Paul Allen Backs Another "Revolution?"

Microsoft (Nasdaq: MSFT) co-founder and eclectic investor Paul Allen has put his money behind another venture purporting to have the key to a computing revolution.

Backed by funds from Allen's Vulcan Ventures Inc., a new Bellevue, Washington company called Mercata, Inc. says its new site is not just another online shopping mall.

Mercata.com is based on the company's trademarked "PowerBuy" concept of setting prices, and changing them, based on demand for the product. With the slogan "Buying Power to the People," Mercata hopes to capitalize on consumers' collective buying power.

How It Works

A PowerBuy, as Mercata puts it, is a "limited-time buying opportunity during which the price paid for a product drops over a period of several hours to several days." The higher the number of shoppers indicating their interest in the product, the lower the price goes. The buyers wind up with great deals on the products they want, and the merchants get high-volume sales, yielding them profits despite having lowered their prices.

At launch, Mercata featured several items including cordless telephones by Toshiba and GE and a DeLonghi coffee and cappuccino maker in its PowerBuy section. About 18 hours after their Sunday afternoon debuts, the products showed price drops ranging from 3 percent to more than 20 percent off the original retail price.

To PowerBuy, each shopper enters the maximum price he or she is willing to pay for a particular product offered in the PowerBuy section of the Mercata site. The shopper can also click on a special e-mail button during the PowerBuy process to send a notice of the new price to others who may be interested in the product. To try to curtail "spamming," Mercata urges shoppers to "Please send e-mail only to people who might be interested in the featured item."

Finishing the Deal

Once Mercata "accepts" an offered price for the product, that becomes the new listed price until another shopper offers a price that is accepted. Each shopper whose offer is accepted ultimately ends up paying the lowest price accepted by the site. Mercata then sends shoppers who participated in that PowerBuy an e-mail notifying them of the final price on the product and an approximate shipping date.

Shoppers who do not want to experiment with the flexible pricing of PowerBuys can buy products instantly, also at savings, by browsing the site's six fixed-price product categories. Products are displayed with their retail prices and sale prices, to show the shopper the discount the merchant has designated.

Variety As Well As Quantity

Mercata plans to offer more than 400 name-brand products on its Web site. Current items include outdoor grills, golf clubs, camcorders and power tools. More than 150 manufacturers and distributors have signed on to sell their wares on the site. With data supplied by Mercata, online merchants can create direct mail marketing campaigns targeting particular consumers.

The site also offers a product comparison guide, real-time delivery tracking information and free shipping during initial launch. Mercata was founded last fall, is backed by Allen's Vulcan Ventures, which has recently invested in the cable TV business as well. Not surprisingly, the company plans to expand its "group buying" concept to TV shopping channels in the near future.

To capitalize on the fame and respect Allen has built in the computer and investing worlds, the site also includes a link to "Paul Allen's Wired World," a Web site exploring the entrepreneur's ventures.