GoTo.com Spins Off Auction Business

In a move that brings the business once known as AuctionRover.com full circle, Pasadena, Calif.-based GoTo.com has sold its auction business back to its management team, while retaining an 18.5 percent ownership stake.

The new company, known as ChannelAdvisor, is based in Research Triangle, N.C., and consists of about 40 former GoTo.com employees, including president and chief executive Scot Wingo and chief technology officer Aris Buinevicius — the team that headed up AuctionRover.com before its acquisition by GoTo.com. GoTo.com bought AuctionRover.com back in March of 2000 in a stock transaction valued at approximately $175 million. Financial terms of the most recent transaction weren’t made public.

The news shouldn’t come as a surprise to investors. When GoTo.com announced fourth quarter and year end 2000 results in mid-February, execs said the company was looking to shed the auction business, but expected to retain a stake.

The spin-off appears to be an admission that the auction business isn’t a good fit within GoTo.com. In the turbulent Internet business environment of the past year, start-up companies — especially those in the marketing and advertising space — have struggled to find business models that work, often selling off unrelated divisions or shifting corporate direction entirely.

“We acquired AuctionRover because we believed that our affiliate partners who already distributed our pay-for-performance search product would also see value in distributing a pay-for-performance auction product to their consumers,” said a spokesperson for GoTo.com. “While interest in our pay-for-performance search product has exploded among our affiliate partners — such as AOL, Lycos, and AltaVista — interest in a distributed consumer auction search product didn’t develop as quickly as anticipated.”

Unlike many online ad firms, GoTo.com has widely been seen as one of the success stories — last week announcing that it had reached EBITDA break even two quarters earlier than it had expected. According to the companies, this spin off is aimed at allowing ChannelAdvisor to develop, while letting GoTo.com focus on its core paid search listings business.

“As GoTo was looking at their roadmap, we were becoming more of an enterprise tool,” said Wingo. “And they were really focused on being a media company.”

GoTo.com, however, is hedging its bets, holding onto nearly 20 percent of the company, and sharing revenues on business it sends to ChannelAdvisor.

“This is a positive step for both GoTo and ChannelAdvisor,” said Ted Meisel, CEO of GoTo. “This new structure allows ChannelAdvisor’s business to grow consistent with their vision, while allowing GoTo to remain a minority shareholder that can benefit from the growth and success of ChannelAdvisor while furthering its own strategic growth.”

Although AuctionRover.com was a more consumer-focused company, which provided a means for people to search auction listings on various sites, the team — then at GoTo Auctions — began to focus on the enterprise business around October of 2000. Now ChannelAdvisor helps small businesses and enterprises establish and manage presences on Internet auction sites — such as eBay, eBay Stores, Yahoo and Amazon Auctions — as an e-commerce sales and marketing channel. Like GoTo.com, the company makes its dough on a pay-for-performance basis, taking a percentage of sales it helps generate. Customers include Sun Microsystems and IBM, the two largest sellers on eBay, according to ChannelAdvisor.

Basically, ChannelAdvisor helps its clients manage their auctions, with its staff making all of the auction decisions. Its software leverages the customers’ existing marketing assets, tapping into customers’ e-commerce and marketing databases for images and product information, creating branded listings on the auction site.

“When we set up a merchant on eBay we give them a much different look and feel. The idea is you want to really stick out on eBay,” said Wingo. “It’s like putting an IBM store right next to a bunch of people selling Thinkpads that are used. The branding increases sales by up to 10 to 20 percent, we’ve found.”

Now that ChannelAdvisor is independent, Wingo says it will focus on rounding up new customers and forging partnerships.

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