Penny Auctions – What Are They & How Do They Work?
Penny auctions are competitive games. I like to call them ‘battles for bargains’.
To play you have to ‘bid’ and bidding costs money. On top of that, you are not guaranteed to win. It is this element of risk that allows you to get incredible deals when you win.
Important Penny Auction Rules – How To Bid In A Penny Auctions
- First – a bidder (you) must pay a fee to purchase bids. Bids cost ~$.50 per bid depending on which site you are on.
- You have to buy these bids just to participate in any future auction at all.
- The penny auction site puts items up for auction. The auction starting price is usually a penny. If you were the only one to bid on this item you would win it for literally one penny plus whatever shipping charge there is.
- There is a count down timer on each auction. When it hits zero (or ‘sold!’) the last person to have placed a bid has won the auction
- Each time someone bids, the price increases by a penny.
- The catch is that time is also added to the count down clock.
- To win, you must be the last bidder when the count down clock reaches zero (ie “SOLD”)
So here is how an auction might play out.
A few bidders might bid up against one another with 10 minutes left on an auction. They might throw a small handful of bids out but the “real auction action” does not start until less than 10 seconds shows on the clock.
At this point, each time someone bids 10 seconds are added to the clock. This give other bidders a chance to hit that bid button. No one really cares that the price is going up a penny each time they click the button. They care about spending roughly fifty cents to hit the bid button again.
What you want as a bidder is to be the last person to have hit the button when the timer expires. You just care about no one else hitting the button so you do not have to keep spending more bids that you purchased earlier to participate.
Wait – Explain what a “Bid” is again, it is confusing because in penny auctions, bids cost money.
Think of a bid as a token that you have to buy and then spend, one by one, in the penny auction itself.
So, you buy bids and have a stack of “chuck-e-bids tokens in your hands.
Each time you bid you have to put one of these tokens into the machine (by clicking the ‘bid now’ button). The last person to put a token into the machine before the count down clock hits ‘sold’ wins the auction. If you run out of tokens you have to buy more to keep playing.
We will get into strategy later, but let’s just say it is not as easy as waiting until the last millisecond and hitting the bid button and getting lucky. That is not how penny auctions work.
In a nutshell, penny auction sites utilize a pay-per bid business model where you as the bidder must purchase bids in order to participate in their auctions.
Auctions start out at $0.00 and each time a bid is place the price goes up only one penny. Hence the name, penny auction.
Penny auctions are quite different than a traditional auction like you find on ebay. They involve elements of risk, strategy and psychology. There are effective strategies and techniques available if you take the time to learn them.
How A Penny Auction Works – An Example
Start here: Penny Auctions 101 – Learn the fundamentals of the pay per bid model that penny auction sites use in their business.
Here is a quick example of how penny auction sites work:
Let’s say that a penny auction site runs an auction for a $25 gift card. The bidding starts at one cent($0.01) and a count down timer of 10 minutes.
Each time someone bids four things happen in the auction:
1. The price of the item goes up by 1 penny
2. There is a fixed amount of time added to the clock. 10 seconds or so, usually
3. The bidder who just placed a bid becomes the lead bidder
4. 1 bid is subtracted from the bidders ‘bid-bank’. (if you run out, you can purchase more and continue)
In this example the $25 gift card sells for $1.00. That means there were 100 bids placed. IE, 100 ‘pennies’ in a dollar. (100 x $.01 = $1.00). If the bids cost $0.60 each then the penny auction site generated $60 of bid sales for this auction. 100 bids times sixty cents per bids is $60.00. This is how the penny auctions sell items so ‘cheaply’. The penny auction site also made some money. They earned $60 from bid sales and another $1 the winner had to pay to pay for his or her won auction.
Ingenious isn’t it?
Here’s the thing. The winner of the auction most of the time gets a great deal.
If you can be that winner by strategically placing yourself as the last bidder then you can win amazing items at incredible discounts. This is why penny auctions are so alluring and so attractive. Who would not want to get a new iPad for $50 bucks or a TV for $10. The catch is, as explained above, it is very difficult to win just by ‘getting lucky’.
This is how penny bidding sites sell high end items for such cheap prices. Bidders bid against one another trying to win items cheap by being the last bidder to place a bid before the auction timer reaches zero. It sounds easy but it is not. Penny bidding sites have been described by Richard Thaler in the New York Times as a devilish and diabolically inventive adaptation of Martin Shubiks dollar auction (1971). The Washington Post referred to penny auctions as the evil stepchild of game theory and behavioral economics.
How To Win – Strategy or Luck
Penny auction sites are competitive games. They are not ‘who can click the button at the last second’. They do not and will not work like that. The websites offer auto-bidders on most auctions meaning that other bidders can set an automatic bidder that will bid for them whenever a few moments remain. They can set this with many bids, as many as they want or can afford.
I wrote a ton of strategy content that many bidders have used over the years to literally CRUSH SkoreIt (RIP). It is out of date now since SI is no longer in business, but some of the strategies can be applied to most other bidding websites. You can get a free copy by entering your name and email along the right.
These games use psychology, aggression, timing, luck, patience and skill to win. Penny auctions and poker go hand in hand as far as the type of person who is successful at poker is very likely to be successful at penny auctions. We are building a selection of penny auction strategy articles that cover more in depth strategies, techniques, tools and resources you can use to give yourself a leg up on the competition. Read our guide on bidding to win to learn what can work and what most importantly what does not work before you place that first bid at a penny auction. You can also start out at one of the easiest to win penny auction sites and go for a smaller auction up for grabs to get that first win under your belt.
How Do They Compare To eBay Auctions
Penny auctions are 100% different than an auction on eBay. If you lose an auction at a penny auction site then you still lose money. If you lose an auction on ebay then you just do not get to purchase the item at the price you wanted. While there is bidding strategy on both types of auctions, you should consider penny auctions to be a competitive game that costs money to play. You are not guaranteed to win anything however you can win incredible deals. I compared quibids vs ebay to take a closer look at how these to big auction sites compare.
History – How Long Have These Been Around?
Penny Auction sites as we know it first started in 2008 when German based company Entertainment Shopping AG began marketing a penny auction site called Swoopo. They were the pioneer in the new frontier of penny auctions and became one of the largest and most well known penny auction site in the world. What Swoopo did, in a nutshell, is took the dollar bill auction theory popularized by Yale professor Martin Shubik, and turned it into a business model. The dollar bill auction is a game where a dollar bill is auctioned off starting at $.01 between two or more people. The highest bidder wins the dollar but the loser pays as well. Penny auction sites are really a slight variation of this concept where all bidders pay to bid regardless of win or lose and these are known as bidding fee auctions.
- 2008 – First Penny Auction Site Swoopo (aka Telebid.com) enters market
- 2009 – Swoopo finds great success. Competitors begin to arise
- 2010 – Major competition arises in the likes of Quibids and Beezid
- 2011 – Penny Auctions go mainstream – Lindsay Lohan promotes Beezid
- 2012 – Quibids is dominant market leader.
- 2012 – Beezid buys out SkoreIt – Markets Consolidate
- 2013 – Three major penny auctions emerge (listed above)
- 2014 – Major sites evolve with less risk / reward models to curb power bidders
- 2015 – Three penny auctions maintain viable businesses and player bases (qubids, beezid and happybidday)
- 2016 – Beezid “shuts down” leaving a ton of players in the lurch
- 2017 – We shall see
Are Penny Auction Sites Scams?
There have been plenty of scams in penny auctions. More than we can count or recollect. There have been countless bidding sites that have scammed consumers in one way or another. They either employed fake bidders to drive the price up and keep the auction going or they out and out did not ship items that they promised. This is why it is crucial that you only bid at the trustworthy penny bidding sites and avoid those that look too good to be true. Start with the list of sites at the top of this page and read reviews before buying those bids!
As long as you understand that penny auctions are a competitive game and not a discount shopping mall then you can find reputable penny auction sites. The first time I saw a penny auction site online I immediately thought that it must be a scam. It made no sense to me how any business can sell items for such cheap prices and still make a profit, something shady must be up. Similar to the way I felt when I heard of binary options websites that let you bet on the up or down price movements of just about anything. After doing a little research and understanding how the pay per bid business model works I understood how the sites made money and how they could offer a legitimate business that sold items for cheap prices while still making a profit themselves.
The fact of the matter is that over the past year or two there have been many penny auction websites come and go. Many were scams and many just failed as a business. This is why you will see the larger and established penny auction sites listed here. We do not deal with unproven sites and the majority of the sites listed here we have personally played at, won items and received them as promised. Also, many people mistakenly think that starting up a new penny auction site is a breeze and an easy gold mine, only to find out that the operating a penny auction site is tough and quickly go out of business often times leaving bidders out in the cold.
If you plan to bid at a penny auction site, choose one listed on PennyAuctionSites.com or one of the other reputable portals that best meets your goals and has the types of auctions you want.
Our Top Penny Auction Sites of 2016
- HappyBidDay = #1 site for new bidders – guarantee a first win with either you bought bids or promo bids until you win.
- Quibids = Biggest site and 100% Buy One Now Auctions – Very low risk.
Why So Few Sites Listed Here?
Most penny auctions websites have gone out of business in one way or another. They were either under-financed or they engaged in some sort of shilling, cheating, collusion that bidders eventually have caught on to. The new penny websites that are opening up today are way to late to this party. Even the sites that try to do business right rarely make it in penny auction land. That’s why that even though new penny auctioneers often offer us money to be listed here, we are happy sticking to our small and short list of established bidding websites.
We like these three penny auctions. We list them on PennyAuctionSites.com for specific reasons. These are the bidding sites that have proven to be trustworthy, maintained a positive reputation, have qualified customer service reps and they have good auctions. If you are brand new to penny auctions then we recommend starting out at a smaller to medium sized site like HappyBidDay. The auctions are not quite as competitive as the higher traffic sites and the customer support is friendly and helpful. If you are a more seasoned bidder and are looking to score the high end items then we like Beezid, SkoreIt and Quibids.
About Me – The Penny Auction Junkie
I began bidding on penny auctions in December of 2010 at SkoreIt. My background comes from year of poker playing. I found the psychological aspects of penny auctions and poker very similar and was relatively easy to refine a winning strategy on the penny auction sites. In early 2011 my company purchased this domain name and began building a resource to educate potential bidders of the true nature of penny auctions and help them find legit bidding sites. Most of the strategy content and blog posts are written by me, +Jason Spry. Honestly since my favorite all time penny auction site, SkoreIt! went out of business I have not been bidding on any of the auction sites other than blowing a few bids on Beezid here and there. Please note that this site is financed via commissions when visitors to our site click on links and then take actions. However, we are fortunate enough to be in a position where the money earned is not going to bend our commitment to list legitimate bidding sites. If you are interested in writing for PennyAuctionSites.com with news, strategy, tips, advice please contact us at support (at) fullquality dot com. We are looking for experienced penny auction bidders who are ready to share strategies at particular sites as well as brand new bidders who want to chronicle the ups and downs of breaking into the penny bidding game for the first time via blogging on our site.
Penny auctions are competitive games. I like to call them ‘battles for bargains’.
To play …