Penny Auctions Are Scams

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A little over a year ago, I wrote an in-depth review of Swoopo, the most popular and well advertised penny auction website around.  Swoopo had an excellent interface and design and by all accounts was making millions of dollars a month for doing almost nothing at all.  A few months ago however, Swoopo was taken offline and continues to remain offline due to “technical issues” and the door has officially opened for dozens of other penny auction sites to jump in and grab penny auction customers.  Problem is, penny auctions are still a big time scam for consumers.

The way a penny auction works is simple.  An item is put up for bid at a starting price of $0.01 and a time limit of a few hours.  For example, let’s say a site like Quibids is offering a 55″ plasma TV.  The price starts at a penny and the auction is timed for four hours.  As time winds down, customers can place a bid, which will add one cent to the auction price, as well as 15 seconds to the time remaining.  Once the time runs out, the highest bidder wins, no matter the price.  Often times, the final bid is a pittance compared to the actual cost of the merchandise sold, allowing penny auctions to easily advertise the amazing deals.

But it’s not free to bid you see, as most companies charge between $0.50 to $1 per bid.  So using the TV example above, let’s say the final auction price was actually $88.50.  The winner of the auction, depending on how many bids they placed to win the TV will usually walk out a winner.  If the cost of making a bid is $0.75, the penny auction website has raked in a total of $6637.50 plus the $88.50 the winner has to pay.  A 55″ plasma TV was just sold for 2x-3x the actual cost and the person who bought it is thrilled.  The people who aren’t thrilled are the ones who paid hundreds of dollars and have nothing to show for it.

Make no mistake about it, this is a scam and I don’t use that term often.  In fact, this is the first set of sites I’ve ever deemed a scam and even though some people can walk away from these auctions on top, the odds are stacked against you.  You wanna know why it’s a scam?

  • Insider Bidders can Guarantee Failure – What’s stopping employees from bidding when the time is about to run out?  Absolutely nothing.  One of the major complaints from bidders about Swoopo was the time would make it’s way to zero, then miraculously jump back up to 0:15 even though it appeared time ran out.  If a site was about to lose money on a big ticket item, why not place a couple of phony bids to keep the auction going?
  • Hundreds of Complaints Filed with the FTC- As it stands today, the FTC has received roughly 350 filed complaints from consumers this year about the penny auction scam trade.  Two class action lawsuits have been filed, one against the aforementioned Quibids but no momentum has been gained on shutting these sites because the FTC has yet to take any action (yet).  Penny auctions are still fairly new so it will be a little while before the FTC sinks their teeth into this problem.
  • The Better Business Bureau Shows a Grade of A- for Quibids – You might be confused as to why this would be a bad thing but the BBB is nothing more than a paid service.  I could open a company tomorrow, pay my annual membership fee to the BBB and have an A grade tomorrow.  Even though so many complaints have been filed with the BBB, they only grade the company based on responses, not outcomes, so as long as Quibids responds (not resolves) to the complaints, a high grade is still provided.

As I write this post, I’ve been watching a $200 gift card auction continue to climb in price.  Currently, the auction sits at $24.13.  At $0.60  a bid, the total value Quibids has made on this auction so far is more than $1,450 for a $200 gift card.  Wow.

You can’t argue with the penny auction business model and you can’t blame all of these new sites saturating the market.  With the amount of profits these sites make on a daily basis, everyone wins except the consumer.  Don’t get me wrong, the idea of winning merchandise for 10% of the retail price is very attractive, but for all sans one consumer per auction, this is a losing venture.

By the way, the above auction is still going, another 400 bids and $240 made by Quibids.  Two poor saps bidding against each other for the last 20 minutes.  Hopefully, they’re both Quibids employees.

Published or Updated: May 28, 2011

Comments

  1. Michael,

    Penny auctions require a lot of time to fully understand. It’s a broad learning curve, and many of us thought the same thing until we completed that learning curve…

    Here are some pointers:

    1-You cite QuiBids.com as making over a $1,200 profit on a small $200 gift card, and say that the auction was still going. Well, that is just wrong. If you had bid at QuiBids in the past, you would know that they are a 100$ buy-it-now site, meaning that you can take the accumulated cost of your purchased bids, and apply that to buying the item at retail price. This virtually eliminates substantial profit from the site, and allows for every consumer to walk away with the item they were bidding on, albeit, without the “99%” savings a lot of penny auctions advertise.

    Let’s look at the auction you cited
    http://www.quibids.com/auctions/885918589:
    Value Price:$200.00
    Real Bids (137):-$82.20
    Voucher Bids (0):-$0.00
    Final Price:-$56.35
    Savings: $61.45
    The winner here saved $61.45 or just under 31%.

    If they placed 137 bids, that means that 5,498 bids were placed as well. Here is where you need to understand how the buy-it-now process works:
    Assuming I placed 333 paid bids (not voucher bids, which expressly do not count towards a buy-it-now) I can have QuiBids ship me that item, after paying the $1.99 shipping fee. I lose $1.99 or so, instead of all of the bids I placed up to that point.

    If we divide the 333 bids needed to equal the buy-it-now by the 5,498 bids remaining, we can see that it was possible (and likely) that 16 people went this route, bidding up to buy-it-now, then simply buying the item once reaching that point.

    That still leaves about 165 bids which could have been spent and not used towards a buy-it-now. These very well may have been bids given upon registration, or won in a promotion, either of which would not apply towards a buy-it-now. This is a very likely out come, considering the amount of traffic QuiBids has, which can be investigated on Alexa, SpyFu, and other traffic & advertising monitoring sources. It’s also likely, that some bidders, unaware of the buy-it-now, or how it works, placed bids and left the auction.

    2-Swoopo is a different can of worms. In your article you said that Swoopo was “the most popular and well advertised penny auction website around.” Says who? The last year they were falling in all of the traffic rankings available. Furthermore, they were HORRIBLE at advertising, and were simply out-competed. Beezid, QuiBids, and BidRivals are just a few sites that did it better, and have been around for 2+ years. Compare that to Swoopo being the grandfather of the penny auction world, starting it all 6 years ago.

    3-The plethora of sites, which saturated the market space actually peaked last year, as mom & pop styled sites popped up out of no where, and quickly failed to regress to whence they came.

    4-The assumption of these larger sites have employees fraudulently bid against customers is baseless. Many of these sites lose money more often than making money, and rely on bidders (often whom are on non-affiliated forums, blogs and FaceBook) to get into heated battles, and drive the ended price up, with paid for bids.

    Has there been fraudulent activity by sites in the past? Yes, but there has been less and less claims made of this, and by our measure the smaller sites which were operated out of their home were the biggest perpetrators of this crime. (We’ve busted many sites doing this, and forwarded all information to authorities). Lately, there just have not been plausible causes of this practice, and especially not from the larger sites.

    Penny auctions are entertainment, NOT shopping. They have been branded “entertainment shopping,” and “competitive shopping” which means that there is a gaming/competitive requirement to win, or get to, the shopping component. I wish some of the advertising would change, to make this distinction more clear. If you do not already spend money on entertainment each week or month, penny auctions are not for you.

    You stated that this “is a losing venture” linking to Kim Komando’s article. Isn’t every game a “losing venture?” Especially starting off? Do you win every video game, football game, or squash tournament the first time you play? Is “one winner” a new concept in games, or competition? Are not all contests, that have a monetary buy-in, “losing ventures” by this definition of only one party being the ultimate winner? (Think NASCAR, Golf, Poker, Football, Baseball)

    I would be happy to discuss penny auctions with you over email, skype or a phone call. I look forward to hearing from you.
    Nicholas Boccio,
    Administrator of PennyBurners.com / PennyTalkRadio.com

    • Michael says:

      Nicholas

      Make no mistake. I’ve studied penny auctions well. No learning curve is necessary … some win, many lose. In regard to your comments, I appreciate your attempt to make me believe that penny auctions serve a purpose in finance, but they don’t.

      To suggest that most penny auctions lose money from the site’s perspective tells me your interest in keeping up the penny auction trade. In time, penny auctions will cease to exist and I won’t see a bundle of television advertising for them. To classify this as “entertainment” is like to classify craigslist as entertainment. Call it whatever you want, it’s gambling with a rigged deck.

      When people associated with the site bid up auctions, which you admitted occurs, how can it be deemed anything but a scam?

      • Michael,

        If you studied QuiBids, then why did you lie about the profit the site earned on the auction you cited? Why did you willingly ignore their buy-it-now feature, which by the way, removes any gambling aspect what so ever.

        My interest is in educating people. This is disinformation, as you clearly have not participated in auctions at QuiBids.com, or even read about how their site works. I would never give a first hand account of how football works, without playing a few games, and knowing the game. This article is like the equivalent of that girl back in high school who knows all the right words, but none of their meanings when describing football.

        Calling 100% of businesses in an industry a “scam” because less than 1% of them did something wrong is the definition of baseless. I ordered Valentine’s Day flowers from an online merchant, and they never came, should I claim that ALL online flower peddlers NEVER deliver flowers? Aside from saying it, should I also continue to spew such illogical fallacies on a blog that gets moderate traffic?

        Please explain, or even do a blog on, how penny auctions are gambling. I am very interested in hearing your response to this, in specific.

        -With gratitude,
        Nicholas Boccio

        • Mikee says:

          Kinda sad to see how many shills are commenting in defense of their obvious scams.

      • Rhys says:

        Nicholas Boccio is a known scammer.

        https://www.facebook.com/notes/list-of-markerplace-scammers/nicholas-boccio/166913783324504

        Nice try, Nicholas. Maybe you’ll pass next year.

  2. peter sanchez says:

    Who cares? we have so many real problems like raditaion spewing in the atmosphere daily and your attention is on some stupid auction?

    • Dave says:

      Stfu you liberal jerk.

  3. jim says:

    It doesn’t seem to me that quibids ‘buy now’ option would get used that much. If I understand their rules right you can only use the bids you made on a specific auction towards your buy now purchase and the buy now purchase is full retail price.
    That may make more sense if you put a lot of bids into something like a cash value gift card where you get a clear dollar value return to recoup large amount spent on bids. But if you only bid 1-2 times then I doubt many people would use buy it now to pay full retail for a gift card. Also many of the other items are listed at MSRP, for example a 40″ TV is shown with a retail cost over $1400 but you can get it elsewhere for under $1000. So if you used buy it now for that item you’d be paying $400 more than necessary.

  4. Jim,

    The auction mentioned above was a gift card, which is “cash value.”

    You are right however, that most auction list the MSRP of items, while they are probably sourcing them through distributors, or even Amazon, at a lower rate. This is something we try to remind people when bidding on items.

    1-MSRP is a pricing standard. It does not change, nor is it affected by market value. that works both ways; for isntance look at Apple products. They always debut at their MSRP, but quickly find their way to eBay, Amazon and Craigslist for a lot higher than MSRP.

    2-Only bid on items that you know the value of. Most people bid on items they want, while a large group bids for purposes of reselling. The TV example you gave is a good one, but we can never forget that the value of an item is always determined on what one person will pay for it.

    The “$400 more than necessary” comment is true, but only if you know where to find products cheaper. I think the same thought when I see people leaving Best Buy with all their A/V stuff, and I can literally go online and find those same items, shipped to my door, for much less. That doesn’t mean Best Buy is doing anything wrong, they are selling instant gratification.

    Penny auctions are selling fun. Perhaps bidders know that the TV is only worth $995, and hope to win it for less. That would not stop that person from finding a website online that sells that TV for $1,400 and using that to set its value when later selling it on Craigslist or eBay.

    Jim, I am currently looking over your website, and you seem to be a numbers guy. If you are ever interested in running some numbers on penny auctions, and need some help, please feel free to contact me.

    -With gratitude,
    Nicholas Boccio
    Administrator of PennyBurners.com / PennyTalkRadio.com

  5. Steven Ork says:

    Michael,

    I don’t see how you title this false article, “No Argument Necessary”. This is just purely ignorance. You should take a second look at what Nicholas is saying because he is right, I have investigated these auction sites myself, some are indeed a scam but others are legitimate auction sites that are actually large scale startups. The truth of the matter is this eCommerce technology can save people money, you just need to learn how to use it and know what sites to bid at.

    You also mentioned that anyone can open a BBB membership and have an “A” rating and this is also not true, companies must be open for 2 years before they can receive a BBB membership, you should try to calling your local BBB office before trashing there policies.

    Sincerely,

    Steven Ork

  6. DR says:

    This discussion is all well and good, but penny auctions are clearly a loser for consumers. The “buy now” button doesn’t change the fact that thousands bid on items they will never win, and the penny auction sites rake in far more than the value of the item. It’s a creative form of a lottery, pure and simple.

  7. Donald Petersen says:

    The “buy now” button is just a device to try to create a PR defense. “Look, consumers could ‘buy now’ but they’re rather [gamble].” I’d be shocked if more than 1 % or so of the merchandise sold was in arms-length, fixed price transactions. (Like this Blog said — ‘Nuff said).

    The BBB’s are toothless and depend upon their “members” for dues. The debt settlement companies scam consumers out of millions while pointing to their perfect (or near perfect) BBB ratings. After many years, some of the BBB’s were forced to admit that the industry is a scam and refused to allow any debt settlers to become members of their BBB. The debt settler’s solution — just join an “on-line” BBB and get a “fresh start”. (ROLF).

  8. LT says:

    Michael:

    How wrong you are, but thanks for helping me out. The more ignorance spread about PA sites the better for customers of PA sites. I will continue to win items month after month as I have for 17 months, averaging huge savings with all costs included!

    LT

  9. David says:

    Michael, you are so ignorant. Next time you write an article, try to do your research. Visit the forums and ask questions.

    Jim, BIN are used almost 100% of the time no matter what it is, gift card or products. Makes it impossible to lose and most people.

    DR. You can win many items for a few pennies, start with the smaller stuff and work your way up, don’t go for the laptop and tv to start.

    Everyone calls it a lottery like it was evil, baby killers, rapers, haters, … even if it was lottery who cares. The Gov makes lottery illegal not because it hurts people, but because they want to keep it for themselves, that is evil. If you can find any casino with a BIN option let me know.

    Please people don’t rely on guys like Michael to educate you about anything, he aint no Sensei. Anyone calling it a scam is just pure ignorant… and border stupid.

  10. Alex says:

    Michael,

    You have an excellent point, there’s nothing stopping a penny auction site to bid on the items themselves in order to drive the price up and profit. But we can’t use Swoopo as an example, although I have won items from them I also learned there were other option available. Also your point about the BBB is pretty spot on, however, there are other sites that have gone as far as hiring independent auditing firms to ensure the public that there is no funny business.

    As someone who has worked for an accounting firm and conducted a number of audit engagements I’m pretty sure that a reputable audit firm won’t jeopardize their public image over a penny auction.

    Thanks

  11. robtodd says:

    what a scam, it’ll go away eventually (after the owners pocket their millions) and the next shady but seemingly legal scam will come along to bilk the masses.

  12. Nadine Zachary says:

    Something I did not see mention on either side of the argument is the acutal cost of bids. Since we are using Quibids as an example, yes purchased bids cost .60 each. They run many, many auctions for bids, ranging in size from 15 to 250 bids. If I use my purchased bids in an auction for 50 bids, using on average 12-15 bids(my own experience only), 50 bids then cost me the final price of the auction plus $1.00 transaction fee. If the auction ends at .85 (average ending price of 10 such auctions won by myself), I win 50 bids at .037 each. Then I may very well use some of those bids to try to win more, and so on. So the big bucks they are supposedly raking in is most likely considerably less than merely multiplying total bids by .60. Also, some auctions go very cheap at times, way below value. Somewhere in the middle, yes I believe they are making money, or they wouldn’t continue operating.
    There are the occasional bad apples that take the money and run, not sending wins. A few will attempt shill bidding but there are enough seasoned bidders, someone will figure it out and blow the whistle. Once people are warned by word of mouth and in forums, those sites usually don’t last long.
    And you know what they say about bad apples, one don’t spoil the whole bunch!
    As for complaints, a majority of those screaming “scam” didn’t even take the time to read “How It Works” and don’t even understand the basic concept of penny auctions. I’ve read complaints by some about the clock re-starting,
    like they were shocked. Those very obviously didn’t read anything before they jumped in. By now, everyone should be educated enough to know to read the fine print whenever money and internet collide. Sorry, but I have a hard time not laughing at some people ranting about their hard earned money being ruthlessly “taken” from them. I’ve yet to hear of a site owner forcing anyone to purchase or place bids, do they have a gun at their heads? I could go on and on, having firsthand experience, which you admittedly don’t, but I’ll leave that to some of the others I’m sure have plenty to say.

    • Steve says:

      The phrase is actually “One bad apple spoils the whole bunch”, not the other way around. So does your theory about “bad apples” still hold true? That would mean the whole bunch is bad. Then I would agree with you.

  13. Michael2 says:

    Man.. For someone “taking up” for penny auctions must be making a crap load of the profits themselves.. “Has there been fraudulent activity by sites in the past? Yes, but there has been less and less claims made of this,” I wonder why??? Hmmm.. I think it’s because that many “more intelligent” people are not giving away .75 cents for a bid.. Even if they could later “buy it now”
    Who gives a bid?? Not me.. I wouldn’t give them piss if they were on fire.. Why? Because it is a scam.. To say that they often lose money?? Sure.. All businesses do, at some point. But, they make money as well. And that is the part that counts. If you lose money, who cares, as long as the money you are making covers it, plus adds a dump pile more on top of it. How else could any business afford to stay in business?? I mean you have to cover costs.. Anyone that knows anything at all about business knows that. Costs to run a huge website?? Hmm.. I just wonder…Learning curve?? My a$$.. Learn that you can fool some people some time but you can’t fool all people all the time. Moral? It’s a scam.. Now stop kidding yourself into believing that it’s not, and just admit that it’s Jerry Springer style..(WHY would you want to be on springer? No sensible person would.. ) It only gets the people that do it to themselves, and they don’t realize that 137 bids cost more than the item is worth.. So take advantage of the simple folk, and play a band for the rich.. It’s for dumb poor people, and rich bored people with nothing to do but dream (poor) and blow (rich)..

  14. Michael says:

    I’d like to address a few comments and points if I may:

    (1) The reason I do not mention any buy it now feature is because a few calculations suggest this is a break even on both sides. Most items are marked up 20%-30%, (for example a 3D TV valued at $1719 on Quibids, purchased brand new on Amazon for $1,255) so anyone who wants to buy that item after losing will be paying a large premium to begin with. Quibids is happy to sell as many TV’s at $1719 as they want. Yes, customers can ease the pain of losing this way but in this scenario, but in most cases, they’re grossly overpaying for items.

    (2) Penny auctions cannot be defined as entertainment. This is retail shopping with a twist. Penny auctions are able in most cases to buy items in bulk, reducing the cost to themselves, while offering it to consumers at a crazy mark-up. No matter what happens in ANY auction, one person has the chance the win, the remainders are losers. That cannot be disputed.

    (3) I don’t need to be a veteran penny auction bidder to understand the metrics behind the madness. I was fascinated with this business model when Swoopo was introduced and spent a great deal of time watching auctions and understanding why people will bid, how often they’ll mid, auto bid options, how many bids consumers will place before stopping, tracking bids, etc.

    This all boils down to a simple truth. Penny auctions are nothing more than sites providing consumers goods. They do so in a unique way but with a very high price. Considering the possible “behind the scenes” fraud these sites have shown in the past, consumers should stay away at all costs.

  15. Penny says:

    Michael,
    Here is a way you can ensure you never lose on Quibids: Bid only on gift cards of stores that you use, so the price cannot be “marked up” (except for the $2 shipping fee, which isn’t too unreasonable).
    Case-1: You win. Congratulations. You are one of the lucky few and get a small discount.
    Case-2: You lose. No worries, just by the item at retail.
    All you lose is $2 and you have a potential to win a gift card at less than the face value.

    Penny auctions are not scam because they tell you upfront what they need. If they said bidding is free and then charged your credit card, that would be scam. When they tell you the auction model, it is your free choice whether you want to join the site or not, irrespective of whether the odds are stacked against you.

    And many penny auctions can be honest. If a brand advertises that they will give away a free car at a promotion, what stops them from giving it to the spouse of their best employee? Well, at some point, you just got to trust. I have seen many new penny auctions making huge losses and thus consumers make a profit. If they were shill bidding that would never happen.

    • Michael says:

      Novel idea Penny, but there’s a flaw.

      I review many gift card websites that offer these very same cards for 75%-90% of the face value. I can buy that Home Depot $200 gift card for $180 if I want to, sometimes even cheaper. That’s without a shipping fee too and it’s guaranteed.

      Yes, I can spin the wheel of penny luck and possibly get it cheaper than that, but chances are, I won’t. If I lose, I’m stuck buying a gift card for $202 when it was mine for $180. Only a 10% markup here, but a markup never the less.

      And I’m sure Quibids has no problem selling them to me at $202, as they pay much much less per card. Yet again, one person wins, everyone else loses. Admittedly, not as much this time around.

      • Steven Ork says:

        Pretty lame rebuttal here… You can pay a lot less at Amazon.com for an item than you would at a Target or WalMart Store.. this is similar to what you are saying.. Not really a good way to put it in my opinion.

  16. Josh says:

    Hey Michael,

    Your post has generated some pretty hefty discussion. There are good points on both sides, but labeling something as a definitive scam is cause for debate.

    As several users have commented, an individual can score some good deals via penny auctions, but there’s no guarantee that will be the case and some consumers will undoubtedly lose. In other words, “Penny Auctions Can Be Risky” might serve as a better title.

    Josh

  17. Tom Tarrant says:

    The whole penny auction thing is just hot right now. Will it have the staying power we’ll just have to wait and see. I’d be careful though when bidding on gift cards online, just my FWIW.

  18. Ryan says:

    Funny, you can obviously tell who works for the penny auction sites in the responses.

    Don’t even bother making accounts to defend it people, penny auctions are so obviously a scam it’s funny. The only things funnier are dumb saps who get suckered into it. I expect they will all be found illegal pretty soon. Too bad our government is more interested in knowing if the president is really a secret Kenyan to do anything about this…

  19. Burt says:

    Michael you’re ABSOLUTELY CORRECT!!

    I got ripped off by “BEEZID” the biggest SCAM out there !! I’ve contacted the AG’s office & filed an official complaint. I also plan to get in touch with the FTC to inquire on what I can do about preventing others from being taken to the cleaner’s.

  20. Ernie The Occasional Winner says:

    The problem is that people try it, don’t understand it, then think they got ripped off. If everyone who paid to play in a softball league filed a claim with the AG’s office, we wouldn’t have anyone to handle actual scam cases. Whether it’s Beezid, or another penny auction site, if you played, and lost, you accepted the responsibility for your actions when you deposited money. It would appear as though “taken to the cleaners” would mean, in this particular instance, “spent more than I wanted to without doing any research on how penny auctions work and forming a strategy that could actually work.” Having not done those things, this individual obviously lost, and obviously had a hard time dealing with that. You haven’t been scammed, sir. You have merely failed to win. It will happen again, in other areas of your life. I wonder if you will call the AG then.

    Here’s the bottom line: you make the decision to play or not to play. I think it’s fine to play if you understand the risks. I think it’s fine not to play if you don’t want to accept the risks. I think it’s less than intelligent to claim you got ripped off if you lost.

    There is a lot to understand. Try checking out some of the facebook pages of more popular penny auction sites and follow the threads on player tips. If you want to use some of the money from your entertainment budget to play penny auctions and have a little bit of fun, by all means, do so! Just understand what you are doing.

    • wes says:

      If you were playing in a softball game and hit, what looked like, a game winning home run, and all of the sudden the wall rose 20 feet preventing the home run, you might file a complaint. People aren’t filing complaints because they are losing. They are filing complaints because they are being cheated.

  21. Mark Powell says:

    I am noticing a common trend from these penny auction sites..many are complaining about feeling scammed and paying the price for it. I found one site that has more than 100 complaints about these penny auction sites coming from consumers http://www.scambook.com/browse/index/company/114/BidRack

  22. Bob MacReynolds says:

    If you think it’s a scam or feel uncomfortable, then don’t play. These are not for everyone. But if you are interested in an ‘Entertainment Shopping’ experience with the chance to win great products at 70-95% off retail price then join the fun. Start with a small bid pack purchase, and find out if the format is right for you. Don’t expect great deals because this is a game of strategy, chance, luck, timing, and persistence. Whether it’s eBay, Penny Auctions, or somewhere else just make sure you understand the format and the investment first.

  23. Bob MacReynolds says:

    After Reading Michael’s Posts Again, I would make the following points:

    1) Our customers at Bid-Bob.com (win or lose) say they have a ‘great time’ bidding for items. We opened our site as a way to promote an exciting and fun E-Commerce Experience. Whether you have fun or not is subjective, but we make no bones about the fact that we build in features, processes, products, promotions, etc. for the sheer entertainment value it brings to our site and our customers. Some places may not do that, but we throw that right up front to everyone who participates at Bid-Bob.com.

    2) Starting and running a Penny Auction site (or any E-Commerce site) is not easy. Look at the number of new sites that have failed or fallen off the map within a few weeks of opening their doors. The success of Penny Auctions depends on whether there is a market out there that appreciates the business model, understands the strategy and chance involved, and sees value in the money they spend for Bid Packs. I think the market has spoken loud and clear, and let the market decide whether these kinds of auction sites will stay around. Scam implies deception and if anyone takes the time to read our ‘Bid-Bob 101′ Section and our ‘Terms and Conditions’, there should be no doubt about the rules, risks, and potential gains from buying a Bid Pack and bidding on items. For those sites that are Deceptive, then I fully support action against them to protect the consumer. For those that are not deceptive and provide all the information up front about the product and the process, then I say let the consumer be the judge.

    3) If you visited Bid-Bob.com before writing this article, you would see that we are the only site around with our unique ‘Bonus Prize’ system. In our last two auction nights, we sold 50 products with a combined retail value of almost $2,000. We also gave away over 110 Bonus Prizes valued at over $600. We created 160+ winners out of 50 auctions. Bid-Bob.com’s strategy is to directly address the ‘one winner’ problem with a feature that is unique and provides more winners per auction. Our ‘Rapid Fire’ Bonus prize system is simply ‘thrilling’ to watch. Tonight we’ll give away 165 Free Bids during the course of 4 auctions. Those bids are given to customers who place a bid at an exact price-point during the auction. All 165 Bids will be given away by the time all four auctions reach the price of $1.05. We also provide bonus prizes for users who come in 2nd Place, 3rd Place, users who place the most bids in an auction but don’t win, and we even build in winner bonuses as the price of the auction increases.

    4) As critical you have been in your article, you should also take the time to mention the Auction Sites that are developing new features to combat the common compaints about Penny Auctions.

    Above all, thank you for your time in at least providing some focus on this industry.

    Bob MacReynolds

  24. Doofard says:

    I wanted to take a minute to say I understand how people say its a scam, but by definition a scam is where someone is taken advantage of. Entertainment shopping tells people before they start how it works, so you can decide. On our site we run free auctions where you don’t pay any bid prices and still win at a discount. Also, there isn’t near the profit you would think because you’re basing the assumption on all bids being full priced.. Bids don’t sell at full price all the time you can go to site and get bids for 5 cents each or coupons and promotions. Our bids average 27 cents a bid though our retail is 55 cents. You have to understand how it works to win, but once you do you can win big. As Bob said many sites are offering options to get rid of the complaints.

  25. E.J. says:

    I acquaint penny auctions with gambling (i.e. slot machines) and not necessarily a scam. You put in your $0,75 and pull the handle (submit your bid) and see if you end up with 3 cherries. More often you won’t. But there is a chance of hitting the prize. This is the appeal and this is why people are addicted. If people didn’t win, then casinos wouldn’t be in business very long and penny auctions would fail as well. As long as the winning bug continues to thrive in all of us, these gambling sites will thrive as well.

  26. Pennies2win says:

    WOW, I had to jump in in this thread. You are all right. As far as your hard earn money stuff, to each his own. I know if I am going to do anything online, I am going to read the rules and terms and faq’s. I do not see anything wrong with penny auctions online. I see something wrong with people doing something and ask questions later. There are some legitimate penny auction and participants like many in this forum will tell you the same, it is a fun strategic form of entertainment. it is a great past time to have clean and reserve fun without breaking the bank.

    Patrick

  27. Don says:

    As with all of the state lottery scams, this is just another way to throw away your money. But, hey, people throw away billions each year, tithing to churches in the hope that they will get to be immortal. Do what you want with your money, but don’t get upset when you don’t get the brass ring. As they say, a fool and his money are soon parted. But wait! I just got an email telling me some prince just died in Nigeria and his widow wants me to help her get his $500,000,000 out of the country for a 20% reward. Woo hoo!

  28. 808 says:

    It’s a scam. Nuff said.

  29. Tish says:

    I’ve just started looking into this whole business about Penny Auctions. I consider myself to be a bright consumer. As such, before I get into anything I do research and make sure I fully understand what I’m getting into. I can understand how people may feel like shouting SCAM when things with penny auctions don’t go their way. But as much as I hate to admit it, it’s not necessarily a scam. As was previously mentioned, a scam would be if the site said bid packs were free and then charged you anyway. A scam would be if the site told you multiple people would win, and then only had 1 winner (or worse, none), or just didn’t ship you your item after you paid for it. Scamming indicates false advertisement. As long as these sites are TELLING you that they’re going to take your money, it’s not a scam.
    Also, I totally disagree with this being called ‘Entertainment’. The transitive property is not at work here. And for you math idiots out there, that’s when a=b, and b=c, then a must equal c as well. Gambling is entertainment. Penny auctions are gambling. But that doesn’t mean penny auctions are entertainment. It’s shopping, plain and simple. You pay a price for a product, and if you win, you get that product. I personally don’t ‘shop’ for entertainment. Who does that? I shop when I NEED an item. When I’m getting someone else a gift or preparing for an anniversary, etc. For all of you declaring that people have hundreds of dollars in an ‘entertainment budget’ that they are tossing online to watch someone else walk away with their item….where the heck were these people when the economy crashed?! :-O

  30. C says:

    Michael, how much were you paid for your comments in defending PA’s?To Robtodd-I totally agree with you. I hope these auctions collapse sooner than later for the sake of all these innocent people spending all their money for something theyll never get. I would recommend anyone to stay away from these type of auctions because you dont know what these people are doing behind computer screens except for of course, filling up their pockets with greed. The main reason for me writing this is because I tried one for the first time today and i got scammed. I didnt go into it without first doing research and I was well aware of what I was doing. Im glad i did it because now I know I would never attempt it again. Im positive i got scammd by either a computerized bidder or an employee of its own. Funny how i bidded on only one item and down to the very end until my last 10 seconds vanished eventhough i tried bidding (and no, i dont have computer issues)and someone else got it! So beware of Bidcactus. Oh, when I called to explain to them the situation-Hence, the word explain; they became oh so defensive. Isnt if funny how the guilty are usually the most defensive? No, i didnt come out losing. (I knew I had a 50/50 chance of winning or losing) I came out screwed.

  31. C says:

    Sorry Michael. Regarding my last comment~Im on your side. You were defending the innocent. To you LT- how much were you paid for defending the PA’s?

  32. Tawny says:

    I find this thread very interesting. Personally, I have been bidding on penny auctions for just over two months now. Having a MBA, I went over the terms and conditions very carefully at each site I am on. These sites are set up to make money and if they weren’t, why would you start a business to lose money??? You can do very well IF you strategize and stick to your strategy. If you get into a battle of wills, you will lose. Over the last two months, I have spent approximately $600 in bids and cost of merchandise auction won. I have accumulated a total of $2800 worth of products and gift cards — and that figure is calculated with the price I would pay for items on amazon or at Walmart not the MSRP. There are sites that I will not go on due to low quality products and high shipping fees. It’s about playing the odds. As someone said before, it’s like a slot machine– you hope you will win with one spin/bid but it is unlikely.

  33. Brittany says:

    ZZZzzz… It is a scam and if ur clever or what ever u can win happy.

  34. junglekid says:

    You can´t protect people if they want to do themselves in.Calling PA scams because people suppossedly arent getting their moneys worth or are getting deceived is like smokers blaming cigarrete Companies or the drunkard blaming the bar.There is a lot of things out there where you can throw away your money. Everyone has to take responsability fot their lives

  35. Tyler says:

    I would just like to point out the irony in the fact that one of the ads on this site is a cactubid website that is in fact a penny arcade. Making a page about how evil something is while advertising it… God i love America

  36. BidHere says:

    Bid on “buy now” auctions and you can`t lose or be scammed.

  37. papaAndy says:

    Hi Michael,

    The reason I landed on your blog (from Hungary), now this “creative money making” got a new spin. Some of the PA sites have a pyramid stile affiliate scam here.

    This is how it works: They get people to “work from home” and promise to make about $9.500 per year with 2×5 minutes work per day (too good to be true?). “All they have to do” is, to place at least 1 ad (preferably 2 ads) per day on ANY free advertising site on the net with their personalized link included, with a prescribed text link. Note: one doesn’t even have to know English to participate, it is enough if affiliates know how to copy and paste. Pretty good money for doing almost nothing…

    There is only a small catch. You need to pay at least $99 per month to participate, but you can have sub-affiliates “making you money” also (a giveaway of a pyramid scam?). They state they do not want affiliates for money, they want them to work for them, to prove this, they have a monthly limit of $10,000.- an affiliate is allowed to “invest”:)

    What surprises me, people are still (over and over again) falling for these pyramid scams.

    Concerning your blog article of PA sites being a scam or not, here (in Hungary) when you ask their “affiliates”, where this huge profit is coming from, they claim, the “rich and stupid” Americans bidding over one another to get goods at a steal price, and not realizing they are paying way over the value of an item. Obviously they say this to hide their affiliate program’s pyramid scam nature.

    Thanks for the article; it comes up on Google at the top for many related search terms, so some people might start to think about the real nature of these sites. In my opinion, Nicholas said it right; this is not web shop where you have good deals passed over to the customers, but a gambling (gaming?) site, what in this form is still legal in the US, opening the gambling market for private companies too. Nicholas is also right in saying, it is no less moral as state lottery, the only difference is, state lotteries can be viewed as a form of luxury tax, going to the states’ bottomless pockets, not to private entrepreneurs. Also, lottery declares it is a game, while PA sites legally cannot do that (yet).

  38. dWnPxZiG says:

    Check out this http://faasdhfasy.com – reviewed website!

  39. LisaMarie says:

    Hey –
    Has anyone heard of the newest penny auction site that launched last night. Called Bids That Give (BTG), apparently some of the profit goes for a good cause such as charity! Well I think that is a great way of making people give to charity in a round about way. The guy goes on and “gambles” his bids for fun (instead of using that money for a good cause) and in the end it actually helps people!!! I think it was such a creaitve idea of the creator! Also on the back end there is a chance to earn money as an affiliate. Seems like the best penny auction site!!

  40. Mickey says:

    Why don’t you report on something that really needs to be corrected. Like the scam that the federal government has done with our Ponzi scheme social security department, collecting money from new workers to pay older workers. How they took over 2 trillion dollars out of the fund. Or how the congress and senate have exempted themselves from insider trading. How the best stock deals go to the whale buyers and crumbs go the the rank and file smaller investors. How congressmen and senators after being in “public service” become multi-millionaires. Do something constructive with your time. 350 FTC complaints with millions of people that know what they are doing with penny auctions is worth as much as trying to raise the water level in the Pacific ocean by you peeing in it.

  41. Greg says:

    Penny auctions are not a scam or are they who really knows. Maybe just a smart and profitable business. Is it entertainment? No. Unless you consider watching water boil in a pot one bubble at a time entertainment, then YES. Listen it is simple, you bid and 99% of the bidders will loose, leaving the single bidder the 1% to win the item. for example: A $799.00 MSRP divide by 0.60 = 1,331 bids you can place before you spend more than the MSRP of $799.00. The 1,331 bids divide by 100 pennys ($1.00) = $13.31 this is the amount you will actually increase the bid price by. Lets say it was you and one other bidder you both bid 1,331 times making the last bid $26.62 then you bid one more time and win the $799.00 MSRP item for $26.63 “hurray I Won” Or did you? of course you did you were the final bid when time ran out. With the winning bid of $26.63 and the cost of 1,332 bids @ 0.60ea. you spent $799.20 + $26.63 = $825.83 for a $799.00 MSRP item where you could have probably bought it for online or at a local store for $500.00 – $600.00. But again YOU WON. No one can take that away from you

    Lets not forget about the amount of time it took out of your life to WIN. if each bid takes 0.08 seconds 7.5 bids can be made per 1 min. then this means 2,663 bids divide by 7.5 bids (per min) = 355 mins. or 5.91 hours. In this same amount of time your child sat alone with no guidance, etc. I’m sorry that was below the belt. Of course everyone does this when no one is at home or watching them at work.

    Almost forgot about the BUY IT NOW button. This is my favorite. The second place winner above can get all his bids back if he BUYS IT NOW for $799.00. They now also win, they are walking away with something to. Technically cheaper than the actual winner who had to pay the $26.63 on top of the $799.20 in bid costs.

    The second bidder spent $799.00 in bids so if he does not BIN he walks away with nothing. Does BIN return his bids back to him? Yes, but he needs to take that same amount and buy the MSRP item. So the actual decision is….do I give the comapany $799.00 and walk with nothing or give the company $799.00 and walk away with the MSRP item.

    The company made money by effectivly selling 2 items @ $799.00 x 2 = 1,598.00 + winning bid of $26.63 for a total of $1,624.63 Let say the company bought the MSRP item for 50% of the cost shown $399.50 x 2 = $799.00 – $1,624.63 = $825.63 in profit.

    Good or Bad it is a profitable and legal buisness.

    I know everyone can and will pick this apart, so have fun. I am going to spend the rest of my day with my wife.

  42. billjac says:

    I am a web developer. I can tell you with CONFIDENCE that 100% of penny auction websites are 100% scams. Every single one are running on the SAME software core or at least a modified version of it. HERE IS THE DIRTY SECRET: Wanna know what my job was when developing the core OS software for some clients I will not mention here? It was to generate a system mod that would “auto bid” the last 2 to 10 seconds every time with a random set of predefined usernames with unlimited bids until the value of the item had been properly inflated with bids greater than the overhead cost. really simple. here is an example:

    Item: $25 gift card,
    Actual company overhead: $15.95 + 4.00 shipping
    Auto bid set up: require at least 1500 bids before item can actually be won.
    Scam: people go and think they are bidding against other customers, whats really happening is that if they bidding against an automated script, usually PHP, ASP, server side, this script simply looks to see what the overhead is, and then runs every time before the item can end, out bidding you. We also have uploaded a ton of items that never really sold, created fake winners with fake bids and marked them as “won by…!”.

    go ahead, test it.

    There was at one time only one way you could beat the system: you would have to gather up everyone in the community and get them to agree to only bid 1 cent for an item and not out bid one another, however, you will find very quickly that our scripts don’t allow this. This is also how we launch the sites and make them “look” like they are full of users. One such site I worked on for launch had more than 300 auto bid accounts, all fake bidding. During our first week we only hooked 8 people, we all sat in the office and laughed how they were bidding against fake accounts. We made over $5,000 from those 8 people in less than a few days. I was sick to my stomach when I realized what I helped create. I can not say who I worked for, but I can tell you, they ALL work the same way.

    At the time I left the last area we were dialing in was to work the following into a business model:
    1- get cheaper items in bulk, allow some of these items to perform at a loss.
    2- create affiliate systems with actual product companies, selling the item for cheaper to us and allow users to buy the item “at full retail” with a kickback to us if the bidder looses and chooses to buy the item.
    3- create smarter auto bid systems, for example, we had problems with the auto bid not turning off sometimes and becoming too automated. (trust me, its now very algorithmic and very smart, bordering on human intelligence).

    now, we well know and have enough data to understand that human greed soon kicks in and what shocked me the most is that after a site reaches about 500 real users, the auto bidding is almost not even necessary. trust me, we average 100k+ per WEEK, that’s right, 100,000 clams PROFIT not GROSS per WEEK. we also have calculated that most of our members are sporadic like gamblers, and can say with confidence that they loose money, they do not save it. They would have better luck on ebay or in a casino. There was a time I did not sleep well at night because of this, now I am free…

  43. billjac says:

    I am a web developer. I can tell you with CONFIDENCE that 100% of penny auction websites are 100% scams. Every single one are running on the SAME software core or at least a modified version of it. HERE IS THE DIRTY SECRET: Wanna know what my job was when developing the core OS software for some clients I will not mention here? It was to generate a system mod that would “auto bid” the last 2 to 10 seconds every time with a random set of predefined usernames with unlimited bids until the value of the item had been properly inflated with bids greater than the overhead cost. really simple. here is an example:

    Item: $25 gift card,
    Actual company overhead: $15.95 + 4.00 shipping
    Auto bid set up: require at least 1500 bids before item can actually be won.
    Scam: people go and think they are bidding against other customers, whats really happening is that if they bidding against an automated script, usually PHP, ASP, server side, this script simply looks to see what the overhead is, and then runs every time before the item can end, out bidding you. We also have uploaded a ton of items that never really sold, created fake winners with fake bids and marked them as “won by…!”.

    go ahead, test it.

    There was at one time only one way you could beat the system: you would have to gather up everyone in the community and get them to agree to only bid 1 cent for an item and not out bid one another, however, you will find very quickly that our scripts don’t allow this. This is also how we launch the sites and make them “look” like they are full of users. One such site I worked on for launch had more than 300 auto bid accounts, all fake bidding. During our first week we only hooked 8 people, we all sat in the office and laughed how they were bidding against fake accounts. We made over $5,000 from those 8 people in less than a few days. I was sick to my stomach when I realized what I helped create. I can not say who I worked for, but I can tell you, they ALL work the same way.

    At the time I left the last area we were dialing in was to work the following into a business model:
    1- get cheaper items in bulk, allow some of these items to perform at a loss.
    2- create affiliate systems with actual product companies, selling the item for cheaper to us and allow users to buy the item “at full retail” with a kickback to us if the bidder looses and chooses to buy the item.
    3- create smarter auto bid systems, for example, we had problems with the auto bid not turning off sometimes and becoming too automated. (trust me, its now very algorithmic and very smart, bordering on human intelligence).

    now, we well know and have enough data to understand that human greed soon kicks in and what shocked me the most is that after a site reaches about 500 real users, the auto bidding is almost not even necessary. trust me, we average 100k+ per WEEK, that’s right, 100,000 clams PROFIT not GROSS per WEEK. we also have calculated that most of our members are sporadic like gamblers, and can say with confidence that they loose money, they do not save it. They would have better luck on ebay or in a casino. There was a time I did not sleep well at night because of this, now I am free…

  44. LowBid says:

    After two weeks on ZBiddy, I can attest that you can come out ahead, but you need to think small. First, the introductory package was 250 bids for $60. Many prizes are “Free To Bid”, so you just pay the final price plus shipping. I won several “Free To Bid” bid packages, and eventually had over 600 bids. That, plus the Free Spin every day racked my bid total to 675 after 4 days. Then, I bid a few times here & there for an iPad (lost interest after a few minutes), and decided to go for small things like Restaurant.com gift certs. I won $175 worth of Restaurant gift certificates and spent another $15. So, now I have spent $75, still have over 600 bids left and got the certificates in my email today. I went online to the restaurant.com site, printed out $175 worth of gift certificates which save me a minimum of 75% on meals at nice restaurants around town.

    So, even if I never bid or win again, I’m still $100 ahead. I wasn’t going to bid again until I saw the prize in my email, indicating it was legitimate. If you bid during weird hours (early morning, late night), you can win things for 37 cents plus shipping ($2 plus change.) It’s not a scam, it just takes a little thought.

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