Getting an auction deal appears simple enough: Just wait until the clock is about to run out, place your bid, and hope for the win. But it's not that easy.
First off, lots of your fellow bidders will have the same plan, which is why you'll typically see a flurry of bids coming in as the clock is about to run out. And whenever someone bids, up to 15 to 30 seconds or so is added to the remaining time. As a result, you never know when an auction will end, even if the clock has ticked down close to the last second. Participants often bid again and again, extending the auction sometimes by hours or even days. That's especially likely to happen for hot products such as iPads, big-screen TVs, and other electronic gadgets. Some bidders get so carried away that they're determined to win no matter how many times they have to bid and how unreasonably high the price goes.
Complicating things further, many sites offer an automatic-bidding feature such as Bid-O-Matic and BidRunner that bid on your behalf until the price reaches a chosen level. So you can end up bidding not only against dozens of real-life bidders but also against a mindless, tireless computer, which won't doze off in the wee hours of the night. Sites usually limit how many items a participant can win within a given period, supposedly so others can have a chance. For example, among other win restrictions, QuiBids, by far the largest penny-auction site, allows participants only three wins per account each day and 12 wins over 28 days.
From the sites' perspective, the higher bidding goes, the more they stand to make. And the amount can be staggering. An example is a $650 stereo receiver that recently sold for $57.74 on QuiBids. With each bid increasing the price by one penny, the 5,774 60-cent bids for that receiver brought in as much as $3,464.40. (Some bids are no-cost promotional bids or have been purchased at a discount.) So it's easy to see how the site can afford to sell the receiver to the winning bidder at such a steep discount from its retail price. Keep in mind that on QuiBids, some of those losing bids might have been applied by those who decided to buy the product at the site's full retail price.
But not every auction works out as favorably for the websites. Some items garner very few bids and sell for pennies on the dollar, especially low-value products that generate little interest. For example, on QuiBids, a $10 retailer gift card recently went for a single 60-cent bid placed in the last few seconds. And one lucky bidder won a 55-inch Samsung flat-screen TV for just $2.35. At one cent per bid, that's 238 bids overall, or $142.80, hardly enough to cover the site's cost. QuiBids says it loses money on about half of its auctions and that "much of the profit from profitable auctions goes toward covering the losses from the unprofitable auctions."
But the problem for you as a bidder is that there's no way to tell when such a good deal will come up. And the more valuable and popular an item, the more likely bidders will show up like piranha, trying to sink their teeth into an unbelievable deal.
Not surprising, advertising and promotions for penny auctions focus not on those risks but on the dramatic savings that only some participants see.
"Are you ready to save up to 95 percent on what you want most?" a woman asks in one recent QuiBids television ad. She describes QuiBids as "an exciting new way to shop for products like iPads, MacBooks, HDTVs, cameras appliances, and more."
The ad continues with examples of extreme savings, such as a testimonial from a man who relates buying a MacBook Pro for $67. (The guy is a paid actor.) There's no mention of losing bidders or how much they spent, assuming the ad was based on an actual auction. There's also no mention of any risk.
The auction site HappyBidDay has a similar ad, showing a laptop computer for only $8.72 and a high-definition TV for $22.32. "Sounds amazing? You'd better believe it," the ad says. As with the QuiBids ad, the site boasts of savings of as high as 95 percent without mentioning any potential for loss. Remember, only one person wins each auction.
In contrast, some sites, especially QuiBids, include helpful information and warnings about overspending and tips on how to bid effectively.