The concept of penny auction websites started a few years ago, but penny auctions themselves are not new at all.
Penny auctions during the Great Depression
The first penny auction ever was held in United States, and took place in 1931 in Nebraska during the Great Depression. The Depression hit a lot of businesses in the United States, and many farms in the Midwest were especially hit hard because they had to face not only the Depression, but also a severe drought which basically caused many of them to lose their crops and go broke. This led the banks to foreclose on many farms in the area, and since the politicians did little to help them, the farmers decided to band together and help each other mutually. How did they do this? Over a hundred farmers went to a foreclosure auction in Nebraska in 1931 and made sure that only mere pennies were paid for the items auctioned off.
This was done on purpose, basically to spite the bank in support of their fellow farmer, and it went down in history as the first penny auction. So, how did they do it? How did they control the bidding? The mass of farmers threatened everyone there at the auction that could not bid more than a few pennies on any item, or not at all. That day, the bank earned just over $5 dollars from the auction.
The news of this penny auction spread throughout the area and reached other farms, and soon, these types of penny auctions (where farmers supported other farmers and kept auction bids to mere pennies during any bank auctions on foreclosed farms) started occurring on a regular basis.
Modern-day penny auctions
Fast-forward to modern times, and penny auctions have been reborn in a new and very different way. Actually the first penny auction bidding company was called Telebid, a German company that actually started its operations over the phone. They advertised their auctions on television and customers could call in to bid on items. That’s right, penny auctions started in Europe, and they started over the phone.
Later, in 2008, this Germany company changed its name and became the first penny auction website, called Swoopo.com. This website had quick growth and success with their penny auctions all around the world; the site had many languages and offered its services to bidders in many countries. The auctions very often involved quite valuable items (including cars and trips, for example) that were up for auction during a twenty four hour period and would go for a lot less than their retail value.
The rise and fall of many penny auction websites
Obviously a lot of ambitious people saw the success of this company and wanted to get in on the action, so developers started making and selling penny auction bidding software, and setting up more penny auction sites. In fact, in the penny auction site boom years of 2009 and 2010 hundreds of penny auction sites were launched. During the height of penny auction website popularity, people were bidding on thousands of items everyday. However, few of these penny auction sites are still running today; most closed due to lack of profit and financial losses (if they didn’t have the user base to get enough bids on each auction, they would have losses).
Unfortunately for the users of penny auction websites, there were also many instances of scams and fraud that also led to the demise of these penny auction businesses. One of the problems was that many of these new sites set up unfair bidding systems; for example, using automatic bidding software to compete against their own customers to keep the auctions going and the bid prices high, or in some instances even they themselves would bid against their customers, acting as one of them, to keep the auction going and bids coming in). There were also claims of people not receiving the merchandise they won and purchased, or at the very least not receiving the merchandise they expected. Today, lawsuits still continue related to these situations, and penny auction sites continue to go out of business all the time.
Even the original penny auction site, Swoopo, went bust in 2011, predicting a stormy forecast for the future of penny auction sites. They cited technical problems, but the truth is probably more related to the fact that they filed for bankruptcy. In 2012, DealDash bought Swoopo’s web address, so now if you try to visit their page you will be redirected to DealDash (a penny auction site that started in 2009, and is one of the few that has survived until present day. It had a name change since then; it was originally Bidray).
There are still a few penny auction websites out there that offer a wide variety of items available for auction. People lose money everyday on these sites, but people also win big and are able to purchase valuable merchandise for just a fraction on the retail price. People use these sites to purchase technology (tablets, computers and more) as well as jewelry and clothing, furnishings for the home, and even toys and tools. Another commonly available item available for auction on these penny auction sites is the gift card. Usually these gift cards are for well-know retail chain stores and superstores, restaurants and more.
The future of penny auction websites
Although gambling commissions of several companies have decided that penny auctions are not gambling, it is hard to say if this will change in the future due to all the legal cases related to these sites.
Unfortunately, due to the explosion and following crash of penny auction websites, and the pending lawsuits, the future does not look to bright for these types of businesses. However, that does not mean that any will survive, especially considering the fact that there are success stories out there and there are people that have good experiences and enjoy using these sites.