Consumer online auctions will soar to €8.8 billion in Gross Auction Value (GAV) in 2005, but few firms will benefit from the boom. Instead, SMEs will emerge as the real money-generator for online auctions, potentially generating €58 billion in 2005, according to a recent report by Forrester Research (Nasdaq: FORR).

“Online auctions show explosive growth in Europe, and Forrester estimates that €1.13 billion worth of goods and services will change hands this year through consumer online auctions, with C2C transactions accounting for almost two-thirds of this value,” commented Forrester analyst, Hellen Omwando. “By 2005, the European auction market will grow eightfold, with B2C outpacing C2C to take 52% of the total. Forrester projects that C2C auctions will maintain a compound annual growth rate of 43&37; through 2005, growing from today’s €706 million to a healthy €4.2 billion.

“But with the auction business from Europe’s 72 million online consumers already locked up by eBay, iBazar and QXL, Europe’s online auction houses are chasing the wrong target. Instead, Europe’s nine million online small and midsize enterprises SMEs offer auction houses the opportunity for differentiation, higher revenue, an open playing field and liquidity. SME auctions can compete on value by specializing in particular verticals like construction and offering services like lines of credit. They purchase higher value items in quantity, and SMEs have recurring needs that build liquidity through repeat purchases.”

Europe’s SMEs are unlikely to turn to the Net for regular purchases of direct materials over the next five years. But for indirect goods like furniture and paper, occasional purchases like company cars, and spot needs like additional inventory stock, online auctions form a credible alternative to established channels. Forrester advises that firms looking to capitalize on this opportunity must approach SMEs on their own terms. While SMEs share consumers’ needs — requiring fast, simple sites with guided selling tools like parametric search — they also have five unique requirements –vertical expertise, low-cost entry, value-added services, trusted names, and requests for quotation (RFQ) support.

“Today, consumer auctions fulfill some SME demand with an offering that meets the low-cost entry requirement,” Omwando added. “These players will succeed at drawing home-based SMEs with one or two employees that intermingle their business and personal purchases. But consumer auctions will attract few larger SMEs because they fail on the other four criteria.”

Many SMEs have their own specialist trade networks where they buy and sell among themselves and liquidate overstocks. These players will migrate current phone- and fax-based systems to the Internet, rapidly pulling a swath of SME trade along with them.

“Broad-based portals like Yahoo! and Terra Lycos already have the traffic, technology platforms, and know-how to meet SME auction demand — but they lack industry credibility,” Omwando concluded. “To overcome this hurdle, they must enter joint ventures with established business to facilitate supplier-SME trade. Also, small-scale eMarketplaces already incorporate SME needs such as RFQ, and will support and plan to enhance value-added services, but they suffer from lack of brand recognition as early entrants. We expect them to outpace their large-scale eMarketplace peers who focus on locking up industry giants, not SMEs and grab the SME opportunity by partnering with local cooperatives by 2005.”