IronPlanet’s online model includes inspections and more
Editor’s note: IronPlanet, Pleasanton, Calif., was launched about 13 years ago as an Internet platform to sell heavy equipment. The company was initially supported by Accel Partners and Kleiner Perkins Caulfied and Byers, two venture capital firms, in addition to three equipment manufacturers — Caterpillar, Komatsu and Volvo Construction Equimpent. “The idea was that the platform would be perfect for heavy construction equipment so that these 20- to 40-ton machines wouldn’t be moved a lot. IronPlanet would do an inspection process, post the equipment online and sell it,” says Greg Owens, who became the company’s chairman and CEO in 2007. He opened an office in the Atlanta area to handle sales while accounting, inside sales, customer care, marketing and product development continue to be based on Pleasanton. Owens says he wasn’t sure what exactly he wanted to be when he grew up, but he knew he wanted to be in charge. He started his career in consulting and supply chain management before becoming the chairman and CEO of a software company that was later sold. Since he joined IronPlanet, he says the company is now four time larger than what it was and he believes there is plenty of room to grow. He recently discussed the company’s strategy and more with Rental Management. An edited version of that conversation follows.
RM: How does the IronPlanet strategy for online equipment auctions differ from other local and national equipment auction companies?
Greg Owens: We are an online auction company. We feel the online nature of the auctions is much more efficient for the seller and is capable of a greater reach for the buyer. What we bring to our sellers is the ability to basically market their equipment to a much broader audience at an accurate level as to what the condition is of the equipment.
RM: How did the recession change the used equipment marketplace? It seemed like the market was flooded with equipment for sale, prices went down, but more equipment was sold. Now, it seems there is less volume for sale and used equipment prices are on the rise.
Owens: In the past, auction companies have tended to do reasonably well in both good times and bad times. I think any level of market movement is good for an auction company. At the start of a recession, as you said, the prices go down, but the volume is greater so you end up selling more. During good times, the volume might not be there, but the prices are. However, I don’t think anyone is ever prepared for a five-year recession. Basically that’s what the construction industry has experienced. In that amount of time, what you see is equipment not turning over. If you are not turning over equipment and if you’re in the auction business or used sales, you will have less volume to deal with.
RM: How did IronPlanet deal with this recession? You’ve recently moved into a new and expanded facility in Pleasanton. I take it things are going well.
Owens: I feel we were very fortunate. We embarked upon a strategy to take market share and we have been able to grow all during the recession. We didn’t experience the same level of growth the last couple of years that we did in 2008 and 2009, but we’ve been able to grow. When you get into something as prolonged as this economic environment, your best choice is to take more market share.
RM: Why should an equipment buyer use IronPlanet?
Owens: We offer something different than any other auction company out there, including our largest competitor. We offer IronClad Assurance®. We do a complete inspection of the piece of equipment from hydraulics to engines to undercarriages, and there are lots of pictures. We’ve given a physical rating to the condition those categories are in and we stand behind that. We’re not saying every piece is perfect, but that it is in the condition we said it was in. If it is not and you can show to us it is not, we will buy the piece back for what you paid for it. Just about every one of our competitors sells equipment “as is” and “where is” condition. We think a buyer will not bid as much online if they are a long way away unless a company says, “I guarantee it is in this condition.”
RM: How can you afford to do that? It would seem that the inspection process would be a huge undertaking.
Owens: We go through an intensive training process with our inspectors. Our inspectors attend IronPlanet University. Each inspector, prior to working for IronPlanet, has to pass a written test for our certification process. We have fewer errors than you would think because of our extensive training program. This is part of our process to continue to take more market share and offer a service to the buyer that is different. As a result, we have a much more global reach on our auctions to try to get the seller the most for his or her item. That’s the service we provide the seller, but we also provide the buyer a service by guaranteeing the equipment is in the condition we say it is, so the buyer can bid with confidence.
RM: You touched upon what you can offer a seller, but sellers have a lot of options. They can sell it themselves and not pay any fees, use local services and more. Why work with IronPlanet?
Owens: First, there is less transportation cost with IronPlanet. You do not have to move equipment to sell it. We’ve done several studies and we have found that, day in and day out, we bring in higher values than other auction companies. Yes, some of the other auction companies might have a big annual sale in one location, while IronPlanet has online auctions every week, so sellers can sell their equipment and get paid in 30 days. We compare by quarter what we are getting for equipment compared to our competitors. Day in and day out what we are finding is that we bring in higher values. I think the majority of that reason is because of the IronClad Assurance. We assure people they can bid with confidence and we will stand behind it.
RM: How does IronPlanet make money? Do you receive a percentage of the sale? Do you charge a buyer’s premium or are there other revenue streams?
Owens: We have buyer and seller fees. The auction business model is to provide a service to the seller and getting it sold, so there is a fee for us to sell the equipment and to state confidently that we will bring market prices. We do charge a buyer’s fee to offer that inspection report and the value of us bringing the Internet to them, so that they can buy without leaving their offices.
RM: Who is responsible for shipping costs or transporting the equipment once it is sold?
Owens: The buyer is responsible for transportation. All of the buyers I’ve talked to since I’ve been with IronPlanet figure in every cost with what they buy. If they are contractors or construction companies, they bid on projects all the time. When they get a project, they know what they have in dedicated equipment and what is missing. Sometimes they will have an immediate need and look for something close by. Other times, they can plan in advance. What has been interesting with big construction equipment is what drives buyer behavior. More than anything else, it is finding the exact piece they are looking for that is the right model with the right number of hours and the right condition no matter where it is located.
RM: When someone decides to put equipment up for sale, how long does it stay online? Are these timed auctions or something different?
Owens: It is a timed auction and we have one every Thursday and sometimes we have them twice a week. Equipment usually is available online for preview for a week and a half. Buyers will know what the auction will be and that item will be available for around five minutes. What we do differently is exhaust the bidding. That means for an item to clear, it has to be available for two minutes without a bid after the initial time expires. Many items get extended and that way we exhaust the bidding for the sale. You can’t “snipe” an item on IronPlanet the way some people jump in and make a last second bid on eBay.
RM: How does the equipment rental industry fit in your strategy? I would think some would be buyers and others would be sellers. How do you promote IronPlanet to the rental industry?
Owens: We do quite a bit with the rental industry, including the large national companies and the independents. We think our centralized model can work better for a decision-maker in a corporate office because he or she can dispose of the equipment regardless of what state it is in because we can put it on our next auction and we have at least one every week. If you are dealing with a physical auction company with 15 or 20 sites, then you have to figure out which site to send that equipment to and it can take much longer to dispose of the equipment. When someone is ready to sell, we send in an inspector, list everything and get it in our next auction — all is said and done in 30 days.
RM: Could you walk me through selling a used piece of equipment? What do I do?
Owens: You make a phone call to your IronPlanet salesperson or to our office. After you identify the pieces you want to sell and give us whatever information you have on the equipment, such as model number, year and hours, you are done. We get the item listed and send in an inspector, who also takes pictures. We will ask you to have it cleaned for sale. However, we don’t agree all of it should be painted. Our buyer base is emphatic that they want to see equipment “in its own skin.” If you paint it, the assumption is that you are trying to cover up something. We want the machine to be clean to look at it accurately, but not covered up.
RM: What if the inspector sees problems that are correctable and could increase the value if fixed?
Owens: We do offer suggestions and can bring in people to help with repairs. We might suggest fixing a crack in the glass or a tear in a seat, but we would not recommend spending the money to paint the machine. Once a machine is inspected, then it goes through the listing process and is usually slated for whatever auction is about two weeks out. After it is sold, the buyer and seller are given a code. You can’t just show up and say, “I bought this machine.” You need a matching code to pick up your machine.
RM: What do you see for the future? For example, do you think Tier 4 final will hurt sales of used equipment? Some manufacturers already are putting out retrofit kits so that Tier 4 machines can run on more than ultra low sulfur diesel.
Owens: For the future, I do see increases in terms of volume of equipment for sale going up. I think that’s a positive for companies like us. I see a brighter future. Concerning Tier 4, I do think engineers will find a way to fix it. There will be multiple methods to make sure a Tier 4 engine will work in other countries. Typically, auction companies sell pieces of equipment that are three to 12 years old. There are some outliers, but that is the sweet spot. That means we are not immediately turning over Tier 4 final equipment right now and I believe there will be a work around fix for that when those start to go up for auction.