Certainly some big language providers have been lured into competing in reverse auctions. In 2005 Common Sense Advisory (CSA) surveyed some of them and noted that many vendors were uncomfortable with this type of online procurement because they felt the focus was exclusively on price, “… driving margins dangerously low – sometimes too low to sustain and still deliver quality.” 
Nevertheless, CSA concluded that “online sourcing will continue to be a part of business reality in the translation and localization industry” and that moves toward internet-based procurement and online auctions were unlikely to go away anytime soon.
The nature of conventional reverse auctions remains a highly controversial topic and there is a significant academic literature which is highly critical of this form of trading. Foremost of the critics is M.L. Emiliani, of the Central Connecticut State University School of Engineering and Technology, New Britain, Conn. USA. Emiliani argues that reverse auctions are ultimately harmful to the establishment of long-term, mutually beneficial relationships between buyers and sellers .
But what about an auction process that promises higher margins for the providers? And yet still offers buyers all the traditional advantages of competitive bidding? Can such a contradiction really be resolved?
One group thinks so, and is putting its money into developing a multi-lingual, multi-currency, auction-style trading platform based on a model designed to benefit both parties. The key ideas are the introduction of non-price factors (which, like price, are also subject to competitive bidding) and leveraging off the highly differentiated market needs to be found in a huge global market.
OpenBorder Ltd plans to roll out an online platform for the language services industry – a market CSA estimates will reach $38 billion by 2013. Translation buyers post their job requirements to OpenBorder’s website and language service providers around the globe bid on multiple factors in real time.
Participants operate in their own language using their own familiar currency, local times and dates – all of which are converted on the fly into the user’s local format. Translation buyers compare suppliers using standardised criteria such as delivery timeframes, quality assurance capability, verified subject expertise, customer service feedback and incentives for good performance. Providers compete by adjusting their bids across multiple factors – not just on price.
A provider might win a contract at a higher price than offered by its competitors by proposing a more compelling combination of non-price factors, e.g. faster delivery, higher QA or larger financial penalties for poor performance etc. LSPs compete on their strengths – not just on price.
Even small translation providers will be more willing to venture into uncertain “foreign” markets because OpenBorder guarantees payment in their own currency via an escrow system. Opportunities for finding more profitable work increase as they gain access to a larger, global pool of buyers from which they can be more selective.
The multi-factor approach is not designed exclusively to drive prices down and is an ethical response to the reverse auction model. The multi-factor design eliminates unqualified (or over-qualified) competitors and promotes competition between providers on an even playing field .
OpenBorder’s innovative multi-factor auction model has been intentionally developed within a win/win paradigm to ensure that both buyers and providers get significant benefits and become long-term participants.
The main ideas OpenBorder’s of economic model are presented in a “fake” magazine interview here.
Critical comments and debate are welcomed!
 Beninatto, R.& Souza, L. (July 2005), “Online Sourcing of Translation Services”, ISBN: 1-933555-21-1, ISBN: 978-1-933555-21-8, Copyright © 2005 by Common Sense Advisory, Inc., Lowell, Massachusetts, United States of America.
 Emiliani’s research papers on B2B reverse auctions are here:
 Jap, Sandy D. (2007), “The Impact of Online Reverse Auction Design on Buyer-Supplier Relationships”, Journal of Marketing, 71(1), 146-50.