Penny Auctions are in the nickel-and-dime section of the internet-commerce department store. But they have loyal adherents, vocal critics and pretty much fly under any regulatory radar. In Part II of 'Penny Auctions Bet On Chump Change,' we meet Gary Fowler, a bidding alpha dog, and Amanda Lee, a self-appointed watchdog. (Read Part I of this article.)
Meet Gary Fowler — an energy consultant who works from home. At the time that Wired.com spoke with him, he claimed to have won $39,000 worth of retail on these sites, having spent $18,000 to get it. He sent me the spreadsheet of all of his successful bids. It’s four pages long, and compares the total cost including bids and shipping against the retail value for every conquest.
You’ve got to be the alpha dog, he says. You’ve got to enter the community and go balls to the wall bidding for everything. Nintendo Wiis, towel racks, anything. Just build the reputation that you’re crazy and you will win a war of bidding attrition, even if it means that you pay more for the item than you would if, say you bought it at store.
Penny-auction bidding is a community. People will start to recognize you as a big bidder, and they’ll back down. "When you can show yourself as a very dominant force, it resonates. It basically allows me to have what I want when I want it," Fowler says.
You also have to be willing to put in the research. Fowler says that he spends about six hours checking out a site before he jumps in. He also looks back over weeks' worth of the history of winners. And he knows when to back out. "I don’t do Zoozle anymore because there have been a lot of dominant players coming in," he says. The big-fish, small-pond mentality seems to be the most profitable.
Still, it seems unlikely that cold, hard electronics translate directly into cold, hard cash. He could find himself sitting atop a pile of gadgets, gotten for a serious bargain, but useless in their sheer numbers.
"You can only use so many iPod touches, so many Xboxes, so many PS3s -- I don’t chase those things that much anymore." He says that he has sold some of his winnings on Craigslist and some on eBay. Also, many of these sites pipe their goods directly from Amazon.com. He’s traded his items for store credit, which adds up. "I net thousands of dollars on Amazon for Christmas shopping."
That is the best-case scenario. The success of a winning strategy like Gary’s depends on less aggressive bidders chipping in earlier and driving up the price of an item. Gary’s like a top predator on the food chain, feeding off the phytoplankton on up through the small-mammal-level bidders. The system can only support so many big winners.
Which means most people aren’t turning a huge profit on the site. In fact, a lot of people are probably losing money, although there aren’t any formal statistics. By a sort of unwritten penny-auction ethics code, losing money is fine in the spirit of bidding for fun, as long as users know what they’re in for. But some sites have installed software riddled with fake bidders, called bots, that beat the real people bidding every time. This means that site owners can sell bid packages and never have to deliver promised items.
There are some telltale signs of fraudulent sites, but inexperienced penny-auction bidders can get taken by them. Judging by the raging testimonials on various blogs, they have. There aren’t any legal guidelines for online auctions. Any watchdog effort is relegated to the realm of virtual vigilante justice.
Meet Amanda Lee. She’s the young woman who’s taken it upon herself to regulate. About a year ago, she started bidding a little bit on some penny-auction sites. She got deals on a couple of items, and eventually came across a site called cheapobids.
After sinking a bunch of cash without winning, she dug a little, and realized that all the other users she was bidding against were actually the same person. There were no guidelines about how to get her money back. She was pissed. Her blog, Penny Auction Watch, is her attempt to assert a little bit of order in an unruly bidding world.
"I can see if people have problems," she said. Now, thanks to her, "they can feel a little bit safer."
She’s got an ear to the ground in the major arenas in the penny-auction community. She knows Fowler, and she’s in touch with many of the site owners. The ones who spoke with me said that they trusted her. But anonymous people on the web have accused her of some pretty unethical acts, including accepting payments from site owners, being one herself and setting up her blog to slander legitimate sites.
She spends hours a day of her own time, unpaid, following penny-auction sites and checking their legitimacy. (Legitimacy meaning that people understand that they’re paying for a chance to win, and that a real person actually gets the item in the end.) Lee voices her opinions about websites via Penny Auction Watch, and bidders can decide for themselves if sites are playing by the rules.
There are a couple of main things to look for. First, it’s pretty easy to see if a site is using a corrupt computer code for its content, called a script, that prevents bidders from winning. One script in particular, called "feisty sites" is a surefire marker of a bogus bidding operation.
Lee also checks sites that measure web traffic like Alexa.com, to see if the statistics for penny-auction bid sites add up. For example, if Alexa says that only a few people have visited a site, but owners have hundreds of auctions going and thousands of bidders listed, there’s probably a problem. It takes a while to build sites beyond five or six items auctioned off per day. In situations like this, site owners are probably filling their sites with false merchandise and the auctions with bots. Lee will say as much on her website.
The problem with vigilante web justice is that there’s also vigilante web retribution. Some people have disagreed with the way that Lee has curated the stream of information about penny auctions. Take this comment from a blogger under the alias Gertrude, who posted some comments on a blog called Exposing Penny Auction Watch that seems to have been set up just for that purpose:
Clearly, the rogue system of checks and balances can spiral into the absurd. So where’s the formal e-law enforcement task force in all this? Why aren’t they stepping in?
They haven’t heard of it. Penny-auction sites are new to the United States, a couple of years old at most, so organizations like the Federal Trade Commission (FTC) and the Electronic Frontier Foundation (EFF) have yet to get involved. It makes sense that the EFF is on the sidelines. The foundation is really a champion of online privacy, and while penny-auction bids may be gambling at best and scam at worst, they don’t inherently threaten users’ privacy, virtual or otherwise.
The FTC, on the other hand, could step in. Its role is to protect consumers against unfair business practices, and it seems like sites riddled with bots would qualify. Bidders say they’re ready for someone to interfere:
"I think as more and more people find these sites, they will see a need for government regulation," Lee says.
"I’m sure the FTC would be suspicious about this because of the way some sites are represented," Fowler says. For him, penny-auction bidding is a game of skill, not chance, because he employs his alpha-dog strategy and it works. "If you’re playing against a computer, is that gambling? Of course it is, because it is no longer a game of skill."
But the FTC hasn’t said anything. A representative informed me that the organization can’t legally speak about investigations in progress, so there is a chance that someone is looking into the matter now. It’s also possible that nobody is investigating. Either way, it hasn’t published anything official.
It seems like another example where the legal system can’t keep up with the pace of the developing internet. Take internet privacy. The Electronic Communications Privacy Act defines illegal eavesdropping as "the aural or other acquisition of contents," with the plethora of ways to track someone’s electronic footprints being "other." Seems incomprehensive, but then again, the law has been on the books since 1986, about twelve years before the first Google query. Slander, libel and blogger’s rights have all cropped up and settled, solution-less, into the cloud.
As for gambling, laws regarding online poker have been dicey. In 2006, Bush passed the Federal Unlawful Internet Gambling Enforcement Act, which made it illegal for banks and online poker sites to transfer money back and forth. Since then, the Poker Player’s Alliance has lobbied furiously against the act, and online poker players have played, also furiously, under the radar.
But because the web travels faster than the speed of red tape, some sites have a bizarre kind of immunity. Betting on horses online is okay in parts of the country, as is betting on fantasy sports teams. It’s unclear how that legislation would apply to something like a penny-auction site that’s a mix between eBay and a souped-up digitized roulette wheel.
Which, by the way, is still inherently tempting. The other day, we finally decided that Wired.com should burn the free bids that we got for registering on Buzzerbidz and have a go. What could it hurt?
But Buzzerbidz wouldn’t load. We searched Google for all the keywords, "buzzer," "bids" and "penny auction site," spelled with S’s, spelled with Z’s. But it looks like it went under. Maybe the chat brought them down, or maybe they just could never get out of that $20,000-dollar hole.
Either way, it went down quietly, lost in a deluge of new sites that are spreading like hives, and older, bigger sites with more bidders and more stuff, and shot clocks blinking in rows like tiles, egging you on to take your chances.
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