AuctionDrop opens eBay drop-off store in Menlo Park AuctionDrop opens eBay drop-off store in Menlo Park (October 22, 2003)

By John Flood
Special to the Almanac

There still are startups that have their genesis in a garage. AuctionDrop -- a company that helps people sell goods on eBay -- is one of them.

AuctionDrop, which opened its third California store in downtown Menlo Park on September 15, is the brainchild of Menlo Park resident Randy Adams, chief executive officer, chairman, and president of the firm.

The idea came to him when he wanted to get rid of old computer equipment collecting dust in his garage.

"I quickly found that I wasn't an expert at it [selling on eBay]," says Mr. Adams. "Everyone I spoke with agreed that they'd pay for such a service."

AuctionDrop secured $3 million in funding from Draper Associates and Mobius Venture Capital, and opened its first store in San Carlos in March, and a second one in Los Altos in July.

Sales are running at a rate of $2.2 million a year, with 50 percent growth per month, says Mr. Adams.

The company, which currently employs 75, plans to have 10 company-owned stores in the Bay Area by the end of the year, and 10 more in the Los Angeles area by next March, he says. In addition, several stores are planned for the New York tri-state area by the middle of next year, he says.

From nuts to bolts

The company provides the nuts and bolts services to sell things on eBay, including photography, setting-up the eBay listing, payment processing, shipping and returns. Its staff assists with questions until the sale is complete.

"It's good for people who don't own a digital camera, a PC, or don't have the time or know-how," says Mr. Adams.

AuctionDrop charges commissions of 20 percent to 38 percent of sales price, he says.

The business is like a consignment center, but with a global reach: eBay claims it has 85 million registered users world-wide.

The company opened an 800-square-foot store in Menlo Park because "many customers were coming to our San Carlos store from Menlo Park and Atherton," says spokesperson Andrea Roesch. "We [wanted] to make it more convenient for people who live in this area."

The Menlo Park store has already handled several hundred items and was profitable in the first week, says Mr. Adams.

AuctionDrop, and companies like it, represents a nascent trend in the eBay-driven commerce model that provides a physical manifestation to the online seller.

"This is a $4 billion market," says Mr. Adams.

Similar businesses include Picture It Sold, which has a shop in Berkeley.

The concept of a middleman or trading assistant on eBay isn't new. Some estimate that up to 20 percent of all eBay transactions take place through them.

While the precise numbers vary, 15,000 trading assistants are registered on eBay, but fewer than 300 do it full-time without storefronts, says Mr. Adams.

"Most of them work out of their homes and are experts in a subject such as coins or antiques," he says. "But we continue to fuel the traditional eBay model [where an individual wants to sell a few items]."

That model is enormous. "This year, 30 million people will buy and sell well over $20 billion on eBay," BusinessWeek reported August 25.

Size matters; so does technology.

"Unless you have economies of scale, this is a tough business," says Mr. Adams. "And technology is absolutely key to our success."

The three founders aren't novices to implementing technology.

Andy [Jeffrey, AuctionDrop's CTO, and previously with the software firm T-Maker], developed the proprietary software to automate the process," says Mr. Adams.

The company's 35,000-square-foot processing facility in San Carlos includes motorized conveyor lines, computer-controlled cameras and barcodes for every item.

"Our goal is to put items on eBay within 48 hours of their arrival at our stores," says Mr. Adams.

To be listed through AuctionDrop, an item must have a minimum value of $50; weigh less than 150 pounds; be smaller than 130 inches in girth; and conform to eBay's restrictions.

Items are listed for seven days. After that, the owner has the option to pick up the item or donate it to charity.

"We start everything at $1 because it achieves the highest price with the highest bidders," says Mr. Adams. "We've seen items jump from $15 to $2,000 in the last two hours of bidding."

Competition

Does being first in the market make a difference? It's important in terms of building brand and providing service, says Mr. Adams. "Starbucks is a good model," he says. "And our store strategy is company-owned for the time being."

Will large, traditional retailers like Wal-Mart threaten companies like AuctionDrop by entering the eBay services market? Not if Mr. Adams assessments hold correct.

"There are few examples where a company serving one need expanded to a different need and did it successfully," he says, "If you look at the way the retailers tried to move into the Net space, they weren't that successful."

"We want to be experts [at selling on eBay] and do a better job than anybody that has a real estate footprint," he says. "We know how to list and what to list in what categories; we analyze eBay everyday. ... And we take care to ensure that the buyers are valid."

But will eBay stand-by quietly and not open a storefront?

Mr. Adams, who has started seven start-ups, including the Internet Shopping Network, and who once served on the board of Yahoo, seemed unconcerned about a virtual eBay suddenly morphing into bricks.

"I don't think eBay will enter this market," says Mr. Adams. "I'm not concerned about it; I think they are happy to be virtual."

For the time being, eBay might simply enjoy remaining a customer of AuctionDrop.

Meg Whitman, the chief executive officer of eBay, recently brought some of her own items to sell in the AuctionDrop Los Altos store, according to Mr. Adams.

Mr. Adams declined to comment on what specific items Ms. Whitman sold and at what price.

"All of it sold very well and she was a satisfied customer," he says.

AuctionDrop's Menlo Park location is 1283 El Camino Real. Store hours are Monday-Saturday, 10 a.m. to 6 p.m., and Sunday, 10 a.m. to 5 p.m. For more information, call 566-0100.