Sometimes even a virtual Net marketplace needs a brick-and-mortar touch.
That's the case with recently launched IronPlanet.com Inc., a b-to-b auction site for used heavy industrial equipment. Earlier this month, the start-up brokered its first online auction, selling $1.5 million worth of excavators, bulldozers, compactors and loaders.
The equipment was located across the U.S., and buyers checked in from as far away as Aguascalientes, Mexico.
That the three-day, point-and-click Web auction happened at all was thanks to a nationwide, brick-and-mortar equipment inspection network the Iron Planet founders put in place before launching the company.
By adding inspections, risk assurance and financing, Iron Planet proves it takes more than a simple transaction engine to be a successful e-marketplace.
"What struck me initially was that an Internet site alone was not going to solve the inefficiencies in this market," said Reza Bundy, founder and chairman of Palo Alto, Calif.-based Iron Planet. The industry had no standardized inspection processes or reports, so buyers were forced to travel the country to get a first-hand view of equipment for sale, Bundy said.
The Iron Planet auction with its inspection service has the potential to change that.
"Generally, people bought the equipment in our first auction sight unseen," Bundy said. "We were concerned buyers would want to see the equipment and kick the tires, but that didn't happen. Trust and reliability are something that simply hasn't been there in this market."
To build its inspection network, Iron Planet negotiated an exclusive relationship with DynCorp Technical Services, an independent, third-party inspection service. DynCorp has more than 400 inspectors in place nationwide. The company's inspections, in turn, are insured by London-based Lloyd's. If a buyer doesn't like the equipment once it arrives, Lloyd's underwrites the cost of shipping it back to the seller, said Bob Alleger, president of Reston, Va.-based DynCorp.
$100 billion global market
Alleger estimated the global used heavy equipment market at about $100 billion, and said no single broker or auction house owns more than a 1% market share today. Location is key in the market--buyers want to see the gear, and sellers don't want to ship it very far. Iron Planet's inspections and Web auctions, though, can turn those market assumptions on their head.
"I think there's a compelling logic to their business model," Alleger said.
In its first auction, Iron Planet sold 24 pieces of equipment made by Caterpillar, Ingersoll-Rand and Dynapac. DynCorp inspectors performed a technical analysis of each piece, including two oil sample tests. All the information was placed on a dedicated DynCorp extranet site, then uploaded to Iron Planet for the auction. Iron Planet's next auction is slated for next month.
The used equipment auction Internet market is attracting a lot of attention. Competitors in the "outside" heavy equipment market (such as construction machinery) include Centrack International, BigEquip.com and Aucton.com. Auctioneers such as DoveBid.com, iMark.com and Assettrade.com deal mainly in "inside-the-building" used industrial equipment.