Auction Drop Business Model

Business by on October 22, 2004 at 11:51 am

Its been awhile since I’ve written a post, and I’ve done my best to stay away from politics.

I have been intrigued by AuctionDrop’s business and in particular their partnership with UPS to enable the drop off of goods and services at any UPS store location. I decided to give AuctionDrop a try and figure out how much the model makes sense (both as a business and for a consumer to use).
I filled out forms online for 3 items and then took them to my local UPS store:

  • 1.2Mpixel Ricoh digital camera
  • LG 5350 cell phone
  • Canon Elph APS camera

They want products that they know will sell for a reasonably high value. Based on their forms, I’m guessing that they only want products that sell for greater than $75. They only accept certain products, and provide some simple guidelines to use when deciding if they will sell the product or not. By their guidelines, two items fit and the the digital camera did not as it was less than 2MPixel. I feigned limited product knowledge to see how they handled it.

This was the first time that anyone had taken an AuctionDrop product to my local UPS store, and it took the clerks a while to figure out how to handle these items. Ultimately, they packaged the three items up into three individual boxes and sent them separately. Although this certainly increased the direct costs to AuctionDrop, this probably also made processing much easier (just open, photograph and repack in same box). In doing so, AuctionDrop passed the costs of selecting the correct packaging and actually packaging the item onto UPS. Each item cost about $10 to ship back to AuctionDrop. It took me a total of 30 minutes to take the products to AuctionDrop and wait while they figure everything out.

AuctionDrop did a great job figuring out the specs of my digital camera and provided a great deal of detail to customers about the products. They were all professionally photographed and I was generally impressed at the job they did. However, the three sold for:

  • 1.2Mpixel Ricoh digital camera: $33.10
  • LG 5350 cell phone: $66
  • Canon Elph APS camera: $27.05

So, none of the products cleared their $75 threshold. For products that sell for less than $200, AuctionDrop keeps 38%, with a $20 minimum commission. Only the cell phone cleared that minumum hurdle. I received checks for $10.21, $36.20 and $4.58 for a sum total of $50.99. Not exactly a windfall, but it is certainly money that I wouldn’t have had otherwise (I’m not likely to post it on eBay myself: take the photos, post, ship, etc.). However, as compensation for the time to go find all the accessories and go to the UPS store, the sum isn’t exactly a number that makes me excited to try it again.

I’m guessing that AuctionDrop did not make any money on any of the items (or if they did they barely cleared their commission). The $10 shipping back to AD is a high hurdle to jump and leaves only $10 to receive and open the package, photograph it, research the items, write the descriptions, post on eBay and then send me a check later. Although a very efficient operation could possibly do this profitably, my experience at UPS indicates that there are still lots of inefficiencies as they try to get launched and to scale.

To encourage repeat use, they sent me a certificate for $25 if I take another item to AuctionDrop, and a coupon for $10 off my next listing. The $25 certificate came with the cell phone check, the $10 coupon came with my digital camera check and nothing came with my $4 check for the conventional camera. All three checks were seperate and in seperate envelopes.

So net net? AuctionDrop has a fairly good system, however there remains tremendous room for cost improvement (presuming other people send multiple items like I did). Their offer is probably attractive to the average American that isn’t very tech savvy and not much of an eBay seller. However, the AuctionDrop brand is probably most recognized in the tech community (none of my non-tech friends and family had heard of them before). Their commissions are high, but probably necessary to keep the doors open. Although I can see them having some success with businesses (sell old computers, etc.), I think they have a number of challenges to widespread adoption.


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