Penny Auctions: Entertainment Shopping or Organized Scams?

6:50 p.m. CST. The bid for the $50 Visa Card stands at $2.96. I join the auction at DFWbid.com, sit back and watch, deciding what my strategy for the evening will be. For the past week I have bid on a variety of gift cards at this penny auction site, winning three for a total value of $150. My financial investment including bidding and shipping costs: approximately $42.00.

7:01 p.m. CST. The bidding is relaxed. At this particular penny auction site the clock runs for 1:15. If the clock runs out, you win the gift card. Two of my three wins occured because I was the last bidder standing. Both bids were under $7.00. Both times I was completely shocked that I won. This particular evening the bidders are letting the clock run down to about 30 seconds before upping the bid one penny at a time. It's not always that relaxing.

7:28 p.m. CST. Dubcop, Jose 1950, dyce, slumpey326, spicey, fxinsit, louhud, bsnnurse, mrnoodles, fari, and koecoover have all placed bids. Fari seems to be bidding most consistently. I have two windows open on my computer. While I answer some emails, I keep a watchful eye on the bidding, making sure that the clock doesn't run out while I'm multitasking. My strategy for this evening: never let the clock run down to 29 seconds.

7:34 p.m. CST. The auction is up to $4.00. At this particular penny auction site you pay a flat fee of $2.99 to participate in the auction. You can place as many bids as you want. That's not how it works at many of the other penny auction sites that charge a fee per bid. This may be why The Times Online, by way of the Business Exchange, describes penny auctions as "the crack cocaine of online auctions."

8:00 p.m. CST.. The auction will end in two hours. I've made a strategic decision that the penny auction feature will not come into play this evening because the bidding is going at such a slow pace. At this rate it won't get above $7.00 by the time the auction closes for the night, at 10:00 p.m. CST. If the penny auction feature goes live one of the bidders could possibly "outbid" all of us and win the $50 card for a penny. I won one of my $50 Visa gift cards this way

Ignoring the penny auction is a calculated risk based on my own assumptions about how the auction works. I decide for this particular auction someone is either going to blink, decide they have better things to do on a Friday evening than sit in front of a computer screen watching an auction progress one penny at a time, or there will be no winner and the auction will resume at 9:00 a.m. CST.

In an interview about the site, owner Sanj Raj challenged my bidding logic and assured me the penny auction feature is based on a complicated algorithm that is not based on time or the amount of the bid.

8:30 p.m. CST. Seems that most of the bidders have taken a break and the high bidder is going back and forth between fari and mrnoodles. I keep my watchful eye hoping both of them decide to take a bathroom break at the same time and I can slip in and "steal" the gift card out from under them.

The proliferation of penny auctions has spurred the watchdog site, Penny Auction Watch which describes itself as a site "created by bidders for bidders." The site lists which of the Penny Auctions are legit and which are scams. There are a lot of scams. I'm relieved that DFWbid is legit.

We developed Penny Auction Watch to be a watchdog to let people know which penny auctions are legitimate; auctions where one has a chance at winning, as opposed to sites that don’t deliver what they advertise and are set up to scam people. As well as provide those curious about penny auctions with valuable information.

9:22 p.m. CST. The auction is up to $6.07. Mrnoodles, slumpy, dubcop, and I continue to bid at a cordial pace. If you are a novice to penny auctions and decide to do some online research before joining an online auction, you are going to read quite a few negative reviews. Techdirt calls penny auctions," borderline evil business models." The New York Times offers,

With all the possible ways of losing money, it’s no wonder that online auction fraud was ranked as the 13th biggest concern of consumers in the 2008 Consumer Sentinel, which is compiled by the Federal Trade Commission from a variety of sources.

With Google Ads for penny auctions prominently displayed right above the headline,"Swoopo- great auction deals or great scams?", Wisebread's Xin Lu pans these sites because the "house" appears to be making a nice profit.

"...they will be raking in cash, and they can do that countless times before the final end time."

10:00 p.m. CST. The auction is suspended for the night at $6.84. For the past thirty minutes I have stopped multi-tasking and decided to launch my penny auction strategy. Every six seconds you can check to see if the penny auction is live. When it is live, you have 15 seconds to answer two relatively easy math questions. If you are the first person to answer the questions correctly you win the gift card for a penny. I have made it to the math questions three times and twice someone else answered faster than me.

The decision to launch my penny auction strategy requires constant clicking back and forth between the live auction and the penny auction page -- every six seconds. It's a mind-numbing process but like the true believers on LOST who had the responsibility of resetting the Dharma Initiative countdown clock every 108 minutes, I convince myself that if I abandon my six second strategy, I will face catastrophic consequences and lose the auction.

At this point I have spent nearly three hours monitoring this auction and feel very invested in winning. I absolutely do not want any of the bidders like mrnoodles, slumpy326, and dubcop who have returned for the final minutes to outbid me.

So I continue the six minute click. At 9:58 I'm convinced that the penny auction will not be activated but despite this, I continue clicking, just in case. At 10:00 p.m. the auction mercifully ends for the evening with the late- to-the- auction partithing listed as the high bidder.

At 9:00 a.m. CST the auction will resume. Will I be there? Oh yeah.

Elana writes about business culture at FunnyBusiness