Lately, auctions are showing up more and more because auctions offer a huge benefit to the seller, particularly if the seller has something unique. It is worth to think about how auctions are creeping into our lives and how they change the way we engage with the market.
Because so much money changes hands in auctions, people have put a lot of thought into how to structure auctions to maximize the money that can be raised. Auctions give people the mental shortcut by rationalizing to us that the market has spoken. With auctions, we do not need to spend a lot of time trying to figure out what something is worth. We need to figure out if it is worth a dollar more than other bidders think it is worth.
Auctions are also a handy tool for having deniability. It is hard to criticize someone for dramatically overpaying for something if we pay just a little more than the other guy.
Sellers are discovering that if we own a unique, irreplaceable asset, the most efficient way to get money for that asset is by auctioning it off. When one of these auctions takes place for a retail space, almost all the profit from that retail establishment flows to the landlord instead. That is one reason why retailers are often in trouble and landlords almost never are. The fact is that retailers are competing against each other in an auction almost always must overbid, or else they don’t get to play. If there is just one bidder that is willing to overbid, the landlord wins.
The impact of the auction gets even bigger when we think about the Internet. Google has been making money with the auctions, and it is an auction that takes place every day and 24 hours a day around the world. The auction for the ad space is just like the auction the retail space landlord is having. By competing and winning the auction, the merchant gets the ad spot and prevented others from playing in the field. Google is clearing the table of almost all the profit. That 99% of the value of those clicks goes to the Google, who is holding the auction for the irreplaceable bit of attention.
So now we live in an economy based on how much attention is worth. In Google’s case, the attention that they have earned by offering all those free services they subsidize. There is nothing wrong with auctions – they are efficient and fast. First, we must figure out how not to get emotional about them and not be the fool who pays a little too much every time. And second, as enterprises get more powerful and build these assets, they can auction off to the highest bidder.
As a practitioner, we should consider building something that is worth auctioning. Build a unique asset one without an easy substitute, one that is needed by more than one. If we own that resource, we get the privilege of offering it to the highest bidder, if we choose.