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Monday, 22 November 2010

Are Pay-Per-Bid Sites A Scam?

There seems to be a flock of new "auction" or "reverse auction" sites out there. Many people wonder if these are scams. We've all seen ads for $56 iPads and $72 week-long vacations that people won at these new auction sites. Let's use OffAndAway.com as an example since I recently stumbled on it, and let's also compare these to eBay since many of us know what eBay is, and how to use it.

For OffAndAway (OAA to save typing), you have to BUY bids. On eBay, bidding is free. OAA charges $1 per bid.

OOA doesn't let you bid a maximum amount like on eBay. Every bid on OAA raises the price by a fixed amount, which is 10 cents. That means when the winning price of the item goes up $1, OAA collected $10 in bids from various people. On OAA, something that ends at $400 started at nothing, and went up 10 cents at a time.

eBay auctions have firm ending times. OAA auctions are extended 20 seconds every time someone bids. If someone bids with 1 second left, there is now 21 seconds on the countdown clock. This makes auctions go on for HOURS past their originally-stated end time.

For both styles of auction, you can lose by a very small amount. It can be frustrating! If only you got in one more bid! :)

So are pay-per-bid sites like OAA a scam? Not if you completely understand what you're getting into. OAA is more like a raffle or casino game. You might buy raffle tickets, you might put money in a slot machine, and you might never win. Same for OAA. You might put in a zillion bids at $1 each, and you might still lose. You might bid on eBay and not win, but at least that cost you nothing.

When playing with pay-per-bid sites, remember to count what you're spending on bids in your budget. If you won something for $100 but spent $100 in bids, that was a $200 item. So be a smart shopper!

I do find the business model interesting. Let's say that a hotel is willing to give away a few-night stay, and let's say they make a deal to sell it to OAA for $500. OAA lets everybody bid and fight. Many of these hotel packages are ending around $300. At $1 per bid, that's $3,000 OAA collected from bidders who played the game. That easily gives the hotel the $500 they want for the stay, OAA pockets a pile of money, and the winner is thrilled to pay $300 for a hotel stay that might be worth $1000.

I think we will continue seeing more of these sites, but the funny thing is that I think they only really "work" for buyers while the sites are new. Once prices are being bid up to market rates, or once people get tired of the 20-second extension and the price per bid, then the site will drop off. Plus, who would tell friends about this? They don't want to bid against friends! I think this is why we see so many of these come and then go. I wonder if anybody will ever create such a site that really finds its sweet spot.

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I tried a site like this called BidCactus. That one lets you buy "packs" of bids, like 100 for $25. I tried it out and rapidly became annoyed with it. It's not like eBay, where you can swoop in at the last minute and snipe. Here you have to wait and hope your last bid will take it and that someone else won't bid and extend the duration even longer. There doesn't seem to be any good strategy, since it seems to only depend upon when other people get tired of bidding. They also offer up more bid packs that you can bid on. Bidding to get more bids.

It seems terrific from a seller standpoint. Sellers and the site operators will most always make a bundle, while only one bidder gets a bargain (maybe). All the other bidders lose. It seems more akin to gambling than actual auction participation.

I gave up on it rather quickly. It's far too time consuming, especially as I have better things to do online -- things that will actually make me money. I suppose it's entertaining for those super-competitive types or the ones who spend every vacation in Vegas.

I think it's bs they keep extending the auction time. That is not how an auction is supposed to work.

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