Last summer, I got an email from Weronika Cybulska, head of marketing of at BidRodeo, saying nice things about this blog, and suggesting I write a blog-post covering her site. I did write a blog-post, but you know me, most of the post was making merry of her name. There's a reason why this site isn't called "Mature and Polite Penny Auction Insider". When she responded, sounding a little hurt, I apologized and removed the post.
So now it's BidRodeo's first anniversary and I get another email, not from Weronika herself, but Weronika's PR representative. Hmmm, I thought, BidRodeo doing well enough that they need their own flack. Then I saw the flack's name: Heddi Cundle.
I'm not criticizing, it's a great name. I will probably mutter it in my sleep tonight. I don't know if I remember my first girlfriend's full name, but I'll remember Heddi Cundle's wondrous appellation to my dying day and I bet that now you, gentle reader, will too. It's Dickensian, in a vaguely suggestive way. I hope to meet Heddi Cundle some day, if only to see if she matches the mental picture her name paints. Of course, if I do meet her, I hope she hasn't read this post.
Anyway, BidRodeo seems to be doing well. The site looks beautiful: elegant and animated. Take a look.
On the business side, Heddi Cundle's email said, "Users have saved average 67% on video games." I assume that she's quoting that category because it's showing higher savings than other categories. Say the site-wide average is 50%. Don't forget, BidRodeo's revenue from tokens might be 50 or 60 times what the winner pays for the merchandise, so their gross margins must be staggering, 95%, 98%. Nice work if you can get it.
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Thursday, May 27, 2010
Sunday, March 21, 2010
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:
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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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:
- Each purchase of tokens also results in a credit against their "online store".
- They haven't opened yet.
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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Thursday, March 18, 2010
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?
Some notes in no particular order:
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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!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.
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!
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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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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Wednesday, March 17, 2010
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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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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Tuesday, March 16, 2010
"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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-- 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...
Read more!
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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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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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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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
Read more!
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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"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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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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