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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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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