The encyclopedia · Software & IT · Technical decision · 1995–2004
FreeMarkets turned industrial purchasing into live online reverse auctions
Glen Meakem's FreeMarkets (1995) ran secure online auctions where suppliers bid prices down against each other, moving $500M of purchases by 1998.
FreeMarkets Inc.
the move
Glen Meakem, a former McKinsey consultant and GE executive, founded FreeMarkets Online in 1995 with Sam Kinney after GE wouldn't back the idea internally. The company built teams of market makers and commodity managers who researched suppliers, qualified them, and brought them onto a secure network to bid.
In a FreeMarkets reverse auction the roles flip: sellers compete downward for the buyer's business over a live session, typically 5–20 suppliers bidding over 30–90 minutes, and the buyer awards to the lowest bidder it trusts. By 1998 the Pittsburgh firm transacted $500 million for roughly ten clients, up from $20 million in 1996.
Customers included BP, United Technologies, Visteon, Heinz, Exxon Mobil, Royal Dutch Shell and GM. The approach worked best on custom-fabricated parts—plastic injection moldings, metal fabrication, custom electronics—and near-commodities like coal and steel scrap, where a fair market price had been hard to establish.
why it works
- Real-time competition beats static three-quote purchasing.
- Pre-qualifying suppliers meant the low bid was still a capable bidder.
- Buyer-designed parts had no public price to anchor against, so auctions created one.
- The market-maker model made FreeMarkets profitable before the dot-com crash.
what transfers
For buyer-designed parts, competition—not negotiation—finds the price: if you can qualify suppliers and define the spec, a live downward auction beats a stack of paper quotes.
what came after
Reverse auctions became mainstream e-sourcing tools; FreeMarkets was acquired by rival Ariba in 2004. Debates continue over whether auction savings are durable or just shift bargaining power—the archived literature notes gross savings averaging 10–20% but net savings typically half that.
references
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