eBay Dar-ling Featured

9:49am EDT July 22, 2002

For Larry and Carol Farley, the potential of a global market was made starkly apparent by the sale of a footstool.

The couple, owners of Dargate Galleries, sold a Georgian footstool several years ago, sight unseen, for $4,000 on the strength of a written description faxed to the buyer in Hong Kong.

That sale, along with Larry Farley’s experience in the early 1970s with an experiment in interactive TV in Orlando, Fla., while he was RCA’s vice president of planning, was pivotal in convincing the Farleys that auction sales could be closed with more than simply the banging of a gavel.

“We weren’t on the Internet at the time, but we saw how large the market is,” says Carol Farley.

The market may be larger than they ever imagined at the time. The prospect today, say the Farleys, is to build Dargate from auction sales of $3 million a year to $40 million within three years. That projection may sound highly optimistic, until you add the Internet into the equation. When one considers how the gallery is leveraging its relatively modest size and the potential of selling via online auctions, the numbers don’t sound quite so tall.

Internet analyst Keenan Vision estimates auction technology will be used to sell $129 billion in goods and services by 2002. Dargate is one of a select group of eight galleries that began showcasing some of its holdings — about 100 items to start — last month on eBay’s newly established Great Collections site, a presence that gives the Pittsburgh auction house exposure to eBay’s 5.6 million registered bidders. By comparison, Dargate, no newcomer to the online auction business, had accumulated 5,000 registered users.

“eBay probably has the busiest market in the world for antique items,” says Larry Farley.

A conventional start

The Farleys purchased Dargate Galleries in 1989 and ran it as a conventional antiques dealer, but grew bored with the glacial pace of the business.

In dealing in the antiques business, they found that a substantial chunk of the estate auction business in Pittsburgh was going to major national and international auction houses such as Sotheby’s and Christie’s. They saw an opportunity to keep some of that commerce in Pittsburgh and decided in the early 1990s to shuck retailing in favor of the auction gallery business.

The Farleys got involved with Web marketing six or seven years ago, starting with a modest site when e-commerce was in its infancy. Carol Farley says now that she wasn’t impressed with the site’s commercial potential, but the couple figured the $35 a month for maintaining the site was worth it, even if it didn’t generate much revenue.

As e-commerce grew, however, Carol began to investigate online auctions, and along the way, got the hang of digital photography, a skill that would prove handy once Dargate began to sell online. A local software developer proposed a solution, but told her it would be expensive and take about two years to develop.

Meanwhile, the Farleys came across OpenSite Technologies, a North Carolina company that produces online auction software.

“We bit the bullet and bought the package,” says Carol. With about 70 online clients, the Farleys spent $20,000 to buy the software and started out by offering about 50 inexpensive music boxes on their site to test the waters.

“We did a downtown job selling those boxes,” Carol says. A later sale of new Oriental rugs brought about $25,000 in sales. By then, they were convinced that the Internet was a viable distribution channel for them.

Calin Cazan, president of C&N Technology in Robinson Township, an e-commerce consultant that operates the Pittsburgh CyberMall, advises businesses new to Web-based marketing to start out modestly to test the waters.

Make the site simple,” suggests Cazan. “Don’t use sophisticated tools, at least not in the beginning.”

Dargate’s sales have been hovering around $3 million over the past four or five years, says Larry, so he and his wife were looking for a way to give business a boost. They had heard that prestigious auction house Butterfield & Butterfield was planning an initial public offering, so Larry contacted it early this year and asked if it might be interested in investing in Dargate.

As it turned out, Butterfield & Butterfield had scrapped the IPO scheme and sold out to eBay. Larry’s contact suggested that he might want to get in touch with eBay.

e-funding

eBay was interested. In fact, Dargate fit neatly into its plans to launch an auction that would showcase items such as a $100,000-plus Louis XVI-style Steinway piano that Dargate has in its inventory.

But expansion takes capital. The Farleys figured they would need about $600,000 to purchase computer hardware and software and add personnel to accommodate the additional workload.

To get the word out, Dargate would need additional business development people to contact other galleries and dealers interested in listing items on the site, managers, photographers, professionals to evaluate and catalog merchandise and other clerical help.

But banks, they found, were reluctant to lend the necessary capital, because auction houses don’t hold title to their inventory. Venture capitalists viewed the investment as too small to bother with. That led the Farleys to seek out private investors, to whom they offered shares at $25,000 each.

By last month, nearly three-quarters of the offering had been completed, taken up by a group that included their own children and long-time customers.

Although the potential of selling over the Internet expands Dargate Galleries exposure exponentially, the Farleys recognize that some items are best offered in the environs of the live auction. In other cases, they might lend themselves to either method. This month, Dargate will take the auction process a step further when it begins broadcasting its floor auctions live via the Internet, which will allow online enthusiasts to watch and bid along with those present at the gallery.

The gallery will command, in effect, three venues to offer its wares; in person auctions in the gallery, the online marketplace, or a combination of the two. The method, they say, will be dictated by the nature of the merchandise, not simply by the glitter of a newfangled technology.

“We’re going to auction on behalf of our clients where they can get the best value,” says Larry Farley.

How to Reach: Dargate Galleries, (412) 362-3558 or www.dargate.com. Contact eBay online auctions at www.ebay.com. C&N Technology Ltd.. at (412) 494-4442 or www.pittsburghcybermall.com

Daniel Bates (dbates@sbnnet.com) is editor oft SBN.