Going, going... going faster! Featured

10:05am EDT July 22, 2002

There is no bustling crowd. No high-speed cattle call. And the auctioneer may be hundreds or even thousands of miles away when the highest bidder buys an item with a few keystrokes or the click of a mouse.

Online auctions racked up $337 million in sales during 1997, or about 15 percent of all direct online sales of goods, according to consultant G. Patton Hughes, publisher of the now-discontinued Auctionland Online Report newsletter. Forrester Research projects that business-to-business sales alone in online auctions will hit $52 billion annually by 2002-this from an industry that barely existed two years ago.

"It's a very, very hot phenomenon, and it's going to continue," says Michael Brader-Araje, founder, president and CEO of OpenSite Technologies Inc., in Research Triangle Park, N.C. "This is not a fad."

Brader-Araje started the company in February 1996 to design Web sites, but abandoned that concept just three months later to focus on online auctions. His business has since grown from two employees to 25; his service hosts The Sharper Image, Auctiongate Interactive (computer equipment and peripherals) and almost 100 other businesses that accept bids online.

There are two basic kinds of auctions sites. The first operates like a traditional auction house, buying items for resale or selling them for others on commission. The second charges a fee to people or companies offering items for sale. A host company, such as OpenSite, licenses software that links sellers with buyers and ensures secure transactions. According to Hughes, sales on the latter's sites have far eclipsed those on the former. And Joe Keefhaver, executive vice president of the National Auctioneers Association, says his 5,600-plus members have shown increasing interest in taking their online counterpart for a spin.

As with any hot new opportunity, however, online auctioneering has attracted its share of frauds. The Federal Trade Commission issued its first "Consumer Alert" on the subject this spring, after issuing a cease-and-desist order to a Florida company that accepted bids for computers that it allegedly never delivered. "As [online auctions] grow, so does the amount of fraud, and we felt it was important that we step in and show that we are on the beat, so to speak," says Lisa Hone, staff attorney for the Bureau of Consumer Protection at the FTC in Washington, D.C.

The FTC doesn't release figures on the number or volume of frauds resulting from online auctions, though Hone says, "It's a growing problem." Brader-Araje says his company will revoke its software license to an auction site if that company breaks the law. "It's in our interest to have [sellers] who are reputable," he adds. Meanwhile, the FTC and auction specialists urge potential buyers keep a few cautionary tips in mind:

  • Buy only from companies you know, or at least established, reputable companies you know about. Try to reach the seller by phone. Try to verify a permanent address, and otherwise perform the same diligence you would with any other out-of-town vendor. Beware of untraceable e-mail addresses. "One of the benefits of the Internet is relative anonymity," Hone notes, "which can cut both ways."

  • Pay by credit card. You can challenge the charges later if the seller doesn't deliver the goods. Also, a purchase may be insured. Ask about paying c.o.d. Ask about return policies. Consider using an escrow agent, which may be worthwhile despite the fee for larger purchases. And shop the online price; it may still not be the best you can get.

  • Complain if you feel cheated. Start with the auction house or host. Turn to the FTC, which maintains an online complaint form. And don't neglect calling your local or state police. While these officers may be catching up on online fraud, they're doing so quickly, Hone and others say, and most treat it as seriously as other multijurisdictional crimes.