commoditization of the auction industry, we must be thoughtful as to how those trends that have negatively impacted the industries that keep us active and profitable, do not have the same deleterious impact on us.  Lest not forget that all of this technology and information that is available to us as auctioneers, is also available to the sellers who hold the keys to our coffers!

So now the question is, “How do auction companies differentiate themselves from one another in today’s world of affordable websites, cheap software, color printers, digital imaging, mobile devices, and the tremendous efficiencies of rapid communication between owners and buyers of surplus and the intermediaries who earn a living by inserting themselves between the two?”

I think that it is about providing plausible and competitive solutions to a new breed of companies and sellers within, who possess a higher level of financial and technological sophistication than we used to encounter.  I think that it is about consistent delivery of risk eliminating, problem solving solutions with predictable results to our clients while making the buying experience for our buyers as easy as possible by developing user friendly, intuitive transparent technologies for both learning about our events and participating in them.

Our survival is not only about capability, stamina, appetite, and pride, it is also about having enough product knowledge and experience to have the right information to determine the correct recoverable value in order to formulate competitive offers paired with the proverbial cojones to step up to the plate when competing on equity deals.  Auctioneers are good at eking out the last available bid from bidders, but we also are the first to fall prey to the same traits of ego, desire and need driven over bidding that have given the underpinning mechanics of our industry such longevity.

In 1980, there was much more brand loyalty from clients.  If you did a good job for repeat clients, you were their first and only choice.  It was nearly impossible to convince a frequent user of auction services to abandon their favored service provider unless they had a bad experience.  Loyalty has morphed from a promise of the next deal into nothing more than a hope to be invited to the dance.  In today’s seller’s market, it has become difficult to distinguish one auction firm from the next given that each firm’s promotional PowerPoint spectacles the same high profile client logos as clientele.

We have seen an unprecedented proliferation of partnerships between auction companies over the last twenty years.  This is due in part from the need for a combination of resources given outsourcing strategies, mitigation of risk, climbing costs and the number of available transaction requiring a greater attention to detail.

I think that our industry lives in its own enigma that people outside of our industry have a great deal of difficulty comprehending.  We have deep relationships with our competition.  We fight competitively tooth and nail on one deal, while simultaneously partnering with them on another.  I remember presenting our proposal to a major agricultural implement manufacturing company.  When our time was up, they opened the door for us to leave and let the next contender in to make their competing pitch.  The head guy just about fell over when Ross Dove entered the room as we were leaving, when we happily greeted each other with the biggest bear hug, in front of all of the decision makers who were expecting competitive animosity between their chosen contenders.

Our auction industry will survive and some highly intelligent and strategic firms will continue to flourish, but not without cyclical challenges.  Partnerships will continue to be prevalent and through a natural maturation process will become more sophisticated and thus more selective.  Intelligent and strategic collaborations will utilize strengths of specific firms to advantage the particular project.  Along with these joint ventures come increased expenses and inefficiencies.  Those costs will become insupportable as we become more evolved and will no longer justify the additional overheads of participants who do not deliver true value.  We are already moving to a more mature state of partnerships which include only those who truly add value in both garnering business and adding significant value in its execution.  Accepting a minority stake in a deal which still requires the efforts of the entire organization proves to be as non-sensible as over paying for a deal.

Forgetting all of the economic reasoning that we use to rationalize if our endeavors, energy and risk generate enough predictable income that our total investment justifies, there is a host of emotional rationales that we use to remain perpetually entrenched in this business surviving thoughtful questioning.  We cannot digitize or commoditize our friendships and relationships that have made our industry so sustainable, even when the profits cycle downward.  As we continue to evolve, the attributes of experience and friendship that we possess in this association will forever be the fuel that keeps us vital.  The friendships, trust and camaraderie that we have with and for each other, the sharing of the stellar deals, are traits that we live for that we use as energy that keeps us in this business and optimistic.  Just like the surf casting fisherman who repeatedly swears that he is going to quit after each cast because he never catches anything, to only be revitalized at the depth of despair with the catch of the whopper!

[1] Exponential Organizations by Salim Ismail

By: Robert Levy