It was an entry in an annual Harvard entrepreneurial competition in 1999 and it didn’t win. In fact, nobody in the Boston area seemed to like it much. The idea was simple: to sell heavy-equipment on the Internet to interested customers, using expert inspections of the equipment to ensure quality.
California, however, was different. Venture capital firms in the Bay Area embraced the idea almost immediately, and IronPlanet, the online auction house for used heavy-equipment, launched its Web site in spring 2000.
Situated in a tiny office next to a then little-known storefront operation called PayPal, the company’s early days were rough. IronPlanet was located next to a noisy commuter train station in Palo Alto in a small building with no air-conditioning. In cramped quarters, customer service employees worked the phones in the summer heat with train sirens blaring in the background.
“Those early days were exciting,” said IronPlanet COO Bill Coleman. “We were able to get traction right away, and people seemed to understand and embrace us very quickly.”
Since its Web site first went live on March 23, 2000, IronPlanet has become the third-largest auction house in the world, selling more than $650 million of equipment. IronPlanet finished 2006 with $165 million in equipment sales, and in first quarter 2007, gross equipment sales were up by more than 30 percent over the previous year.
Before launching its first auction, IronPlanet knew one challenge it faced would be establishing trust and creating a positive experience for the user. IronPlanet would need to overcome concerns about buying and selling online and convince users that it stood behind its equipment.
Even before auctioning its first item, IronPlanet built its reputation on the strength of its inspection reports and established the IronClad Assurance — its guarantee that equipment is in the condition listed online.
In addition to guaranteeing equipment condition, another important factor in establishing trust was to eliminate the fears of purchasing nonexistent items or shipping items without receiving payment.
“If you’re buying a baseball card for $100 and someone doesn’t send it to you, while it’s an annoyance, it’s not a financial crisis,” said IronPlanet CEO Rob Alleger. “But if you buy a $40,000 asset that you intend to employ in a revenue-generating capacity and it doesn’t arrive, you’ve got a big problem.”
IronPlanet facilitates the sale and purchase of each item on its Web site to provide a secure transaction. Once a buyer wins an item, IronPlanet sends an invoice to the buyer and a sales receipt to the seller so each knows the transaction occurred.
When the buyer has paid IronPlanet in full, IronPlanet notifies the seller that the item can be released. The buyer then picks up the item, or arranges transportation, and verifies that the equipment has been received in the condition in which it was listed.
Finally, when the buyer verifies the equipment’s condition, payment is released to the seller.
“The two critical elements of the transaction are that equipment stays on the seller’s lot until IronPlanet receives payment, and that the buyer does not have to accept the equipment until they have received and inspected it,” said Coleman. “And if one of those do not occur, IronPlanet mitigates the dispute to ensure that a fair solution is reached.”
Future for IronPlanet
As online auctions continue to grow, watch for phenomenal growth rates in the North American marketplace and an increased number of international sellers, said Alleger. With 97 percent of users saying they would refer IronPlanet to a friend or colleague, Alleger estimated that IronPlanet sales in North America could potentially grow at a rate of 30 to 50 percent in the coming years. Currently, 15 to 20 percent of IronPlanet items are purchased by international buyers, however, most equipment still originates in North America. With registered bidders in more than 270 countries, this is likely to change as IronPlanet grows to include more international sellers.
“Buyers are out there looking for equipment on a global basis,” said Alleger. “There’s always a mismatch somewhere on the globe between the population of equipment and the demand for that equipment. The Internet, combined with guaranteed inspections, allows both buyers and sellers to take advantage of those mismatches.”