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Two survivors of the dot.com bust capitalize on the Web’s connectivity capabilities to link buyers and sellers of secondary steel

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Connecting buyers and sellers of damaged steel goods is hardly an easy feat, but two businesses born in steel's dot-com era have found success in buying, marketing and selling secondary steel products.

SteelSalvor LLC, Houston, auctions steel and other products. The company is run by Scott Downs, who got his introduction to the steel business in a somewhat unconventional manner. Instead of beginning in a steel mill and working his way up, he got his start in more of an outpost than a management post. But now, as president and chief executive officer of SteelSalvor, he has been able to gain a perspective on the market for secondary steel—the products rejected by end-users, mills, service centers and traders as unusable but which still must find a home.

Downs was a marine cargo surveyor, whose job included inspecting steel imports—in effect, serving to make sure the products weren't damaged. Sometimes they were, and in those damaged products he found a new career.

"What I did was inspect the steel coming in to see if it was damaged," he said. "If it was, I filed a report, sort of like an insurance investigator. The damaged steel would then be segregated from the cargo and sold in a closed-loop process. We really didn't need to do any marketing. We just had people we knew who were looking for steel.

"We started to wonder how much more value there might be to the steel if we could find some buyers," he recalled. "We found out it was a pretty competitive market. People were willing to put in competitive bids." Thus was the birth of SteelSalvor.

Steel Spider, created by John Babson, also was created as a way to link buyers and sellers of prime, excess and secondary steel products.

Babson came to the secondary steel market in something of a different manner. He spent 30-plus years with Westinghouse Electric Co. LLC, but often spent his spare time pursuing his hobby as something of a computer expert. He was merely surfing the Internet, looking at different Web sites, in the late 1990s when the steel industry, like other global industries, was falling in love with the dot-com phenomenon. Babson saw an opportunity in the Web. "I wanted to start a company, and I thought this was really the only way to start one when you don't have a product," he said. "Steel was kind of foreign to me. I didn't know much about it when I got involved."

Now, a little more than 10 years later, the two businesses stand as some of the last vestiges of steel's dot-com era.

"When I started (Jan. 1, 1999) there was MetalSite, e-Steel and some others out there. Now they're all gone. They all kind of went by the wayside. But we're still here. We must be doing something right," Babson said.

Both men have found success with their businesses, which share similarities but also differ markedly.

Downs explained that each week SteelSalvor—whose customer database has grown to more than 10,000—notifies its members of steel products in which they might be interested. Being a member of the community is free, but SteelSalvor charges service fees of 5 percent of the winning bid to sellers upon facilitating an auction that produces a sale above a minimum required price.

Auctions are on an f.o.b. basis, current location. Successful bidders must transport their steel once they have paid for it.

"We don't take a position," Downs said. "We don't buy or sell. We provide the auction service to, say, a service center looking to sell excess or obsolete inventory or a distributor looking to sell a position. We're facilitators who try to bring the two sides together in the auction."

Service centers are major suppliers of steel to SteelSalvor, Downs said. Many have what he called "niche or off-spec" product they can't sell to their standard customers.

The automotive market has no tolerance for damage," Downs said. "You might have a coil with just a small bit of rust on it. An HVAC (heating, ventilation and air conditioning) guy might be able to use that in an area that is not exposed. No one even knows (a rust spot) is there. But the challenge sometimes is putting that buyer together with that seller."

Babson takes a similar approach with Pittsburgh-based Steel Spider, which is part of Mountain Hawk Corp., a corporate name established by Babson for several businesses in which he is involved.

Steel Spider attempts to establish connections between buyers and sellers of excess and secondary steel via four separate platforms. Confidentiality is maintained because transactions occur off-site and with no involvement from Steel Spider. Revenue is generated from sellers through listing fees, lead referral fees and advertising fees.

Its four platforms include searchable inventory, e-mail offerings by sellers, inquiries by interested buyers and a facility directory. The searchable inventory essentially lists items in stock that are available from steel sellers and includes a "find" button that matches a buyer's requirements with what a seller has available. The offering platform allows a seller to send e-mail alerts to multiple buyers, while inquiries works in the opposite way, allowing an interested buyer to e-mail multiple sellers. The facility directory, which contains locations, capabilities and materials used or processed by a seller's facility, can be sorted by company name, material handled or processing capabilities.

"We work with a lot of people looking to move excess prime or secondary steel," Babson said. "It's hard for me to say how much is sold because we keep the transactions confidential. We don't work as brokers. We're not interested in that relationship. This is almost purely an advertising model—people are paying to advertise their steel—but it is a model that allows the transactions to remain private and confidential."
SCOTT ROBERTSON


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