Reverse Auctions

Reverse auctions history

Reverse auctions gained popularity in the late 1990s as a result of the emergence of Internet-based online auction tools. Pioneer of online reverse auctions, FreeMarkets, was founded in 1995 by former McKinsey consultant and General Electric executive Glen Meakem after he failed to find internal backing for the idea of a reverse auction division at GE. Meakem hired McKinsey colleague Sam Kinney who developed much of the intellectual property behind FreeMarkets. Headquartered in Pittsburgh, PA, FreeMarkets built teams of "market makers" and "commodity managers" to manage the process of running the online tender process and set up market operations to manage auctions on a global basis.

Although FreeMarkets survived the winding down of the dot-com boom, by the early 2000s it was apparent that its business model was really like an old-economy consulting firm with some sophisticated proprietary software. Online reverse auctions started to become mainstream and the prices that FreeMarkets had commanded for its services dropped significantly. This led to a consolidation of the reverse auction service marketplace. In January 2004, Ariba announced that it purchased FreeMarkets for $493 million. At the beggining of the new milenium, eBay created a online auction model where buyers compete to each other for their highest price for a particular item. Of course the buyers try to keep the purchace point at a resonable level, but even this way, the seller is the true winner.