This past week was interesting. Several hundred people got my new guide to computer security, and one of my friends emailed me asking about what appeared to be a scam email that he received. I confirmed to him that it was indeed a scam, and thought it would be good to mention it here.
To understand how this works, you need to know about a particular type of auction website: penny auctions. The one we are talking about today is BidCactus.com, but there are lots of them.
With a penny auction site, there are lots of great electronics, appliances, gift cards and other things available for auction – all items that are in high demand. You can see the items available right on the front page, along with the current bid and the time left in the auction.
Whenever a new bid is received, the price for the items goes up by a penny (hence the name “penny auctions”). Also, at every new bid, there is a little more time added to the auction. So you might see something ending in 1 minute, and you place your bid. The price goes up by 1 penny, and you are now the high bidder, but now there are 3 minutes left. As long as no one else bids in that 3 minute period, you get the item (and the final bid price is always ridiculously low).
As you can see in the image on the left, you can get 100 bids for $75. You can probably do that math in your head – that means each bid costs 75 cents. You can buy bids in packages of 30, 50, 75, 100 or maybe even more. But the cost for each bid boils down to 75 cents. Remember that, because it is important to know in order to figure out how this works (and why it’s not a good deal for anyone except the people running the website).
So let’s look at an example that I saw happen. The item being auctioned was an iPad – retail value $729.00. As I watched, the bidding was at $12 or so. The clock would tick down, and then someone else would bid and another minute or so got added. This happened over and over.
Finally, the last bid was for $33.31, and the clock ticked down and that buyer “won” the iPad for $33.31. Wow, right? Getting a $700 iPad for $33.31, what an amazing deal! Not really. Do the math:
If the iPad’s final bid was $33.31, that means that there were a total of 3,331 bids placed on it. Every one of those bids had to be purchased through the site. Remember the cost per bid? 75 cents. That means the website took in $2498.25 in bid sales, plus the final price of $33.31 for a total income of $2531.56. And for that, they need to ship the winner a $729 item. Net profit on this single auction: $1802.56. I don’t know about you, but I would be happy to trade a $700 item for $2500.
And that was just one item. This site sells multiple items at the same time, and it goes 24 hours a day. Frankly, it’s a pretty clever (although slimy) business model. The key is to get people “hooked” – once they have some bids invested in an item, it’s very difficult to let that item go. After all, the next bid could be the winner!
From the website’s standpoint, they just want to keep bringing in new members in high volume. In fact, they will pay people to promote their site and bring them new members. If I were an affiliate for this site (I’m not, by the way), I could put an ad on MY website. Anyone that clicked on that ad, signed up, got there free 10 bids, and made at least one bid, would mean I would get an $18 commission.
That means there are a bunch of affiliates out there trying to come up with ways to get people to sign up, so they can earn their easy $18 commissions.
That brings us to the email that my friend Dan received. He was advertising a mattress on Craigslist, and he got this email:
I noticed your ad and was thinking if you would like to trade. I’m a collector and have been seeking for your item for a long time, I got to have it! Well, I currently run a site where I sell popular electronics for amazingly cheap. It’s very enjoyable and tons of customers get hooked on it! Anyways, why don’t you go look at the main page and see if you like anything. You can have whatever you like. However, I do have 1 easy favor. Can you validate you’re real and not a scammer? All you have to do is sign up for free and bid on the item you want for trading, it only costs 1 penny. If you can’t even do that for me then goodbye. I’ll not get tricked again!
To prove that I’m real, let me hook you up with a promo code – “great10″. This will give you 10 free bids so you can actually use it. Anyways, let me know after you bid 1 penny on it so I can get in touch with you! TTYL!
Even though the link text SAID “calmstuff.org” the link was actually to this page. You guessed it – it goes to the BidCactus site. The address is specific to the guy that sent the email, so that his commissions can be tracked. He probably sends out dozens or hundreds of emails like this every day (or he could have software that sends them out for him, thousands at a time).
So there it is, the scam that doesn’t even cost you anything. The real “victim” in this scam is the website, since they are paying an $18 commission to get a new member that was tricked to come to their site. Even so, with such a high profit margin, they will still make money because even if someone is tricked to get to the site, a certain percentage will be intrigued and stay for a while, and probably spend some money on more bids.
What are your thoughts on a site such as this one? Do you think there is a way to “game” it and actually get a bargain? I would love to hear your comments below.