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One of the current trend on the auction sector has been the emergence of penny auction websites. These are mostly consumer facing websites offering the consumer a chance to buy retail goods at knockdown prices.

On the face of it this looks like a good way for the consumer to get ‘one over’ on the retailers. Especially in current economic times. Customers of the world unite!  Many items are sold below retail for a few pennies or a few pounds. The user takes part by first purchasing blocks of bids which can be used at will. Typically bids are purchased for around $1.00 each in a blocks of 30 upwards. Everytime a bid is made the sale price increases by a peppercorn amount $0.15 or similar value (hence the name penny auction) and the auction is extended by 30 or 40 seconds.

Certainly investors have seen an opportunity. Swoopo attracted $10m in venture capital funding during April 2009. There is no dispute, from the investor point of view, this is a cash cow. For every item sold below retail value, the auctioneer is making many times the retail price through selling the right to bid on that item.

It’s genius. Everyone’s a winner, surely? The consumer buys an item for pennies and the auction site pays for the lots through the sale of the bids themselves. In some cases the auction sites openly declare they do not hold the item in stock. The perfect business model. 

However, scratch the surface and different picture emerges. The consumer has complete control over what they spend and they are free to bid when they want, if at all. They don’t have to bid more than once if they don’t want to. The problem is once the user has purchased bids they are committed. Once they have bid and then been outbid they are further committed. In the traditional forward auction the bidder can speculate on items at no financial cost, whilst making no commitment to purchase unless they are highest bidder. A fair deal. In the penny auction, the user has given over to more than idle speculation to take part. The more they bid, the more the user invests and the more they want to see a return on their investment.

This is of course the key to the success of this business model. As bidding progresses the more the bidder will want to win. As the current bid, along with the cost of bidding approaches the retail value of the item, the need to win will become more urgent. It is something of a vicious circle and there can only be one winner.

This feature is something that has pricked the attention of the gambling experts, at Nottingham Trent University who suggests penny auctions should come under the control of the gambling commission. One analyst suggests it is only a matter of time before action will need to be taken. The risk to the shopper has not gone unnoticed in other sectors of the media and consumers have also started to see the risk of taking part in these auctions. Analysts and consumer groups have also taken time to demonstrate why the consumers are not necessarily getting the bargain they sought. 

Perhaps we are being unfair. The assertion by penny auction site MadBid.com is that, “This is definitely a game of skill, and would not fall under any circumstances under the definition of gambling.” This is true of course. Randomness is being created by the other users on the site and there is no reason, especially in the case of a low interest auction, that there may only be one bidder completely able to take his moment and pick up a bargain. The bidder has to make a judgement and time his bid at the right moment. 

This whole model has caused much discussion internally. One of the main issues we have is that of user experience. To us it seems less than transparent for the user. We are always particularly careful to make sure the user has a good experience on our (auction) websites. We work with not-for-profit and fundraising companies, as well as in the private sector. Our clients are able to generate revenue through an easy to use site attracting many bidders whilst bidders are able to compete on a level playing field. There is an implicit trust between buyer and seller. The platform needs to convey that trust. 

Penny auctions to us, appear to be heavily loaded in favour of the seller. Whilst commercial enterprise exists to generate profit, it has to be an equitable deal for the consumer too.

We thought it might be useful to out together some slides to help provide an easy to digest overview of how our system works. It seem to be the logical step prior to putting together some screen casts of our software in operation.

So the first set of slides provides a general outline of the front end functionality with a brief summary of the admin features whilst the second gives a more detailed view of the auction management functionality.

 
1. Online auction software overview

These slides provide an overview of the following: 

• Introduction to the software
• Lot listing
• Lot detail page
• Bidding history
• Auction management summary
• Lot management
• Bid management

2. Auction management overview    

This slideshow provides an introduction to the auctioneer management functionality. It provides an overview of the following features:

• Bid management
• Lot management
• User management
• Category and tag management

These slides will help provide an introduction to our auction software. We are planning some screencast video which will show the software in action along with explanations of how it works. These will be on the site in due course.

We have taken a bit of a departure from our more usual auction development and put together a new website for financial services company AgFe.

The really nice thing about this site is we have had a chance to use Django for the first time as the development framework. It’s enabled us to rapidly develop the content management system (CMS) supporting the site. It’s also meant that we’ve been able to do the technical stuff whilst separately working on the site designs. Whilst this is not usual agency practice, it’s been the ease of integration of the designs on to the CMS. The templating system has been designed with publishing in mind and this means core design attributes are nicely repeated throughout the site’s templates. It’s not unusual for a CMS to be able to handle this of course, but it is nice not to have to get our hands too dirty when doing it. Over all it means we can concentrate on the cool stuff, rather than worrying about technical minutiae.

So why is this so? The Django Project site describes itself thus:

Developed four years ago by a fast-moving online-news operation, Django was designed to handle two challenges: the intensive deadlines of a newsroom and the stringent requirements of the experienced Web developers who wrote it. It lets you build high-performing, elegant Web applications quickly.

We are pleased top say, the workflow for the site admin is logically laid out, whilst the ability for our developers to provide a well constructed website is as the quote above suggests, possible. What it does so well, is that it helps translate, in a way Wordpress also does, the data from the back end database to the user, in a way that makes sense without any having to make any compromise.

We have another, much larger Django site in development for another company, in a different sector, going live over the coming months, so it will be interesting to learn from that larger project. As that site grows we will get to play with the more enterprise type features such as caching which can be implemented on a number of levels across the site.

Auctioning has always provided an interesting means to bring buyers and sellers together. It has always been one of the integral pillars of online trading. However in increasingly price and cost sensitive businesses are becoming more creative in the way they approach auctions.

We thought we would have a look at how auction software is used on the internet and see if we can help provide some new business models - and inspiration - for you. So we’ve come up with the following ten ways auction software can be used online:

1. Liquidation of stock and assets where this frees up warehouse space for new stock.
2. Tendering for suppliers
3. Disposal of old, disused or second items such as plant and machinery, catering equipment or perhaps cars
4. Sale of high value items such as antiques, wine or boats and yachts
5. Creation of alternative or new sales channels by finding buyers who would not usually buy from you for geographic reasons
6. Disposal of returned and graded stock such as furniture or catering equipment purchases or perhaps items returned though mail order or internet sales
7. Reducing the cost of sales through a more efficient sales process or perhaps encouraging buyers and sellers in a niche to interact with each other
8. An alternative to running a fixed price discount sale, where the market decides the selling price for items such as holidays, flights or end of line sale items
9. Charity fundraising where you can sell off donated corporate or celebrity items to the highest bidder
10. Property auctions, selling real estate by online auction.

Many of these uses work well in the off line auction world. By adopting an online auction model you are providing a greater geographic opportunity to buyers and sellers and therefore increasing the competition for lots. This means true market value for items can be realised. You are also making it easier for current customers to interact with your business by reducing their cost of acquisition.

If certain myths are to be believed, eBay has the online auction market sown up. They may be the biggest auction portal on the web, but for business that does not necessarily mean profit. Profit is derived from generating scale and controlling costs. Scale is generated by marketing the business to create the sales.

For a business to create a viable business model it needs to ensure the following:

• they can control costs
• provide focus on their products to customers
• control the marketing message
• create a strong online brand
• generate sales leads and repeat business

By using eBay as a sales channel these can’t be controlled.

Ebay has a natural market and it attracts a lot of users. However this means your products are being sold and marketed along with other seller’s lots. This has two negative effects. It dilutes the business brand and it effects overall sale price. It is easy for bidders to make price comparisons against similar lots and can they can therefore trade one off against the other. The effect on the brand can also be negative for the business.  If you promote your lots being sold on eBay, then you are also promoting the items of your competitors as well.

Controlling costs is important to business. Whilst eBay and other auction portals charge for listings, they will also take a cut of the transaction through Paypal as well. This means costs will increase with sales volume and sale prices. If the control of the shop is retained through your own online auction website then you are in control of the costs.

If you are interested in finding out more about auction marketing then it may be worth having a look at some of our auction marketing ideas.

Once sales have been made through your own website, it is easier to begin developing a relationship with your customer. This will generate trust in your website and your brand and this will help generate repeat sales.