PlusOne - Musings of a marketer

Online auctions almost emerged as a way to make money online… Many imagined the success of eBay could be emulated on their own internet auction sites, but the reality is the internet is littered with auction sites that never attract a bid, and are full of items for sale generally listed by the operator of the auction site.

A new auction money making style has emerged

Recently a new auction process has emerged where the auction process is twisted in a way that the public who are bidding are the losers. The big winner is the operator of the site and the person who wins the auction can also be a winner, as long as they don’t make too many bids.

How does it work?

Simple. The site operator lists a whole range of goods. The public are not invited to list items because that would destroy the tactic.

On one site operating today a category is digital cameras and they have a Canon Powershot A620 with a retail value of A$599.

Here is the money-making secret

To participate in the auction you must register with the site. Not only do you have to register, buy you have to PAY TO BID. In the case of the site being used for this case study, it costs A$5 to make a bid via SMS, or $3 to make a bid online via purchased credits.

This bid amount of A$5 to make a bid via SMS, or $3 to make a bid online via purchased credits is PER BID. Why do the bidders have to pay - remember, it is not like a traditional auction site where anyone can list - this is only for the site operator to list products, and this is where the secret lies…

In order for the auction to be successful, a minimum number of bids needs to be received. In the case of the Canon camera, 400 bids must be received. By my calculation this is $1200 worth of A$3 internet bids this camera will attract in order for the auction to be deemed successful.

The site says the winning bid is the highest unique bid (not the highest bid) , but does not state that if 10 bids are make for the same value, if 9 are or are not counted towards the overall bid total.

Remember, the camera, at retail value costs the site operator A$599, though I saw it for sale at A$388 retail. Therefore, the site operator takes in $1200. (or A$1024 at an average of $2.56 earn on average if all bids were at the premium SMS A$5 bid rate.) Even buying at the top retail rate he is still making $600 on the auction.

How you don’t lose

What happens if the total number of required bids is not reached? The site operator states that the auction MAY be extended, or ended, at their discretion. I’m sure if I had spent A$3 on a bid I would want it to be successful.

I suppose the only saving grace is the highest unique bid factor - if 399 people do not make a unique bid (i.e. there are two or more bids at the same amount) and I slip in a unique bid of , say A$2.52 and this is the highest unique bid, then I get a really good deal. Unless someone has the highest at say A$252.50.

Under this auction model, every item is a winner for the site operator - they do not need to buy the item till there is a winner and can then buy at the cheapest rate they can find on the internet. There is NO RISK.

Who says you cannot print money….

Is it a scam or a clever way to make money? Let me know your thoughts via comments.

UPDATE APRIL 22, 2007: The site originally looked at has now changes their Terms Of Service so that if the max number of bids is not required, then a refund will be made to participants, or the auction will be extended. I think the extension aspect will be most used, because for SMS bids, about half the amount is already paid out to the telcos.

Technorati tags Internet Scams | online auctions | making money on the internet