Penny Auctions

**CivilWars** · 12-21-10, 07:27 PM

Anyone have any experience with penny auctions like BidCactus or Swoopo? A buddy of mine was telling me about them, and it is really quite interesting, but wondering if anyone else had tried them out.

**Arreo** · 12-21-10, 07:34 PM

Coding Horror: Penny Auctions: They're Gambling
Going once! Going twice! The weirdest bid wins! - The Globe and Mail

Basically they aren't really auctions like eBay is. They are gambling in such a way that gets around local online gambling laws. You just entering a lottery for an item. And like any lottery, the odd vary immensely, but are always long.

**asianator365** · 12-21-10, 07:49 PM

Whoever came up with the idea for them is getting a ridiculous amount of money.

Basically, interested parties buy the bids (usually for around $1 each) and then use these bids to bid on an item. Bids increase the price of that item by a minimum of $.01, followed by a countdown timer (for example, 20 seconds). If no one else bids on the item during that 20 seconds, whoever made the final bid gets the item for the displayed price plus the amount they already paid to purchase the bids. What it boils down to is that the company can buy a $3000 TV, start the bidding at $.01, sell bids for $1.00 each, and then let the auction run its course. If the bidders bid the item up to $121.22, the company makes the auction price of the item ($121.22 in this case) plus the number of bids (121.22*100=12122 bids) multiplied by the selling price of each individual bid ($1 in this example), for a grand example price of $12243.22. Subtracting the price of the TV, or $3000 retail, gives you the company's profit, or $9243.22, for that one item.

These sites have had a lot of accusations of using computers to autobid the price up during low traffic times, assuring that they don't lose money. Essentially it becomes almost a gambling site for people, since the vast majority of people are not going to end up winning any big ticket items. The profit percentage margins are huge, so the companies can afford to lose money on a big ticket promotional items like a car or small "hook" items for newcomers in order to give them the feeling that they have a good chance at winning an auction with a something like a TV or gaming system. It's amazing when you think about it--the owners of these sites can actually make a couple hundred dollars off a $10 I-Tunes gift card if they are selling each bid for $1. And the nature of it means that they have almost no storage or shipping costs; the company can still make money even if they buy the merchandise straight off of Amazon.com and ship it to the auction winner directly, with the winner paying the shipping costs.

Long story short: Owners of the company make big $. Most people will probably win one small auction early after starting (I call it a "hook" auction). The majority of people won't win much more, and will end up losing money. It really is like a form of gambling, as you have to hope you are the one who places their bid when no one else is paying attention to that auction, allowing the time to run out.

**Kanati** · 12-21-10, 08:00 PM

GODDAMMIT!!!! WHY CAN'T I COME UP WITH THESE AWESOME IDEAS?!

**CivilWars** · 12-21-10, 08:00 PM

This is why I ask. Here is an example of a recent auction from swoopo:

$100 Best buy Gift card - chose this because it has a verifiable fixed cost - won for $1.73, so 173 bids. The average bid cost on swoopo is $0.60. 173 x $0.60 = $103.80 + $1.73 + $4.99 S&H = $110.52 Small profit margin, but make a 10% profit on everything you sell a few hundred times a day, and you have a nice little business.

Originally Posted by asianator365

Whoever came up with the idea for them is getting a ridiculous amount of money.

Basically, interested parties buy the bids (usually for around $1 each) and then use these bids to bid on an item. Bids increase the price of that item by a minimum of $.01, followed by a countdown timer (for example, 20 seconds). If no one else bids on the item during that 20 seconds, whoever made the final bid gets the item for the displayed price plus the amount they already paid to purchase the bids. What it boils down to is that the company can buy a $3000 TV, start the bidding at $.01, sell bids for $1.00 each, and then let the auction run its course. If the bidders bid the item up to $121.22, the company makes the auction price of the item ($121.22 in this case) plus the number of bids (121.22*100=12122 bids) multiplied by the selling price of each individual bid ($1 in this example), for a grand example price of $12243.22. Subtracting the price of the TV, or $3000 retail, gives you the company's profit, or $9243.22, for that one item.

These sites have had a lot of accusations of using computers to autobid the price up during low traffic times, assuring that they don't lose money. Essentially it becomes almost a gambling site for people, since the vast majority of people are not going to end up winning any big ticket items. The profit percentage margins are huge, so the companies can afford to lose money on a big ticket promotional items like a car or small "hook" items for newcomers in order to give them the feeling that they have a good chance at winning an auction with a something like a TV or gaming system. It's amazing when you think about it--the owners of these sites can actually make a couple hundred dollars off a $10 I-Tunes gift card if they are selling each bid for $1. And the nature of it means that they have almost no storage or shipping costs; the company can still make money even if they buy the merchandise straight off of Amazon.com and ship it to the auction winner directly, with the winner paying the shipping costs.

Long story short: Owners of the company make big $. Most people will probably win one small auction early after starting (I call it a "hook" auction). The majority of people won't win much more, and will end up losing money. It really is like a form of gambling, as you have to hope you are the one who places their bid when no one else is paying attention to that auction, allowing the time to run out.

**CivilWars** · 12-21-10, 08:01 PM

Originally Posted by Kanati8869

GODDAMMIT!!!! WHY CAN'T I COME UP WITH THESE AWESOME IDEAS?!

For $20 you can put the code on your server, then all you have to do is drive the traffic. Trust me, I am right there with you.

**asianator365** · 12-21-10, 08:12 PM

I've watched two idiots bid up a $100 Kohl's giftcard to $5.00...or $375 since the bids cost $.75 on BidCactus...and they are still going.

**CivilWars** · 12-21-10, 08:16 PM

Auctions | Cheap Apple MacBook Pro 15-Inch Laptop auctions - bid & win on Swoopo

http://www.amazon.com/Apple-MacBook-...2983922&sr=8-2

I will bet money that once this auction ends, and funds are collected, they have it drop shipped from Amazon. Apple Mac Book Pro 15 is just over $2K on Amazon with free shipping. The bid is over $80 right now, so 8K bids at $0.60 each, or $4,800 plus $19.99 S&H for a product they will never touch. Dayum!!!

**Kanati** · 12-21-10, 08:25 PM

Kylepudney is bidding his ass off for that one.

**Kanati** · 12-21-10, 08:26 PM

it seems like the most chance to win is to try to guess when two or three people in a bidding war are ready to drop out of the running and join in on the bidding...