Monday, November 23, 2009

Haggle - Under the radar penny auction site

Penny Auction Insider has been taking a break to get some much needed work done, but I came across a penny auction site by accident today and wanted to share. Haggle (which to my knowledge has not been discussed on Penny Auction Watch nor is listed on Penny Auction Traffic - as of this post), is running a Facebook ad that caught my attention just long enough to make me want to investigate whether it was a penny auction or not. Verdict: penny auction. However, they make no mention of the industry phrase in the ad or on their site, which suggests they are going after new customers, not existing penny auction players.

That is all. Hope everyone is having a lovely holiday season.
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Wednesday, November 11, 2009

Busy, Busy

I'll be very busy studying/working through early December and won't be able to post daily/frequently like I have in the past. In the meantime, if something truly interesting happens in the penny auction industry I'll cover it, but won't be able to write as much as I previously have. However, I'm looking forward to discussing the holiday shopping season, its impact on penny auction sites and the broader economy and will share these thoughts whenever I get a moment.

Thanks

PAG
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Monday, October 26, 2009

Bidso Going for Penny Auctions

Bidso launched recently with a reveal price auction (similar to Circuspop, and one of Dubli's auctions) but according to a post on the business networking site ScriptLance, they are looking to make a foray into penny auctions.

This post shows that they are willing to pay up to $150 for a penny auction feature, and have gotten several bids. I'm surprised that the cost of implementing this feature is so low.
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Sunday, October 25, 2009

The Auction Squirrel Merges with BidMyDreams

The Auction Squirrel announced on their website that they have merged with BidMyDreams, another penny auction site. Auction Squirrel also stated that their closure was due to, "as some of you know" a "family crisis," unless the family crisis was running out of money, this is news to us. I never saw The Squirrel say anywhere that their closing was due to a family crisis.

This is a bright spot for Auction Squirrel customers because bids will be transferred and honored by BidMyDreams. Also, all Squirrel customers to register with BidMyDreams before Oct. 31st will receive 5 free bids.
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Thursday, October 22, 2009

Economic Papers on Penny Auctions

If you love economics read these two great academic papers on Penny Auctions. If you don't love economics, wait till tomorrow (more urgent things came up and this will have to wait, maybe by the end of the week) and I will provide a layman's summary of both. These papers are the best I've seen and provide a depth of analysis that has incredible value for anyone who plays penny auctions, is thinking about playing or operates a penny auction site.

For example, Edward Augenblick states in his paper (1), "the top 11% of bidders in terms of experience create more than 50% of the total profit [for Swoopo, which was where the data was collected]." He also finds that there is value added for experience, calculates Swoopo profit margins and makes quite a few interesting remarks.

Augenblick states, "There are strategies that have significant effects on the estimates of the effect of experience. Broadly, the most important appears to be "bidding aggressively," in which a player bids extremely quickly following another player's bids."

1) Pay-As-You-Go: Theoretical and Empirical Analysis of a New Auction Format by Edward Augenblick at Stanford:

http://www.stanford.edu/~ned789/Pay_As_You_Go.pdf

2) Penny Auctions by Toomas Hinnosaar at Northwestern:

http://toomas.hinnosaar.net/pennyauctions.pdf
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Wednesday, October 21, 2009

Dubli Goes Public!

MediaNet Group Technologies, an OTC company (MEDG.OB) that manages online rewards shopping programs, announced Monday that it completed a reverse-merger with Dubli (aka CG Holdings Limited). The deal grants Dubli executives control of MediaNet and allows them to choose a new board of directors. After issuing new shares, MediaNet will have 299 million shares of which Dubli will own 269 million. MediaNet has a market cap of $6.55 million, revenue of $2.55M and net income of -$911,870.

A reverse-merger is the cheap and easy way for a private company to go public, avoiding cumbersome SEC requirements. However, trading over the counter will require Dubli to file with the SEC so we will soon know much more about Dubli's financial position than we currently do. Should be interesting.
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Tuesday, October 20, 2009

That's It, That's All: The Auction Squirrel Has Left the Building

It is with great sadness that I report The Auction Squirrel shuttered its doors today. The penny auction site auctioned 516 items and lasted just shy of one month, it opened on Sept. 23rd. I initially mocked The Squirrel, saying it was foolish to open a new penny auction site without having a "special sauce" when there were nearly 100 other sites competing in this market. However, as time went by I was impressed by The Squirrels apparent honesty and dedication to being an upstanding business. There were a few times when it seemed like The Squirrel was a few small tweaks away from bumping up against the break-even point, however after one month of losses, the site has decided to throw in the towel.

I applaud their honesty and want to point out that, as Obama would say, this is a teachable moment. If The Squirrel couldn't make it what does that say about a lot of similar penny auction sites out there? Are they legitimate, are they shilling, do they intend to ship your products? Anyone can open a website and anyone can cheat you. It has become very difficult to make it in this business and I suspect that a lot of people who would open a site in this environment have the intention of cheating you, or even if they set out with good intentions would turn to fraudulent practices after the losses start to mount. This is a strong argument in favor of only shopping at the most established and trustworthy penny auction sites.
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Nick Lachey's Winnit.com is booming, at least its traffic is

Winnit.com has seen a huge spike in traffic since launching recently and is moving swiftly up the PennyAuctionTraffic.com rankings. The reverse auction site is now in 8th place behind Winners24 with 54,400 unique visits in September. Part of Winnit's success is undoubtedly due to Lachey's media blitz, including a recent interview on Good Day Philadelphia where the anchors conduct what might just be the softest interview in television history. Here is the clip:

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Christmas Wishes

Ho Ho Hold on Walgreens, today the retailer rolled-out (dusted off?) its Christmas merchandise - a good week and a half before Halloween and a month before Thanksgiving. While excessively early and funny in its own right, Walgreens's jumping of the gun got me thinking about the holiday season, and penny auctions.

This is baby's first Christmas, yes Swoopo was active in the US last Christmas, but there was no BidCactus, no RockyBid, no Bid Rodeo, no Poor Daddy's Penny Auction House, No Auction Squirrel, none of our favorites! The birth of the US penny auction industry really happened this year, meaning I expect to see some fairly interesting and innovative promotions this holiday season.

As a commenter on Penny Auction Insider pointed out some weeks ago, most people play penny auctions (he/we think) because they can't easily afford the retail price of the items they are bidding on and hope to get lucky. During the holiday season the budgets of even middle and upper class people are stretched or broken, with things purchased on credit and material dreams fulfilled. Penny auctions amplify this mentality, especially among the poor and we expect many people to spend their entire holiday budgets on bidpacks, in an attempt to parlay a little into a lot, and most of these people will lose everything in the process.

Note to penny auction sites: If you don't have a "Swoop it now" feature, you should probably start working on that ASAP. The holiday season is when people are really going to want that option.

And when/if you have exciting holiday promotions, I will happily discuss mock or praise them on this blog if you email me at pennyauctinguy1 [at] gmail DOT com. This is your opportunity to think outside the box (many of you for the first time) so do something creative and intelligent and I'll sing your praise. This is also a gentle reminder to stop spamming the comments section.
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Monday, October 19, 2009

The Scams of the Internet

Analyzing penny auctions has really opened my eyes to internet scams. Last week my friend was elated when she found ibagdo!, an online retail site featuring woman's designer shoes, bags and accessories at more than 50% off retail. She picked out some token of frivolity she couldn't live without and began the checkout process. However, she became confused when she saw that the only payment options where WesternUnion, MoneyGram or bank wire transfer. From this alone I can discern that ibagdo! is a complete scam. If you need further proof, their customer support email address is bagdo.com@gmail.com.

Paypal is a multi-billion dollar company for a reason. Wiring money to an internet company you know little about is an awful idea, almost as bad as buying or selling anything to anyone in Nigeria.
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Friday, October 16, 2009

Reader Comment on The Squirrel: Shills?

Here is a new comment I received from an Auction Squirrel user that you might find interesting:

"I think [The Auction Squirrel] turned to shills. My wide did one auction with her pack of 30 and I did another with a total of 31 bids. Both were for $25 or less items. We both got outbid by one bidder (who obviously also overbid to win) and the auctions all around those two went for next to nothing...no bidders. the one just before mine, for example, went for ONE bid. Sour grapes I'm sure...just suspicious enough to keep me from buying another pack though I can tell you that much."

This is suspicious and had I been the bidder I expect I would also be weary of The Squirrel. I don't know for sure if The Squirrel is using shills, I am fairly confident they are not. I see lots of names on the ended auction page that I know to be real bidders and I myself have won.

Last night I watched the auction for the Shell gas card and it seemed normal. There were only three bidders and the card sold for 18 cents. The winner was rbw63, who I believe is a real person. I'm sure readers can confirm whether this is true or not since he is very active on The Auction Squirrel.

I think the reason why some items go for cheap and some go for over $1 has to do with the resilience of the competition. Some people give up early and others are determined to win no matter what. As has been discussed in much detail here and elsewhere, there is an incentive for users to convince other players that they are willing to win at any cost, because if other players believe this person they won't challenge him and the item will be won on the cheap. People on the Penny Auction Watch Forum love to berate bid-to-two-2-too-win for winning at all costs, he is trying, with much success, to develop this kind of reputation.
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Wednesday, October 14, 2009

The Auction Squirrel Looking Healthy


Today I took a look at the last 30 ended auctions on The Auction Squirrel, and it looks like they may be making a profit (or close to it!). A few physical products aside, The Squirrel sold 24 gift cards and bidpacks for revenue of $677 (assuming 15% of bids are free) and a total COGS of $550 + $120 for shipping (24 products @ $5 each), for a profit of about $7 (EBITDA). In looking at this estimate I would say that my estimate for number of free bids is too low, meaning the Squirrel is probably not cash flow positive quite yet. I'm also not factoring in all of their fixed costs, mainly hosting the site. I'm also ignoring a promotion The Squirrel is doing which gives winners free bids if the price of the auction goes over $1.00 (Squirrel, why are you torturing me?). And this also ignores the fact that The Squirrel has been bleeding cash the last few weeks and has some serious ground to make up from losses early on. But maybe The Squirrel has passed the lowest point on it's J-curve and is heading toward break-even and then on to more profitable pastures. The holiday season is also coming-up and I'm sure there will be an abundance of people looking to fill Christmas wishes on the cheap this year, so if The Squirrel can make it till then it might be OK.
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Why Gift Cards are Great for Penny Auction Sites

Most penny auction sites auction gift cards, Bidcactus started with them and the Auction Squirrel loves them, it seems the only site that stays away from gift cards is Swoopo. In fact, I can't remember Swoopo ever auctioning gift cards. But Swoopo aside did you ever wonder why penny auction sites love gift cards? I did, and below are some reasons why gift cards are the perfect product for penny auction sites.

1. No sales tax. It's a cumbersome process to obtain a resellers permit (I'm sure this varies by state and am not sure what the details are in each one) which allows the penny auction site to avoid paying sales tax on the items they buy. And some businesses might not accept the permit, meaning the penny auction site is stuck paying the sales tax - which is hard for an internet business to legitimately pass along to the auction winner. Gift cards purchases are not assessed sales tax because the tax is collected by Uncle Sam when the card is used to make purchases at the store, meaning the penny auction site can avoid any issues with taxes, including paying, collecting, and worrying about in state/out of state.

2. Cheap to ship. Many penny auction sites do not charge shipping, meaning they eat the fees when they send you that 50" plasma that weighs 70 pounds. Gift cards, on the other hand, are cheap and easy to ship, meaning penny auction sites can offer free shipping without breaking the bank.

3. Easy to find. Selling a PS3 requires negotiating a relationship with a drop-shipper or heading to the local Best Buy to pick one up and send it yourself. Running around town finding the goods one needs to fill orders for won products doesn't sound like a lot of fun. However, gift cards can easily be found at the nearest grocery store, all under one roof.

4. Pricing is easy. Calculating the amount saved or other metrics to determine how good of a bargain the winner received requires knowing the price of the auctioned item. This introduces questions like do I use the MSRP or the current price, the Amazon price, the lowest price I can find or is it something else? Prices change all the time, especially on electronics which become outdated quickly when new models become available. Saying that the "correct" price of a gift card is its face value will never get you into any trouble and since gift cards can sometimes be purchased at a discount this means the penny auction site might make a little extra money on the auction. Today Best Buy had $50 iTunes cards for $40. I wonder if The Squirrel stocked-up.

The downside of gift cards is that they aren't as exciting as tangible products, but with points 1-4 above, you can see why most penny auction sites feature gift cards.
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Friday, October 9, 2009

Psycho Auction: "In for a dime, in for a dollar"

Psycho Auction is a penny auction site that has been around at least since the spring, but I didn't hear about them until this week. Psycho Auction is kind of a smorgasbord of penny auctions, all packed under one roof.

The site has traditional penny auctions, as well as Virgin, Killer, Speed and Reverse auctions. Virgin is for people who haven't won before, Reverse drives the price down (can go negative), both Speed and Killer are won by casting the most bids - Speed doesn't add time with each bid and Killer does.

Psycho Auction is fairly hard to understand because there is so much going on and because the user interface is not spectacular, but if you like variety, it certainly has that going for it.

The site also has a tab for selling items which is intriguing but this is the only explanation that is given: "Sell an item and get all the bids placed on it plus the fair value equivalent in bids! Or do you want to open your own Psycho Auction site? We can help you! Contact us under software@psychoAuction.com." I don't understand how selling things works from this explanation but allowing users to post their own items on the site is interesting, although it has some logistical complications I don't see a way to get around. Clearly, Psycho Auction did not address any of my concerns in its explanation.
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Wednesday, October 7, 2009

Bidcactus and The Squirrel

As many are aware, I've been extensively covering the birth of The Auction Squirrel over the past few weeks in an attempt to provide the community and myself with a better understanding of what it takes to start a new penny auction site. In many of these posts I've made some comment comparing The Squirrel to Bidcactus and yesterday I received some feedback from Bidcactus that I wanted to share.

At one point I said Bidcactus was "really good at being average while spending thousands per day on AdWords." Understandably, Bidcactus was not fond of this comment and I wanted to explain what I meant because I feed the context is not all that clear as I reread my own post.

What I meant to say is that Bidcactus is really good at being an average ecommerce site. They are, in my opinion, exceptional at being a penny auction site. If one compares Bidcactus to it's own industry, Bidcactus and Swoopo clearly shine. They have all of the details down and their sites are well functioning. However, when compared to ecommerce sites internet-wide, both Bidcactus and Swoopo are second tier. This is no strike against them, no one is expecting Bidcactus to compete with Amazon, eBay or Gilt on an aesthetics front. It takes a lot of resources to create such a site. This is all I was trying to say.

Criticizing Bidcactus for not looking like a top ecommerce site would be like criticizing Penny Auction Insider for not looking like Slate or the Huffington Post, which as a comment might hold some value for gaining perspective, but clearly does not compare the site to its relevant peers. I wouldn't take any offense if someone told me my site wasn't nearly as good as Slate, I'm not trying to compete with Slate, and I hope Bidcactus takes no offense when I point out that there are more sophisticated sites on the web.
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Tuesday, October 6, 2009

Checking in on The Squirrel: Week 2

One might think that on its 14th day of practically giving away items, The Auction Squirrel would have generated enough buzz to get some reasonably competitive bidding on the site. Not so. I just looked at the last 30 ended auctions there and estimate the cost of acquiring and shipping those won items (bidpacks cost nothing) to be about $975. Revenue from sales of won items amounts to $8.97 and bid revenue is about $717.6. In total, The Squirrel took a loss of about $245 on these last 30 items, which is on top of mounting losses from the past 13 days. On average, The Squirrel has been losing nearly $10 on every item it ships, and this only accounts for variable costs, not fixed ones like rent for the office or site hosting and assumes the owner is willing to work for free.

However, with an average of 30 bids per item, the Squirrel is coming close to breaking even. If you stripped all non-$25 gift card items as well as the five worst performing auctions out of this bunch of 30, the Squirrel would be about $20 in the black (assuming all bids were paid for, which they were not). Perhaps a few simple tweaks could help the site go cash flow positive.

Many people have won and received items from The Squirrel so we know they are a legitimate business and I think their performance to date characterizes the challenges of operating a successful penny auction site.

As I mentioned in my last post about The Squirrel, the site needs a plan. An "I have built it so they will come," philosophy is not working in this space. The Squirrel needs to focus on building traffic and building trust, both of which require significant cash outlay. A new visitor to The Squirrel is frankly not going to be impressed with the user interface of the site - and the less professional a site looks, the less people are going to trust it.

However, maybe I'm being anxious, the site has only been up for 14 days. If the owners can afford to give it another month, perhaps they will go cash flow positive without the help of AdWords or a site redesign. BidCactus has been doing very well without much sophistication for quite some time now.
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Thursday, October 1, 2009

Checking Circuspop Prices

Earlier today I received an email from Circuspop (reverse auction site) saying they would give me 3 free bids to be used "as I see fit" during a special Apple product sale they are having today from 12 - 5pm EST. Circuspop says their Apple products will be 20% off or more.

I just looked at the site and used my free bids to check the price on a MacBook Pro and iPod Nano (twice). The MacBook had a starting price of $1168, a little cheaper than the Apple Store price of $1199 and the same as the Amazon price. When I looked, the price on the MacBook was $1070.5, about $100 cheaper than Amazon which would be a great deal if I liked Macs.

I used my other two bids to look at the price of the iPod Nano. It has a starting price of $179, the same as the Apple Store and higher than the Amazon price of $169.99. When I checked the first time the iPod was $165.50 and when I checked a few minutes later it was $164. This price is a little better than the Amazon price (by about $6).

The site has sold out of a few of the iPods and the Nike+iPod Sport Kit but not the laptops.
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Case Study: The Auction Squirrel needs to go cash flow positive

This is part of an ongoing examination of The Auction Squirrel, a penny auction site I decided, almost at random, to analyze on Penny Auction Insider.

The Auction Squirrel has been bustling along for a while now after launching last Wednesday and now has 202 ended auctions. As a new site, The Auction Squirrel suffers from two problems, 1. convincing users that it can be trusted and 2. getting enough traffic to make the business cash flow positive.

I have been informed The Squirrel is not shill bidding and quickly shipping won items. Most people who are bidding at the site probably know this, meaning they will become repeat customers. Since I've been informed of this by a credible source, I am willing to confirm the legitimacy of The Squirrel on this blog, meaning my readers should feel comfortable bidding on the site also. This helps to solve problem 1 above.

For problem 2 - getting enough traffic - The Squirrel is clearly struggling. To give them the benefit of the doubt, they've only been live for a week, however by looking at ended auctions anyone can see that most items don't have much bidding competition and are selling at a loss for The Squirrel. To solve this problem, I think The Squirrel is going to have to think outside the nut shell. If The Squirrel goes the way of Bidcactus - that is to be really good at being average while spending thousands per day on AdWords - then they're going to struggle. There are already a half dozen good penny auction sites with significant traffic and positive reputations with bidders. The Squirrel is either going to have to take significant, month after month losses from ad spending to get site traffic, find a way to differentiate its self, or be content with coasting along staying cash flow neutral (if it's lucky).

I doubt The Squirrel has the cash reserves to start a massive AdSense campaign, most penny auction sites don't. Competing with the big guys is not a good strategy for The Squirrel, they need to find a way to differentiate themselves. My next Squirrel post will address this issue, but I should say upfront, I certainly don't have all the answers.

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Wednesday, September 30, 2009

RockyBid Under Attack Again

RockyBid just sent this email to users:

I regret to inform you that at this time we are currently suffering from technical difficulties in the form of a second malicious DDOS attack on our website and server. We will have www.Rockybid.com up and running as soon as we have shielded ourselves from this attack. While not common DDOS attacks have already crippled other well known websites such as Twitter and Gmail. You can check out this website for more information on DDOS attacks and how it works http://news.cnet.com/2100-1017-236728.html. I want to assure you we are doing everything possible to mitigate this attack while maintaining the integrity of our website and the security and privacy of our customers. Rest assured that due to the nature of the attack no private information is in any danger. We will reverse and re-list all auctions that conclude during the DDOS related downtime, in order to allow for a fair bidding environment.We appreciate your patience as we deal with this issue in a timely fashion. Thank you for being a part of the Rockybid family and we hope to get you bidding soon.

All the best,

The Customer Service Team at RockyBid.com
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Tuesday, September 29, 2009

The Auction Squirrel Ships Products

I have been fairly skeptical of The Auction Squirrel since they launched last week for reasons I blogged about here. Namely, I'm getting tired of new penny auction sites that launch yet do nothing different. I know it looks like easy money, but even if it was it no longer is. If there are nearly 100 sites competing with you and you aren't special you have a fundamental business problem. If your plan to address this problem is to call yourselves "new and exciting" or "the best penny auction site" or "the number one penny auction site," you have an even bigger problem. The fact that there are big sites like Swoopo and BidCactus makes it even harder to compete (FYI - I keep mentioning these two because their traffic is 10 times as high as the next closest competitors).

So, needless to say, I was none too excited to see The Squirrel pop-up last Wednesday. However, while their site traffic is low and bidding activity meager, The Squirrel appears to be a legitimate business with no shill bidders and one that actually ships products. I spoke with two people last week who won items on The Squirrel and one person today reported that they received the gift card they won. In the penny auction industry being able to confirm that a site is shipping items and not shill bidding is a substantial victory it its own right.
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Monday, September 28, 2009

Winnit is gambling

Sorry I've been away so long. Would you believe I was busy rescuing orphans from burning buildings? What about tigers, I was rescuing orphans from tigers? Yeah, my wife didn't believe it either.

What brought me back was reading the How it works from Winnit.com:
Winnit members bid against each other by placing their guess for the lowest, unique amount on any given product, which results in a winning price that equates to a small fraction of retail cost. The goal is to be the first (and only!) member to bid a price as close to zero as possible without guessing a price that someone else has already bid.
Yeah, this is just gambling, and I'll tell you why.

Imagine that you are the last person to bid. Let's say you are bidding on the Porsche Cayman and you've decided to bid no more than $10. Assume for the sake of argument, that of the 1000 possible bids (that is, 1¢ to $10.00), 9999 are already taken. You don't know that, of course, but it would still be a good bet: $4 for a 1000-to-1 chance of winning a $50,000 car (even after the $10,000 - $20,000 you'd pay in taxes).

But which one should you pick?

Should you pick 1¢? That's cheap, which is good, but being cheap, someone already must have picked it. Should you pick $10 then? The price will have frightened off everybody else! Ooh, everybody else who doesn't realize that what you just realized, that a higher price is more likely to be unique. On the other hand...

But after a moment, this reverie is broken by the obvious: you only have to pay your bid if you win. And be serious, is there any difference paying 1¢ for a new Porsche or $10? Of course not: either way, it's effectively a free car. And if you feel this way, so does everybody else. None of the 1000 possible bids is really any different from any of the others. Picking the winning price is just a matter of luck.

And there's a name for any game where winning is just a matter of luck: gambling.

Interestingly, if the system awarded the victory highest unique bid, it would become less like gambling. While there is obviously no meaningful difference between paying 1¢ and $10 for a sports-car, there is difference between paying $10,000 and $20,000. They are both great deals, but they are still quite distinguishable. So, at least in theory, you could plumb the psychology of your opponents and make yourself more likely win by picking the price none of them would.

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Pposh Up For Sale: Asking a pretty penny

Penny Auction Watch just broke the story that Pposh.com is up for sale. Pposh is the penny auction site focused on travel packages that employed some very suspicious practices after launching late this summer. According to Website Broker, where Pposh is listed for sale, the site has a monthly income of $3000, expenses of $350 and an asking price of $500,000.

As someone with a little bit of experience in the private equity world, let me evaluate this deal for all you prospective buyers, free of charge.

While PAW said some Pposh employees were not getting paid, let's just assume this is a wash and that it really only costs $350 a month to operate Pposh. That brings EBITDA to $31,800 per year. With the asking price of $500,000 you are looking at about a 16x multiple for Pposh. That's on the very high side, a good multiple on a brick and mortar operation of similar size might be 4 or 5x. However, before we declare Pposh overpriced by nearly $350,000, let's dig a little deeper and evaluate it's business potential, market potential, competition and barriers to entry ie let's do a quick and simple SWOT analysis:

Strengths: The site looks good for a penny auction.

Weaknesses: As I have long argued, the only barrier to entry in this space is credibility, Pposh has none. In fact, for such a young site Pposh actually has a very bad reputation (see earlier posts on PAW and Penny Auction Insider). They have no site traffic. Travel packages have huge inherent challenges. For example, selling a flight from one city to another requires the bidder to be in one of those cities and have a need or desire to go to the other city within a limited window of time. This severely limits the number of potential customers.

Opportunities: I believe there is a lot of room for growth in the penny auction industry.

Threats: Pposh has no barriers to entry. There are nearly 100 sites offering similar services for a similar price. The only thing that makes Pposh unique is its product set - travel packages - which poses inherent challenges, and even if there was an attractive market here, more established sites could easily enter this market and leverage their existing customer base to win this sector. There are many larger, more established penny auction sites with experienced management teams and some with VC funding.

In conclusion, Pposh has a weak business model in a competitive industry with no barriers to entry. Pposh has very little site traffic and what reputation it does have is negative. The stated costs are far lower than would be required to adequately run the site and income potential is small given the limited customer set in travel auctions. One big problem is that if expenses are only $350 per month, Pposh can't actually be selling much of anything, which raises questions about the legitimacy of their earnings. According to the Pposh ended auction page they sell over a dozen items a day, including expensive travel packages, car rentals, flights, computers and other electronics. Clearly, Pposh is either not counting the products it sells in its expenses or not actually selling products, which is something we accused them of doing weeks ago. This is very suspicious and appears to be one big fraud.

After doing a basic analysis of the company fundamentals, I believe Pposh.com is overvalued by approximately $500,000 and wouldn't pay a single cent for the "company."

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Nick Lachey's Latest "Project" is Penny Auction Site

Last week on the Rachael Ray Show former pop sensation, 98 Degrees band member and reality TV star Nick Lachey told Rachel he is working on a new "project" called winnit.com, a lowest unique bidder auction like Dubli. I don't know if Nick is an investor, a partner or what, but having a celebrity in the penny auction arena is pretty interesting.

Winnit.com is auctioning off a 2010 Porsche Cayman, but it doesn't end for 63 more days.

Here are a few quotes from the interview:

Nick: "It's a really, really, really cool website I'm a part of now."

Rachael: "You can literally win it for a couple of bucks, isn't that weird?"

To see the part of the interview where Nick talks about winnit.com click here.

To see the rest of the interview where Nick and Rachael talk about Jessica Simpson, the break-up and all that jazz, click here.

For contrast, here is an interview with Foundation Capital's Charles Moldow, who invested $4.5 million in Project Fair Bid along with two other VCs.
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Friday, September 25, 2009

Update from The Auction Squirrel

The Auction Squirrel recently posted this announcement on their site:



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More on The Auction Squirrel

I don't know what happened but The Auction Squirrel doesn't have any live auctions right now. They ended all auctions last night and then earlier today posted a message on the site that said they were switching to a new server. After a period of down time they are now back, but still with no live auctions. I spoke with two people yesterday who said they won items on The Squirrel, and for extremely low prices, which makes me think they have no shill bidders. However, I don't know what the lack of auctions means.

The Squirrel, which opened for business on Wednesday, has sold 92 items so far with a total cost to the site of approximately $3,400 (assuming they buy at retail and bidpacks cost nothing) and collected about $39 in auction fees. Since all Auction Squirrel auctions are of the 1 cent variety this means about 3900 bids were cast. Each Auction Squirrel bid costs $0.80 (slightly less if larger bidpacks are purchased), meaning The Squirrel collected at most about $3120 (rounding). Total bids + auction fees = $3159. However, I believe The Squirrel made much less than this because it gave away three free bids to every new user and because about 1/3 of all auctions were for bidpacks, meaning many placed bids were actually won not purchased. Based on these calculations I expect the site made very little money from bidpack sales, maybe $1000.

If my assumptions are correct, The Squirrel took a hit of over $2,000 from their first two days in operation. Given that they paid $800 for the SwoopoClone software, maybe $80 for a month of hosting + domain registration and $20 for the Squirrel graphic, that would bring total costs to date to $4,300 on revenues of $1,039 ($39 from auctions and $1000 from bids).

As I have previously stated, there are two major problems with penny auctions. 1) They can easily cheat you by using shill bidders and 2) They could go out of business and never send you any of your winnings or refund your money. The Auction Squirrel falls into the second category. If The Squirrel folded up shop today and never came back there is nothing anybody could do about it. No one is going to sue the owner of the Squirrel for a $300 XBox 360 (the most expensive item sold), which means the owner of The Squirrel could simply walk away today. Of course they would suffer a loss of $800 spent on software and maybe $100 on other miscellaneous things.

The real question is whether the owner of the Squirrel thinks they can turn their losses these first two days into a sustainable profit going forward. After all, the sunk cost fallacy applies to auction players as well as site owners.

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Thursday, September 24, 2009

Penny Panties - Nope I'm not kidding

"Think Swoopo meets Victoria Secret," the latest penny auction site (sigh) is none other than Penny Panties - a niche site akin to PennyPurses and PennyLaptop, which specializes in, you guessed it, women's panties. Penny Panties hasn't launched yet and they have Google Adwords on their site which makes me wonder if they are serious.

I've often dreamed of making a spoof penny auction site. I almost did after seeing The Auction Squirrel, I was going to call it The Auction Beaver with the tagline "Woodn't you like to win!" Penny Panties has the tagline "Not how your grandmother bought panties." If I hadn't just seen sites like The Auction Squirrel and Poor Daddy's Penny Auction House go live I would have certainly believed Penny Panties to be a spoof, but alas I don't think there is anything in the penny auction universe that can surprise me anymore.

Penny Panties has an email sign-up list if you feel so inclined.
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Day 2: The Auction Squirrel

So today is the second day of operations over at The Auction Squirrel. I've been following the site with an unexpected degree of interest since it's launch at noon yesterday. I think The Auction Squirrel holds my interest because I've never watched a penny auction site go from pre-launch into open-for-business mode before. I also don't see how the Squirrel could possibly make it (with nearly 100 similar sites out there), which gives it a bit of an underdog feel. I am also very curious to see what the Squirrel's strategy is because as I've loosely monitored it's progress these past two days I've seen it sell everything for less than $1. Clearly this cannot be sustained for very long and I don't see them spending any money on Adwords so I don't know how they are planning on getting enough traffic - and bidders - to make the site sustainable. I think with penny auctions the most important thing for bidders is not that they can get a good deal on your site but that they can trust you. Bidders need to believe there are no shill bidders and that they will actually receive there winnings before they spend money. This is the biggest hurdle for a penny auction site and I think the several largest sites, namely Swoopo and BidCactus, have been able to win customers' trust, this is why they are so successful. I would like to see if and how The Squirrel is able to build trust with users.

I'm going to make The Auction Squirrel my little case study. I'll monitor their progress and share my thoughts with the community. If you have any experience with The Squirrel, please share it with me. I am especially interested in hearing from people who have won things on the site. Thanks for your help with this!
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Wednesday, September 23, 2009

The Auction Squirrel Goes Live


I spent a few minutes over at The Auction Squirrel shortly after their launch at noon today. There were only three or four people bidding at most and I noticed a few usernames from other auction sites like janyce16 and drbud57, however, I also read on the Penny Auction Watch forum that there are now some copycat usernames out there, so I don't know if we are talking about the "real" janyce16 and drbud57. I also noticed that on the auction for the Bed Bath & Beyond giftcard (pictured below), the site stalled at 1 second and never recovered. I stayed on the page for about 30 seconds and when I hit refresh the card was gone. I suppose drbud57, who was the high bidder at the time, won that one. It's hard to fault the site for being a bit glitchy on the first day, if Blogger wasn't writing the code on this site I'm sure there would be lots of bugs. Either way, with such low bidding activity it looks like there are some good deals to be had, that is if drbud57 let's you win anything.


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Tuesday, September 22, 2009

Swoopo's Days are Numbered: Auction Squirrel is Here!

This placeholder for the soon to be launched penny auction site The Auction Squirrel speaks for itself. I hope Swoopo has a contingency plan. For more on The Auction Squirrel see my earlier post Does the world really need another penny auction site?. FYI I added the "Our prices are nuts!" bit, that wasn't really on the Auction Squirrel page - but it probably should be.
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Great Forum Post Over at PAW

I really enjoyed reading this thread - you can learn a lot about the mentality of a penny auction player from this forum:

http://www.pennyauctionwatch.com/forum/showthread.php?p=1925#post1925
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Monday, September 21, 2009

Does the world really need another penny auction site?

Calling all entrepreneurs, please, stop launching new penny auction sites. Today I saw an ad for Poor Daddy's Penny Auction House, and while I like the name and the simple cartoon-ish feel of the logo, I found myself saying,"Really, does the world really need another penny auction site?"

I know we're in a recession and you don't have anything better to do. I know you can buy the software out of the box for less than $1,000. I know you don't have to know anything about computers or even have a phone number. I know running these sites require no special knowledge or expertise, even the inventory you can buy straight off of Amazon.com. I know, I know. But does the world really need another penny auction site?

The problem is that while anyone can go through the steps above, very few people can do them well. Running a business requires business sense, and when you create a virtually identical copy of a website that already has 95 (literally, 95!) copycat sites out there, you are an idiot.

Take some advice and start a blog about penny auctions. I promise it will be far more lucrative.
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Thursday, September 17, 2009

The Expanding Penny Auction Universe: Part 2

So earlier I blogged about how the penny auction universe is expanding. We went from 1 (Swoopo) to 95 penny auction sites in about a year. Whoa! Actually, Swoopo was in the EU for a few years before it came to the US, but like most things, this blog is US-centric.

However, not only is the penny auction universe getting larger, it's also diversifying. There is now a wide range of sites and products, you can go for sites with or without bidbutlers, true penny auctions, or alternatives like the 12 cent-step variety at Swoopo. Penny auction sites are selling a wide variety of products and even a few cars.

Now, entrepreneurs are taking entertainment shopping in new directions. We blogged about SevenSnap, a bid-fee app for the iPhone and Penny Auction Watch recently blogged about Rackup and CircusPop.

Rackup was featured at the TechCrunch50 conference in San Francisco earlier this week and TechCrunch blogged about them here. Rackup seems like a great way to get gift cards on the cheap. Users enter a virtual room and when the auction starts they can click to buy the featured gift card. The first 10 people get the card with a varying bonus from between 3% and 100% of additional money on the card for free depending on when they clicked "buy." The earlier they click, the higher the bonus. However, if more than 10 people buy then the earlier people get kicked out and must enter again at the beginning of the list (lowest bonus). It's a little confusing, but the TechCrunch video explains it all clearly. The most important point is that if you want to buy a gift card anyway, you might as well do it on Rackup - the worst you can do is a 3% bonus and the best you can do is a 100% bonus. It costs nothing to play but companies that feature their gift cards are charged an 8% transaction fee. No wonder the TC50 conference-goers loved this one, we do!

Another interesting concept in online bargain hunting is CircusPop. This company charges users for bids ($0.75 - in bidpacks) which can then be used to "check" the price of an item for sale, until then prices are hidden. If users like the price, they can buy the item from CircusPop the same way they would at at traditional e-tailor like Amazon. CircusPop says that their prices only go down because every time someone views the price of an item, that price drops by $0.25. The site guarantees that users will find the lowest prices or their bids will be refunded. Like with Rackup for giftcards, the worst a user can do on CircusPop is get the product for the retail price, and it seems there is an opportunity to get the item for a substantial discount. CircusPop launched a few days ago and seems to have generated a fair amount of buzz (they have 700+ facebook members, as Penny Auction Watch pointed out).
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Wednesday, September 16, 2009

Penny Auctions Under Siege

Last night BidRodeo informed us hackers were attacking their site. This is the second time in about a week BidRodeo has experienced a cyber attack according to BidRodeo's Weronika Cybulska. Apparently there have been no interruptions to bidding this time, however during the last attack on September 8th, the site experienced delays. During that outage Bidrodeo honored all ended auctions and also refunded all bids to losing bidders, Cybulska said.

Penny Auction Watch also reported that Rocky Bid was under attack about a week ago. All of the attacks appear to be denial-of-service (DOS) attacks where hackers flood a target's servers with so many requests for information that most or all of the server's bandwidth is consumed. During a DOS attack legitimate users either cannot access the target site or experience a dramatically slower connection. If anyone tried to read the Michael Jackson death story on the LA Times or New York Times websites in the first 30 minutes after the news broke, you know what it feels like to try to access content on a site that is overloaded with requests for data. The good news is that these penny auction site hackers are not trying to steal personal information, just temporarily disrupt access to the site.

DOS attacks are fairly common and Google, Facebook and Twitter have all recently been attacked. Twitter, which is notoriously cheap on bandwidth, was down for hours after the attack while Google experienced only minor interruptions.

Cybulska said she didn't know why BidRodeo was being attacked, but suspected it might be a user who is trying to eliminate the competition in order to win an item on the cheap. It might also be a competing site trying to get users to defect.

Penny Auction Insider will continue to report on DOS attacks to penny auction sites and provide updates when sites are under attack.

Steven Seagal was unavailable for comment on this article.
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Saturday, September 12, 2009

Understanding Ended Auction Prices

I'm still not over thinking about the Mini Cooper that Swoopo auctioned off last week. The selling price was just under $4,000 for the $24,550 car. Why did the car sell for such a low price? Since this was an auction, you might reasonably conclude that $4,000 was the highest price any of the bidders was willing to pay for the car, even though the winner got a phenomenal deal. This thinking might also be used when looking at other ended auctions where the auction price was a fraction of the retail value. If a TV that retails for $1000 sells for $100 does that mean $100 was the most any of the auction participants was willing to pay for it? The answer, as you might have guessed, is no. Sometimes we see items sell for more than their MSRP and sometimes we see those same items sell for a fraction of the retail price. I see this happen a lot with bidpacks on Swoopo - the ended auction prices are all over the board. The question is why? It might have to do with auction dynamics like how many people are watching an item or whether any known "hawks" (game theory) are playing. But I think it has more to do with psychology and the bystander effect. I'll elaborate.

Psychologists have determined that the grater the number of people observing an emergency situation, the less likely they are to assist. This is not because they are apathetic, but because they believe someone else will help. This is the bystander effect. In penny auctions, I believe the same theory applies. If the group of bidders believes the ending price should be significantly higher than it currently is, they logically assume casting a bid at this time will only cost them money since surely someone will bid over them. Thus, no one wants to bid just yet because doing so is a waste of $0.60. However, as the clock winds down to zero someone has to bid or the auction is over. Often, bidders will hold out till the last second hoping someone else will bid and increase the auction time. These bidders will place a bid only if it seems like no one else is going to. We see this happen all the time on Swoopo, and I saw it happen repeatedly during the auction for the Mini. As the clock ticks down to zero there is a pause and then two or three bids come in at the last second.

I think that when items go for shockingly low prices (even by penny auction standards) it's because bidders believe someone else will "save" the auction by bidding to prolong the ending time. When all of the bidders think this, no one bids and the auction expires. All of the bidders who did not win are upset because they would have loved to purchase the item for the closing price, but hoped that someone else would extend the auction time.

So how does one use this information to their advantage during an auction? By knowing that anytime you are the high bidder, even early on in the auction, there is a chance you win the item - not because no one wants the item, but because they all think someone else is going to bid first. The odds of you being the lucky high bidder in this situation are not good, but odds of winning should only be considered relative to similar alternatives, right? Just for fun I looked into California lottery odds and if I had my choice I'd spend $0.60 on a small shot of winning a Mini for $4,000 over a 1 in 240,000 chance of winning $500, the top prize, on the Let it Dough scratch-off lottery ticket.

But not to get confused, on this blog we maintain penny auctions are not gambling. However, the element of chance is introduced through the bystander effect.
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Thursday, September 10, 2009

All The Penny Auction Traffic Data One Could Ever Want

Wow, someone has gone and done my work for me. PennyAuctionTraffic.com has a list of traffic for 95 penny auction sites (more than I knew existed) which will be updated daily, the site claims. PennyAuctionTraffic.com has stats from Alexa, QuantCast and Compete and ranks the results using a weighted average to determine at PAT rank. Nice work, my only request would be to see it on a graph, and if the site calculates monthly change that would be amazing. Either way, hats off to PennyAuctionTraffic.com for compiling this data in what appears to be an act of altruism (academic?).
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Tuesday, September 8, 2009

Penny Auction Traffic Data for August

Compete.com's monthly traffic scores for August are out. Below is a graph of the top 39 penny auction sites by unique monthly traffic. We see that Swoopo and Bidcactus are far ahead of the competition and that the distribution of sites follows a long tail pattern. So does this fit the Chris Anderson "selling less of more" philosophy of ecommerce 2.0? No, not really, more of a coincidence I think.

One of my friends made an interesting point when I showed him this chart. What if Swoopo owns Bidcactus, he asked. While we have absolutely no reason to believe this is true, it does make for interesting dinner table conversation. What if, in order to dominate the market Swoopo opened a second site, which happens to have a very similar color scheme and aesthetic, and funded that site from their own operations. Bidcactus does spend a huge amount of money on AdWords, after all.

Either way, I think I'm going to start calling Swoopo "Coke" and Bidcactus "Pepsi." The Dr. Pepper Snapple Group of the group has yet to be decided but there are a few strong contenders including BidRodeo and Rocky Bid as well as newcomers For10Cents.com and Winners24. This is actually the first time I've visited Winners24 and their site looks pretty clean.


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Monday, September 7, 2009

The Penny Auction Universe is Expanding

It must have been lonely for Swoopo back around this time last year when they were the only penny auction or "entertainment shopping" site in the US. However, since then dozens of copycat sites have sprung up, 54 to be exact as of my count earlier today. Of these 54 sites, 36 are active, 2 are preparing to launch and the rest are either dead or in a coma.

From an economic perspective, watching the penny auction universe is fascinating, we are witnessing an industry develop in hyper-speed. When there are low or no barriers to entry, as in this industry, new firms can freely enter the market. They do so as long as there are profits (perceived profits that is) to be had. This time last year, Swoopo developed an industry in the United States in which there were highly attractive profit margins. Soon, competitors entered the market. This was relatively easy to do because all that is required to operate a penny auction company is a website and a contract with a drop-shipper (essentially outsourced inventory management). Soon we saw dozens of new penny auction sites. However, there is a point at which the market for penny auctions becomes saturated and profits are reduced until some of the less competitive firms exit the market and profit margins are driven to a stabilization point (equilibrium) where firms neither enter nor exit the market. However, in practice things tend not to work out as cleanly as they are stated in theory. In the penny auction industry we have seen firms exit the market (Hasteno for example), but we do not know if this is due to over-saturation in the market or to operational or personal difficulties encountered by individual firms.

Also, theory assumes market participants to be rational and knowledgeable, a set of qualities human beings often fail to exude. Theoretically we expect new penny auction sites to open only if it makes sense for them from an opportunity cost perspective. Well, in a recession like this, one can argue that opportunity costs are pretty low. I wouldn't be surprised if several of the penny auction sites out there are run by unemployed IT guys who are trying to keep the lights on between business cycles. Also, since it can be hard to tell how much money a site is making, new competitors might enter the market only to find the profit margins are not as high as they expected. I suspect this is what is happening now with some of the sites that have just launched or plan to launch soon.

There is not enough room in this market for 30+ penny auction sites and many will be eliminated, the question is how long can they hold on for before exiting the market. This leads to a problem for the consumer which is that sites that are under stress and slowly going under have a stronger incentive to behave badly. I fear that many of these 30+ sites are going to damage their customers be failing to deliver product, failing to redeem bids or committing outright fraud before they bow out of the penny auction race for good.
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Swoopo Mini Cooper Sells for $3939.36

Swoopo's auction for a new 2009 Mini Cooper convertible with a street price of $24,550 ended minutes ago at a fraction of that price. The winning bidder, CaCO3, won with 2655 bids and will pay a total price (bids + ending auction price) of $5,532.96 + a $550 delivery charge.

32,828 bids were cast in the auction which started last Wednesday and stretched across Labor Day weekend. If Swoopo collected full revenue from each bid (they didn't) their take from bids would be just under $20,000 which when added to the final selling price of $3939.36 brings them pretty close to price of the car. While we don't know what Swoopo's purchase price of this car was we have no reason to believe they bought at a substantial discount, meaning they almost certainty lost money on this item.

I originally guessed the car would sell for around $18,000, which to me allowed for the winner to take a small margin that I perceived as sufficient compensation for the risks and efforts involved in acquiring the car. Boy was I wrong. Now Swoopo has a bit of a dilemma, do they put another car up because people saw what a great deal it is or do they never mention this day again? I expect we won't be seeing another car on Swoopo anytime soon.
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Here's an Honest Penny Auction Site

I've been using this lazy Labor Day to take inventory of all the penny auction sites out there. I want to see how many old ones are still active and how many new ones have sprung-up, at last count the field stood at 52. I'll post the full report later, but in the meantime I thought I'd share this landing page announcement from Hasteno, perhaps the last honest penny auction.

I don't know what it was about Hasteno that caused it to fail, the name and the color scheme are two obvious choices. However, if one thing is clear it's that in this industry there will have to be lots of losers. With more than 50 penny auction sites currently in existence and more starting-up all the time the market is simply too small to support all these sites. Economies of scale and credibility should allow the top few sites to dominate the industry while others fail and die out. Credibility might be the largest barrier to entry and if this is the case Swoopo should be just fine - I think the guys over at August Capital who plunged $10mm into Swoopo should breath easy - although, I really don't know what their exit strategy is. I can't imagine seeing SWPO on my Bloomberg Terminal anytime soon.

I'll post the full report later today, and FYI the Swoopo Mini auction is now at just under $4,000 with no sign of stopping anytime soon.
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Friday, September 4, 2009

A Post All Penny Auction Players Need to Read

Penny Auction Watch has an incredible story about shill bidding at new site Pardoo. They really did their detective work on this one. Nice job.
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Swoopo's Mini Cooper auction stopped being exciting hours ago, now in marathon phase

If one thing has become clear from Swoopo's auction of the red Mini Cooper convertible, it's that they need a better (quicker) format for selling expensive stuff. The Swoopo bidding model works well for moderately priced items, but a $24,550 car is going to take forever to sell. I understand Swoopo wants to minimize the risk of the car selling too cheaply (like the $1.24 Honda over at Rocky Bid) and so putting the Mini up in a 24 hour auction was smart. It increases the number of people who see the auction and gives them time to prepare to bid. However, as the auction approaches the 48 hour mark, with a price of just over $800, we here at Penny Auction Insider are starting to experiencing mental fatigue and wonder how much longer this thing will go for. I speculated earlier that I thought the car might eventually sell for around $18,000. Even if the car sells for $10,000 we've got a long, long way to go.

In the future I think Swoopo should tweak the auction format for expensive items like the Mini. A faster countdown or less time added to extend the clock with new bids might be a good solution.

The Mini has a current price of $806.40 with about 30 minutes on the clock. Last night we saw the time go to under one minute before spiking due to a BidButler war. Why anyone would exercise their BidButler so early in the auction escapes me. We'll continue to follow this auction and provide updates on the blog.
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Thursday, September 3, 2009

With just under 4 hours to go Swoopo's Mini Cooper auction at $109

The price of the 2009 Mini Cooper convertible Swoopo put up for auction yesterday is at about $109 with just under 4 hours to go. Should Swoopo be concerned that the price of this $24,550 car has risen to just over $100 (910 bids) as time winds down on the 24 hour auction?

No. We observe two things about everyone who has bid thus far. 1. They are placing single bids, not using BidButler and 2. They're not seriously trying to win the car, at least not yet.

Any serious contenders for the Mini won't jump in until the auction approaches closing or until it goes into overtime. Once the auction nears close I think we're going to see a huge increase in bidding activity and see the price rise quickly from a few hundred dollars to several thousand. However, there is always the chance that bidders feel winning the car is so unobtainable that they don't try and someone scoops it on the cheap, but I find this outcome unlikely. I think bidders will be reluctant to use BidButler and that we're going to see a lot of single bidders in a very long, drawn out bidding war. But who knows, I could be completely wrong in my predictions. We have never seen an item like this on Swoopo before so it's hard to tell how bidders will react.

Also, I received an email last night from someone close to Swoopo who asked not to be named but who said my break-even estimates for this auction are too low. This person said I failed to calculate the cost of acquiring customers and that I should give it another shot. I'll scratch my head on this one for a while and post something later.
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Wednesday, September 2, 2009

Updated: Swoopo Auctions Mini Cooper

Update 8:08 pm EST:

We are watching this Swoopo auction for the Mini Cooper very carefully, as I am sure Swoopo executives are, and wanted to let everyone know what the magic number is. Assuming everyone paid full price for their bids and Swoopo paid full price for the car, the selling price of the car needs to be $4091 for Swoopo to break even. If 24% of users are bidding with FreeBids or bids subsidized through winning bidpacks, etc., the car needs to sell for $5168. Anything over that is pure profit for the company, and we do expect the car to go for well over $5168. However, this auction for the Mini Cooper introduces one dynamic not seen in auctions for less expensive products: the winner needs to be able to pay for the item. Most Americans do not buy new cars in cash, instead they finance or lease and most often trade in an old car. I speculate that most people bidding on Swoopo don't have $24,550 to buy a car with, or even $20,000 or $15,000, this will limit the number of people who are competing for the car. Of course, the winner could borrow money from the in-laws, but that complicates things.

My prediction is that this is going to be be a wildly successful auction for Swoopo and also that someone is going to get a great deal on the car - not a $1.24 great deal like at Rocky Bid - more like an $18,000 good deal.

End of update, original post follows



Today Swoopo put a red Mini Cooper convertible up for auction. The auction lasts 24 hours and each bid raises the auction price by 12 cents. As of 4:46 EST the price was $6.60. This is the first time Swoopo has offered such an expensive item, valued at $24,550, and the second time (to our knowledge) a penny auction site has auctioned a car. The first was Rocky Bid which sold a Honda Insight for $1.24 back in June. Rocky Bid lost some serious money on their auction, but tried to use the event to generate strong PR for the site. How Swoopo's Mini Cooper auction goes is anyone's guess, but they have much stronger site traffic than Rocky Bid did in June - that site said there were just two bidders when the Honda Insight auction closed for $1.24.

We will watch this auction closely and update the blog accordingly.
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SevenSnap: A New Take on Entertainment Shopping

SevenSnap is a new take on entertainment shopping, and no it's not a penny auction site, marking a refreshing change of pace for this blogger who is getting pretty tired of new penny auction sites popping up every day claiming to be the industry leader or exciting and new, when really they're just copying what's already out there.

Not so with SevenSnap, a truly innovative take on entertainment shopping. SevenSnap is an iPhone app (with plans to produce a web-based version later) where users purchase time credits and then use those credits to enter a virtual room with a featured product, such as a MacBook Pro, and other bidders. The price of the item starts falling as soon as someone enters the room (starting at retail) and the speed of decline depends on the number of people in the room - as fast as $100 a minute if the room has many users. The first person to buy gets the item at that price and then the price resets for everyone else in the room.

SevenSnap is a pure price discrimination model where the person with the highest willingness to pay in the room gets the product at whatever their threshold price is. This price must certainly be less than the retail price of the item or else people would just go to their favorite store to buy. I expect there could be some decent deals on SevenSnap but that really depends on the type of people in the room and all it takes is one person who is willing to buy at close to retail to ruin it for everyone else.

The SevenSnap app is not in the app store yet which has led some people to speculate on whether Apple would even approve the program. Apple has been notoriously cloistered about its approval process and created a firestorm of controversy this summer with its decision to block certain Google-developed apps as well as for its re-engineering of iTunes to block the Palm Pre from accessing that platform. I expect SevenSnap looked into the likelihood of Apple approving its app before it went to the trouble of developing it, but with the app store nothing is for certain.

SevenSnap has a cool video demonstration that you should probably watch once or twice.
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Monday, August 31, 2009

Swoopo Promotion With a Twist

Swoopo sent me an email promotion on Friday night saying they would give me all my bids back on the first auction I won in the next 24 hours. The bids are refunded in the form of FreeBids and usable in the next seven days. It would be interesting if two people in this boat found themselves bidding against each other. I expect this would increase their willingness to expend bids to win the auction and this drive up the profit for Swoopo and the cost to the bidder(s) who doesn't win.

This concept does have its limits because people are only being refunded bids in the form of more bids and there is a limit to the amount of money anyone is willing to spend on bids. However, if Swoopo wanted to be truly diabolical they would refund the winner's spent bids in cash.

Imagine if two people who received this modified promotion found themselves bidding against each other. Each would expend ever larger amounts of money on bids, confident that eventually the money would be returned to them when they won the auction. However, as the auction progressed, each bidder would find himself desperate to win - having passed a point of no return in which they would see devastating losses if they failed to win the auction. The price of the auction item would easily go beyond MSRP with both bidders determined to win. The problem is that eventually someone must lose and when that happens one of the bidders will get out alive but the other will take a huge hit.

Swoopo isn't doing this though, and I'm glad they aren't. While a huge fan of free markets, self control and personal accountability, a system like this would be rigged to hurt people and penny auctions should be entertainment, not mechanisms of self destruction.
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Friday, August 28, 2009

Top 5 Funniest Penny Auction User Testimonials

5. "The Redneck"




4. "This is going to be my future Christmas wonder present"




3. "To go with my Wiiiiii"




2. "My daddy bought this guitar for 5 cents!"




1. "Serial Killer"




Honorable mention


"I'm doing this from my bathtub"


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In His Own Words: Swoopo CEO Explains How His Company Works



Swoopo CEO walks a reporter through how is site and his company work. Very cool, not a lot you probably didn't know already, but cool to hear it from the boss.
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Enterprising eBay Seller Sells Penny for $1


I found a penny for sale on eBay today with a Buy It Now price of $1. What's so special about this penny you ask? Well, it's a randomly selected, circulated coin with a face value of 1 cent - making it strikingly similar to many other pennies in the world. So what's the appeal? The seller claims this penny could be your lucky one! "Never quite found that "lucky" penny? Well let us find it for you!" You might scoff at the idea of selling a run of the mill penny for one dollar but I couldn't help but laugh at the sellers entrepreneurial spirit.

Only one of these "lucky" pennies has been sold but the seller (jerrys-stuff-shop) has more than 10 available in case you're thinking ahead to the Christmas season - makes a great gift in these hard economic times!
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Thursday, August 27, 2009

Penny Auction Insider Now on Twitter






Follow us at twitter.com/pennyauctionguy
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Pposh Claims to be in Testing Mode, Questions Remain

I received lots of angry comments (almost certainly from Pposh employees) about my accusation that Pposh is a scam. People in the comments claim the site is still in testing mode and that users were sent an email saying so. I did receive such an email, posted below in its entirety.

"Salutations-
Thank you for signing up with Pposh.com. We are in the middle of testing the site. We do apologize for the inconvience but can you please come back in a few days. We will of course hold your bids and will send you an email as soon as it is ready.
Thank you for your patience and we look forward to seeing you soon!!
Pposh.com"

However, this alone does not clear the site from what I would call dubious practices if not from being an outright scam. First, nowhere on the site could I find a disclaimer saying it is still in testing mode - a huge problem. Pposh lists ended auctions with details about when they were won, who won and for how much. Pposh do you see any problem with posting over 170 ended auctions with full descriptions of the travel packages won with really low prices that were not actually won? That's false advertising if not illegal. Your blog has similar false advertising, which I took a screen shot of and posted here. If you are in testing mode why would you post on your blog "I just won a Caribbean cruise on a new website I just stumbled on and I feel they are going to be very successful ... they have just launched the site a few days ago. Check it out." So you didn't win a cruise 1. because you work at the site, 2. because there is no cruise because you are in "testing mode" and 3. you were OK with lying about this auction to potential customers.

Also, how can you claim to be giving away five "free" bids when you are in testing mode - obviously if I can't win anything because you are in testing mode you can't legitimately charge me for bids. I don't know if users can use bids they purchased at Pposh to bid on these "testing mode" auctions, but when I used all five of my "free" bids this morning I was prompted to select a bidpack and enter my credit card information (again, without ever being told I was bidding on "test" auctions). This is very, very wrong, if not, again, a huge SCAM.

Pposh, we will watch you closely when you claim to leave "testing mode" and see what is going on then. However, in an industry that already has a credibility problem you have dug yourselves a large hole with your lack of disclosure and misleading if not fraudulent information posted on the site. Everything about your site looks and feels like a fully operational penny auction site, if you are in testing mode you need to say so on the site. I really don't know why you would do live testing anyway, except in my honest opinion, to deceive potential bidders.

Pposh - I have not deleted your comments on the previous post and have no plans to do so. However, if this pattern of comments continues and you do not properly identify yourselves as Pposh employees or persons with a vested interest in the company I will delete them. I believe fully in transparency and user freedom of speech, however, if comments are deceptive in their own right than as the administrator of this site I have an obligation to filter them.

Penny Auction Insider community: Pposh has been extremely deceptive, I would avoid the site until it can be verified that they are legitimate. I am not the only one who feels this way, Penny Auction Watch had a similar story this morning. We will continue to follow this story but in the meantime, as Penny Auction Watch stated earlier today, anyone with $150 and a few spare hours can start a penny auction site and anyone with an internet connection can post a comment on this blog. We need to be careful before we spend money on any new penny auction site, unfortunately it's just too easy to defraud people online.

Even Swoopo, the largest and most credible site is getting destroyed by angry users on their Facebook page who claim to have won items and not received them or purchased bids and not received them. I think Swoopo is completely legitimate, but if even the best sites have glitches why would you trust a newcomer that is being deceptive before they even go live? If you have a Facebook account go here to read the comments on the Swoopo Facebook page, it's a mess.
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Wednesday, August 26, 2009

How Swoopo Alters Dopamine Levels in the Brain

Swoopo is addictive not because of sunk cost (as we have argued here) but because it impacts dopamine levels in the brain, says writer Jonah Lehrer of The Frontal Cortex, a science blog. Lehrer writes this fascinating article comparing the results of a scientific experiment - one where the impact of a reward on dopamine levels in monkey brains was tested under various circumstances - to Swoopo. In the study Lehrer describes, scientists found that monkeys responded to the expectation of a reward (apple juice) with an increased flow of dopamine to the brain, the same increase in dopamine as when the juice was actually received. However, once the monkeys became conditioned to expect the juice, their brains no longer responded with a dopamine spike, neither to the expectation nor to actually receiving the juice. The study concludes that neurons are concerned with expected rewards more so than actually receiving a reward. This applies to Swoopo, Lehrer writes, because bidders are kept in a state of perpetual expectation. Every time a user places a bid he becomes the high bidder and hopes/expects to win the item. According to the monkey experiment, this act causes dopamine levels to spike and since the reward is never guaranteed the brain is kept in a state of perpetual suspense, which stops the dopamine spike from diminishing over time. This spiking of the "happiness" chemical in the brain is what causes people to bid over and over and over again, says Lehrer.

Apart from being interesting, Lehrer's article adds legitimacy to Swoopo's claim that the site offers "entertainment shopping," for better or worse.
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