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 Prices change all the time, especially on electronics which become outdated quickly when new models become available.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.