Pennies on the Dollar
Posted by Joe on October 16, 2008
I stumbled across this auction site a few days ago that has a very unique (and very ingenious) business model. PushDeals offers high dollar electronics at reduced prices, similar to everyone’s favorite, Woot!. How reduced? Yesterday they sold a new, 8 gig iPod Nano for $0.27. No I didn’t put the decimal in the wrong spot. The first day I found the site, a Wii package valued at $349 sold for $6.84. With only 2 items going on the auction block per day, opposed to Woot’s surplus of 1 item, you have to initially wonder how they’re turning a profit.
The beauty is that you actually pay for the ability to place a bid. Here’s how it works: All auctions start at $0.01 and bids go in $0.01 increments. That means the Wii package had 684 bids. Each time you bid, you’re essentially paying $1 for that bid. That means the Wii brought in $684 and netted PushDeals $335.
So why does the bidding stop at such low prices, surely people are willing to spend more on these items right? What determines the winner is actually not that no one else is willing to outbid you, it’s a timer that resets after every bid. You raise the previous person by a penny, and you restart a 2 minute clock that will determine the winner. You have to hope you were just lucky enough to place your bid in the 2 minutes when no one else is paying attention so you can sneak in under the radar. Harder than it sounds because if the other users are anything like me, I watch my bids like a hawk. There’s nothing so heart wrenching as having someone place a bid with 1 second left on your timer; your immediate impulse is to place a bid out of spite.
So congratulations to them on creating an addictive business model that is yielding great margins on some of these auctions. Also, shame on them for creating an addictive business model that’s taking my attention.
Lisa Creech Bledsoe said
This is interesting. I’m always curious about new business models and this one looks like it might be a keeper.
It’s sort of like a game; the people who won’t like it are those who prefer to just pay a price without rolling the dice.
Nice post, thanks!
Lance said
I’ll give them credit for originality, and I won’t be surprised if it’s a hit, but this site’s not for me. It’s similar to eBay in that a lot of the appeal isn’t just finding the item you’re looking for at a decent price, it’s the whole auction/gambling aspect. One person is going to “win the contest” and everybody else will get nothing, or in this case they get less than nothing since they’re out the few bucks they had to spend just to “play the game.”
Call me old-fashioned, but I prefer to just find what I want at a good price and purchase it. The auction/gambling gimmicks just don’t appeal to me.
Adam Covati said
I give them credit for being ingenious, but I think this isn’t such a great idea for a site. It’s a great way to create unhappy customers and a ridiculous amount of money for them.
It sounds fun, but it seems like it sets up your clients to be disappointed. You can end up spending $5 or $10 with nothing to show for it but a lot of time spent refreshing a page.
So while this may create a small following who like to gamble, I don’t think this would ever make it mainstream. But hey, I’m glad they’re trying it, you need to take risks and try new things to find a winner.