A risky proposition

Not all the email I get is about Nigerian royalty who need my help getting money out of the country or miracle cures for psychosomatic diseases. Because of this blog, a lot of my email is from marketing people flogging various penny-auction sites. I do what I can to cover these sites though I don't get to many of them, partly because I'm busy with other thing but mostly because I'm lazy as hell.

The latest was from Baffol. Baffol is a pretty drab-looking site (which can be a relief after some of the ridiculously tarted sites I've seen) but has two features of interest:

1. Each purchase of tokens also results in a credit against their "online store".
2. They haven't opened yet.

The first isn't really that interesting. The online store isn't open yet and the odds that you'll want any item they happen to have at the offered price (even after the credit) aren't good. Plus, when you bid, you might competing against other people who may be better motivated (because they do want something from the store).

The reason the second thing interests me is that every penny-auction site loses money when it starts. When the store opens tomorrow, there's going to be almost nobody there. If you bid, you're likely to win.

Of course, these Baffol people have zero track record. They could fold in a week, taking your money (and your credit-card number) with them. But you might pick up a Kindle for next to nothing.
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Tired of peanuts?

Yielding, as so often, to heart-felt entreaties combined with appeals to my self-interest (see my previous post for a full disclaimer), I went to visit BidOnCash. There are a lot of amateurs in this business, even where you wouldn't expect them, so I was pleasantly surprised.

BidOnCash cash is pretty much what the name implies: an ordinary ascending 100:1 bid-fee auction (that is, each bid costs the user $1 and raises the price of the item by $0.01), the interesting twist is that the items are all cash.

Which makes sense. You go to BidCactus or Swoopo and they're selling GPSs and digital cameras and you ask yourself: do I actually want a GPS or a digital camera?

Homer: Aw, twenty dollars! I wanted a peanut!
Homer's brain: Twenty dollars can buy many peanuts!
Homer: Explain how!
Homer's brain: Money can be exchanged for goods and services!
Homer: Woo-hoo!

So that's good. And the site looks good: the color-scheme of a Rottweiler, brown, black, and gray and a very sleek user interface. On the minus side, the home page is dominated by a Flash banner vid of some blinged-out white guy apparently enjoying his winnings but, thank goodness, you can turn it off.

Some notes in no particular order:

• As with every bidding site, some bidders are much more aggressive and successful than others. The site puts a limit of three wins per bidder per day -- and measures the day as midnight to midnight, California time. I'm guessing that around 11:30, most of the serious players -- the people you don't want to be playing against -- have already been limited out. Of course, that's 2:30 in the morning if you're on the East Coast, but hey, do you want to sleep or you want to win?
• If you want to play, buy a small bid pack and use it to win a bigger bid pack. Bid packs always go at a discount on this site (as elsewhere). The average 30-bid-pack auction goes for about 12 cents (that is, all the bidders collectively expended 12 bids and the winner also expended $0.12). So if you buy a 20-pack and just dump it into BidJames, their automated bidding service, you can probably pyramid your bid war-chest without too much risk.
• And BidJames? The name must be their variation of Swoopo's equivalent BidButler. I guess they're just too Non-U to know that butlers are addressed by their surnames ("Collingsworth another round of gin and tonics!"); it's chauffeurs who are called by their given names ("Home, James.") Of course, BidCollingsworth would be non-obvious.
• Higher-valued auctions go for more, even proportionally, than lower ones. I saw a $200 auction go for a staggering $25.95. If people bought those bids at full-price, BidOnCash made (and their customers lost) almost $2400 on that one auction! Realistically, the bids probably bring in 12 cents apiece or so, but still.
• Most of the auctions are considerably out of the money -- that is, even valuing the bids at full price, all the bids expended plus the (negligible) item price is less than the value of the item. While that's good (very good) for the players in the short term, either it will change (and good deals will become considerably scarcer) or the site will have to close. Either way, you don't want to keep a big account of bids that will become either worth less or worthless, depending on BidOnCash's success.
• The auction is technically a penny auction (because the price of the auction goes up with every auction) not a dollar auction (where the auction price is fixed) but because the ratio between bid-price ($1.00) and the bid-increment ($0.01) is so high (100 to 1, something like 6 to 1 being average in the industry) I wonder if it will be more inclined to act like a dollar auction (few bidders, but those bidders inclined to get into bidding wars). I will be keeping an eye on it.

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Another day, another dollar auction

A few weeks ago, a nice guy named Markus wrote me, asked me to check out his auction site. I didn't, mostly because I didn't get his email. Actually, I didn't get anybody's email because I was at the bottom of the Gulf of Thailand. Depending on who you talked to, I was either learning to scuba dive or "practicing to drown" (in the words of my instructor). Whichever, the only way you were going to get a message to me was to write in on a rock and drop it off the back of a boat.

When I eventually ran out of money and compressed air, I came back, found the original email and a second one offering me [a moderate reward] to run a review on the blog, and a third assuring me of his sincerity. I wrote back, told him I believed that he was sincere but that I was really busy (especially with all the things I'd let slide during my vacation). He wrote back bumping his offer to [a slightly less-moderate reward].

Now if I'd had the brains God gave chickpeas, I would have demanded [a completely unmoderate reward]. Instead I just wrote him back, told him I'd review his site and he could [reward me with] whatever he felt like.

Actually, now I've been to the site, it looks pretty good, so maybe I'll end up with [a reward of some sort].

[Update: Markus -- who, as I mentioned, is an extremely nice guy and who apparently lives in Cyprus for some reason -- wrote back and asked me remove the details of proposed reward. He was concerned it would look like link-farming. Suffice it to say, the reward was sufficiently moderate in its nature and scale, it would not have moved me to even link to his site, let alone go to the effort of reviewing it; it was just sufficient incentive to get me off my voluminous backside and do my job by tracking penny-auction sites. ]
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Still confused about dollar auctions

There's a sport, supposedly popular in Afghanistan: two players bang their head together until one gives up. The other is declared the winner.

A dollar auction is the financial equivalent of that sport. You bid on an item and the bid costs you a dollar; the other guy bids, costs him a dollar; and it goes back and forth until one of you gives up. The price of the item doesn't change but it's attractive enough to make you start playing.

I tried, without any luck, to analyze the auction.

First, there's not much reason for the auction to ever end. Each round of the game is identical, except that each player is a dollar poorer and each player has learned that the other is determined (or foolish) enough to play this far.

Then I thought: well, maybe that's enough. Dollar auctions (this has been tried in real life) do end. Maybe one player just ran out of money or decided that the other player was crazier than he was.

Given that, is there any reason to start playing -- especially given that most dollar-auctions end with both players paying much more than the item is worth? Well, if you decide that no, it isn't worth playing, your opponent has a powerful reason to play: with no opposition, he can snap up the item for a single dollar!

But hey, you could be the one reason that your opponent has decided to forfeit -- or you can convince him to forfeit by boldly bidding the first time. Of course, he might treat that first bid as a bluff and bid back, but if you bid twice...

And it's on. The basic problem is that whatever strategy one player adopts, the other player has incentive to adopt the opposite strategy, and I haven't figured out any way to get off the merry-go-round. I'm open to suggestions.
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"You see, this profession is filled to the brim...

.. with unrealistic m-----f-----s."
-- Marcellus Wallace

I was consulting with a friend-of-a-friend who wanted to put up an auction site. I'm under NDA so I can't go into the details but the site was selling items, well, I can't tell you what they are but the price-point was like that of a car. So a major purchase.

His model was a timed auction, like eBay's. I pointed out that fixed-time is fine when there are a lot of auctions compared to the number of bidders (many charity auctions are timed) but are prone to sniping. He suggested adding popcorn-timing -- that is, the auction doesn't end until some number of seconds after the last bid, which is very common in ascending bid-fee auctions like Swoopo and virtually universal with open-outcry in-person auctions ("Going once, going twice") -- but the point was, he had never heard of sniping.

This idiot, who I was told had been very successful in selling these items by traditional means, apparently thought he could start a huge business (he was endeavoring to raise some tens of millions of dollars to launch his site) without doing even basic research.

What the hell? I mean, what the hell? What is wrong with people?

Auctions are complicated. Four or five years ago, Britain auctioned off some space in the radio-spectrum for 3G cell-phones. The auction was very cleverly designed and the British government made more than $30 billion, 2.5% of their GDP! A huge sum, enough that they could lower taxes (although -- surprise! -- they didn't).

Some other countries tried to copy the British auction, although the designers of the auction publicly warned them that differences in their situations required different designs. Those countries made effectively nothing, tiny fractions of the money they had been expecting.

Fools and their money...
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