Failure of AuctionDrop.com
Comments by Brian
Suomela, former entrepreneurship student at
In my opinion these are the top three reasons why this business model is
struggling/failing:
1) Security. Many people that would like to sell their stuff on the
internet are comfortable using eBay already. Why would they instead sell
through a middle man, unless it saves time or money? I was unable to find
any information on the i-soldit.com website about
their policies on item misrepresentation or dispute resolution, so I am not
convinced that buying items listed by i-SoldIt.com is any safer than buying
directly from eBay. I must admit that anyone that has been burned by an
eBay scammer would be likely to 'feel' a safer buying items which they know
were entered into the eBay marketplace from a bricks-and-mortar store, which
should provide some extra purchase protection over the typical 'buyer beware'
environment.
2) Large franchising costs act as a barrier to growth. They make more
money with each new sale, but I think they are starving themselves in the
process. With a lower cost to put up an i-SoldIt.com
sign in front of a store, there would be more stores opening up, increasing
awareness of the service up to a critical mass where it gains brand
recognition.
3) Outrageous sales commissions.
From AuctionDrop.com (Feb 4 2004):
--------------------------------------------------
38% of the first $200
30% of the next $300 ($200.01-$500)
20% of the remaining amount (over $500)
($19.99 minimum commission)
Special quotes for items estimated to sell at more than $5000. Contact
quotes@auctiondrop.com.
eBay also charges a commission if your item sells:
5.25% of the first $25
2.75% of the next $975 ($25.01-$1000)
1.5% of the remaining amount (over $1000)
Plus a 2.9% transaction fee.
-----------------------------------------------
From i-SoldIt.com:
i-SoldIt.com Commission (may vary by store)
Typically, i-SoldIt.com’s commission is 30% of the first $500 and 20% of the
remaining amount (over $500). i-SoldIt.com charges a $5.00 minimum commission
per item.
eBay Fees
Listing/Gallery photo fee of $0.60
(assumes $9.99 starting bid) plus
5.25% of the first $25, 2.75% of the next $975, and 1.5% of any amount over
$1,000.
Payment Processing Fees
$.30 plus 2.5% of the final selling price.
--------------
From the press room at
i-soldit.com
http://i-soldit.com/2004/news_articles/iSold%20It%20Signs%20300th%20eBay%20Drop-Off%20Store.pdf
Nov 8, 2004
"iSold It currently has 18 stores open
throughout the country and is well positioned to reach its short-term goal of
50 stores operating by year-end. The iSold It real
estate and construction departments have over 30 additional locations under
development for this year and its operations team is staffed and ready to open
an average of four stores per week from now until the end of December. The
company is on target to meet its goal of 500 franchise stores under contract
and 100 stores open by the end of March, 2005."
http://i-soldit.com/2004/news_articles/13%20Hot%20Businesses%20for%202005.pdf
Entrepreneur magazine claims the eBay drop-off store concept is a "hot
business for 2005", and at the time of publication (Nov 12, 2004)
AuctionDrop.com claimed to have over 1,000 franchises signed, but they have
since imploded down to just one (possibly their "home office"?). I
wouldn't be surprised if I see news about i-SoldIt.com shutting down operations
in the next few months as well.
In addition, for every piece of encouraging media hype I read from mid-2004
about i-SoldIt.com, there are two or three more recent scam-warnings such as http://ripoffreport.com/reports/ripoff128323.htm
and http://members4.boardhost.com/businessbooks/msg/1060.html.
They could all be planted by ruthless copycat competitors, but there is
probably some truth to the negative feedback. Like any franchise (e.g.
Subway) there is a large, up-front investment required to get an i-SoldIt.com
franchise (which is apparently variable based on what people can afford,
anywhere from $25,000 to $170,000?), and then the franchise owners seem to expect
that now that they have put the money down they can put their feet up and watch
the profits come pouring in. Then if for whatever reason they don't get
enough sales to make the investment worthwhile they complain that i-SoldIt.com
"did nothing to support them".
Chalk up another one for the "great idea but poor execution"
category... From http://techdirt.com/articles/20050202/020236_F.shtml:
eBay Drop Off Stores Not Doing So Well Failures by Mike on Wednesday, February 2nd, 2005 @ 02:00AM from the so-much-for-that-plan... dept.
“Two years ago, we noted one of
the first companies that was built around the idea of
setting up a storefront to sell your crap on eBay for you, named AuctionDrop.com.
While the concept makes some amount of sense (a good seller can command at
least a slight premium, and many people don't want to deal with the hassle of
selling stuff themselves), it still seemed like a very tough business.
AuctionDrop.com wanted to charge 40% commissions, which could scare off quite a
few people -- and it seemed like a very difficult business to successfully
scale to any reasonable degree. One other problem was insanely low barriers to
entry, as seen in the fact that a ton of copycats quickly flooded the market.
Now, AuctionDrop.com is admitting that the business model hasn't quite worked
out the way it expected. Instead of working towards opening up 1,000 stores
(the original claim), they've now shut down all but one. Instead, they're
trying to run similar offerings for UPS and Best Buy. Of course, it's not clear
how well those are really doing either. Best Buy competitor
http://www.dramatispersonae.org/BusinessModelExampleiSoldIt.htm
http://www.dramatispersonae.org/EntrepreneurialistCultureFrontPage.htm
http://www.dramatispersonae.org/