The Truth About Penny Auction Sites

February 13th, 2012

There’s no question that more and more people are shopping online every day. As the economy fluctuates, the type of site that attracts them changes. Following the popularity of auction sites like eBay came flash sites with daily deals like Groupon. Now penny auction sites are the newest niche gaining in popularity with online shoppers seeking the best deals. There are as many as 165 active sites, according to research from the Technology Briefing Centers.

What you may not realize is that penny auction sites are in the business of selling bids, not products. Their pay-to-bid format means that the site makes money every time someone clicks the ‘bid’ button. The winner may be able to buy an item at an unbelievable discount, but the losers are subsidizing the site. Are these sites just a harmless form of retail entertainment or an unregulated form of gambling? We’ll give you the truth about penny auction sites, and share our tips on how to find reputable ones and place bids.

Getting started

1. It’s important to understand exactly how they work. In general, this is what happens:
   • The penny auction site puts up an item for auction starting at $0.00, and each bid increases the price by a penny.
   • The sites offer new members some free bids to join, but bidders normally have to purchase bid packs at a cost averaging 60 cents for each bid.
   • The auctions have a countdown clock, and time is extended with each bid.
   • Some sites provide bidding tools that will make automated bids within a set price range when less than 30 seconds remain on the countdown clock.
   • When the countdown clock finally does reach ‘zero,’ the person who placed the last bid wins the opportunity to buy the item at the final price.
2. Search online for any reviews or complaints with the Better Business Bureau, and check out reputable forums and review sites like Penny Auction Watch or PennyBurners, where bidders post reviews on the forums, and discuss their experiences.
3. Pick a site you trust. You should read all the rules, FAQs, and fine print on each site carefully before bidding. Many sites fail and are acquired by competitors.
4. Decide how much risk you are willing to take. Set a budget and stick to it; bid on one item at a time.
5. Research the value of the item you’re bidding on, and keep track of the number of bids you’ve used so you won’t bid beyond an item’s value. If you do not win, your bids are not refunded and that is how you can lose money.
6. Develop a strategy. Watch the auctions for a while before bidding. Start small with low-value items to learn. Read tips in the forums.

A word of caution

Being a new form of online entertainment, penny auction sites have for the most part fallen through the cracks of regulation and have been a question of much controversy. Here are just a few things that could go wrong with the auctions: shill bidding, fake accounts used to drive up bids, bidding bots, automated software to drive up bids, credit and debit card fraud, won items may never be delivered, etc.

Top sites for 2012

Here is the list of several popular sites as ranked by PennyAuctionSites.com. The logos link to the “how it works” page for each site.

	A medium to small site in business since mid-2010. Quick shipping and good customer support.  Gift cards, iPods, Kindles, gold & silver bars, telescopes, metal detectors, remote control helicopters, and the top site for iPads.
	Largest penny auction site, debuted October 2009.  Average shipping speed. Offers daily deals and promotions through social media sites. Every auction offers the option to Buy It Now.” Common auction items include wine bars, carpet cleaners, blu-ray players, game consoles, notebooks, large-screen HDTVs, gas scooters, sandals, Apple iMacs, iPads, and iPods.
	Launched in 2009, it has over a million registered users worldwide. Offers high end products from brand name companies, average shipping speed. Includes “Buy It Now” on most auctions. Look for vacation packages, large screen TVs, high-end blenders & toasters, brand name makeup collections.
	Started in February 2010, fast shipping. Exclusive profile features allow more strategic game play. Aggressive bidding is possible with an automatic Bid Agent for sports equipment, household goods, precious metals, electronics, cameras, gift cards, and Apple products.
	Online since the end of 2009. Active in social media and blog.  Autobeezid and AutoSniper bidding tools. Average shipping speed. Typical items include GPS, game consoles, new cars & SUVs, health & beauty, cameras, electronics.
	The oldest U.S. penny auction site has fewer bidders, and different auctions for beginners and experts. Auction items include name brand electronics, gift cards, DVDs, and jewelry. Founding member of the nonprofit trade organization Entertainment Auction Association (EAA). Good customer service by phone or email during business hours.

Conclusion

The penny auction sites seek to increase their membership through commercial advertising and referrals. Amid increasing complaints and threats of lawsuits, site owners argue that the auctions are a new twist on retail sales and not gambling. I believe that if consumers gather enough information and are careful about bidding, it’s possible to play at penny auctions like any other game – for fun and entertainment, and not expect them to be a legitimate place to consistently find bargains. While these sites offer the possibility to buy, or win, anything from designer accessories to gift cards for a fraction of the retail price, just keep in mind that the sites buy these items at full retail price and sell them at outrageously low prices.  One person can indeed walk away with a good deal, but the losing bidders collectively spend more on bids than the value of the item, and the sites make an unbelievable profit. Such was the case with a recent auction at Zeekler.com for a Mustang convertible – the winner placed 105 bids at a cost of $1 each, the auction ended at $4,077.07, and the site collected $407,707 in bid money.

Entry Filed under: Shopping