Why doesn't everyone start one? Problems with Penny Auction sites

[GJ08]

What are some problems that Penny Auction sites have? I know that getting hacked, having a bad script, bad hosting site, etc. is a problem, but what else do most sites encounter?

[BidPigs Boss]

What are some problems that PA sites have? I know that getting hacked, having a bad script, bad hosting site, etc. is a problem, but what else do most sites encounter?

The sound of crickets when they open?

Seriously, I would be willing to bet that the biggest difficuly is getting people to the site in the first place. All the rest of that stuff can be worked out, but if you build it and noone comes, you're hogmeat!

[GJ08]

The sound of crickets when they open?

Seriously, I would be willing to bet that the biggest difficuly is getting people to the site in the first place. All the rest of that stuff can be worked out, but if you build it and noone comes, you're hogmeat!

That is very true, but proper advertising can always solve that problem!

[PennyAuctionWatch]

Hmm.. there are tons of reasons really..

1..Problems with powerbidders
2..Problems with customers reporting the site to PayPal (even if legit)
3..Problems with collusion
4..Problems with users making 100 accounts to obtain free bids...

The list goes on...

[GJ08]

Haha it makes one not want to go through the trouble of starting such a site.

[Barbarian]

Great question GJO8. In addition to the reasons what PAW and others listed in their posts, which definitely do exist, one of the biggest surprises to us as site owners is that people are not too quick to accept change, even if that change benefits them. Another is, not being willing to be the first to dip their toe in the water to try out new changes. No idea why this is, nothing but good is going to happen to them

People write about what changes and features they would like to see, but when those changes are introduced, nothing much seems to happen.

Maybe someone else can shed some light on why this dilema exists, because it sure has escaped me. If I have missed the obvious somewhere I would like to hear about it.

[Pwrbyer]

Out of curiousity... but why doesn't every attempt to create a PA?

I am discussing with a friend of mine the possibility of attempting one. In fact, I've been in contact with a few members here concerning scripts and website development. I'm taking my time, doing my homework on costs for advertising, scripts, development, taxing, etc. So I have a general idea of what it will take (ballpark) for me to get one started.

But my "partner" in this has one thing holding him back from going all in:

"Why doesn't everyone do this?"

Can you please give me the full-nondisclosure reasons/downside to PA's?

I understand that people could win a rather expensive item out of sheer luck for an extremely low price. So I understand that there is a possibility at losing your shirt on auctions. But what else????

TYIA for your Input fellow PAW-er's!!!!

~P

[Pwrbyer]

Does anyone have any downsides?

[PennyBuy.US]

Well, let me start by saying that gamblers get lucky & have chances, penny auction users do not.

When you buy bids, you're getting something you can use to buy something on the site [that sounds a bit weird.. but.. it's true].

It really comes down to knowing what the item typically sells for on the site, planning to use your bids appropriately, and sticking with it. The only 'luck' you might have is someone else giving up on bidding and saving you some bids.


RE The risks.. here's a few:

1) Not having the cash flow to send items/keep the site alive
2) Insufficient hosting/server hardware that causes downtime and failures
3) Poor customer service & business practices that results in loss of users
4) Power bidders (love - hate relationship!) that ward off other users from participating, which means no bids purchased, which means no cash in, which means no money to buy things, which means less items on the site, which means less bids purchased because people don't want those things because they already have or don't want them which means recurring costs for hosting,etc. but no funds coming in.


Erm, anyways, those are some!

[Pwrbyer]

Well, let me start by saying that gamblers get lucky & have chances, penny auction users do not.

When you buy bids, you're getting something you can use to buy something on the site [that sounds a bit weird.. but.. it's true].

It really comes down to knowing what the item typically sells for on the site, planning to use your bids appropriately, and sticking with it. The only 'luck' you might have is someone else giving up on bidding and saving you some bids.


RE The risks.. here's a few:

1) Not having the cash flow to send items/keep the site alive
2) Insufficient hosting/server hardware that causes downtime and failures
3) Poor customer service & business practices that results in loss of users
4) Power bidders (love - hate relationship!) that ward off other users from participating, which means no bids purchased, which means no cash in, which means no money to buy things, which means less items on the site, which means less bids purchased because people don't want those things because they already have or don't want them which means recurring costs for hosting,etc. but no funds coming in.


Erm, anyways, those are some!

Great reply! Thank you. Luckily, I kinda had those ones in mind. Just was trying to think of others that I never considered before. Your response was helpful though, thank you!

I'm currently trying to make up a business plan which will also discuss possible downsides and ways to divert them.

Anyone have any others to add to the list??? I would be greatly appreciative!!!

Thank you,

~P

[monikab]

hello ,

all the above mentioned plus

ADVERTISING !!!!!!!!!!!!!!!!!!!!!

any site that only advertises on paw or is depending on PAW members for bidding will not survive .i will probably get flagged for this but it is the truth .

you have to put money aside for the proper advertising .

in the end for any PA to survive you need to keep and get new customers on a a steady basis . To do this advertising is a must !!!!

also nowadays to be successfull and draw more people you have to have certain features (BIN would be one of them ) and great customerservice .
You also have to have enough auctions to make it attractive ( if you only have 2 auctions a day it is not worth my time and money to bid .i as the bidder want a deal lol.)

monika

[PennyAuctionWatch]

There's another thread with the drawbacks, I'll merge them now. Thank you!

[Pwrbyer]

hello ,

all the above mentioned plus

ADVERTISING !!!!!!!!!!!!!!!!!!!!!

any site that only advertises on paw or is depending on PAW members for bidding will not survive .i will probably get flagged for this but it is the truth .

you have to put money aside for the proper advertising .

in the end for any PA to survive you need to keep and get new customers on a a steady basis . To do this advertising is a must !!!!

also nowadays to be successfull and draw more people you have to have certain features (BIN would be one of them ) and great customerservice .
You also have to have enough auctions to make it attractive ( if you only have 2 auctions a day it is not worth my time and money to bid .i as the bidder want a deal lol.)

monika

Thank you!!!!!!!!

We have already come up with TONS of advertising techniques. From easy to think of to asking my pilot friend to fly a banner around ;) haha

We've come up with an advertising budget to begin off and plan on putting a month or so to just getting the word around and advertising a grand opening to start off with great deals (as well as for PAW members of course!!). So thank you for the heads up!

Also, what did you mean by BIN??? Excuse my ignorance!

Thanks,

~Pwrbyer

[PennyAuctionWatch]

BIN would= Buy it Now, aka Bid to Buy... Users can put their spent bids towards purchasing the item, this is very smart .

[Pwrbyer]

There's another thread with the drawbacks, I'll merge them now. Thank you!

Thanks for the heads up! I'll look out for it when it is linked!!!!!!

[PennyAuctionWatch]

No problem, thought it might be more helpful to have them joined look up^

[Pwrbyer]

BIN would= Buy it Now, aka Bid to Buy... Users can put their spent bids towards purchasing the item, this is very smart .

Already have it included in what I want in my script for Bargainsandfun ;)

I have thought of some measures to hopefully get some attendance up and keep it strong, as well as placing maxes on wins to give others a shot. There is a lot I plan on placing into the site, but after some hopeful/helpful beta review by PAW, I'm sure you guys will find some things to change ;).

I'm currently on the designing stages of logo's and what-not as well as have already purchased domain name (come out at a later date). I think a HUGE reason why a lot of PA's don't last is due to not enough attention to detail and rushing into it. We are taking our time to come up with clear cut advertising techniques and getting quotes to ensure we can come up with a proper advertising budget.

Luckily, I have a connection or two in a few medias to hopefully get my word out at a cheaper price, if not for free. So that works out in our favor. But we'll see.

I appreciate everyone's input. I really do. Thank you all!!!!

Pwrbyer

[Pwrbyer]

BIN would= Buy it Now, aka Bid to Buy... Users can put their spent bids towards purchasing the item, this is very smart .

So this is good due to the fact that this hopefully gets two people to compete for an item, as they will look at it as even if they lose the item, they can still get the item at the MSRP minus the amount of money they spent on bidding???? So if they are bidding on a $249.99 item and spent 312 bids @ $.50/bid, then they can have the option of buying the item off of the website for $93.99???

This maybe stupid on my behalf, but why is this a very smart idea for me as a business owner? I know that I have one person who purchased bids to receive an item at discount prices, so I would win in that transaction. But the other transaction, the one who lost basically buys the item off of me.

So other than the fact that it gives people a backup plan to not completely losing on the item, and letting them still get something for their money. Is there another upside to this? Or is this just a vehicle to not only keep them there as they feel a bit of reassurance, but it also helps drives the bids for the larger items, such as laptops and tv's?

Just making sure I FULLY understand all little nuances of the PA business before incorporating these functions into my website.

Thanks for the clarification

~P

[monikab]

hi ,

lets make up an example

your bidprice 75cents a bid

up for auction is amazon kindle 259 $

bidder A used 300 bids @ 0.75 =225.00 he is the winner
bidderB used 200 bids@75 cents =150.00 he wants buy it now
bidder C used 50 bids @75 cents =37.50 he will not use buy it now
bidder DEF used the other 49 bids =36.75 they also will not use buy it now
__________________________________________________ _________________
total bids used 559 @75 cents each =449.25

you have to order the amazon -259.00

+ 6.00 final auction price
________________________

+ 196.25


bidder B uses BIN you credit him
200 bids @50 cents =100$
he needs to pay 159$ + 159.00
_____________________

355.00
another amazon kindle - 259.00
_________________
+96.00

plus you charge each 5.95 s&H +11.90

_________________________________________
107.90


this would be your win and you have 2 happy customers


this is just a scenario

monika

[Pwrbyer]

hi ,

lets make up an example

your bidprice 75cents a bid

up for auction is amazon kindle 259 $

bidder A used 300 bids @ 0.75 =225.00 he is the winner
bidderB used 200 bids@75 cents =150.00 he wants buy it now
bidder C used 50 bids @75 cents =37.50 he will not use buy it now
bidder DEF used the other 49 bids =36.75 they also will not use buy it now
__________________________________________________ _________________
total bids used 559 @75 cents each =449.25

you have to order the amazon -259.00

+ 6.00 final auction price
________________________

+ 196.25


bidder B uses BIN you credit him
200 bids @50 cents =100$
he needs to pay 159$ + 159.00
_____________________

355.00
another amazon kindle - 259.00
_________________
+96.00

plus you charge each 5.95 s&H +11.90

_________________________________________
107.90


this would be your win and you have 2 happy customers


this is just a scenario

monika

Why did you place a difference between the $.50/bid and $.75/bid? depending on the bid pack they purchased?

[monikab]

yes ,

average price for a bid is 75 cents

and some sites go down with the prize the higher of a bidpackage you buy ,

the bin is normallty based on your cheapest bidpack.


hope this explains

monika

[gront]

Why doesn't everyone start one?

1. You need a solid script
2. You need to be able to operate at a loss for at least around 6 months.

For scripts, there are quite a few clones of clones out there on the net for <$2000, some even free, but check out all the other "which prepackaged script should I buy" threads for the horror stories from PA site owners about the craptacular or outright scammy script vendors out there. Bottom line, expect to buy a script and have a reputable coder do a complete code review plus customization, or have a developer or developer team build a site from scratch. Figure $5,000 for the code for a running site with a reasonable amount of short term support.

For #2, assuming you are going to run a legit site, expect that for the first month you will lose full price for every auction. After the first month and heading to the six month mark, you will slowly creep towards breaking even at the 6 month point. Remember, its not that you get x2-x5 for that one iMac auction you had last thursday, its that you need to average out to a profit across all your auctions, with the big winners (for the site owner) offsetting the plethora of losers (for the site owner).

If you are running 10 auctions a day at around ~$100 per item, that means you are going to lose a thousand bucks a day for the first month.

Yeah, you can nickel and dime your starting auctions for a month or two, but starting small and slow to build up an audience and auctions isn't an ideal model in the current PA biosphere. Unless you have frequent auctions of things that people _want to buy_, they aren't going to come back. Doing 10 $25 gift cards a day for a month could be a way to start, but thats still $250 bucks out of pocket per day... and the bidding public will most likely view your site as "small-time". Even when you move up to bigger auctions, you will still have a small-timer stigma unless you start with some momentum.

Go to your favorite PA site, the one you frequent and buy bids on, and look at the auctions they are having for the next day, and do some number crunching figuring they will take a 100% loss on all those items if they were new.

Running the numbers and adding in some fudge, conservatively you are looking at needing $50,000 to $100,000 capital before you hopefully break even at the six month mark. Note that that's an estimate to run a site that can somewhat compete against existing mid-sized PA sites. Even if you estimate $20,000 to run a small-time site for six months, thats still a hefty bit of couch change to go looking for.

And that's not counting a salary for the owner, let alone any staff.

What about hosting, advertising, getting a business license? Most of that doesn't really cost that much relative to selling items at a near complete loss multiple times a day for at least a couple of months.

------
The six-month estimate is to establish a stable pool of bidders. Sure, sites get a rush when they open and folks are getting absolute steals, but a PA owner needs a solid number of bidders that are consistently buying bids, and that takes time. Yes, we have all participated in auctions where a $250 gift card went for $2000 in placed bids, and on swoopo you get auctions where a $2000 iMac will go for $20,0000. But for every x10 in the PA site owner's favor auction, even the established sites will have auctions where the item goes for far less than retail in aggregate bids.

So while owning a PA site _seems_ like a good make-monee-fasts! idea, running a legit site will require quite a bit of capital. That and there are dozens (a hundred?) absolute scam sites out there consistently and constantly poisoning the pool of available bidders. It only takes one or two bad experiences for someone to swear off a particular site, and only a handful of times getting scammed before that person will never bid _anywhere_ again.

And PA sites have to run with a balance between having too many bidders (and no one feels they are getting a good deal) and too few bidders (and the site owner gets creamed on auction losses). Not exactly the most stable business model.

That and several big time venture capital types are spending millions to establish PA sites, and I don't see the PA universe having many mid-sized sites that aren't specialized two years from now. Think of ebay, now without researching name 10 other internet auction ebay-esque sites. Yeah, maybe yahoo still runs auctions, but you still need 9 more names from memory.

This is why I bandied about the idea of running a PA site, hell... _it looks like printing free money_, until you run the numbers. And lets not even discuss legislation/internet taxes/auctioneer licensing that could change completely any day.

-----
edit: all my numbers above are based on drop shipping from amazon/wal-mart/best buy. Having to maintain inventory and pay shipping twice... not something you want to have to deal with, plus the taxes are higher. An established brick-and-mortar store that can get items at for-reals-not-just-discounted-costco wholesale (cause remember, your bidders have access to amazon and costco and can do the math for how much items are 'worth') could maybe have inventory, but it doesn't sound like the OP is in the retail business.
edit edit: none of the above should be construed as legal advice... no, seriously, it's not

[Pwrbyer]

Why doesn't everyone start one?

1. You need a solid script
2. You need to be able to operate at a loss for at least around 6 months.

For scripts, there are quite a few clones of clones out there on the net for <$2000, some even free, but check out all the other "which prepackaged script should I buy" threads for the horror stories from PA site owners about the craptacular or outright scammy script vendors out there. Bottom line, expect to buy a script and have a reputable coder do a complete code review plus customization, or have a developer or developer team build a site from scratch. Figure $5,000 for the code for a running site with a reasonable amount of short term support.

For #2, assuming you are going to run a legit site, expect that for the first month you will lose full price for every auction. After the first month and heading to the six month mark, you will slowly creep towards breaking even at the 6 month point. Remember, its not that you get x2-x5 for that one iMac auction you had last thursday, its that you need to average out to a profit across all your auctions, with the big winners (for the site owner) offsetting the plethora of losers (for the site owner).

If you are running 10 auctions a day at around ~$100 per item, that means you are going to lose a thousand bucks a day for the first month.

Yeah, you can nickel and dime your starting auctions for a month or two, but starting small and slow to build up an audience and auctions isn't an ideal model in the current PA biosphere. Unless you have frequent auctions of things that people _want to buy_, they aren't going to come back. Doing 10 $25 gift cards a day for a month could be a way to start, but thats still $250 bucks out of pocket per day... and the bidding public will most likely view your site as "small-time". Even when you move up to bigger auctions, you will still have a small-timer stigma unless you start with some momentum.

Go to your favorite PA site, the one you frequent and buy bids on, and look at the auctions they are having for the next day, and do some number crunching figuring they will take a 100% loss on all those items if they were new.

Running the numbers and adding in some fudge, conservatively you are looking at needing $50,000 to $100,000 capital before you hopefully break even at the six month mark. Note that that's an estimate to run a site that can somewhat compete against existing mid-sized PA sites. Even if you estimate $20,000 to run a small-time site for six months, thats still a hefty bit of couch change to go looking for.

And that's not counting a salary for the owner, let alone any staff.

What about hosting, advertising, getting a business license? Most of that doesn't really cost that much relative to selling items at a near complete loss multiple times a day for at least a couple of months.

------
The six-month estimate is to establish a stable pool of bidders. Sure, sites get a rush when they open and folks are getting absolute steals, but a PA owner needs a solid number of bidders that are consistently buying bids, and that takes time. Yes, we have all participated in auctions where a $250 gift card went for $2000 in placed bids, and on swoopo you get auctions where a $2000 iMac will go for $20,0000. But for every x10 in the PA site owner's favor auction, even the established sites will have auctions where the item goes for far less than retail in aggregate bids.

So while owning a PA site _seems_ like a good make-monee-fasts! idea, running a legit site will require quite a bit of capital. That and there are dozens (a hundred?) absolute scam sites out there consistently and constantly poisoning the pool of available bidders. It only takes one or two bad experiences for someone to swear off a particular site, and only a handful of times getting scammed before that person will never bid _anywhere_ again.

And PA sites have to run with a balance between having too many bidders (and no one feels they are getting a good deal) and too few bidders (and the site owner gets creamed on auction losses). Not exactly the most stable business model.

That and several big time venture capital types are spending millions to establish PA sites, and I don't see the PA universe having many mid-sized sites that aren't specialized two years from now. Think of ebay, now without researching name 10 other internet auction ebay-esque sites. Yeah, maybe yahoo still runs auctions, but you still need 9 more names from memory.

This is why I bandied about the idea of running a PA site, hell... _it looks like printing free money_, until you run the numbers. And lets not even discuss legislation/internet taxes/auctioneer licensing that could change completely any day.

-----
edit: all my numbers above are based on drop shipping from amazon/wal-mart/best buy. Having to maintain inventory and pay shipping twice... not something you want to have to deal with, plus the taxes are higher. An established brick-and-mortar store that can get items at for-reals-not-just-discounted-costco wholesale (cause remember, your bidders have access to amazon and costco and can do the math for how much items are 'worth') could maybe have inventory, but it doesn't sound like the OP is in the retail business.
edit edit: none of the above should be construed as legal advice... no, seriously, it's not

Thanks for the hard truth, as disheartening as it may have been....

Hmm... unsure what to think now.

[BidPigs Boss]

Pwrbyer,

Here's my 2 cents (all I have left right now )

If your intention is to start a PA and dream of wealth and profits from day 1, then you should reconsider.

If your intention is to gather up, or set aside, a set amount of money, plan your idea out wisely and be willing to give it the best that you can...GO FOR IT!!

If you read through all the threads here you will learn so much, but, you will also start to doubt yourself and your ideas. While its ok to listen to this advice and make yourself and your idea better for it, don't let it freeze you up. You need to decide for yourself how much risk you can bear, how long you can bear it AND how much of yourself and family (if applicable) you are willing to invest.

This is not a part time, easy shmeezy (sorry shenanigans) venture!

You absolutely need to have some planning and you can not go into this thinking it will be easy.....but...... you need some positive reinforcement right now. (been there)

Try this......

Go to GoDaddy, or wherever and do whois querys on the top US based PA sites. Look how LONG they have been here!

This can be done!! Maybe they had more money, maybe not, maybe they have a team of geniuses, maybe not? Build your idea, get some money, set a stop loss and pull the trigger...... what's the worst that can happen?

[tvaughan78741]

What are some problems that Penny Auction sites have? I know that getting hacked, having a bad script, bad hosting site, etc. is a problem, but what else do most sites encounter?

I know this post is pretty old but have you decided to move forward with your site? I am second guessing myself at the moment and may pull the plug on our project.

[Barbarian]

Go to http://www.pennyauctionwatch.com/forum/general-penny-auction-business/4272-looking-startup-advice-owners.html In this thread Read the article in post #2 and also post #22. Its quite a lot of reading but should answer some of your questions.

[edwardvettori]

Most of online auction sites do have very large interval for the time out if no one bids above you. That timing interval should small to create an intense and entertaining bidding procedure.

vettori

[TBD]

Most of online auction sites do have very large interval for the time out if no one bids above you. That timing interval should small to create an intense and entertaining bidding procedure.

vettori

I agree to an extent. If your timer resets to anything more than 45 seconds, I think that's too long. That said, if your timer is too short, you will run into issues of bidders not being able to purchase additional bidpacks in the midst of a bidding war, and something like a significant other/child/friend walking up/calling could be enough to lose you the auction. There certainly needs to be a happy medium there.

[PennyAuctionWatch]

I agree to an extent. If your timer resets to anything more than 45 seconds, I think that's too long. That said, if your timer is too short, you will run into issues of bidders not being able to purchase additional bidpacks in the midst of a bidding war, and something like a significant other/child/friend walking up/calling could be enough to lose you the auction. There certainly needs to be a happy medium there.

I would say that bidders definitely favor shorter countdown timers, 30 seconds or less between bids.