Comprehensive Review of Penny Auction Sites

To follow-up on my last post about the importance of picking a credible penny auction site, my next few posts will feature a comprehensive review of all the penny auction sites we know about. If you know of another site, feel free to add it in the comments or send me an email (pennyauctionguy1@gmail.com) and we'll add it to the list. Let me preface this post by saying I was really surprised by the findings of this study. Over the past few months that I have been following penny auctions, I feel there is a new penny auction site popping up every time I turn on my computer. In looking at the data however, the majority of these newcomers have awful user interfaces which appear to come from the same box software package, low site traffic, frustrating practices and polices and many appear as though they could go out of business at any moment.

Here is a timeline of the 24 penny auction sites we were able to get hard data on. Note that we know only the month auctions started significant operations and not the day. Therefore, the placement of sites within a month does not indicate the order in which sites started in that month, but is an arbitrary placement for aesthetic value.






An earlier version of this timeline incorrectly placed Zoozle's start date as June, 2008. We have been informed by the founder that Zoozle actually launched in March, 2009.
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Picking a quality site has never been more important

As I dig further into penny and online auction sites my conviction that users need to pick a reputable company grows stronger. If they are not careful, users risk losing their money through fraudulent practices or sites going out of business. Here is a good example I came across today:

Jungle Cents - This site claims to offer both traditional penny auctions and seat auctions. The latter is where users spend bids to buy a spot in an auction with a finite number of bidders. Once all of the spots are taken the auction begins in the traditional brick and mortar sense. That is, bids are free and the highest bidder pays that price for the item. I really like this idea in theory because it limits the number of people who can come in over the top of your bid, unlike at sites like Swoopo where anyone can poach the auction at the last second. However, I'm not saying it will be easier to win or that the prices will be lower in the seat auction, actually I don't think they will be because bids are free. I registered at Jungle Cents today and was given one free bid. Since there are no live penny auctions I went to the seat auctions of which there are six. The only seat costing one bid was for a iPod shuffle, so I went with that one. So far 12 of the 75 available seats are taken in this auction. The auction won't start until all of the seats are taken and as I got looking I noticed that the first seat was purchased on July 8th! So that person has been waiting weeks for this auction to start and only a small fraction of the seats have been sold. This isn't fair! People who buy bids to compete in these auctions expect their auction to start in a reasonable amount of time. At this rate it's going to take months before anyone can bid on that iPod!

I'm working on a study of which sites look legitimate, however in the meantime PennyAuctionWatch.com seems to be vigilant about exposing fraud and dubious practices.
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The wages of SIN

For several weeks, German customers of Swoopo have been allowed to use their expended bids as credit against the purchase of the auctioned merchandise, calling it Swoopo It Now (or "SIN"). Today (or recently -- I do have a life and Swoopo doesn't seem to send out press releases), they extended that courtesy to American bidders as well.


Of course, the merchandise is sold at MSRP, but if you lose big, you can salve your wounds a bit by buying the item for a not-terrible price. Say you blow 100 bids in a failed attempt to get that flatscreen TV -- Swoopo will give you $60 (100 bids at 60¢ each) off list if you buy it outright (and spot-checking a few items against Amazon suggests that Swoopo "list" is a pretty reasonable price).

Several issues:

1. There's a tight time-limit: you only have an hour to redeem the bids
2. You can do it while the auction is running -- but then you automatically lose.
3. Free bids are excluded, of course.
4. It isn't clear from the terms whether bids you buy at auction are valid: "vouchers" are excluded and auctioned bid packs are sometimes, but not always, referred to as "vouchers" on the site.

It's my analysis that SIN will drive up the price level. A bidder who has already expended more bids than the difference between "list" and what the product is worth to him has no incentive to stop bidding, since every 60¢ bid saves him 60¢ on the purchase if he doesn't win, and he might win.

Of course, that assumes that there are a lot of bidders out there who think like I do. We'll see.
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The Penny Auction Paradox or Why Users Flock to Swoopo

In earlier posts I began to flesh out ideas of safety in numbers and group dynamics surrounding the penny auctionosphere ("penny auctionosphere" term coined here and now by me: Thursday, July 30, 2009) and how the economic idea of pooling is present and how this concept makes auctions safer but also harder and more expensive to win.

The idea that the QWERTY keyboard, Blu-ray dvd players and English as the language of business have evolved to be (virtually) universally accepted is because certain products or situations require that all users behave the same way; this is the idea of pooling. The QWERTY keyboard has been proven not to be the most efficient layout of keys for quick typing, so why don't we change to a more efficient layout? The reason is that re-training millions of people to use the new keyboard would be more trouble than the gains are worth. Why Blu-ay as the standard for high definition DVD? Because electronics companies don't want to have to make a DVD player for each new format (remember HD DVD, It lost), consumers don't want to have to worry about getting the correct disk from Blockbuster, and content providers don't want to worry about making the correct number of each format, exc., exc. English has become the "universal" language because the world needed one and as the largest economy and most influential country, the US probably seemed like a good choice. I don't know the specifics on how English came to be the "universal" language, but it did, maybe it has to do with all that colonization. In penny auctions, a kind of pooling is also starting to take place. However, this pooling is less like Blu-ray and more like Ebay and Craigslist, perhaps the two best examples of "e-pooling." If you want to sell your old coffee table you post it on Craigslist. All people who want to sell old furniture sell on CL and all who want to buy also look there. There is no other practical way to sell used furniture anymore (newspaper classified are dead). Ebay is the same way.

With penny auctions the market is still highly fragmented (37 sites in the US and counting at last check) however, Swoopo is without doubt the standout industry leader. But this is an industry still in its infancy, so will the kind of expansion we have seen over the past year continue, or will one or several penny auctions come to dominate the industry? I think one would be hard pressed to argue that penny auctions require the type of pooling seen in Craigslist and Ebay, however there are benefits to going with the industry leader that are becoming more apparent.

Users flock to Swoopo because the site has a professional layout and is perceived to be trustworthy, especially when compared to many of their peers who's penny auction sites look like they are being run out of a garage in Mexico. I won't name names here but just go down the list in the directory on PennyAuctionWatch.com and you will see what I mean about quality. With Swoopo, users can feel safe that they will get their products and that the site is not manipulating or gaming the system on the back-end to cheat them - others have been accused of doing so. In this sense, Swoopo represents a type of pooling, one based on safety in numbers.

Yet the concept of safety in numbers in the penny auctionosphere is kind of ironic because the more users who to go to Swoopo, the harder and more expensive it becomes to win auctions. There are deals to be had at the lesser known sites, like RockyBid selling a car for little more than $1, but there is also risk. So does herd mentality make sense in penny auctions? Sure, humans always do what others are doing when they know no better, but the key to being successful at penny auctions is finding the credible and less popular sites. How does one do this? I just analyze the market, I don't play the game.
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Why I don’t Like PriceDrip

While not a penny auction, PriceDrip is a social shopping website and therefore warrants discussion on Penny Auction Insider. For those who are not familiar, PriceDrip is a site that sells a variety of electronics equipment from iPods to LCD TVs, however what makes it unique is that prices slowly go down over time and users place anonymous bids for the most they would pay for the product. Bids are kept secret from everyone and when the falling price reaches the highest bid, that person wins the auction at their bid price. PriceDrip claims to be able to offer users “amazing deals” because advertising on the site offsets the falling price. Apparently, the more users who visit the site, the faster the prices fall.

So why don’t I like PriceDrip? Well, for one, a simple Google shopping search yielded lower prices on almost every item they sold. Take a recent auction for a Sony LCD TV which sold on PriceDrip for $1,082.19, representing a 23% savings over the $1399 retail price, the site claims. That same TV was found the same day on Amazon for $874.99 after tax and free shipping (PriceDrip also offers free shipping). So PriceDrip’s “amazing price” really is amazing, amazingly high. I don’t know why consumers are buying items on PriceDrip, but I think it has to do with not using the web effectively. Unfortunately, shopping comparison sites have been around a lot longer than PriceDrip but consumers don’t appear to be using them in this case.

A second reason why I am suspicious of PriceDrip is that their claim to offer lower prices through advertising seems impossible. The site has only one ad, a banner on the bottom (for BidStick.com when I checked today) and does not have much traffic. The amount of revenue generated by this advertising must be miniscule.

I have another problem with PriceDrip, which is that they posted a very suspicious press release announcing venture capital funding. The press release does not say what amount was raised, and the investing firm, 2G Associates, has no trace on the web, except for in the press release in question and a website with a “under construction” page. The press release also offers no contact information for either PriceDrip or 2G Associates.
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eBay for penny auctions?

A subject that comes up in conversation (when you spend as much time talking about penny auctions as I do) is "Why isn't there a consumer-to-consumer penny auction, an eBay/Swoopo mashup?"

The dialectic goes something like this:

Socrates: Why, in all the wide world, isn't there a site where one person, not previously engaged in commerce, can offer for sale to passersby some personal possession -- and be assisted by another person, an auctioneer, that auctioneer being compensated not by the seller, but by each would-be buyer, who pays a small fee even to make an offer.

Plato: I think, Master, that auctioneer would collect the lion's share of the money -- and what man would offer his property for sale, knowing he would receive only a tiny fraction of its true worth.

Socrates: Is there no solution to that objection?

Plato: Perhaps, the auctioneer could share with seller a portion of the fees he collects?

Socrates: Is there not an epistemological problem with that proposal?

Plato: I do not understand.

Socrates: Does the auctioneer know how much a bid has earned him? Are not the bids themselves a chief stock-in-trade of the auctioneer? Each bid has been itself bought in auction, and in those auctions, bids that were bought in auction were expended, and so on.

Plato: And so on, Master, but not ad infinitum. Careful, painstaking bookkeeper would tell the auctioneer just how much was brought in by each bid and its ancestors.

Socrates: It would tell the auctioneer, but not the seller, who would have to rely on the auctioneer's diligence and honesty. And this world is full to bursting with lazy and dishonest men who would pose as auctioneers.

Plato: Perhaps the auctioneer could pay the seller some fixed price per bid expended, regardless of how much that bid truly brought. Or perhaps the auctioneer could guarantee a price for each good. Or perhaps ...

Socrates: Perhaps we have reached the limit of philosophy. Perhaps we just have to attempt it.

Plato: Perhaps.
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One of my many, many readers writes

Jeff H. writes:

I have read all of the recent (good and bad) comments about Swoopo and penny auctions in general. Let me give everyone a point to ponder. If one day, a company like Swoopo said ok! we will no longer list our own items on the site, from now on, anyone who wishes to list their own items for sale may do so, you can keep all of the profits you make using the Swoopo bidding method, all you have to do is pay Swoopo a listing and final value fee just like ebay charges, these fees are for use of the site.

I can't help but wonder how many of you who are against the penny auction concept would suddenly be listing your own items for sale with the hope of pulling in the same kind of profits on your item that you say Swoopo is pulling in on theirs?

It follows then, that for those in favor of the Swoopo method, they obviously would jump at the chance. It also follows, that for those who are presently against the Swoopo method, they also would suddenly see a clear road to make a profit on any item they list on Swoopo.

Methinks in the latter case, there will be double standards flying all over the place and the naysayers will suddenly be saying things like, "You know something, Swoopo is not such a bad deal after all." LOL.

It appears to me that the overall mentality is, if it is new and has never been thought of or done before then it has to be crooked, that type of mentality is a clear demonstration of idiocy at its best. Those of you who are agianst the penny auction concept may not like what i have just said, but it is nevertheless true and you know it.

Whoever it was that originated the Swoopo (penny auction concept) most definitely has the millionaires mentality, those of you who criticize the concept are demonstrating that they are economic illiterates, (special emphasis on the word economic) at least until they would be allowed to list their own items for sale, then they would suddenly become financial wizards, LOL (sarcasm intended).

Come now you guy's, be honest and fair, tell it like it really is, you know that what I have just said is true and would happen in a heart beat if Swoopo allowed you to list your own items. When you bad mouth Swoopo and the like, you are opening your mouths just to change feet, if Swoopo gave everyone the opportunity to list their own products for sale you would jump at the chance and not one of them would give a rats ass for all of the losers that they presently feel sorry for in their blogs.

Now be nice people, respond to my post and admit that what I have said is true, put the sense of fair play back into your lives and start thinking of how you can make a buck instead if coming down hard on those who are at least trying to make a better life for themselves.

If all you naysayers are so concerned that there are people out there who are easily influenced, then stop trying to be a Mother Teresa by trying to influence them.

If you are still against it then simply keep your mouths shut and stay away, then no harm done.

I don't agree with everything Jeff says, but I'll respond in posts of my own.
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