Prevent a dangerous increase in penny auction sites in the MENA region

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This article is a crosspost with Astrolabes.

This memo is intended to highlight the danger of penny auction sites and prevent a potentially dangerous increase of such sites in the region.

Abstract

Penny auction sites are active in the region and should be shut down before they proliferate and take advantage of an online audience experiencing e-commerce for the first time. They are deceptive, prey on the online consumer and tarnish the reputation of online commerce.

In this report, Fancybid.com (Previous TheFancyBid.com) is taken as a case study, other sites are emerging to reproduce the same model (See section 5).

  1. Background
  2. Marketing disappointment
  3. The auction mechanism itself and indications that many bidders do not understand it
  4. Liability protection attempts
  5. Risks of spreading the penny auction model in the region
  6. Recommended actions to contain this

Background

Penny auction sites have emerged in the United States and Europe in recent years and have quickly stopped being pronounced as “license to print moneyBy Mike Butcher of Tech Crunch, at several of the sites closing down, with others forced to close. Some surviving sites such as Madbid continue to be criticized by the press and consumer advocates.

During this period, several lawsuits were filed and state and federal regulators in several countries reviewed the business practices of these companies. For the sake of brevity, the following three links are provided for your information: Consumer reports, The Guardianand Fraude.org (More links at the end of this article)

Marketing disappointment

With auction sites, the deception begins at the marketing stage, as the marketing messages from these sites deceive the potential customer into believing that the items are “SOLD”At very low“ PRICES ”. However, the reality is that these products were priced after a large number of people lost a significant amount of money bidding on these items with prices ranging from 70 US cents (25 bids for 17.50 USD) at 56 US cents (625 offers for 2USD 350)

See Exhibit 1 for sample marketing messages and Exhibit 2 for pricing for bundles.

Exhibit 1: FancyBid.com Twitter post, Closed auctions section samples, Live auction section sample

Exhibit 2: Price of offers on Fancybid.com. Bids to purchase are required to participate in the auction.

Auction price Fantasy auction

So the Prada bag shown (Exhibit 1, middle image, bag bottom left) which is marked as SOLD at $ 88.55 was actually sold to the bidding public for between $ 4,959 (8855 * 0 , 56) and $ 6,199 (8855 * 0.70) PLUS 88.55 since the winner can buy it at this “price” Compare this at the indicated retail price (and often inflated) of $ 1,900. The central problem is that in reality this means that a group of bidders each spend tens to hundreds of dollars to bid over the counter (what the site calls the “price”) only to have someone outlive them. to “earn” the right to purchase this item. at $ 88.55. It is at best akin to gambling. In fact, it is worse, because for most bidders, unless they have armed themselves with a war chest, they will be sure to lose their money, compared to in the game where these are statistically tiny but there is still a possible change in winnings.

The auction mechanism

Usually, after the auction begins, bids start to arrive, but bidders quickly realize that it is better to wait until the last moments of the auction to use their bids. However, they then discover the endless “Ending Now”:

  • The countdown is reset to 15 seconds each time someone makes an offer at any time during the last 15 seconds
  • Quite often the counter hits 0, but 2-3 seconds later it reverts to 15 seconds, a tactic used to maintain the auction and defended in the FAQ.

Exhibit 3: FancyBid.com FAQ Continuing Auction Defense After Time Ends

FancyBid FAW

Since the model relies on frantic bidding at the end of each auction, the site focuses on incentivizing this with social media posts and emails during these times.

Exhibit 4: Twitter posts and targeted emails during the latter part of the auction

Twitter Posts Last part of the auction

Indication that bidders / players are not fully aware of the mechanism:

  • Bidders outbid each other in a series of continuous auctions: the result is that the auction duration is extended several times, giving other bidders time to recharge
  • Bidders start bidding early in the auction by exhausting their valuable bids although there is no benefit in using bids until the last minutes of an auction.

Attempts to evade responsibility

The fact that auction sites have been pursued and closed has led the new generation to defend the model with an appearance of transparency and awareness. Added sections on the end of the auction – Probably the most frustrating thing for new users – and added notes in the FAQ on the need for “enough” bids.

Exhibit 5: FancyBid.com Summer 2014 and Winter 2014 auction page with end of auction notifications and response in the FAQ addressing the “bidding” issue and advising users to “use caution”

Exercise caution

Risks of spreading the penny auction model in the region

The apparent success of Fancybid has led to the launch of other penny auction sites, such as Bidzayed, Bidzayed and potentially more (see coins 7, 8 and 9). The main weakness of the model is that it relies on unsuspecting novice users and is in constant acquisition mode, as soon as the market takes notice of the operating model, the business slows down.

Exhibit 6: A post from freelancer.com requesting a site similar to thefancybid.com

Independent

Exhibit 7: Domain registration for Bidzayed.com

Domain registration

Exhibit 8: BlogBaladi announcement about BidAffairs

Announcement on Candidate Affairs

Exhibit 9: A LinkedIn job posting for an auction-based e-commerce site (Penny auction not specified)

Recommended action

It is necessary to protect the regional consumers of these sites, as they have already proven to be dangerous for an online audience who could fall into the trap of their deception.

  • Outreach to the general public: through the dissemination of articles like this one and reviews of news sites and blogs across the region
  • Inform partners of these sites of the dangers of working with them. (Exhibit 10 shows the payment gateway and the design company currently working with FancyBid)
  • Regulation: Regulators in the region, especially where these websites operate, should crack down on this predatory model.

Annex 10: FancyBid partners

FanceBid partners

Further reading:

http://www.consumerreports.org/cro/2011/12/with-penny-auctions-you-can-spend-a-bundle-but-still-leave-empty-handed/index.htm

http://www.today.com/id/44010040/ns/today-today_news/t/most-online-penny-auctions-just-dont-make-any-sense/#.VM6BHJ2UcrU

http://www.consumer.ftc.gov/articles/0037-online-penny-auctions

http://www.theguardian.com/money/2012/jan/28/penny-auction-websites

http://www.fraud.org/penny-auctions


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