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This article by Melinda Sherwood was published in U.S. 1 Newspaper

on December 15, 1999. All rights reserved.

Make Us An Offer: Online, Real Time Haggling

Some people like robots. Some people like dolls.

Investors may someday know and like Chester. He is a virtual

auctioneer,

a digital puppet that uses artificial intelligence to haggle with

bargain-hungry shoppers at an E-commerce site —

www.makeusanoffer.com

— that sells everything from cameras to clothing, bric-a-brac

to gag gifts.

Bid the right price, and Chester lets you know you have a deal:

"Just

because it’s you, I’ll offer you a special deal," he says.

Low-ball

him, though, and you get shot down with proverbial wit. "My Mom

always told me that a penny saved is a penny earned. But you’re trying

to save a fistful of dollars . . . bid a little higher and I’ll

reconsider."

Chester may look like a kind of Bob’s Big Boy of this virtual discount

store, but behind the bow-tie and wisecracks is a sophisticated

haggling

technology that could be the next "killer ap" in the online

haggling industry. The 20-something husband and wife team that runs

Make Us An Offer Inc., Michael and Kathy Morell, have already

attracted

such investors as former Opinion Research CEO Michael Cooper. The

company just closed on $750,000 in fundraising, and expects to round

up another $3 to $5 million in the next few months.

Not bad considering that Make Us An Offer went live long after the

big category killers in the online auction market, like e-Bay and

Priceline. "What’s important about our site is the underlying

technology of it," insists Michael Morell, CEO of the company

and the man behind Chester. "We’re basically the haggling

technology

expert."

Located at 684 Whitehead Road in Lawrence, Make Us An Offer went live

in August of 1999 and now employs nine people. Kathy founded the

business

from the couple’s home in Jersey City in 1996. Michael signed on two

years later, adding his business know-how and computer programming

skills to the business.

With her background in retail and marketing, Kathy scours the East

Coast looking for liquidation items to sell on the site. It ranges

from the chintzy — leather figurines of giraffes and Ginsu knives

— to bargains in designer clothing and accessories. Howard

Blumberg,

a merchandiser in New York, helps find the items; USA Fulfillment

in Chestertown, Maryland, ships them out. "Most of our goods are

the last 400 or 500 items in a particular item or style or title,"

says Kathy. "We deal with things that have been overproduced by

manufacturers."

The company may be selling yesterday’s products, but the concept

behind

Make Us An Offer is hardly stale. It’s academic, really, even slightly

experimental.

Kathy and Michael, newlyweds, were strolling through JC Penney one

day when Michael was suddenly struck with what he calls a

"Krameresque"

idea. Why not open a store in which there are no price tags?

The idea might have caused Michael’s economics professors at Harvard

to grimace (Michael has a BS in economics, Class of 1995) but, as

he’s quick to point out, haggling is the most tried and true of

economic

institutions. "There’s something economic to be gained when people

come to a deal when there’s a deal to be done," he says. "It’s

sort of like you would have at a flea market or a bazaar in the Middle

East. What we’re trying to do is rediscover it."

The rationale behind the priceless store: take what you can get, and

you’re always a winner. "Suppose you’re in Wal-Mart and you’re

buying widgets for $10 apiece," says Michael, "and you have

to think about one price that would get you the best profit over time

considering rent and all. So you come up with $20. You have it on

the shelf, and someone comes up to you and says `I’ll give you $15.’

Maybe you couldn’t stay in business selling it to everyone for $15,

but if it’s just one person, why not say yes? We’ve just created a

transaction that wouldn’t take place otherwise."

While Michael worked the idea out in his head, Kathy set to making

it a reality. An unexpected turn for a young woman who was supposed

to be a doctor.

Kathy and Michael met in a Shakespeare class at Harvard, while Kathy

was studying for her BS in chemistry. Kathy was born in Shanghai,

where her father was a heart surgeon and her mother taught

pharmacology.

Both now work for Albert Einstein Medical School.

When Kathy graduated (Class of 1994) at the age of 20, she was

expected

to go to medical school. "I wasn’t ready to commit to medical

school for another four years," she says, and instead, she took

courses in business. She ended up working in market research in

Lexington

after graduation.

Michael graduated a year later and was offered a job as vice president

in corporate risk management at Banker’s Trust in New York. He did

statistical analysis work and software programming. The couple decided

to marry, and Kathy found a job in a management training program at

the Gap in New York. For her parents, the decision to go into retail

versus medicine was a shock. "They still have some issues,"

she laughs, "but they’ve given up."

In 1996 Kathy founded "As You Like It," a mail order catalog

with a hook — there were no prices. The business cratered. The

bidding-by-mail process just took too long, explains Michael. "It

didn’t work — by the time people got it they lost interest,"

he says.

The arrival of E-Bay two years later, however, proved that the

Morells’

haggling concept wasn’t a crackpot idea — it was just premature.

Maybe it was impractical to barter through snail mail, or on the floor

of a big chain store, but it was a perfect concept economically for

the Web. "If you’re in the corporate headquarters you can’t

delegate

the authority to clerks on the floor to change prices," he says.

"There’s not enough value at stake to make it worth putting people

on the floor to haggle with you. The Internet changes all that. We

don’t have to pay Chester anything to haggle 24 hours a day. He’s

a computer program and we can launch as many copies of him as we need,

and because he’s written centrally, there’s a level of trust there

— he’s not going to end up selling something for less than what

it costs. We’ve solved both the trust problem and the expense problem

using the Internet."

The first online version of Make Us An Offer started as a form-based

bidding system, much like E-Bay, but initial response was lukewarm.

"A lot of people were trying to offer more bids and it was obvious

people want more interactivity, but we had to package it so that it

would be more interesting," says Kathy.

Using the offline bidding process as a model, Kathy and Michael came

up with the idea of incorporating a smart-mouth, fast-talking

auctioneer

in the site.

By 1998 the Morells were living in Brigantine, working on the site

full time. Michael decided to leave his secure job in New York to

become Gepetto to Make Us An Offer’s Pinocchio; with his knowledge

of C programming, he built the program for Chester from their home.

Rather than follow the other online auctions — where transactions

can take days to complete — Michael sought to create a program

that would make the bidding process instantaneous. Visitors merely

plug in an E-mail address, password, and click on an item. The

haggling

takes no more than a few minutes and the product is shipped out.

"What

makes Chester different is there’s no waiting time."

Liquidation items work best with that model, says

Michael.

"If you think of a typical radio or something you’ve got a hundred

different stores on the Internet, it’s sort of easy to just search

it and find out who’s got the lowest price. There’s not much room

to haggle, but with liquidation it’s different. If you have the last

100 of something, who knows what the right price is — it’s

something

that the buyers discover."

Bargain-hunters who visit Make Us An Offer under the assumption that

Chester will eventually just spit out the "real" price after

going through the haggling charade are often surprised. Thinking I

could pull the wool over Chester’s eyes, I bid $1 on a $12 clock,

and kept climbing until Chester cut me a deal. I ended up saving only

$1. However, when I started out with a more reasonable bid on a Filthy

Phrase Machine (a digital whoopee cushion) I got a bargain, saving

almost $10.

Chester is smarter than he looks. "If it were that simple, if

he were just saying yes or no, then there’s a pretty easy strategy

to beat Chester — you just bid $1, $2, until he said yes, and

effectively, the system would be wasting time," says Michael.

On the backend, Chester is factoring in things like cost of an item,

company overhead, and how quickly a product is selling out, but he’s

also identifying behavioral patterns in bidding. He prices

accordingly.

"We designed him to think the way a small business owner would

think," says Michael. "For example if something is moving

slowly, Chester would lower his threshold of when he’s going to yield,

but on the other hand if something is selling out quickly, he would

really raise the bar on it. If you’re a smart shopper, you can put

him in a corner and convince him that you’re actually only able to

pay that price. You have people trying different strategies to behave

as a buyer. It’s a completely different experience every day when

you go in."

It’s that technological edge that helped Make Us An Offer capture

the attention of the investment community. Earlier this year, Make

Us An Offer was catapulted from a basement business to a full-blown,

above-the-ground company with a board of directors. John Ason, a

former

Bell Atlantic Labs scientist turned investment angel, helped the

Morells

raise $750,000 in seed capital. It’s wasn’t the online liquidation

concept that got his attention, says Ason, who is an investor in

companies

like the Goldman Toy Group and, in Philadelphia, Xlibiris, the online

publishing company; it was the technology.

"There’s a lot of dynamic pricing on the Internet," says Ason,

(BS in math, Illinois Institute of Technology, Class of 1968),

"but

all of them have delay. You can’t get the service right there. I

thought

we could license this technology to a lot of people. Licensing

technology

is much bigger than just becoming a destination site. It’s so costly

to become one because of all the big companies that have usurped the

market, like Amazon. The big money is being able to have 100 other

E-commerce sites using our haggling technology."

"Just putting up a site and saying I’m selling beach balls or

whatever is not what’s going to attract additional capital because

most spots are crowded online," says Michael. "I think you

need to have good technology and good people to implement that

technology

to really make a splash in E-commerce these days."

During the first round of fundraising, Michael Cooper, the former

CEO of Opinion Research, became the lead investor and chairman of

the board. He convinced the Morells to move the company to Princeton.

"He has a lot of clout and business experience," says Michael.

"He works closely with us. He’s got a lot of experience to offer

as well as a network of personal contacts. It’s been helpful because

we’re relatively new to the entrepreneurial community." France

TeleCom, the second largest telecommunications business in Europe,

has also invested.

Now the Morells are back at it; the company is close to wrapping up

a second round of fundraising. Investors may be singing praises about

the technology at Make Us An Offer, and consumers are starting to

take notice, too. The company had 400 visitors in August; in November,

the number climbed to 42,000. There’s been a lot of positive feedback,

too, says Kathy. "There are people who’ve given us really great

reviews and say they love Chester," says Kathy. "He keeps

a memory of all of your bids so he can make the shopping more

intuitive

and friendly, and that’s the difference between us and all the major

shopping sites all there."

However, many of us are none the wiser. Marketing and advertising

efforts have been scant — a few banners and grassroots marketing

— and the company doesn’t expect to launch a huge campaign before

2000. "We’ve been in sort of a test mode," says Kathy.

"We’re

not at a point to do a big budget campaign, but we would like to

heavily

capitalize on the Chester concept and the whole concept of haggling,

because now the buzz word is haggling and electronic negotiation.

We think the time now is pretty mature to make a big PR move

forward."

Many E-commerce sites count on additional revenue by leveraging

information

about their consumers to advertisers, but Make Us An Offer collects

virtually no information on its users. Rather than get entangled in

privacy issues, the company decided to go with the partnering model,

says Michael. "To grow from the ground up, we’re looking for

partnerships

with companies that have lots of traffic," he says. "If you

have a website and want to put a banner or link to our site, you can

get 10 percent of whatever sales are generated by that link."

The affiliate program is outsourced to a company called Commission

Junction (www.cj.com), a consortium of small websites.

An IPO is in the making, says Michael, but he doesn’t know when. What

he does know is that haggling online is here to stay. "The success

of E-Bay and Priceline has attracted a whole market for people who

like to bargain online," says Michael. "It’s a larger

community

then you might think. Not many people relish the trip to the car

dealer,

but from the comfort of their own home, people have demonstrated a

real interest. Everyone wants the deal — it becomes a kind of

interesting game."

So even if Make Us An Offer — the site — is relegated to the

dust pile of "me-too" sites, chances are the two young

entrepreneurs

behind the company will still ride the E-commerce wave. "The key

is to have an idea that’s significantly different from what anyone

else is doing out there," says Michael. "Don’t be too guarded

about your idea when you’re in the pre-start-up phase. You have to

tell as many people as you can and get people excited about it. You

want to be pretty open, and that’s what’s worked for us."

"There’s still plenty of good ideas out there to be launched —

I still have a few of them every morning," says Michael. "In

the context of the overall E-commerce revolution, we’re still early.

I would say that if you’ve got a great idea you should shout it from

the rooftops. There may never be another time like this."

Make Us An Offer Inc., 684 Whitehead Road,

Lawrenceville

08648. Kathy Morell, president. 609-656-1240; fax, 609-656-1248.

Http://www.makeusanoffer.com.

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