I received an e-mail earlier asking me about my take on QuiBids.com or Bidtails.com or any other penny-auction site. I tend to stay away from them at all costs. Penny-auction sites have been around for some time in the U.S. and they have only gotten more popular.
A penny-auction site is very attractive to people who think they will win a brand new expensive luxury item at a cheap price. For example, QuiBids claims that you can own an iPad with a retail price of $499 for an amazing bargain of $29.99. But this winning bid of $29.99 is misleading. There’s no possible way they could actually sell iPads for that price and make a profit. It’s a losing proposition — unless there’s more to it than meets the eye. And there certainly is.
How do the penny-auction sites work?
To bid on an item, a user must buy some amount of bids to add to his account. Let’s say each bid costs 60 cents. The sites base auctions on how much each bid raises the final price of the item, and not all auctions are true “penny auctions” (where each bid would raise the item’s price by 1 cent), but for the sake of this example, let’s say we are talking about a true “penny auction”. So let’s say that an iPad (which normally sells for about $500) is sold for a final price of $29.99, or 2,999 penny bids which cost $0.60 each. Revenue on the bids alone would total $1,799.40, not to mention the final selling price — so the company would have brought in $1,829.39 for a $500 item. So even though a customer did buy the iPad for $29.99 plus the cost of whatever bids they made, the company made more than twice as much as the retail value of the iPad.
Every time that you make a bid, you lose those 60 cents. Regardless of whether you win or lose, you will not get a refund for those 60 cents. So for every 100 bids, you effectively pay 60 bucks. It would be an awesome deal if you came in at the end of the sale and bought an iPad with .60 cents (one penny bid), but that is extremely rare, and more than likely it will never happen for you.
Why? Human psychology. If you spend $450 on an iPad, and you are not going to win the iPad, then you lose that money. So there comes a point in the bidding war where the bidder says, “you know what? Screw it — I’m buying this iPad and selling it on the side so I can make some of the money back that I’ve already lost on this bidding war.” If I spend nearly $500 on an iPad, I want to make sure I win it now, because otherwise, I would have just thrown away $500. If I do win the iPad at that price, I’d then go to my friends and try to sell it for something near that value. Yes, I will probably lose money doing it, but it’s not a $500 loss. Make sense?
I’m not saying that you can’t win anything or get something for cheaper than retail price, but it’s very difficult and time-consuming to do so. And unless you have Patience, Time, and Money — but most importantly enough money to lose, because you will not win something all the time — then don’t even bother trying to get into the penny-auction sites. Most people who I have talked to that have done this for years, claim that they tend to save $50-$80 per purchase. Keep in mind these people live on these sites, so they know what they are doing. You may expect to come in and take a huge bargain deal from the site, but instead you may lose hundreds of dollars.
So are Penny Auctions a Scam?
All penny auctions, no matter how reputable or how legitimate they sound, are a bad idea in my opinion.
They are not a scam, but their business model is in the gray area. Unlike eBay, where the bidder and auctioneer are two completely different people, the penny-auction sites are both the seller and auctioneer — so since they control the rules of the game and are part of the game, the game will invariably benefit them.
On top of the cost of the bids and the item itself, there will be other things like added “fees,” tax, and S&H. What ever product you buy will end up costing you extra money. Most sites nowdays have a “buy now” option where you can buy the product at its retail value, but on the penny-auction sites, the “fees” and other charges may result in that iPad costing you more than it would from Apple. You could buy one at a retail store for cheaper, or better yet, snatch up a good deal on Amazon.
Here is something else to remember. The penny sites are not an approved retailer for almost any of the brand name products. So let’s say that you buy an iPad or a television. As soon as you win the bid, the warranty is voided, so if it breaks in transport or after you receive it, good luck trying to get a new one.
So that’s my take on penny-auction sites.
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