Andrew Heath is co-founder and CEO of GoIndustry.com, a Munich-based Internet marketplace that trades surplus industrial goods all over Europe, Asia and the Middle East. He speaks to Nina Kruger.
What made you decide to build an Internet marketplace?
We felt passionately that the full power of the Internet should be exploited. In the main, that power lies in networking - connecting lots of lots of people at almost zero cost. Second, the Internet gives you the ability to broker transactions dynamically, which was never possible before. On the Internet you no longer have a fixed-price world - so what we looked for was a market for Internet auctions.
What is so appealing about the surplus industrial goods market?
Just like antiques, surplus industrial goods are ideal for dynamic pricing. Used machinery doesn't have a determined value, you only have one piece of equipment, that is in a particular condition, available at a certain time and certain location. To determine the best price you have to hold an auction. And the market itself is huge - it is worth more than DM200bn in Europe alone.
Why did you decide to build up your Internet business in Germany?
If you look at the installed industrial capacity in Germany, it is by far the largest market for sellers in Europe. In Germany you have a lot of companies that are still manufacturing things and therefore have plant. Germany is also a very high-tech country, so people buy the equipment new and then sell it while it is still useful to other people. It's an excellent market for us to get seller relationships. We wanted to base ourselves in the largest market from the seller's perspective - in fact 20% of the market, by volume, is in Germany.
You just bought a German offline auction house. Why did you do that?
The online auction is good for selling individual equipment. For example, in our marketplace, assets get sold over a period of two months. The sellers don't mind because they can keep a machine in the corner of their factory while looking for the best price. But some sellers have whole plants they want to dispose of. When somebody is closing down a factory, or there has been a bankruptcy, people want to sell all the equipment by a certain date. Valuing and administering the auction of a whole plant is complex. If you want to do this in one day you have to do it offline. We will also Webcast those auctions so that people can take part in the event over the Internet.
Analysts keep talking about a shake-out of Internet marketplaces. Are you afraid this will happen to GoIndustry?
I agree that there will be a massive consolidation in this area. But I believe we are well positioned. Selling and buying can be a very long and painful process. Sellers often have to scrap their used machines because they can't find a buyer. So we have a very relevant product offering. And most important, we have already reached critical mass - that is, we have gathered enough buyers and sellers on our marketplace to keep the business going. This year we have sold, through GoIndustry.com, industrial goods worth about DM80m.
And, for you, how much revenue does that represent?
Around DM8m. Predominantly, our revenue comes from sellers' transaction fees - 8%-15% of the product price. The seller pays for the service, because if it wasn't for our marketplace they would have considerable trouble finding buyers. On our marketplace the deals are completely free for buyers. In the case of an offline auction though, when a whole plant is being sold, we charge the seller for the transaction fee and on top of that take a fee from the buyer, which is 15% of the sale price.
So the offline deals are the big deals?
Yes, but they are also more costly to undertake. You have more costs in administration - for example in valuing all the equipment. The more profitable deals are online, because online we don't have much human involvement.
Heath's top five websites
CV: Andrew Heath
1987-1988 Flight-test engineer, Federal Aviation Administration, Atlantic City, US
1991 - 1994 Studied economics at Cambridge University
1994 - 1997 Worked for Boston Consulting Group (BCG) in London and Munich. He was in charge of European-wide projects to define Internet strategies for traditional companies. He also was responsible for founding a BCG subsidiary in Warsaw
1997 - 1999 Made his MBA at Stanford Business School while working with Goldmann Sachs Principal Investment in London and Siemens AG in Offenbach, Germany
Summer 1999 Foundation of GoIndustry.com