Sunday, September 5, 2010

What a deal

Some time ago I talked about a ridiculous online scam trying to sell weight loss and muscle building drugs.  The basic premise was that you would follow a link from an online ad and see a page with a 'news coverage' type look talking about how great these new supplements were.  Just recently Full Throttle told me about a new internet scam that is even more hilarious (awful?) than that one though.  It masquerades as a bidding site like Ebay but instead is a lot more like unregulated online slot machines.

A classic example is  What you find when you go there is a fake newscast at the top of the page trying to convince you that this is a legitimate business, tons of pictures of lucky winners paying nearly nothing for products and flashing numbers on the screen telling you that auctions of items going for 5% of retail price are finishing *right now* and you must sign up right away and win them!  The site tries to build plausible deniability by claiming that they make their money by buying items from liquidations and warehouse closeouts and it literally is true that they sell all kinds of completely new merchandise for fractions of retail cost.  For example, they sold a Honda Civic for $1700 and change, a fact that they tout with tremendous zeal.  So if you can log on to this site and buy new stuff for fractions of the retail price, what's the catch?

The catch, it turns out, is that you pay for each bid.  The amount you pay varies based on which site you are donating at but 60 cents or a dollar is typical.  Also, you cannot choose what amount to bid as the site simply increments the dollar value of the bid by a few cents when you hit the bid button and extends the auction a little bit more.  The net result is that even though the site sells a Civic for $1700 they have charged their users over $50,000 for the right to make those bids and they walk away with a quick $36,000 profit on one car sale.  They even have extra bids tacked on to items they sell so you might be bidding on a package of 20 bids, which of course gets bids on more than 20 times by various people and nets the company money.  It seems like a business model that would be easy to find great testimonials for since regularly your customers hit the jackpot and manage to win an item while paying a tiny fraction of the real cost, but just like slot machines the masses of humanity lose money like crazy chasing a dream they will never realize.

A fun trick these sites try is they may let you spend the value of your bids on an auction towards the regular retail price of goods.  For example, you bid 10 times on an Ipod and lose.  Now you have a $6 credit towards an Ipod purchase and you can pay the retail price less $6 to buy it.  You see how great that is?  Last time I checked buying items at full retail price wasn't much of a consolation prize since you can always go to a store and get a big discount any time you like.  Another fun page is the one where SwipeAuctions tries to convince you that this isn't like online gambling at all.  You see, they get big deals and pass the savings on to you, their customers, no gambling here!

Unfortunately since they probably are on the up and up legally these sites will likely stick around.  The rules are all posted, the site is probably following them, and they are reaming foolish people for huge sums.  Just like the one armed bandits it is a tax on the foolish and gullible or those who simply crave that sense of danger and excitement and care not for the costs of getting it.  After hearing about this business model I just sat there in awe at their moxy, creativity and evil.  I suppose you could view it simply as entertainment - customers paying for the thrill - but just like payday loan outfits they end up simply siphoning money from the desperate and depositing it in the bank account of the sharks.


  1. Randrew is convinced these sites must be beatable and a smart person could make a mint figuring out where items are likely to sell and only getting in on the bidding when they get that high. The userbase as a whole overpays drastically for items but any given individual could theoretically get great deals.

    A little like poker in a casino instead of slot machines, except the rake is absurdly high.

  2. The site in question actually tries to convince the potential user that they can do exactly this. They talk about strategy and figuring out how to bid precisely to maximize your chances. I think this is just to give new players a reason to keep gambling after they lose a ton of money from the outset - they think they are going to get better and start making money. There may in fact be some kind of better strategy for bidding on these sites but since everyone involved is trying to figure that same strategy out and the house take is immense I doubt very much that there is profit to be made as a user.

  3. Yeah, I made basically the same arguement to him. If there is an optimal strategy then as soon as someone else is implementing it too you both lose.

    But clearly everyone isn't using the optimal strategy since if they were no one would be playing at all. In fact, I doubt most people who use these sites are using any strategy at all beyond bidding on something they think is shiny.

    I do think one could find a specific item and get it particularly cheap using a site like this; you'd just need to be very disciplined.

  4. I'm sure you could make "profit" since there are other people involved (again, poker instead of slot machines) but I doubt the margins would be good enough to cover the losses of liquidating what you actually bought. If 1 in 1000 times you manage to buy a car worth $15k for 10 bids of under $2k then you've bought a $15k car for $12k. But you can't sell that car for $12k, so you aren't making anything unless you want the car. And since this would be something you'd need to invest for a long time in and rely on the probabilities to "even out" you can't possibly be doing it for the car. Obviously the numbers could work out better than that and actually allow you to make money, but somehow I doubt it.

    Plus you'd probably need robust statistics on sales, which obviously the companies would never give you.

    By the way, whoever came up with this idea is a genius. Not a particularly nice genius, but wow.