Monday, February 4, 2002

Internet

Mindsway floods online market with electronics, resellers

By Stacey Closser

Consider it a glorified online Sam's Club - except members aren't buying boxes of candy at a discount and reselling it to their neighbors. Instead, they're buying new electronics and selling them online for profit without much effort.

Dallas-based Mindsway Inc. touts itself as the first Internet wholesale buying club. Members pay a lifetime membership fee of $350 for the chance to buy consumer electronics, personal computers, software and hardware at prices slightly higher than wholesale.

Mindsway tags on 3.5 percent to the cost of the products - all new and straight from the manufacturer - so members can buy and resell the goods online.

According to chief executive Bill Rogers, one member has about $500,000 worth of merchandise waiting to be sold on a popular auction site. The company's structure is that of a direct marketing organization, which pays referral fees to members who sign up new members.

Rogers and business partner Brian Rogers (no relation) launched the site November 2001. During the course of the first week, the company took in $1 million in gross income and has since maintained $250,000 in sales each week.

Mindsway now has more than 2,000 members, said Bill Rogers, who is in the process of securing a $2 million round of funding from private investors in Austin. The original $300,000 the company raised in July was used to hire people, design the Web site and back-end computer systems, and purchase hardware to run the operation.

The concept for the company came to Bill Rogers a couple of years ago when he was in the market for a set of home theater speakers.

Not one to peruse Internet auction sites, he was prodded by pal Adam Smith to shop online at eBay Inc. It wasn't until Bill Rogers bought a lesser pair of speakers at a local retailer, brought them home, and then spotted his dream set being auctioned for less money did he reconsider his ban on bidding online. He won the auction, and when he spoke to the seller he found an opportunity for a business. The guy worked at a grain mill in Indiana, Bill Rogers said. And he's making $50 twice a day by buying electronics at a discount from his father-in-law and then selling them online.

"I thought, man, how do we do what this guy is doing?" Rogers said.

He has a list of revenue streams a "page long," with membership fees, profits from merchandise and potential online advertising at the top.

Mindsway has amassed 8,500 products in its catalog and is putting together a quarterly print catalog, which will be out later this spring.

Bill Rogers describes the monetary potential for his business as "ridiculous."

"Our numbers look real good, I would hate to throw out projections - but the consumer electronics industry alone is $85 billion per year, and that's not including computer hardware," he said. "It's a big, big market out there that we're targeting in a whole new way."

According to the Consumer Electronics Association in Arlington, Va., the market is even bigger than Rogers estimated. In 2001, the consumer electronics industry was valued at $93.2 billion, down from $95.2 billion in 2000.

"This year, we're expecting it to be about $95.7 billion," said Sean Wargo, senior industry analyst at CEA.

Online auctions make up a comparatively small piece of the pie, he said. He compared the $1.5 billion in consumer electronics merchandise sold on eBay .com during 2000 to the $13 billion sold by industry giant Best Buy Co. Inc.

If the revenue reported by eBay (Nasdaq: EBAY) is any indication, Mindsway is well on its way to financial security. San Jose, Calif.-based eBay reported consolidated net revenue for 2001 to be $748.8 million - a 74 percent increase over 2000. According to an end-of-year report, company executives expect revenue for the first half of 2002 to be between $490 million and $510 million.

The site has more than 42 million registered users, 88 percent more than reported at the end of 2000.

It's sites like this that Bill Rogers hopes his members will use to sell merchandise. Mindsway provides product information, photos, transaction processing, online billing and shipping. The member provides the e-mail address of the auction winner and the final sales price. Mindsway contacts the individual, sends the product and then cuts a check for the difference in price to the member.

"Our members can resell the products and do really well," Rogers said. "We've been extremely successful up to this point."