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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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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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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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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