Paycheck Chronicles

A New Sort of Auction


An online friend told me about "this great new auction site" where you can win gift cards for mere pennies.  This sounded too good to be true, so I checked it out.  What I found was very interesting.

The name of the site is DFWBid.  It has even been featured on a local CBS News broadcastas a fun way to get gift certificates at a discount.  You register at the site and look at the current auctions.  To give you an example, right now they are running 6 auctions.  One is for a Nintendo Wii (currently $118.37) and the other five are for $50 gift cards:  TJMaxx (currently $16.91), Barnes & Noble (currently $25.17), Target (currently $9.55), DSW Shoe Warehouse (currently $15.86) and Chili's (currently $15.67).  Sounds like a good deal so far.  It gets even better, because the auction amount can only be increased in one cent increments.  Every time an item is bid up one cent, the timer clock is reset (in today's auction, it is was 1 minute, 15 seconds.) In addiiton, there is an unusual twist...if you click on a particular button during a "penny buy" period, and are the first person to answer the two questions correctly, you can win that gift card for just one cent!

Obviously, the website isn't just giving away gift cards and losing money.  Here's the lowdown on how it is works for the auction owner:  

First, there is a $4.99 shipping and handling fee for each item that you win.  As you know, a gift card can be mailed on a regular stamp.  Even if you throw in insurance & delivery confirmation (I don't know if that is included, but we'll go out on a limb and assume that it is), shipping isn't going to be more than a dollar.  Therefore, the first $4 of the cost of the gift card is coming from the shipping and handling charge.  Then, In order to bid, you have to buy into the auction for $2.99.  Once you buy in, that money is not returned to you.  There are numerous people buying in to each auction.  If we take a $50 gift card and subtract the $4 in excess shipping, that leaves f$46 that the auction owner needs to make up in auction entrance fees before he can make a profit.  At $3 an entry, that means that the auction owner needs to have sixteen people enter each auction in order to break even.  (This is just on the gift card and shipping, I'm not factoring in any overhead costs.)

Just to see if this was profitable, I spent a little over an hour just watching the auctions this afternoon, and I counted the number of different bidders on each item.  I was amazed!  While the Wii had a low number of bidders (only 20), the gift cards had lots of bidders.  For example, the TJ Maxx gift card had 54 different bidders during the time I was watching.  That means that 54 people paid $3 each for the right to bid on the auction, netting the auction owner $162 in entry fees on an auction for a $50 gift card.  From a business standpoint, it is brilliant!  From a consumer standpoint, not so much.  Sure, one of those bidders could win a gift card at half it's face value, but the rest of them have just wasted three dollars.

Even more amazing is that I saw 54 bidders during just the time that I was counting.  From my observation, there were about two bids being placed every minute.  Therefore, that $16.92 TJ Maxx, which had been bid upon 1692 times, had been listed for nearly 850 minutes - over 14 hours!  If there have been the same bidders for the whole 14 hours, then the auction owner has already made over $100 in profit on that auction.  However, if the bidders change throughout the life of an auction (and you've got to figure that they do), then he's making many times that in profit on each auction.  A pretty good deal for the auction owner!

As for the "penny buy" aspect of the auction, I don't know.  During the several hours that I was on the site and then writing this article, the penny buy feature was never active on the item I was bidding on.  (I did participate in one auction so that I could write about it.)  I don't know how frequently the penny buy feature is active, or how hard the questions are, or how often someone wins.  I didn't see any evidence that any of the other auctions were won by a penny buy during the time that I was watching, as the items being auctioned didn't change during my visit.

In addition, during the hours that I observed this (off and on), none of the auctions were won.  Obviously, someone will eventually win these gift cards, but when?  Hypothetically, a single auction could last over 30 hours.

As enticing as it sounds, I will be staying away from this auction and any other copy-cats that pop up.  I would rather keep my $3 entry fee, and $5 postage and handling, and use those same hours to do something useful.  I don't see how this is a good plan for anyone (except the owner.)

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