|Methods vary but
the message at penny auctions is the same make the winning bid and you
can pick up expensive goods at a fraction of their value. But is it as
straightforward as it seems?
Somewhere in the UK a person going by the name of "minga60" must be
feeling gutted. He recently spent more than £200 trying to win a 32" LG
flatscreen TV at penny auction website Madbid.com, only to see a rival bidder
steal in and win it at the last second.
Madbid.com, and rivals such as
Bid Budgie and Fastbidding.com, are at the forefront of an explosion in penny
auction websites in the UK, with shoppers enticed by gaudy adverts boasting
that Sony PlayStations have sold for a fiver or MacBook Pros for £90. But
a closer look reveals that consumers can end up with nothing to show for it.
Unlike eBay, where bids are free and you only pay the price at which
you win an item, participants in a penny auction must pay to place each bid as
well as the final price of an item should they win it. Of course, there can be
only one winner so everyone else is left out of pocket.
it works like this. To place a bid you need to buy credits sold in blocks
typically costing £9.99 for 80 or £374.99 for 3,750, meaning
individual credits cost 10p-12.5p. You need up to six credits to make a single
bid. This means that bidding on some items can cost as much as 75p each time.
Each bid raises the auction price of an item by 1p and at the same time extends
the closing time of the auction by up to 60 seconds.
Things are even more confusing at FastBidding.com,
where some auctions close temporarily and there are different styles of
auction, including ones that offer cashback, "equal bid" auctions and "lowest
unique bid" auctions. At sites such as this, beginners need to tread even more
At BidBudgie.co.uk, where everything is apparently "going
cheep", users must make the lowest unique bid to win an incredibly
confusing system where you must ensure you are the only person who has
registered a bid at, say, 3p. The trick is that rivals can also bid 3p to
ensure your bid is no longer unique, then enter their own unique bid of, say,
4p and take the lead. Bids cost money unless you enter a free auction to
win credit that can only be used on BidBudgie.
With penny auction
websites everyone helps ramp up the price and, at some sites, as long as people
keep bidding the auction never ends. If you win, how much you eventually pay
depends on how many credits it took to place each bid, how many times you bid,
and the eventual sale price.
We took a detailed look at the bidding
history for Madbid's recent LG TV auction, which required four credits per bid.
We found that 79 people placed bids in total and the winner spent £217.60
on bids to win the TV at great cost to rival bidders. Thirty nine of
them bid once and so lost only 40p (assuming they bought credits at the
cheapest rate of 10p per credit); 10 people lost 80p after making two bids;
while 19 people wasted between £1.20 and £4.80.
spent between £5 and £30, but the failed bidder who lost the most
cash was minga60, who wasted £211.60 by placing 529 bids.
can make a lot more than the sale price on each item. On the LG TV, Madbid
could have raked in as much as £612, assuming all bidders spent 10p to
buy each credit. That's £162 more than the recommended retail price of
Similarly, we have calculated that by attracting 252,907
bids Madbid could have made £151,744.20 on an Audi A3 Sportback that had
an RRP of £18,790 600% more than the cost of the car.
it often loses money too. A pair of hair tongs worth £40 recently sold
for 25p, making Madbid as little as £10 from the 25 bids it attracted. A
men's Fila watch worth £139 attracted only 23 bids, worth as little as
£9.20 to the website.
Dr Mark Griffiths, professor of gambling
studies at Nottingham Trent University, says bidding on these types of auctions
is gambling: "Winning a penny auction is essentially chance-determined and does
not depend on any discernible skill a person can bid again and again
with no certainty that they will ever win the product. If there is no real
skill in participating and it is essentially a chance activity, how is this not
a form of gambling? The vast majority of people who bid on penny auction
websites do not get anything for their money, except the hope of winning."
But the UK's Gambling Commission has refused to acknowledge penny
auction sites are gambling operations, something Madbid.com agrees with. A
spokesman says Madbid is an "interactive social auction website
features a 'buy it now' option, refund policies and interactive elements,
creating a fun shopping experience that requires skill and strategy to land
bargains". The "buy it now" option allows users to buy a product at a slight
discount off the RRP. If it is a product users have bid on already, they can
use their spent credits to further discount the price.
The internet is
awash with penny auction forums where fans debate strategy and share tips, but
there are also threads such as "Penny Burn Out?" for people who have spent too
long bidding on auctions. One poster wrote: "I think bidding is taking up too
much of my time. I may have to add up all my costs vs wins and decide it [sic]
this is really worth it. At the very least, I have to slow down. Its taking too
much time away from my relationship. Not cool."
Griffith has made
repeated calls for the sites to be regulated, and in late 2010 the OFT clamped
down on the use of auto-bid functions by some companies that were using
software programs to place artificial bids against consumers this led to
the closure of BattyBid. But the OFT says it has nothing to add to the work it
has already done.
Madbid's Facebook page attracts many positive
comments from its fans, though there are also regular criticisms of the group's
customer service and complaints about the cost and difficulty of winning
auctions. Thomas Richards, wrote: "You never win a bid so what's the point in
putting money on the website its all a con." Another dissatisfied customer,
Richard Harrison, wrote: "I wouldn't bother it's a joke. Items not sent and the
worst customer service in the world."
The Madbid.com spokesman said it
is a "misconception" that penny auction sites are a scam, adding that Madbid
does not make false claims in its advertising. "We have been reviewed by the
world's fifth largest independent accounting network, BDO, which looked at the
specific control procedures used by MadBid.com to ensure the legitimacy of our
auction model. It concluded that MadBid.com winners had average savings of 81%
(including final auction prices and cost of bids) when compared to the RRP." He
added that Madbid takes customer complaints "very seriously" and looks into
each one, "whether it comes via email, a phone call, Facebook or Twitter".
Madbid's parent company, Marcandi Ltd, appears to be in poor financial
health. It's latest report and accounts show it lost £395,915 in the year
to 30 June 2010 a figure one leading accountant called "a substantial
amount of money". He believed Marcandi continues trading only because it
received a large cash injection from shareholders and said he viewed the future
prospects of this company with deep suspicion.
Perhaps this is
unsurprising, given that Madbid is a recent start-up. Indeed, legions of penny
auction sites have folded, including Swoopo, Rapid Bargain and Bid Boogie.
Madbid's spokesman would not discuss the company's financial health but
said its mission is to "revolutionise the way consumers shop online, offering
an entertaining alternative to the likes of Amazon and eBay"