An Interview With uBid.com CEO Jeffrey Hoffman

On June 16, The Wall Street Transcript interviewed Jeffrey D. Hoffman, Chief Executive Officer of uBid.com Holdings (UBHI.OB). Key excerpts follow:

TWST: We'd like to begin with a brief historical sketch of the company and a picture of the things you are doing now.

Mr. Hoffman: uBid.com is actually in its 11th year of operation. The company was started in 1997 as an online auction site, specifically in the business-to-consumer market with the idea being to sell excess inventory for major brand names directly to consumers in an auction format. The company has been doing that for more than a decade now.

TWST: What have been the principal drivers of your success over this time?

Mr. Hoffman: I think this company has really been driven by the amount of time it has invested in relationships with brand names. This company, in 10 years, has developed agreements with over 7,000 corporations to help them sell excess inventory that didn't sell in retail. So over a 10-year period with 7,000 relationships, we've really become the expert in liquidating excess inventory online.

TWST: What challenges did you have to face?

Mr. Hoffman: I think that probably the single biggest challenge, in our case, is the consumer proposition; making sure that the consumer and the buyer understand that excess inventory is the market in which we specialize. We are an inventory solutions company, which is not retail, meaning that we don't have the product continuity of a retailer. If you go to a Foot Locker, they sell Reebok shoes every day of the week. If you come to uBid.com, to our site, we have whatever inventory was excess in somebody's warehouse in that particular week. Inventory changes on a regular basis and having consumers understand the difference between a retail sale and an after-retail excess inventory sale takes a bit of doing.

TWST: What is the competitive landscape like?

Mr. Hoffman: The competitive landscape there is interesting because that's what sort of led to our current announcement of a new strategy that we are launching in 2008; and that is the competitive landscape is pretty scattered. We compete with companies such as overstock.com, which tends to focus on an upscale women's market, which is an online jewelry site. There is a company called Liquidity Services, which focuses on government surplus. So those are probably our closest competitors, but they serve limited segments of the market and nobody provides really a comprehensive inventory management solution for the major brand names, which is what our new strategy is for 2008 and forward.

TWST: Would you go into more detail on this strategy?

Mr. Hoffman: What we've learned during these 10 years working with these 7,000 companies is during this time we sold over $2 billion worth of excess inventory on our auction site for these companies. We've come to understand that the excess inventory is called asset recovery from the viewpoint of major manufacturers and retailers. Take an example of Dell Computer or Sony or HP, those are all customers of ours. When they have a product that's in its prime retail life cycle, for example, they have the Dell Inspiron Version 4 and the 4 is in retail. When the v5 comes out, the v5 becomes the prime retail product and they have a new product. Now there is the process or problem called asset recovery, which is that all the Version 4 that were made that are no longer on the shelves that didn't sell in retail.

What we are launching in 2008 is a more comprehensive set of solutions to solve inventory problems for major retailers. That means that even over 10 years where we focus just on an auction site, we are now introducing a fixed price site, where you don't have to buy through the auction format. You could buy the product right away at a fixed price. We are also introducing our offline sales in cases where the inventory, for example, is refrigerators. Inventory that doesn't ship well is typically hard to sell on the Internet. We'll be selling that physically in a tent sale type of location, where whatever inventory is left, when it's gone, it's gone. We've been testing that down in Florida already and even combined that with our business-to-business unit. In case one company wants to move large quantities, if you in fact are a business and you are looking for 1,000 refrigerators, we can cut that deal from warehouse to warehouse. So we've added more platforms to our auction platform and going forward we'll be a complete inventory solutions company, not just an auction site anymore.

TWST: What might you worry about in the future? What problems or challenges could arise?

Mr. Hoffman: Some people ask the question, "Well, what if some of these retailers become more sophisticated and want to sell some of these products on their own Website?" That is something we always worry about. But there are two answers to that. First, they tend not to do that because of channel conflict. They don't want to sell yesterday's products at a very low price in the same place they are trying to encourage you to buy today's products at full retail. That's what creates an opportunity for Priceline and priceline.com, which was the last company I was partnered up with. Delta Air Lines does not want to sell a $50 empty seat sitting right next to a $500 platinum customer. So we provide that channel conflict resolution if they don't sell it. But in the cases that they do, we've launched another effort that will not be available till later this year, which is that we are providing an ASP model, Software as a Service. We are anticipating that potentially coming up with some companies and we've spent $40 million developing our technology. What we are going to do is offer a license to use our technology engine if some companies want to do what we do on their own.