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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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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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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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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More on How PPosh is a Scam

Caption: Updated graphic of travel packages fake bidder Shasta1 has won on Pposh, green = hotel, blue = cruise, red = flight. These packages must be used in August or September of this year

I found the new penny auction site, PPosh, yesterday and exposed them for being a scam in this post. Warning flag raised, I could call it a day, content that Penny Auction Insider readers won't fall for this trap. However, pointing out the ridiculousness of PPosh is just too much fun to stop now. Below is a screenshot from today showing PPosh shill bidder Shasta1 bidding on yet another travel package. Apparently Shasta1 is not content with the 18 flights, cruises and hotel stays he has racked-up in the past two weeks and needs a flight from Miami to Mexico before he can call his vacation to end all vacations complete. Shasta1 is also currently the top bidder on two golf packages.


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Penny Auction Site Pposh.com is Complete Scam

I rarely blow the whistle on penny auction sites, frankly because we can almost never know for sure whether a site is legitimate or not. Even if Swoopo users like their experience and receive their products, how do we know the site doesn't throw in an autobot every once in a while just to give the house an extra buck? Well, fortunately for penny auction players, the sites that seem to be complete frauds make it pretty obvious.

The latest one, Pposh.com, is so pathetic it's almost funny.

Pposh.com is a penny auction scam site that claims to sell vacation packages; everything from flights to cruises to rental cars and even Hooters gift cards.

While winning travel packages sounds more appealing to me than electronics, they present a logistical nightmare for penny auction websites. Vacation packages which include flights, hotels or cruise cabins are time sensitive, they include components that change in price and that need to be reserved so the seat or room doesn't get overbooked. Also, departure locations will need to depend on where the bidder is located, another logistical challenge. For these reasons auctioning off vacations is very difficult and will likely draw a very small audience. Take a recent example from a Pposh.com auction which was for a round-trip flight from Orlando to Pittsburgh or vise versa. Orland to Pittsburgh or Pittsburgh to Orlando, are you kidding me? A site that just launched and has such low traffic it isn't even covered by compete.com can't auction off a product that is only of interest to people in Orlando and Pittsburgh (and who have an interest in visiting the other city) and who want to fly in August or September (the terms of the ticket being auctioned).

So Pposh is trying an innovative penny auction concept that seems deemed to fail, but why are they a fraud you ask? One Pposh penny auction for a Disney vacation is going for $31.22 which sounds suspicious - really Pposh, you've had more bids on this item than pageviews to your whole site?

I was pretty sure at this point Pposh was a scam but when I looked at the ended auctions I started to laugh. First, the site has over 170 ended auctions, which seems high for a site that's only been open for a short while. But if you look at the bidders you see one user, Shasta1 seems to win quite a bit. This might not seem that odd if the items were electronics, but how many vacation packages, hotels and flights can one person use? Let's review what travel auctions Shasta1 has won on Pposh (feel free to laugh out loud).

1. 8/13 - 3 night Bahamas vacation
2. 8/13 - 2 night stay at a Sheraton in Philadelphia
3. 8/13 - a second 2 night stay at a Sheraton in Philadelphia
4. 8/13 - 2 night stay at a Hilton in Paris, France
5. 8/13 - roundtrip airfare from New York to Miami (or vise versa) to be used in August or September
6. 8/13 - 2 night stay at a Sheraton in Boston to be used in August or September
7. 8/13 - roundtrip airfare from New Orleans to New York (or vise versa) to be used in August or September
8. 8/13 - 2 night stay at a Sheraton in Cleveland to be used in August or September
9. 8/13 - 2 night stay at a Hilton in Tel Aviv, Isreal to be used in August or September
10. 8/13 - roundtrip airfare from New York to LA (or vise versa) to be used in August or September
11. 8/13 - 2 night stay at a Sheraton in Dallas to be used in August or September
12. 8/14 - 3 night stay at the Bellagio in Las Vegas to be used in August or September
13. 8/14 - roundtrip airfare from Boston to Ft. Lauderdale (or vise versa) to be used in August or September

Then Shasta takes some well deserved time off, presumably to enjoy his recently purchased vacations, before coming back 7 days later to purchase more.

14. 8/21 - 3 night cruise to British Columbia departing from Seattle to be used in August or September
15. 8/23 - roundtrip airfare from Atlanta to Denver (or vise versa) to be used in August or September
16. 8/23 - 3 night stay at the Marriott in Orlando to be used in August or September
17. 8/23 - 2 night stay at the Hilton in Chicago
18. 8/23 - a second 3 night cruise to the Bahamas departing from Orlando to be used in August or September

Shasta1 is quite the jet-setter now isn't he? I thought I'd plot his travel plans on the map below to help make sense of all those vacations! (green = hotel stay, red = flight, blue = cruise)


Pposh also has a blog with three entries on it. Two of the entries announce the new site and the third so funny I had to show you instead of tell you, see image below. Note the person who posted the comment and if you click on the link to the ended auction (you need to go to the Pposh site to do so) you will see the winner was none other than Shasta1.

I rest my case. Since I first heard about Pposh in the comment section here on Penny Auction Insider, I hope the owner of Pposh sees this post and responds. I will also ask Penny Auction Watch to chime in on this site because they seem to have a knack for uncovering fraud from the bid patterns on sites.

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Bidcactus is back after "internal improvements" and prepares to offer fresh product line-up

Many users, including me, noticed that BidCactus did not come back online Friday night as they said they were going to earlier Friday after going down for "improvements," according to a notice posted on the Bidcactus homepage and re-posted here on Penny Auction Insider. However, the site is now back up and appears to be running fine. I was hoping for some cool new updates, but couldn't see any difference in the appearance or operation of the site when I perused this afternoon. I contacted Bidcactus's Marjorie Almansi to ask about what was new that I wasn't seeing. Almansi said in an email message the the site had undergone internal improvements and that they would start featuring a variety of new items, but declined to ruin the surprise. I didn't see anything new this afternoon but Almansi assured me we can look forward to a "variety of cool new things that will be displayed every day on the site."

Looking forward to it!

In other news, PennyAuctionWatch had a cool story about how Rocky Bid auctioned off a signed baseball photograph, which the article points out can't be found on any other penny auction sites.

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In the mailbox: BidHof, again

Victoria from BidHof wrote back about my rather dismissive review of her site. I won't quote her email, but suffice it to say, she wasn't happy about the post

Now, I stand by substantive remarks. The site does seem like a clone of a lot of other sites, and doesn't (yet) offer any consumer-to-consumer features.

But Victoria was right about something else: there was no call to be as dismissive as I was. It's easy to be callous on the Internet, but that's not an excuse. I've already apologized to her by email for that, but you, Gentle Reader, can help me make it up to her. Go over to BidHof and take a look. If you like it, use it.
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Bidcactus site goes down for maintenance

Here is the disclaimer on the Bidcactus website from early afternoon on Friday. They should have said "back in time for happy hour with 2 for 1 bids between 5 and 7pm," or something like that - missed marketing opportunity. They should also have auctions for wine of the month club and premium alcohol during happy hour, don't you think?

We'll provide an update when we see what kind of improvements they implement.
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Response to reader: Since we don't know how much an auction winner payed for their bids how do we know if they got a good deal?

An anonymous reader left the following comment on a post I made about a Swoopo auction in which the winning bidder lost money and would have been better off purchasing the iPod he won at the retail price. I decided to post my response here instead of in the comments because I think many readers will find this argument interesting. Here is my original post and below is the comment:

"Swoopo also auctions of bids. Hence, you assume that he paid $108 in bids, but he may have purchased the bids at a substantial discount. 50 bids recent sold for $3.62. It is likely that his cost of bidding was below $43.60 and he earned positive profits."

You make a good point Anonymous, the winner may have paid less than retail price for his bids which would increase the value he received from winning. However, your argument is incorrect because in actuality it is highly unlikely the winner spent less than $43.60 on bids, as you suggest. Here is problem with your argument:

If the bidder paid $43.6 in bids (which is, as you point out, the most he could have paid to have received a favorable price on the iPod)and he cast 144 bids ($108/.75), he would need to be paying $0.30 per bid (43.6/144) to stay below $43.6. This means he would need to have won the bidpack in your example (and several more just like it) with just 15 bids or fewer.

Here is where 15 comes from:

3.62 +.75(X) = 50*.3

Where X is the number of bids cast to win (rounded), .75 is the price of a bid, 3.62 is the cost of the 50 bid bidpack for the winner, 50 is the number of bids won and the .3 is the required price per bid won.

Winning a 362 bid auction with 15 bids (4% of bids cast) is unlikely. It's possible but I don't think you can argue this is the norm and not the exception. I'm not saying winning is based on odds, it's not, but people tend to win when they demonstrate their willingness to win at all costs, ie exhaust their competition - a feat than cannot be accomplished with 15 bids. People do win with only one bid, but these situations... are highly, highly unlikely, especially on Swoopo, the most popular penny auction site in the world.

Let’s take it one step further. Say this bidder is a repeat player and acquires all of his bids by winning bidpack auctions (never buying any) and let’s assume in doing so the price per bid he receives from winning bidpack auctions is $0.30. If we use this as the price per bid cast for him to win the bidpack auction in your example he would need to win the bidpack with the following number of bids or fewer:

3.62 +.3(X) = 50*.3

X = 38

He would need to win the bidpack auction with 38 bids or fewer to hold his price per bid at or below $0.30. Winning a bidpack auction in which 362 bids were cast with 38 bids (10.5% of bids cast) is still highly unlikely and even more unlikely on a repeat basis – which is required for his price per bid placed to stay at $0.30.

This outcome also fails from a theoretical standpoint. If users could expect, with a high degree of certainty, to win bidpack auctions at a cost per bid won of $0.30 on a regular basis they would never buy bidpacks at the retail price. Swoopo would be losing money on almost every single auction and would also have to be auctioning off far more bidpacks than we see them doing.

Note: the auction for the iPod in my earlier post is from a period of time when Swoopo charged $0.75 per bid, the auction for the bidpack Anonymous cites in his comment is from a more recent auction after Swoopo started charging $0.6 per bid. The change in bid prices would likely alter the outcomes of these two auctions slightly, but the general argument still holds.

Anonymous makes a good point that we don't know how much other bidders paid for their bids or how this impacts their bidding decisions. However, in the case of the iPod auction discussed here, the winner almost certainly lost money.
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Which Penny Auction Site Spends the Most on Google Adwords?

Our friends over at Spyfu.com have a formula for estimating how much any website spends on Google Adwords advertising each day. Penny Auction Insider ran all of the known penny auction sites through Spyfu and created the following graph of the eight that spend the most on Adwords. Bidcactus and Swoopo spend by far the most, followed by BidsTick, no other penny auction site spends nearly as much on Adwords.

Please note that Spyfu.com stresses their data is an estimate. Also, Spyfu provides a min and max number (in blue and green, respectively), and I went in and calculated an average (in red) as a means of trying to better compare each site's numbers. Please note that taking the average makes the numbers easier to compare but may also further distort the picture.


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On The Media Continued: Penny Auctions Featured on Motley Fool and in the Economist and Time

Penny Auctions have been a fairly quiet affair for the past year. When Swoopo entered the US market last September, the media barely noticed. This spring as new penny auction sites started cropping up all over the web, with dozens to date, few in the media took note. This is part of the reason why we founded Penny Auction Insider. Then, this summer, journalists started to write. There were articles in the San Jose Mercury Times, Washington Post, New York Times, a local ABC station in Philadelphia and on many blogs. Now that the cat is out of the bag, the rest of the media appear eager to follow the story. Last week, the Economist had an overview of penny auctions and earlier this week there were articles on Motley Fool and in Time magazine. I expect an AP or other wire-source story soon that will be syndicated by many more news outlets (if one hasn't already appeared, let me know in the comments if it has).

However, it should be noted that the vast majority of the articles published in the mainstream news are real snoozers for people already... knowledgeable about the world of penny auctions. We at Penny Auction Insider will continue to follow how the media covers the industry, however, will spare readers from summaries of articles that are themselves summaries of the penny auction industry. If you read this blog you are well aware that Swoopo is the biggest site and was first to market, and launched in Germany before coming to the US, I'm yawning , and you know full well that some people get good deals while others lose money, and the games are viewed as deceiving by some because they pit people against each other and some spend more than they realize, exc. exc.

What is most interesting about these recent penny auction articles (most feature Swoopo and mention others in passing) is that there are articles about penny auctions. What will this do for the industry? I think it will allow penny auctions to move closer to the center from the fringes, I think more people will check them out and I think society will become more polarized with some people loving the excitement of playing the games and some people hating them. As I mentioned in an earlier post, the penny auction industry is a small fraction of the size of the big e-commerce sites like Amazon and eBay and has lots of room to grow. In July, eBay had 10 times the traffic on Swoopo.
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On The Media: Swoopo in The New York Times Today

Flipped open my New York Times today and what did I see? Well it was an article on a topic I know and love: penny auctions. The Times offers what for the in-the-know penny auction enthusiast would be a fairly blase overview of how Swoopo works, with a few interesting facts laced in.

We learn from the Times article that Swoopo has 2.5 million users, a number that would be more significant had Bidcactus not declined to state the number of users they have in our interview last week.

We also learn that former... hedge fund quant Glen Whitney, who the Times asked to review Swoopo, believes the site is a "chump's game."

And most interestingly, we hear from a lawyer who says It Isn't Gambling, which was also the title of an earlier Penny Auction Insider post on the topic. The lawyer backs-up the claim Malvolio and I have been making from the beginning which is, in lawyer Anthony Cabot's own words, "Lotteries are games of chance, and an auction does not have what you would call any systematic chance, a random event that determines the winner." We rest our case.

On a side note: compare this Times article to the ABC 6 story on GoBid I reviewed last week and you see why the Times is "All the news that's fit to print," and ABC 6 is something less than that. Sorry ABC, but you didn't even tell your readers the name, title or significance of your only source, a guy who's opinions formed the bulk of your story.
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Reader mail

My co-blogger and I have been make gallows-jokes about "our many faithful readers", but it looks like we are actually getting readers. Wow, this Internet thing actually works! In honor, we've created a new logo for posts where we answer user emails. It's called The Penny Auction Post.

One reader, Jack Simmons, writes:

I'm relatively new to the pennyauctionsphere. I have placed a few bids on Swoopo and looking at Bid Cactus. One of my buddies was telling me both of these sites are a scam. Essentially since neither wants to lose money, they won't allow an auction to end before breaking even on the item. therefore, both Swoopo and Bidcactus both use bots or ghost bidders (pick your lingo) to keep the auction alive until at least they break even. To the best of your knowledge, are all of the bids on swoopo and bid cactus real? Do they often lose money on auctions?

The problem you mention is called "shilling", it's been a problem since primitive man first started auctioning off mammoth tusks, and it's particularly insidious in bid-fee auctions, since it's possible to defraud your customers much more thoroughly than in ordinary auctions.

A few years back, the government of Turkey broke up a highest-unique-bid scheme auction that was shilling. 30 people went to prison. Turkish prison.

Are Swoopo and/or Bidcactus doing the same thing? It's possible, but I sincerely doubt it.

First of all, by my observation, they lose money on most auctions. (Of course, the winners might be shills, but that is much more risky -- it's easy enough to conceal "ghost bidders", but if there are a lot of ghost buyers, everyone inside the company would become aware of it.) They make their money on those comparatively rare auctions that zoom up to 300% or 500% profitability.

Which brings us to the next point: they are making a lot of money at this, even if they're honest. Risking serious jail time (you know if the somewhat lackadaisical Turkish government can catch shillers, the frenetic Bundeskriminalamt in Swoopo's home country of Germany would be after them like the hounds of God) just to increase an already healthy profit margin would be phenomenally unwise.

In addition, Swoopo has serious investors: August Capital (who invested in VideoEgg and SixApart) and Wellington Partners (who did Xing). Even if Swoopo's people are willing to go to jail for a few extra bucks, these guys are not and they are in a position to watch, very carefully.

So, yes, there are plenty of scammers out there, and yes, it isn't impossible that Swoopo or BidCactus has its hand in the cookie jar, but no, it strikes me as very unlikely.

Correction: An earlier version of this post incorrectly attributed first usage of the word "penny auctionsphere" to Jack Simmons. It was actually first used by Pennyauctionguy here on a post at Penny Auction Insider.

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Bidcactus Overtakes Swoopo After Just Five Months

Bidcactus overtook Swoopo in unique visitors in July according to data collected by Compete.com. This is surprising news to the penny auction universe where Swoopo has long been seen as the industry leader, both in the US and Europe and is the oldest penny auction website, having launched four years ago in Europe and one year ago next month in the US.








Bidcactus, a Connecticut based company, launched on April 23 of this year and has experienced phenomenal growth. The company reached 693,013 unique visitors in July, to Swoopo’s 578,712, despite being in operation for less than five months and launching with only 36 users on its first day. Swoopo's growth in terms of unique visitors for July was 13.34%, BidCactus’s was 275.38%.

Penny Auction Insider spoke with Bidcactus Director Marjorie Almansi earlier today to discuss her company’s breakout success in a marketplace than has become crowded with competitors, knockoffs and scams.

“We’re growing in leaps and bounds,” she said. “We have great customer service; we’re the only [penny auction] site that offers 24/7 customer support and 9 a.m. to 5 p.m. phone support.” Almansi also credited ... player referrals, satisfied users who become repeat players, a strong engineering team and successful online marketing strategy that targets Google and Yahoo as key components to her company’s success. “We’ve surpassed every monthly goal we’ve ever set,” she added.

However, Bidcactus also appears to have spent slightly more than Swoopo on keyword advertising in July, an advertising method popular with penny auctions that drives significant traffic but can also be expensive. According to data collected by Spyfu.com, Bidcactus is spending between $991 and $7,370 on keyword advertising per day, while for Swoopo the number was between $725 and $6,530.

In turning to questions about the state of the penny auction universe, Almansi said she is concerned about rumors of fraudulent practices at some penny auction sites. “Unfortunately many people who are getting into [the penny auction business] are questionable. With box software you can get [a site up] for next to nothing. There are a lot of new sites out there and I don’t know what is going on behind the scenes,” she said. Almansi said she would be happy to lead the push to develop an audit panel that examines penny auction sites and certifies them as being legitimate. She also said she would welcome auditors to inspect her company and hopes others would be willing to do the same. “I’d be happy to carry the torch,” she said.

Almansi is optimistic about the future of Bidcactus and the penny auction industry as a whole. “There are very few people who know about us or who use penny auctions, but I think this could be a whole new way for the masses to shop,” she said. Amazon.com and Ebay, the two preeminent ecommerce storefronts on the internet each get about 70 million unique visitors per month, or about 14 times the number of visitors Swoopo and Bidcactus receive.

Bidcactus is currently running about 150 auctions per day and will soon expand operations to offer bidding around the clock.

Correction: An earlier version of this article quoted the advertising expenditures of Swoopo and Bidcactus in dollars per month, the figures given were actually for dollars per day. Thanks to Weronika Cybulska over at BidRodeo for pointing this out.

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The Sunk Cost Fallacy

Penny auction critics say these auctions exploit the sunk cost fallacy, ie "throwing good money after bad." I don't know if the average user experiences the pitfalls of sunk cost (irrational) psychology, but Zorro2612 certainly did in this recent auction over at Swoopo. This user spent $108 on bids and $155.40 on this iPod Nano worth $199 retail. Swoopo gives users a hand by automatically calculating their savings on an auction (retail price - (bids +cost)). Too bad this calculator only goes to $0 because you can have negative savings, they're called losses. Zorro2612 had savings of $199-$155.4-$108 = -$64.4. Didn't exactly slash a bargain now did we Zorro?

Here is what I bet Zorro was thinking:

Aye corrumba, i've already spent $100 on this auction, now I have to win it no matter what. If I back-off now, I'll have wasted that $100.

The problem with thinking about sunk costs this way is that it leads to irrational decision making. Having "sunk" $100 worth of bids into an auction does not make you more likely to win, therefore Zorro would have been best off to walk away after his total money spent on bids + cost of the item passed the retail price of the iPod. However, he did not do that, and in this case did end up winning the auction. Note that the outcome he received ie paying $263.4 for an iPod (including bids) is a better outcome than walking away at say $90 in bids and then buying the iPod at the street price of $199. However, when he made the decision to "go for it, all or nothing," there was no way of knowing he would be the winner. There very well could have been only one competitor on that auction who's strategy was also "go for it, all or nothing," and who got nothing. Zorro could have easily been out $200 with no iPod, instead of out $90 with no iPod as in the hypothetical situation I construct here.

To maximize value in all things; cars; houses; investments; penny auctions, users need to ignore sunk costs. As many critics point out, this seems especially hard to do in penny auctions, institutional investors (who I'll assume to be more sophisticated, but perhaps undeserving of the distinction) are known to be more likely to sell portfolio holdings that have appreciated in value by a certain amount to "take some profit," then they are to sell holdings that have declined in value by a similar amount, which they should do to minimize downside risk if the same standard of logic is to be applied evenly. This comes from a field called behavioral finance, which I find to have much in common with penny auctions, and is part of what initially drew and continues to hold my interest in these types of auctions.

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Attack of the clones

"Craig", presumably Craig Pratka, part-owner of Zoozle.com, wrote to us to correct the timeline we have up about bid-fee sites. I'll leave it to my co-blogger, who likes doing stuff like that, to make the correction to the graphic, but I'm always excited to hear from other people in this industry.

In doing some research about Zoozle, I came across the press-release they put out on the occasion of their going live. It included this shocking paragraph about their experience with the standardized "turnkey" software so many penny-auction sites use.

The software came with an 'Autobid' feature and instructions for the site admin to set fake user names and autobid timing from the back end. The feature can be disabled.. but when disabled, the sites critical functions, like bidding, did not work properly.

Shocking, but candidly, not surprising. It's very easy to be dishonest in this business -- even the word "dishonest" is somewhat euphemistic, here; "autobid" is shilling and in a bid-fee auction, shilling is outright fraud.

Cynical as I am, I was still shocked that the commercial software had shilling built in, had defraud-your-customer built right in. Wow, how do the people who develop that software justify what they do for a living to themselves?

So stay away from clone sites. They're easy to spot, they look just like Swoopo. Same green buttons, same unmistakeable red flicker when the timer is pushed back. They are all using the same software underneath. I have no idea what fraction of clones are actually using the shilling feature (or doing anything else dishonest), but why take the risk?
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In the mailbox: BidHof

I got an email from someone calling herself "Victoria Blechman". On the Internet, you always have to be suspicious about names (my parents didn't name me "Malvolio", for example), but would anybody pick "Blechman" as an alias?

In her somewhat eccentric English, the presumably-authentic Ms Blechman plugged her new Germany-based auction site, BidHof ("hof" is "yard" or "court" in German). The pitch involved eBay-like consumer-to-consumer (C2C) auctions. Now, I've always been a little dubious about C2C penny auctions, so I was curious to see her site.

Sadly, the site was still embryonic at best. It offered a set of ordinary bid-fee auctions, using what is obviously same software used to implement a lot of other auction sites. It talked in vague terms about C2C but didn't actually support it as far as I could tell (the site implementer has the same English-as-a-second-language style as Ms Blechman; it might have been Ms Blechman).

Ah, well, the search continues.

UPDATE: See here for more on Ms Blechman and BidHof.
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If It Sounds Too Good to be True, It Probably is, Unless it's a Penny Auction

(What do you mean these TVs don't cost $10?)

Late last night BestBuy accidentally set the price of a 52-inch TV on its website at $9.99, instead of the true retail price of $1,699, allowing shopping pandemonium to ensue. Consumers who noticed the deal in the wee hours of Wednesday morning jumped at the amazing offer, with many buying several or more of the sets. However, as age old wisdom goes: if it seems too good to be true, it probably is. BestBuy quickly fixed the mistake and told customers who purchased the $10 TV that the sale would not be honored.

While no one expects to get a 52-inch HDTV from BestBuy for $10, readers of this blog probably know of a few good sites where they might be able to snag such a deal. In the world of penny auctions, $9.99 doesn't sound like such an unrealistic price for a 52-inch TV, maybe a little low, but not unrealistic. Swoopo recently sold a similar TV for just over $100 and some of the lesser known sites can have even better deals.
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The Never Ending (Penny Auction) Story: Jungle Cents

So, as I blogged about in an earlier post, I registered with Jungle Cents and was given a free bid to get me started, this was on July 30th. I used the bid to reserve a space in a seat auction for an iPod Shuffle, which at the time was the only auction I could afford with my one bid. In my original post about Jungle Cents (also on July 30th), I noted that the seat auction for the iPod shuffle received its first bidder on July 8th. Back then I said of that original bidder, "...that person has been waiting weeks for this auction to start and only a small fraction of the seats have been sold. This isn't fair! People who buy bids to compete in these auctions expect their auction to start in a reasonable amount of time. At this rate it's going to take months before anyone can bid on that iPod!"

Now it's been over a month since the original bid was cast and 13 days since I cast mine. When I placed my bid there were 63 out of 75 seats vacant, today there were 49, and the auction can't start until all are full. In my original post I said one of the risks users face when playing penny auctions - or any "game" where money is exchanged for a product that is not received or consumed immediately - is the possibility that the company goes out of business. I don't know what Jungle Cents' financial or operational status is, and their website claims they have completed 170 auctions, but they have been very quiet since I started watching and appear to have locked-up some players' money for a very long time. I don't agree with this practice, and if I had spent money on my bid I would be complaining to customer service. If you have had an experience with Jungle Cents, good or bad, please let us know in the comments section or by email.


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GoBid.com Is Blessed by the Gods of Publicity

Local ABC affiliate WPVI in Philadelphia ran a story about GoBid this past week and had nothing but good things to say. The story, which runs about two minutes, profiles what in my opinion is one of the lesser penny auction sites out there in the station's "Saving With 6" segment.

ABC describes GoBid as a site where users can get amazing deals, but where they might spend more than they realize. An ABC reporter talks with who I will assume is a GoBid executive, but I say "assume" because the guy's name and title are never mentioned. The report never even mentions whether or not he works for GoBid.com.

I thought it was interesting that ABC chose to profile GoBid without any mention of other penny auction sites. GoBid is one of dozens of small penny auction sites that cower in the shadow of Swoopo and Bidcactus. Ok, "cower" is a bit of an exaggeration, but they're certainly much smaller than Swoopo and Bidcactus from a traffic perspective.

So why did ABC choose to profile GoBid?

Is GoBid doing something unique that warrants media coverage?
No, they're just like 15-20 other penny auction sites.

Is GoBid from the Philadelphia area, and ABC wanted to focus on a regional business to better connect with their audience?
No, GoBid has offices in Miami and San Francisco.

In other breaking news, ABC WPVI sucks.

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Penny Auctions Aren't the Only Place to Get A Great Deal

We at Penny Auction Insider enjoy penny auctions, obviously, and while we don't play as often as many of our readers, we get just as excited about the savings that can be had. However, penny auctions aren't the only sites on the web where online savvy consumers can get great deals and a little entertainment. Woot and GroupOn are two social media entertainment shopping sites that allow users to get a fabulous, if not completely random deal of the day.

Woot offers a "Today's Woot," which is a product the site has managed to buy in bulk at an extremely low price. Take a scroll down their blog for an idea about past Woots. They offer everything from mid-range laptops (today's Woot) to golf bags and talking smoke detectors. It seems like a lot of Woot-ers buy the deal of the day just so they can share their experience in the online forum. Woot also displays statistics about how fast the product is selling and how long it takes to sell out (sometimes it does, sometimes it doesn't, but there is always a new product the next day).

GroupOn is a collective buying site that features a new deal each day for 17 cities around the US. Today in San Francisco it was a bay cruise for $26 (50% of the list price). The site negotiates with the supplier and they agree that if a certain number of people buy the item, the deal goes through at the list price and if it doesn't, the deal is void. GroupOn leverages the power of the masses to get good deals. However, most of the stuff is local, so you have to be in the geographic area to take advantage of the deal.

For an interesting economic analysis of GroupOn, Evan Miller goes to town here.
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Living in SIN

I've been following Swoopo's new feature "Swoop It Now" (SIN) with considerable interest. This is a feature that allows non-winning bidders to apply the cost of their expended bids toward the outright purchase of the merchandise. My prediction was that it would drive the bid levels way up, as a bidder who was interested in buying the merchandise would have no reason to stop bidding once he had invested enough bids to make buying the item a good deal.

This has not happened. At all. At least, it hasn't happened yet. And I want to know why not.

Right now, Swoopo is selling a Nikon D90, a very nice camera, I happen to have one myself. Amazon sells it for $1,139.95 and by what is certainly not a coincidence, Swoopo shows $1,139 as its list price. So if you want the Nikon, instead of going to Amazon, go to Swoopo, buy 1900 tokens at 60¢ each, $1140.00 bucks works, and load them into the BidButler.

You might win and get the camera for something around $76.00 (1900 of your 2¢ bids plus the same number of 2¢ bids from whoever is foolish enough to bid against you). In fact, you'll probably win, because you have the huge war-chest to discourage rivals.

And if you don't win? You buy the camera for the same price you'd pay on Amazon.

Somebody should try this. I'll wait here.
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