Snap up luxury goods, from cars to mobile phones, for 98 per cent less than their recommended retail price. This is the claim of penny auction sites, which were virtually unheard of two years ago but have proliferated during the recession.
Some of the most popular sites include MadBid.com and Swoopo.co.uk, which attracted 156,000 and 324,000 UK users respectively last month alone.
Spawned by marketers cashing in on the success of eBay, which has had an 11 per cent rise in use since August 2008, penny auction sites have been described as “the crack cocaine of online auctions”. One blogger angrily referred to the sites’ business plan as “close to pure, distilled evil”.
On the other hand, those who have won swear by them. Sandeep Anantharaman, a 26-year-old Watford engineer, picked up a brand new Mini One car, worth £12,135, for £6.83 on MadBid.com. The same site claims that the average profit of its top five winners is more than £20,000.
The sites offer a multitude of shiny, high-end goods such as Apple MacBook Pros, 50in plasma-screen TVs, even gold bars or wads of cash, which are directly delivered to auction winners from the sites’ warehouses.
The principle seems simple. Unlike eBay, where bidders place minimum or maximum offers, those using penny auctions simply have to click to indicate that they want the item, similar to raising a hand in a conventional auction.
The last man standing gets the item, for however much it is worth after what can be hours of monitoring.
The catch? Users have to pay for each bid they make — 50p on Swoopo.co.uk, and up to £1.50 on MadBid.com. Bids are bought in bulk. Swoopo.co.uk sell packs in sizes ranging from S (20 bids for £10) to XXL (560 bids for £250).
Unlike a conventional auction, all prices start at £0. Each time a bid is made the cost of the item rises by a few pence. Like eBay, a stopwatch on each lot counts down to the end of the auction. However, each time someone bids, the time on the clock advances by a few seconds.
Take an example of ten people bidding for an iPod on Swoopo.co.uk. The cost of the iPod will start at £0, but soon rises as each buyer makes a bid.
As the stopwatch counts down, more bids are placed, the cost of the iPod rises, and the time on the clock advances. Whomever of the ten is prepared to continue to place bids until the bitter end will walk away with the iPod.
If the other nine give up early, the iPod may be sold for a few pounds. If all are prepared to spend a lot of money and time bidding, the cost of the iPod will rise up to a cap of, or even slightly above, recommended retail price.
Whether you manage to get your desired item at a bargain price depends entirely on the number of other people bidding against you and how much they are prepared to spend. This is why some describe penny auctions as akin to gambling.
Rupert Elder, 22, who has recently graduated with a degree in economics from the University of Warwick, bid for a PlayStation 3 on Swoopo.co.uk, but was less than impressed.
“I blew 20 quid just to see if I could win something. Nothing came to fruition and it became pretty clear to me that the probability of winning is slim and the company just eats up the 50p it costs to bid each time,” he says. “On a typical item bidders are paying for it four times over before it is won.”
Elder believes that it is a “disguised form of gambling” and that such sites should be regulated by the Gambling Commission.
I decided to have a go on MadBid.com to see if I would have more luck. Juha Koski, MadBid.com’s managing director, pointed me to the “do’s and don’ts” on the website, for some tips on how to win bids. These include placing your bid early or late, and keeping your eyes “always focused on the countdown timer”. The site also suggests bidding “at the right time of day”, adding: “You can pick up bargains by bidding when others are busy having breakfast or taking the dog for a walk.”
I decided to bid on what I thought was a niche product: some pink hair straighteners. Clearly not enough of my competitors were walking their dogs, because I spent £15 and an hour of my life glued to the computer screen, no closer to winning the straighteners than before I started.
Every time the clock counted down its last seven seconds I was convinced they were mine, only to find that Katie1001, Jockular or Onlyme123 had put in bids in the previous few seconds, and reset the clock. Checking back, I saw that the straighteners were sold to Jim G, of Edinburgh, for a bargain 94p.
I struck it lucky eventually with a hamper of retro sweets, for which I was the only bidder. I managed to win the lot for only 1p.
Mr Koski says: “The odds of winning one of our rookie auctions [beginners’ auctions offering cheaper items] range from 30 to 70 per cent.
“Sometimes there is just one single bidder in an auction who bags a bargain for a single penny. In our larger auctions hundreds of MadBidders participate.”
He is adamant that penny auction sites do not promote gambling. “It is purely a game of skill as it requires knowledge, judgment and strategy,” he says.
However, Tony Northcott, a spokesman for the Trading Standards Institute, says: “The difficulty with these sites is that you cannot be sure how much you are spending with no guarantee that you will win anything.”
He advises bidders to “set themselves a limit and if you can’t afford to lose money, don’t do it”.
Let the banks bid for your savings
Licuro.com is marketing itself as the “eBay for savers”. The site opened for business in July and offers savers who are too busy to trawl comparison sites the opportunity to achieve decent interest rates on their deposits.
Customers specify their deposit amount, and for how long they wish to save, and high street banks and building societies bid to offer the best rate.
Savers are free to accept or reject any of the offers.
Savers wishing to use Licuro are charged either £5.75 per auction, or £33.35 for unlimited annual use, and deposits must be a minimum of £25,000.
Another savings auction, www.maxbips.com, has been around a little longer.
Maxbips.com savers are charged an annual fee of £49 and must auction a minimum of £30,000. Rates on offer are generally above average, although best-buy rates beat those offered on both sites.
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