Penny Auctions Are Scams

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. However, a few months ago, 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, that 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. Oftentimes, 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 its 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 its 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, with 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.