In the past 10 days or so, we have been going back and forth with Winesearcher about how "for sale" wine in the Vinfolio Marketplace should be listed on their site.  We have a difference of opinion which has resulted for now in only listing "for sale" wine which has either a bid price or an asking price instead of all wine marked for sale.

While Vinfolio has a self-interest in having more listings, I happen to believe that any Winesearcher user would prefer to know a wine was potentially able to be purchased than to censor the information.  In any case, I suggested to Winesearcher that we air the topic on an independent wine board to expose the topic to a broader audience.  As the Squires board on eRobertParker.com determined my post violated their commercial policies (and deleted it within minutes), you can find my detailed post (and poll) on Wine Berserkers.

I'll be responding to comments on the Wine Berserkers thread as well as any which are posted here.

Since the Marketplace launched about 2 weeks ago, VinCellar has contained links to buyer and seller tutorials on the VinCellar home page.  We just added these tutorials to our web site as well. 

For the buyer tutorial, visit our Buy or bid page and click on the red box on the upper right of the page which looks like the image on the left below. For the seller tutorial, visit our Marketplace overview page and click on the green box which looks like the image on the right below).  For a preview of planned Marketplace enhancements, read this Vinfolio blog post.

Since the Vinfolio Marketplace went live last week, there's been some discussion in online boards about its fees and how they compare with primary alternatives (i.e., bricks-and-mortar auction houses and online auction players). The Marketplace differentiates itself on many dimensions, including fees, but this post provides a fee-only-based comparison (OK, I've added some other comments too because "normalizing" fee charging methods requires some explanation).

Comparing  "apples to apples"

All other auction houses require the wine being auctioned to be in their custody prior to the auction.  While not required in the Vinfolio Marketplace, the seller has the option of transferring wine to Vinfolio storage first which is the nearest equivalent of the traditional auction house approach.  Therefore, for a true "apples-to-apples" comparison, the Marketplace seller's commission when sold from storage is the only relevant basis of fee comparison.

Normalizing fee methodologies

Auction houses (whether traditional or online) tend to charge both a buyer's premium and a seller's commission on a transaction. Many sellers tend to ignore the buyer's premium because, after all, it's not charged to them. That logic is fallacious because any rational buyer faced with paying a 20% buyer's premium on his/her bid (or "hammer") price, will lower his/her bid to reflect the extra cost.  Doing so ensures the total out-of-pocket price reflects what he/she believes the bottle to be worth.

The table on the right shows the universe of leading auction houses and their current buyer's premiums based on June 2009 U.S. auctions (note: if an insurance fee percentage is required, it is included).

To normalize different fee methodologies, I used a fixed $100 total price paid for a bottle and calculated the bottom-line net proceeds received by a seller (which is all anyone cares about!) when sold through different types of auction channels.  The final result is a table showing a comparable single metric representing an "equivalent" seller's commission.

Vinfolio Marketplace vs. Traditional Auction Houses

The following chart illustrates that the Vinfolio Marketplace generates greater seller proceeds than using a typical auction house.  Auction houses don't publish their seller's commission fees (why not?).  They tend to be negotiated based on the estimated value of the consignment but the range shown is fairly typical (with Acker Merrill being the exception at 0% but with their 21% buyer's premium, the net proceeds only reach $82.64).  Keep in mind that for larger consignments where the lower-end auction house seller's commission probably applies, the Vinfolio Marketplace's cumulative volume discounts would also, raising the Marketplace's net proceeds to $86.50.

Vinfolio Marketplace vs. WineBid and J.J. Buckley (WineCommune)

The following chart shows why the Vinfolio Marketplace is better than using WineBid or J.J. Buckley (a WineCommune affiliate).  Some additional explanation is needed here:

• Winebid's seller commissions are not published (at least nowhere I could find) but are believed to vary between 12%-19% based on the volume of wine consigned.
• J.J. Buckley is a retailer owned by WineCommune that uses WineCommune to run consignment auctions (WineCommune sellers as of 12/08 must possess alcohol licenses to use it directly, hence the J.J. Buckley "tag team").  There's no buyer's premium and the seller's commission is linked to the bottle value with break points at $250 and $1,000.  In checking WineCommune's site, there were only 3 listings with prices of over $1,000 per bottle (13% fee) and just under 10% of listings with $250 in total value (15% fee; listing measurement includes multiple bottle lots) so most people sell bottles for less than $250 which is a 17% seller's commission.  The 16.8% shown in the chart is an estimated weighted average.

Other material differences exist that you need to know about.  With WineBid and J.J. Buckley, any wine which doesn't sell in a weekly auction has its reserve and/or starting bid lowered each week until it sells (or you can ship it back to yourself any time at your expense).  If you feel like gambling, you can reduce the seller's commission to 10% at J.J. Buckley if you sign up for a weekly auction with a $1 starting bid and no reserve.  As that's an "orange" in this "apples-to-apples" comparison, I didn't include it in the chart above.

Selling fee summary

The table below says it all.  The far right column represents the "expected" fee borne by the seller based on which firm is used.

Bottom line: The Vinfolio Marketplace is the most cost-effective solution for selling your wine, even without considering its many other differentiators. Review the Marketplace overview to learn more.

I'm pleased to announce that the Vinfolio Marketplace opens for buyers to submit bids tomorrow, July 8.

World's largest wine selection

Here's what you can expect:

• 27,000+ unique items already marked for sale
• 170,000+ bottles
• $20+ million estimated retail value

That's far more than any retailer/auction house (and that's on day 1).

"Heaven" for wine lovers

Here's what the Marketplace offers bidders:

• Unmatched selection (from one place, see above)
• Set your own price
• Sellers compete to accept bids
• No buyer's premium

We'll continue to sell wine through our online wine store so read about whether to buy or bid.

Selling wine "redefined"

In the future, I'd like to think the Vinfolio Marketplace is compared to today's online and bricks-and-mortar auction houses in the same way as YouTube vs. television, web vs. newspapers, and Nike vs. sneakers (all examples in this Seth Godin post titled "Solving a different problem").

Here's why sellers find the Marketplace compelling:

• No listing fees, minimum quantities, time constraints or advance preparation work needed
• No delays in wine being offered for sale as there's no need to ship it in first
  
• 100% control over sale price (obviates reserve concept)
• Completely anonymous because Vinfolio intermediates all activities
• Competitive (if not lowest) selling fees
• Fast weekly payments after sale
• Broad marketing exposure (including internationally)
  

The numbers above on wine marked for sale speak for themselves.

More background on the Vinfolio Marketplace

• Marketplace FAQs
  
• Wine Collector blog posts, click here
• Vinfolio blog posts, click here.
• Vinfolio Forums, click here.
• Vinfolio terms and conditions (see Marketplace section)
• Email trade@vinfolio.com for information on trade participation.
  

VinTank, the "digital thinktank" for the wine industry, issued a new Pulse Report yesterday on the launch of Vinfolio's Marketplace and its "potentially high" market impact for wineries and importers.  While the Marketplace is fundamentally about systematically aggregating fine wine supply from wine collectors and enthusiasts to create a scalable secondary market supply channel, it is equally applicable to the trade.

Marketplace helps the Trade optimize revenues

In particular, the Marketplace may be used by the trade as a low-cost, direct-to-consumer sales channel (via Vinfolio) for both new releases and library wines to optimize revenues.  For example, wineries or importers with allocated wines may decide to anonymously sell some portion of their wine at above mailing list or "official" prices when secondary market demand is strong. Or, if facing an oversupply of an item, they can discreetly choose to sell wine at below official prices without fear of negatively impacting their brand position.

Home state of Trade participant doesn't matter

All wine sold through the Marketplace must physically pass through Vinfolio in California.  If a winery or importer has no supply already located within California, Vinfolio's CA type 9 importing license provides us with a blanket right to bring wine into California from any jurisdiction within the U.S. (provided we pay CA import excise taxes and the wine is legally registered for sale within the U.S.)

Trade license of Marketplace sellers is not relevant

Anybody can sell using the Vinfolio Marketplace because it is operated as an auction in California.  The relevant statute permits wine sold by "any person" and removes all vintage-related limitations on what wine may be sold.

Why consumers benefit from Trade participation

Consumers will have access to more choices, including new releases, wines from closed mailing lists, and potentially bargains from wineries and importers looking to sell excess supply.

Bottom line: As VinTank's report says, "any healthy alternate route to market that causes margin release is favorable.  This is the case with the Vinfolio Marketplace."  If you're a member of the trade and would like to learn more, please contact trade@vinfolio.com.

Yesterday, the Vinfolio Marketplace debuted and today we're scaling up its market impact by announcing a very significant relationship with VinCellar's leading competitor in the online cellar management software space, CellarTracker (see Vinfolio announces partnership with CellarTracker!).

What it means

1. CellarTracker users will be able to sell wine in the Vinfolio Marketplace using CellarTracker as their "front-end" to Vinfolio's "back-end".
2. Together, Vinfolio and CellarTracker have over 135,000 users managing 12+ million bottles of more than 400,000 unique items worth an estimated $2+ billion in retail value.
3. Buyers of fine wine will soon have access to the world's largest wine "store" (by an order of magnitude).
4. CellarTracker will be able to deliver even more value to its loyal user community.
5. To avoid any possible misunderstandings, we're not merging the companies and we'll continue to compete for new users to adopt our respective cellar management platforms.
   

The background story

CellarTracker's Eric LeVine and I first met in late 2006.  While our companies have been competitors for years, I've always believed in the principle of "co-opetition" in which one may compete in some areas but cooperate in others.  Vinfolio's development of the Marketplace enabled us to define an attractive win-win collaboration because any marketplace's success is defined by the ability to create a critical mass of buyers and sellers.  While Vinfolio had its own sizeable constituency, the opportunity to team with CellarTracker and its community of users offered what I considered to be a preemptive market move.  So I asked myself, "Why not go for it?" and broached the partnering idea with Eric in November 2008.

After working out an agreement in December, Eric and Vinfolio's team have been working closely together since January to ensure a seamless integration between CellarTracker and Vinfolio's Marketplace to support a simultaneous launch of bidding in early July.  CellarTracker users will soon be able to start marking wine for sale from their CellarTracker accounts to offer in the Vinfolio Marketplace.

Bottom line: While we will continue to drive the development of VinCellar's own user community, we're very pleased to be working with CellarTracker to create value for our respective users and the broader wine community.  We remain open to other such partnerships in the future but "execution, execution, execution" is our priority for now.

When I started Vinfolio in July 2003, my ultimate objective was to create an online destination where a virtually unlimited selection of fine wine aggregated from privately owned cellars could be bought and sold with the convenience and cost efficiency that only the Internet can enable.  That moment has finally arrived today with the launch of the first phase of the Vinfolio Marketplace (see Vinfolio announces launch of the Vinfolio Marketplace).

The fine wine supply problem

As a "committed" wine collector from the mid-1990s, I was constantly frustrated with the difficulty in obtaining the wine I wanted to buy.  At the time, I didn't realize the problem stemmed from inherent obstacles that retailers faced in accessing adequate supplies of fine wine in the new release (or primary) market.  Those obstacles, along with the capital required to stock inventory, forced wine collectors to buy from a diverse set of retailers (each with finite inventories) to find the wine they desired.  Even today, the wine retail market is still highly fragmented with over 850 U.S. wine retailers offering at least 50 items (over 400 with at least 500 items) but only a dozen or so with more than 5,000 items.

I realized that the path to building a scalable supply channel for fine wine depended on systematically aggregating the contents of privately owned cellars (i.e., the secondary market) -- in effect, applying the "long tail" theory (see chart below).  We sought to do so by creating VinCellar, our online cellar management application which was recently rated the most innovative wine social media network.  A by-product of users finding value in VinCellar was that merely using it brought visibility to who owns what and positioned it to be the platform from which sellers could easily opt to sell part or all of their collections.

Vinfolio's current business already built upon private cellar supply channel

Vinfolio's business has grown dramatically over the years by consistently sourcing over 70% of its supply (by value) from the secondary market (which ironically became our primary supply channel).  Along the way, we've developed numerous proven business processes and systems including a world-class ecommerce site, warehousing in multiple locations, storage, logistics, marketing, customer service and other skills.

The Marketplace represents the next step function in realizing the original Vinfolio vision by further automating business processes to deliver user convenience and business scalability while leveraging unparalleled access to fine wine managed within Vinfolio's VinCellar online cellar management application. The Marketplace selling platform will also be made available to the trade and other strategic partners (stay tuned for another announcement tomorrow!).

Why Marketplace is compelling

Vinfolio's Marketplace starts with the immediate critical mass of buyers and sellers derived from almost 55,000 users already registered with Vinfolio who are managing over $500 million and several million bottles of wine with VinCellar.

Marketplace redefines the online auction model -- it's not merely a replication of the offline bricks-and-mortar approach in an online context.  For example, there's no upfront consignment required, no listing fees, no time constraints, no minimum quantities, and no other preparation needed to start selling immediately other than marking wines for sale in one's VinCellar account.  With Vinfolio as the intermediary, the Marketplace is completely anonymous with all wine clearing through Vinfolio where it is inspected per published inspection guidelines for acceptance or rejection.

As of today, you can start marking wine for sale in preparation for the early July commencement of bidding and earn free Vinfolio storage credits in the process until May 31. 

Bottom line: Learn more about the Vinfolio Marketplace now.