Friday, March 30, 2012

Are Penny Auctions Dying?

Penny auctions have had an incredible run in the last few years. Is this craze coming to an end? What's the future of the penny auction industry?

This is a tough question to answer, because the future of an entire industry is highly dependent on a number of factors that are hard to predict. However, the current trends clearly point where the future is headed - downwards.

I am talking about a number of trends in the industry. Having studied penny auctions for several years now, I have seen their boom and subsequent decline. There was a time when there was a new penny auction coming up every day. You could also see highly niche penny auctions coming up. A number of businesses jumped on this bandwagon because they found the idea interesting.

Reasons for the proliferation of Penny Auctions
There are several reasons why I think penny auctions became so popular in the US and Europe that you had new penny auctions coming up all the time. Here are some of them -

  • They were already becoming popular. People like to find the next "trend" and jump on it. Unfortunately, penny auctions are a serious business to run and many didn't realize it. They should have done their homework better. However, the reason that the trend was upward was a major reason why many other businesses wanted to get a piece of the pie. 
  • Penny auctions are easy to set up. This is very true. There are standard scripts available that can set up a penny auction site overnight. Of course you should modify the script at least a little to make your site unique but it was easy. I think a business could hire one person to take care of the technology side of setting up a website. It was easy. 
  • Penny auctions are cheap to set up. Initially. Unfortunately, they do require a lot of work and money in the long run to be successful. However, the initial set up part is pretty cheap. Sites just but a domain name, buy some hosting and scripts. All of these can be gotten under $200/year, which is not much at all. 
  • Businesses saw potential. This is why they became popular in the first place. You could see penny auction advertisements all over the internet. I have seen Quibids advertisements in the most reputable newspapers online. You'd be surprised. 
  • There was money to be made. If websites could cross over a threshold of bidders, they could make a good profit. 
After this 'honeymoon' phase came the reality - most penny auctions couldn't make a profit. Penny auctions need a huge initial investment and also need a tipping point of user base to make them profitable. This is the main reason why niche penny auctions never really took off. You have to attract enough people in a very specific niche. This was possible with a few penny auctions that dealt with precious metals, when the gold bug mania was at its peak with gold touching $2000/ounce and doomsday conspiracies were the rage after the recession. Apart from this, I cannot think of any niche penny auction category that did well. 

Many penny auctions were poorly capitalized. They didn't have the money for advertisements, bid discounts, promotions, initial losses, etc. This is all the more reason why I appreciate Quibids. This penny auction has stuck through thick and thin and done a wonderful job of persevering. It is still going strong today. It is by far the largest penny auction. 

Now, most penny auctions see reduced traffic. Bidders are not coming by the droves as they used to. There have been many accusations, and many penny auction owners were dishonest, using bots and other manipulations to make money. This gave a bad reputation to the whole industry. Not a good thing for a new industry at all. You can see the general traffic to all penny auction blogs is also on the decline. People are just not that interested anymore. 

How can Penny Auctions Grow

I think the idea of penny auctions is quite saturated here in the US and also in most of Europe. All the advertisements have lost their appeal and new bidders are hard to come by. However, this is not the whole world. There are many more countries, especially the developing world. Countries like India have lax laws and many penny auctions are now targeting India. I think it is much harder to set up a shop in China, so India was the next target. There were penny auctions famous in South Africa. I am not sure how those are doing though. However, penny auctions need to look for new markets to survive. 

What are your thoughts and experiences in this regard?

5 comments:

  1. I agree with a lot of what you said in this post. Most people don't really realize or account for the difficulty of getting people to a website. It's a lot easier said than done. If you don't have people coming to the site you won't get enough sign ups and subsequently not enough people bidding on the items. You should expect to take a loss initially with the items that are being sold. Unfortunately this is why PA's have gotten a bad wrap because this scenario causes the site owners to do shady things to not lose money like shill bidding and drastically delaying shipment of product.

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  2. Thanks for your input, certainly appreciated, coming from a penny auction owner.

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