What is a penny auction? Well, that means that you can bid on items by 1 cent increments which is obviously within anyone’s budget. No wonder that Quibids, Beezid, and the likes, have gathered record amounts of customers in a short timeframe. The main reason for this uprising is probably that if you win with your penny bid, you will end up saving about 90% on new retail items such as Apple iPads for $20 (retail is $500 and up), Samsung LED 55″ flatscreen 3D TVs for $60 (retail is $2,000), etc…

Although it seems too good to be true, it is very real. The bidding sites actually bring in a lot more money than what they spend on the new items. This is because customers have to buy the right to bid, on Quibids, a package of 100 bids is worth $60, that is 60 cents per bid. So if you placed one bid and won the iPad at $20, you will actually spend $20.60 on the item.

No big deal right? Let’s crunch the numbers. First, let’s note that unlike eBay, these sites do not have a definite end time on auctions, every time an item is bid on, time is added to the clock. The auction ends when nobody posted a bid for say, 10 seconds. That basically means that everyone has the same odds to win the item. On that note, let’s take the example of the iPad that went for $20. Starting the  matka auction at $0, it took a total of 2,000 1 cent bids to get there. If you bid once, the probability to win this auction is basically 1 in 2,000. Of course, you can increase your odds by bidding several times, 100 bids gets you to 1 chance out of 20 but you will then have spent $60 + $20 with a 5% chance to get the item. Meanwhile, the website will receive 2,000 times 60 cents for the item no matter what, that is $1,200! Since the item costs them only $500 and the auction winner will still have to spend the final $20 bid on it, the website will make a staggering 144% profit! This is true on every item, every day, with the minimal infrastructure that comes with an online business.

It is actually a mystery why such methods are legal because if you sum it up, all they are, are online lotteries. Bids are bets and your odds depend on the money you spend. It is important for the “customers” to realize that the dollar value of an item that is bet on does not represent anything, it is only a trick to attract more people and lead them to think that they will get a good deal. In reality, you can forget about the status of the “auction” and just think of it as a lottery for which each ticket is worth 60 cents. At the end of the day, you can either get lucky, walk away, or get caught in the loop and keep playing the odds. Very much like at casinos, you will then end up losing much more than what you are winning. My advice: try it once or twice, then go to your retail store and pay face value…

If you are looking for more predictable ways to save or make “free money” on the web, you should consider other options such as paid surveys, a very good way to work from home and earn extra money by getting paid online.