By David Dorf on May 12, 2011
Zynga makes money hand-over-fist producing simple games that are easy to learn and highly addictive (at least for some). Other companies, like Foursquare, challenge people to earn badges and status. Even the Amazon Gold Box appeals to a certain type of user. Flash Sale sites like Gilt, Hautelook (now owned by Nordstrom), and MyHabit (recently launched by Amazon) attempt to add excitement and fun to shopping in their own ways. Games, and more specifically friendly competition, can be used to inject fun while influencing behavior.
And what could be more fun than an auction? There's competition with other bidders, the need for strategy, and a nice payoff if you win the bid at a discount. An entire industry has grown up around eBay to support this type of retail business. In both the eBay and Flash Sale models, the retailer brings buyers and sellers together for a transaction that benefits all three parties.
But there's a new group of retailers that have combined auctions and gaming (some might even say gambling) into a fun way to shop and possibly go broke. I recently saw a TV commercial for Quibids where they claimed someone got an iPad for $24.74. Yeah, right. But after investigating, I believe it could have happened. And while one lucky person got a great deal, many others wasted a lot of money.
The way these penny auction sites work is that you must pay for each bid you make, typically 60 cents. Items start at one cent and each bid increments by a penny within a preset time limit. Each bid can potentially extend the time limit as well. So using the iPad example, 2474 people submitted bids netting Quibids $1484.60, which is well over 100% markup. The last guy got an iPad for $24.74 and everyone else wasted their money.
To their credit Quibids now offers "Buy It Now" so that the money
you spend on bids can be put toward the same item at list price. So if
you made 25 bids on the iPad, they credit your account $15 toward the
purchase of an iPad at the list price. Its that very feature that makes
Quibids look like an e-commerce site with a gaming front end.
Their homepage reminds me of all the slot machines in casino. Its very enticing...and profitable.