eBay partnership could free manufacturers from excess inventory

In its latest ad campaign, online auctioneer eBay says you can get whatever it is you want on its site. And thanks to a new partnership with a company called FreeFlow, whatever “it” is on eBay is likely to include more excess inventory from manufacturers.

Recognizing that manufacturers also need a place to sell items that have lost some initial value, eBay founded its private marketplace two years ago, giving companies with annual excess inventory of at least $2 million access to an e-commerce site over which to reach resellers. But eBay was not able to help manufacturers with the actual mechanics of selling until partnering last December with FreeFlow Auction Services, an auction-management company that helps manufacturers liquidate inventory by doing much of the behind-the-scenes dirty work for its clients, says Howard Rosenberg, eBay's director of trading platforms.

“One of the things we realized as we got into the business and started talking to companies was that many were interested in our solution but didn't have resources for fulfillment and management,” Rosenberg says. “At eBay we aren't in the position to provide those services. They are not part of our business model.”

But those services are exactly what FreeFlow has offered since its founding six years ago, says Alan Scroope, CEO. FreeFlow helps manufacturers set prices for their inventory and find appropriate auction sites. Clients post products on the sites, and FreeFlow performs all financial transactions related to the auction. After FreeFlow receives payment from the winning bidder, the client ships the products, paying FreeFlow a portion of the selling price.

FreeFlow currently has 15 customers, including Apple, Motorola, Lexor, and SanDisk; as well as Marlborough, Mass.-based networking hardware and software maker 3Com. That particular company saw returns on excess inventory rise from 10 cents to 85 cents on the dollar, and the number of brokers bidding on inventory increase from three to 125 after it turned to FreeFlow's services, Scroope says.

This year Scroope expects to bring on clients in the industrial discrete, farm equipment, and apparel manufacturing sectors.

“Right now our clients are mainly high-tech manufacturers, due to the pace at which they introduce new products, Scroope says. “A lot of obsolescence is built into that product life cycle.”

Before partnering with eBay, FreeFlow took its clients to auction via its own site, on branded Web sites hosted by other companies, and even by the clients themselves—as in the case of www.appleexcess.com.

Under the eBay association, FreeFlow now handles pricing, merchandising, billing, and collection for all private marketplace sellers. eBay has no other such partners. The partnership also allows existing FreeFlow customers to peddle their wares on the private marketplace. They'll have access to 15,000-plus power sellers registered to purchase at eBay's reseller marketplace, a liquidation site made up of the private marketplace auctions and intended to boost bidding on private marketplace wares. Power sellers visit exclusively to buy inventory to resell on the traditional online auction site.

Power sellers—which must maintain monthly sales of at least $1,000—ring up billions of dollars in sales on the traditional eBay site each year. A significant portion of that comes from reselling products they've purchased from private marketplace sellers, Rosenberg says.

Another perk from the partnership is the sales muscle FreeFlow brings with the deal.

“We have the opportunity to leverage FreeFlow salespeople who sell the solution,” Rosenberg says. “This is basically being able to go to market with a complete product-and-service solution, and delivering to this sphere of the market a high-touch service we couldn't provide.”