A penny auction is a type of online auction where each bid from a user adds just 1p to the bid price. As with other online auctions (e.g. eBay) the bidding it time-bound. The last person to place a bid when the clock hits zero wins the auction. However in a penny auction each new bid extends the auction timeframe by a few seconds, thus giving others a chance to place a competing bid. The penny auction site makes money by charging individuals a premium on each bid – so a bid might actually cost 50p, even though it only adds 1p to the bid price.
Confused? Well there is a bit in this so let’s take an example. A 16GB iPad (retailing at €499) is up for auction on a particular penny auction site. The current bid price is €12.45 and the auction will end in 60 seconds. If I place a bid, the bid price increases by 1c to €12.46 and 20 seconds is added to the clock. The auction will now end in 80 seconds. If mine is the last bid when the clock counts down to zero I am deemed to have won the auction and I can buy the iPad for €12.46. That’s some deal. So how does the auction site make money on this. Well, if each 1c bid costs 50c then the auction site has actually generated €623.00 (1,246 x 50c) in revenue.
There is a significant element of gamesmanship in winning at penny auctions as you are essentially playing against others (with hard cash) in order to win the auction. Now a new (Ireland-based) penny auction site has seized on this gaming component and developed a proposition that will appeal to punters with an appetite for sports betting. Betbidder.com combines penny auctions with a bet on the outcome of a sports event. So instead of betting with a bookmaker on the outcome of a horse race or football match, you can bid here to win a cash prize (the penny auction bit) if the predicted result is achieved (the betting bit). Furthermore, the odds you get from Betbidder (effective odds) are typically much better than the market odds you’ll get from a bookmaker.
The Betbidder team is based here in Dublin, in Sandyford, but have their sights set on international markets. Enda Morgan, formerly head of financial market distribution with ABN AMRO, heads up the team and this week he announced that they intend to grow their team significantly from the existing fourteen. This is great news and it is also good to see further innovations in the online gaming sector coming from Ireland.
Disclosure: I’ve been working with the guys in Betbidder for the past few weeks helping them figure out a few things. The site is live and several auctions are taking place each day but the team are hungry for feedback, so if you have any please send it on.