Monday, February 28, 2011

Penny20: Interview with Andrew Hyder on Penny20

Penny20 is a new auction site that is quite different from any other site in the field. Penny20 is based on a "Hidden-Limit" Auction model.

Technically, Penny20 falls in the category of Entertainment Shopping but it is based on a very different model as compared to other entertainment shopping sites, including penny auctions like Quibids.

Penny20 has features of both bidding-fee auctions and traditional auctions. It allows bidders to win items at a discount compared to retail while also putting a limit on the maximum price an item can reach (contrary to penny auctions). Penny20 seems to be the next big thing in the auction world, so it is definitely worth a look.

I had an opportunity to interview Andrew Hyder, Chief Engineer of Penny20 and CEO of Subjex on Penny20 and his thoughts on this auction model. The interview is posted below:

Interview between Sid and Andrew Hyder

Sid: Can you briefly explain what a hidden-limit auction is?
Andrew: is a "Hidden-Limit" auction. Hidden-Limit means that all bids are aggregated during the auction to create a growing "Hidden" total that is systematically revealed to bidders. Auctions have a finite "Limit" because all bid revenue collected never exceeds the pre-defined auction price. Whether one or many bids are purchased, the winner of the auction is the bidder whose bid(s) push the Hidden total to reach the auction price.

Sid: So hidden-limit auctions will greatly reduce the risk/loss of bidders, is that correct?
Andrew: That is correct. It produces very few auction losers because it intentionally contains the duration of the bidding per auction to a predefined limit/total, instead of intentionally prolonging auctions, as penny auctions do. A $100 product only can generate $110. $100 goes to the seller and $10 goes to us.

Sid: Are there any other sites using the same concept?
Andrew: None that we know of. We do expect to be copied, but that will be an uphill battle for our competition. We are quickly redefining/reframing an entire auction category with a model designed for the benefit of all the members. Conceptually we live between eBay and the penny auction space. However, “Entertainment Shopping” needed to start looking at the process from its member’s standpoint and start giving back as much as possible. The penny auction operators have totally missed the advantages of this philosophy.

Sid: How long has Penny20 been running?
Andrew: Penny20 Inc was formed in mid 2010. The website launched February 1st of this year. However Penny20 is operated by our 11 year old publicly traded software company Subjex Corporation (Ticker: SBJX.ob) who owns 40% of the private company stock.

Sid: What are your thoughts on the penny auction model?
Andrew: No offense to the penny auction operators, but their model is fundamentally flawed. They are often compared to a casino but this is not a good analogy. The odds of winning in a casino are actually much better than the odds of winning in a typical penny auction. In fact, most casinos in Las Vegas must post their odds publicly. Penny auctions’ tantalizingly low starting prices cause new bidders to get trapped in what psychologists call the “escalation of commitment.” Once people have invested time, money, and emotional energy, walking away becomes painful. Dangling a carrot of a 5 cent product (the starting point) is classic “sleight of hand” misdirection. Bidders should be concerned with the ending price, which is exactly what a hidden limit auction gives them first.

Sid: Do you think bidders will prefer your model over the penny auction model?
Andrew: Yes. We think bidders are smarter than what penny auctions give them credit for. There is a reason that the vast majority of penny auction members leave after they understand the dynamics of the penny auction game. A hidden-limit model like assumes the bidder to be smart. Our members understand that we only generate enough revenue to pay the seller and our expense of 10%. After this revenue goal the auction ends with another winner. More winners mean more products moved. This dedication to and belief in our members is where our trademark “Bid Smarter”™ came from.

Sid: How long do you think a typical auction will run at Penny20?
Andrew: This is a difficult question to answer because there aren’t just typical products on All of our auctions are put on by our members, therefore popular electronic device auctions, for example, may last just a few minutes, whereas an obscure oil painting may last a few months. Since the winner is the person who buys up all the remaining bids, winning is a matter of choice, not a matter of luck or an arbitrary clock.

Sid: How do you ensure the seller ships the item to the auction winner? Are you planning for an eBay-like feedback system?
Andrew: All Penny20 members (buyers and sellers) have a score. But the Member Score doesn’t prevent fraud. What prevents fraud is removing the monetary incentive to be fraudulent. Penny20 holds the auction revenue until the Seller ships the product (with insurance and signature required). After everyone is happy we pay the seller directly into their account.

Sid: Can we expect to find high variety in the product selection from the sellers in the future?
Andrew: Penny20 has an opt-in online business directory of over 3 million different businesses (one of Subjex’s assets) that we are in the process of marketing to. We expect a growing large variety of products from these businesses.

Sid: Sellers pay no fee to list their items. Can this lead to low quality products or spam?
Andrew: As an open market free to anyone type auction, we have had to build into it the system some product restrictions and limitations. We have also noticed that ill conceived auction items and seemingly bogus services are not very popular and therefore self-eliminating (to a large extent). We also manually delete bad auctions before they get bid on, or refund those who have bid on them. For those who are serious about auction commerce, we offer Featured auctions which get priority listings and cost 1% of the sellers’ price, per day.

Sid: How did you come up with the idea for Penny20?
Andrew: Penny20 was invented primarily by myself, and a small group of our advisory team. The names you might have heard of include, Brandon Ward, Elroy E. Erie, and Steve Burk. Further, we have the Financial and technology support of Subjex Corporation and over 300 private investors behind us.

Sid: Can you explain the name Penny20?
Andrew: Sure. One of the primary goals of Subjex Corporation in building our Penny20 model was to find a public home for its flagship customer service product called AiNDEE. This is the dialogue engine that powers the female character named “Penny”, and for which the site was named. Penny is a Virtual Auctioneer and best practices adviser for the members. The “20” in the Penny20 name, represents the minimum single bid available on any auction.

Sid: Are you planning to roll out additional features in the short and long term?
Andrew: Yes, we have a lot planned. One of our soon to be launched features is our mobile notifications of auctions bid on. This will allow bidders bidding on an auction leave the auction and wait for more participants before they enter again to pick up the remaining bids.

Sid: Where do you see the future of Penny20 in the long term, say 5 years down the line?
Andrew: Our goal is a million active and happy members, if we have done everything correctly, this should take months not years.

Sid: How big is your team? Tell us something about them.
Andrew: Our team is less than 25 people today. Although we believe that support is one of the most important aspects of our business, since our Penny character automates many aspects of support, we are heavy on the engineering side as opposed to being heavy on the people infrastructure of customer service.

Sid: Have you started companies before Penny20?
Andrew: I am also the founder and CEO of Subjex Corporation which is a Minnesota based publicly traded software company (ticker: SBJX.ob). We specialize in Artificial Intelligence software systems for business and commerce. Penny20 is one of our projects.

Sid: How optimistic are you about the success of Penny20?
Andrew: I have no doubt we will be successful, because our approach is member-centric not profit motivated. Ironically, we think this is the best path to profit because of the scale possible due to mass adoption. How large we will become and how fast will be seen.

Sid: What is your guiding motto at Penny20?
Andrew: In every step of our development, when considering a new Penny20 feature, we asked ourselves, “Does this help or hurt the community.” By putting the community interests in front our own profit interests, we make ourselves indispensible to the community and as a result, we profit. By the way, it makes us very difficult to compete with.


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