Today’s post is about penny auction sites that purports to sell various items at very cheap prices. I am sure you have seen ads where things like Iphones, laptops, digital cameras etc were sold at ridiculously cheap prices. To the unsuspecting buyer a deep discount of up to 99% is surely enticing. But are these sites scams?
Websites like sharkybids.com or pennyauctions.com.my offer a free membership and a few free bids. They operate by charging members for every single bid they make. For instance a digital camera that’s worth about RM800 is being auctioned starting with the price of a single penny or cent. Each bid a member makes will move up the price by a penny. So members start bidding in the hope that they may get to buy a digital camera for a very low price. After a certain period of time the bidding ends and the auction price ends up at, say RM10 for instance. A digital camera worth about RM800 being sold at 10 dollars is indeed a bargain and these websites (the legit ones at least) do honor the auction. So how do these websites actually afford to sell a camera at only 10 dollars?
Remember that every bid moves up the price by a single cent so if the final price is 10 dollars that would mean there would have been 999 bids. Every single bid makes money for the website. Most websites charge an average of RM 2 for every bid so 999 bids equals RM1998. So this means that the website actually make RM1998 and the RM10 from auctioning the camera. In this instance the website even makes a profit of RM1208. Pretty clever eh?
This is certainly a good business model for the webmaster as he can reap pretty large profits. The auction winner also gets a deep discount. However for the others that failed, they would lose the money they spent on buying those bids. So the model is similar to that of a lottery – the organizer reaps a huge profit by selling tickets and pays out to a sole lucky winner while the others just effectively burn their money for nothing.
So is this a scam? Well some might say that it is. If you are not well informed you might feel cheated at the end of the day, but if you are aware of the risks involved and willing to take the gamble then it is on your own head. So for those who like taking risks and gambling penny auctions are just the thing for you. Of course for Muslims like me, participating in such penny auctions would be haram as it is a form of gambling and thus forbidden in our religion. So now you know, until next time, Salam everyone.