Exploiting the Internet for commer-cial benefit has become a key themefor Chief Information Officers atmost organizations. Significantadvantages are to be gained for bothsellers and buyers. Savings are madeby reducing transaction costs,

increasing the circle of potential customers as well asby improving the search-and-find capabilities for allparties concerned [1, 2, 4]. Web-based auctioning isa rapidly expanding application of the Internet. Thematching of demand and supply at the best price atone specific point in time is the additional benefit ofa Web-based auction. The advantages, however, mustbe considered against lower switching costs for auc-tion participants. Are auctions always beneficial tothe company? In particular, which technical andbusiness arrangements must the CIO satisfy to givethe organization a lasting advantage in this new fieldof electronic commerce?

The following types of Web-based auctions can bedistinguished as shown in Figure 1 and are furtherdescribed here.

Web-based Sales Auctions: One seller offering to asmany buyers as allowed into the auction. Example:“Onsale” (www.onsale.com) offers 24-hour, interactiveauctioning for all types of computer equipment andconsumer electronics by means of an innovativearrangement called a “Yankee-auction.” Bids aresorted in order of price, then quantity, then bid time.When the auction closes, the highest bidder is consid-ered the winner.

Web-based Procurement Auctions: One buyer ten-dering his procurement needs via the Internet. Exam-ple: General Electric (www.tpn.geis.com) tenders itsprocurement needs to a selected set of suppliers via theInternet and subsequently uses auction techniquesbefore issuing orders. Many more large companies aswell as government bodies are currently considering orimplementing these types of Internet-procurement

systems. This requires multicriteria auctioning sys-tems that optimize on price as well as other criteriasuch as product quality, delivery time, and reliability.

Web-based Many-to-Many Auctions: Many sup-pliers offering to many potential buyers. Example: TheArizona Stock Exchange (www.azx.com) offers a callauction for stocks. In a call auction, trading takes placeonly at certain prearranged times—the “calls.”Between calls, orders accumulate. At the call, a priceis established by identifying the supply and demand.Bringing sellers and buyers together at the same time,and at a single price, avoids the market spreads andrandom turbulence common in continuous markets.

Current understanding of Web-based auctions isstill limited. There is a significant theoretical base fortraditional auctions [5], but the pervasive impact ofadvanced electronic communications is usually notaddressed. Recent research suggests that almost anygood or service can be put forward for electronic auc-tioning to the advantage of the business concerned,but this is not without risk [3]. However, the impli-cations for the information and communications sys-

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Eric van Heck and Peter Vervest

How Should CIOs Deal With Web-Based Auctions?

Negotiationsusing EDI

Web-basedprocurement

auctions

Web-basedsales auctions

Web-basedmany-to-many

auctions

One Many

Buyers

One

Many

Sellers

Figure 1. The use of auctions in electronic commerce

tems of the organization are of major importance. Inparticular, CIOs must:

• Ensure the integrity and robustness of electronictrade procedures. As the number of potentialtrade partners increases, new technology must beused that ensures automatic auditing and certifi-cation of trade procedures.

• Design and manage the communications andinformation interfaces between trade systems andthe organization’s own procurement and logisticalsystems. Managing the “front-office-to-back-office” interfaces will become a major challenge.CIOs must direct the design and realization oforder fulfillment systems that can handle the newrequirements of managing physical delivery, pay-ment and settlement, tracking and tracing, andproblem handling.

• Demonstrate the advantages and disadvantages ofWeb-based auctions from a technical and businesspoint of view to the marketing, sales, finance, man-ufacturing, purchase, and logistics departments.

Web-based auctions are a new way for an organiza-tion to interact with its market. They will have aprofound impact on the profitability of the firm in

both selling and buying goods and services.Telecommunication and information systems’researchers should combine forces with marketing,purchase, and auction theorists to provide the mul-tidisciplinary support CIOs now require.

References1. Bieber, M. and Isakowitz, T. Designing hypermedia applications. Com-

mun. ACM 38, 8 (Aug. 1995), 26–29.2. Kambil, A. Doing business in the wired world. IEEE Comput. 30, 5 (May

1997), 56–61.3. Klein, S. Introduction to electronic auctions. Int. J. Electronic Markets 7,

4 (Dec. 1997), 3–6.4. Malone, T.W., Yates, J., and Benjamin, R.I. Electronic markets and elec-

tronic hierarchies. Commun. ACM 30, 6 (June 1987), 484–497.5. Milgrom, P. Auctions and bidding: A primer. J. Economic Perspectives 3, 3

(Summer 1989), 3–22.

Eric van Heck (eheck@fac.fbk.eur.nl) is an assistant professor ofBusiness Telecommunications in the Department of Decision andInformation Sciences at Erasmus University, Rotterdam.Peter Vervest (vervest@mms-nl.nl) is a professor of BusinessTelecommunications in the Department of Decision and Informa-tion Sciences at Erasmus University, Rotterdam.

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