Updated on 11.19.10

A Deeper Look at Quibids … and Why I Don’t Think It’s Worth It

Trent Hamm

In Thursday’s reader mailbag, a reader asked me about my opinion on Quibids, an auction site where you have to pay for your bids, but bids only make the auctions go up in $0.01 or $0.02 increments. I told them, basically, that my back-of-the-envelope math makes the site not worth your time.

Several readers wrote to me immediately afterwards, bragging about various items that they got at a steep discount and urging me to reconsider my perspective on it, so I decided to give the site a fair shake.

I signed up for an account there. When signing up, you have to purchase a starter package of 100 bids for $60. All of their bid packages cost you $0.60 per bid – that’s the standard price.

After purchasing that package, I participated in four auctions and watched several more.

Auction #1: I bid on a $25 Staples gift card plus 10 bids. In this auction, I bid 13 times but didn’t win, costing me $7.80. I spent 20 minutes bidding on it, but I had to use the restroom and lost the auction. I debated for a while on whether to buy the package anyway – the “buy it now” feature basically allows you to buy such items at their face value minus your bids plus shipping – but the “buy it now” cost was $23.20 plus $1.99 shipping, meaning I would have just received a gift card I didn’t really want that badly for a net loss plus a few free bids.

Auction #2: I bid on a $10 Target gift card plus 5 bids. I bid 16 times on this auction ($9.60 in bids) and won it. Shipping on the item cost $1.99 so I essentially paid $13.39 ($3.79 directly and $9.60 in bids) for a $10 Target gift card and got 5 bids back, a net loss of $0.39. Not really much of a win. The biggest problem is that I lost track of how much I had actually bid to this point. This bidding took about fifteen minutes.

Auction #3: I began to think of a different strategy, so I bid on a $25 Wal-Mart gift card plus 10 bids. I bid 47 times ($28.20 in bids) and lost, so I used the “buy it now” option to recoup some of my losses, getting the item for $4.79 – $1.99 shipping plus the $2.80 face value of the auction once it became a loss for me to continue to bid.

This ate through most of my bids – I had used 76 bids of the original allotment.

The total cost of the bids used to this point – 13 bids + 16 bids + 47 bids – at $0.60 per bid, was $45.60 spent on bids.

The shipping and “buy it now” costs totaled $6.78.

Thus, my total cost for a $10 Target gift card and a $25 Wal-Mart gift card was $52.38 at this point – that’s not a win.

Of course, I did have fifteen “free” bids, which I used in an auction for a $25 Target gift card. I used all 15 bids, then bought the card for $15 plus $1.99 shipping

So, my total cost for the bids and the shipping was $69.37. For that $69.37, I got a $25 Target gift card, a $10 Target gift card, and a $25 WalMart gift card. Not only that, I spent an hour actually bidding and another half an hour reading auction listings.

Siply put, it was not worth it at all.

There are several points worth discussing about this experience, however.

The ads you see for the site, where they talk about people buying MacBook Pros for $180 or Kindles for $25, don’t include the amount people spent on their bids. It’s impossible to know how many bids people threw at these items, but I do know that people in various news reports have mentioned spending three or four hours bidding, which means they did have to spend a significant number of bids along the way. If you add in that additional cost, the “discount” isn’t nearly as steep.

The sunk cost fallacy is at play all over the place here. Quibids (and other sites like it) are just an e-commerce shop at their core with an interesting “auction/game” mechanism on top of them. The vast majority of bidders in an auction will not win that auction.

The reason people keep bidding, though, is the idea that they need to recoup some value from what they’ve already sunk into that auction. “I’ve already invested 20 bids and thirty minutes into this auction, so I need to get something out of it,” they think, so they keep bidding. I saw a lot of people jump into an auction, bid until they apparently reached the point where it was more cost-effective to just “buy it now,” and then drop out. In fact, the site seems to have a lockout mechanism at some point where it informs you that you’re better off just buying it now.

Thus, the only reason to use the site is if you’re willing to pay face value for an item that you actually want or can actually really use. If that’s the case – and you don’t mind paying the standard retail price for an item – then you might actually get some benefit out of sites like Quibids, because, in the end, the auctions there are akin to a lottery, where you have some fairly small chance of getting a steep discount on an item. If you don’t hit that chance, then you’ll be paying MSRP for the item.

For me, though, I’d rather just shop around for a better deal on the item. If I can find a particular item for 20% off with fifteen minutes of searching, I’d far rather take the guaranteed 20% discount than a small chance at some uncertain level of discount.

Of course, the real winner here is Quibids. They’re basically able to sell a lot of merchandise at the normal retail price online. They also get to pick and choose what items they’re selling, which means they’re likely choosing the ones where they know the difference between their wholesale price and the retail price is low.

This model, of course, only works if there are a lot of users on the site. If you only have one user who is able to win items for $0.01 consistently, then the site model doesn’t work. From what I’ve seen, they have a pretty solid user base, likely thanks to their strong promotional work.

The more users using Quibids, the better the equation shifts in their direction and the worse it gets for you, the end user. Your chance at a big discount on a specific item becomes very small indeed.

My recommendation, in the end, is to just shop around for items you want instead of gambling – and likely paying retail price – at Quibids.

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  1. Valerie says:

    Psychology has quite a lot to say about this. They did a study at Harvard Business School with HBS students. The students bid on a $100 bill. The catch was that both the winning bid AND the second highest bid had to pay up. (Of course, the winner always pays– but here, the bidder in second has to pay as well). You run into the sunk cost fallacy, and bids quickly get over $100, as it “makes sense” to bid over $100 if you currently the second highest bidder and going to be out your full bid, whereas the winner will only be out their bid minus the $100 they’ll win.

  2. Eric says:

    Never heard of the site but thanks for the running the experiment. Definitely doesn’t seem like a win for the customer.

  3. Sara says:

    I’ve seen ads for many “penny auction” web sites like this, and you don’t really need to test it to show that you’re likely to lose. Take the case of the Kindle for $25. At $.60 per bid, and 2500 bids to get to $25, people have paid $1500 for their bids, plus $25 for the final price, and only one person walks away with a Kindle. It’s just like gambling — there will be a few lucky/smart people who profit, but the house always wins.

  4. Amanda says:

    Thank you for doing this research for us! I forwarded the message to my husband who was just asking if he could do this yesterday. I told him no, but it’s nice to have some backup! =)

  5. David says:

    Having remarked in the original thread that I wondered how long it would take before someone used the Internet to make money out of the “dollar auction” first described in 1971, I confess to amazement at the extent to which the phenomenon is unknown even today.

    But here is a thought: the best “rational” response if your class is ever involved in a dollar auction is to bid a cent for the dollar. Then, someone else should bid two cents and the auction should end. This involves something called “superrationality”, first described by Douglas Hofstadter and currently dismissed by Wikipedia as “not a mainstream model within game theory” (hinc, as the Romans used to say, illae lacrimae).

    The dollar will be shared equally among all participants (and non-participants) in the auction, first making sure that your fellow bidder gets her two cents back and you get your one cent before dividing the remaining $0.97 into equal shares of… well, 97 is regrettably a prime number, so a fight will break out no matter how many of you there were in the first place.

    Still, at least the auctioneer will be out $0.97 and you will have beaten the system, which is after all the whole point. Or is it?

  6. Louise says:

    This article came at the perfect time. I had just signed up for Quibids and was debating buying a package of 80 bids for $48. I couldn’t decide, so I took a break to check my e-mail, and there was your article! Thanks to you, I’ve decided not to deal with the hassle and stress. You saved me time and money and I’m very grateful!

  7. Marsha says:

    Glad that you pointed out the total cost. So many people don’t take this into account, and retailers certainly never give you these numbers.

    It’s a similar thing that I see on the bottom of receipts: “You saved $20 today!” No, I didn’t, because I wouldn’t have bought it at the original price. I really saved maybe $1 over buying it at the competitor’s store.

  8. Johanna says:

    Why would it cost $1.99 to ship a gift card? Don’t they just put it in an envelope and send it? That made me curious enough to go over to the site and have a look at some of the other items – the shipping costs for those all seemed quite high as well. Especially since you apparently can’t combine shipping on multiple items to get a better deal. (Even the items that don’t need to be shipped at all, like bidding on packs of more bids, have a $2 “transaction fee” – what’s up with that?)

    It looks like this is how the site makes its money. For each auction, one person wins (and gets the item at a discount) and all the others either buy it for “retail” plus an inflated shipping fee (which is really a net loss for the customer) or leave the bids they used on the table (also a net loss).

    It’s also worth emphasizing that Trent’s 15″ free” bids weren’t free at all – he paid 60 cents each for them just like he paid for his initial bid pack, since the listed “retail” cost of a $25 gift card plus 10 bids is $31.

    They have it set up so that if you’re only bidding on gift cards like these, you have to leave some bids unused one way or another: Either you lose the auction and leave your bids on the table, or you win or buy at “retail,” and get some more bids that will go to waste unless you keep bidding on more auctions.

  9. Thanks for doing the experiment.

    I can now cross that off my list of things to investigate…

  10. partgypsy says:

    Thanks for explaining it. I would never do qbids but I do think the person who monetized this has truly created a money making machine for themselves.

  11. Sarah says:

    I briefly worked for a company that had an ecommerce website and was considering building a auction site like the one you describe.

    While they are not a complete scam because you sometimes get lucky, they are at best gambling and in a gray area legally.

    The odds you’ll come out ahead are extremely low. We only considered building the site to make money fast, but the staff felt it was just too slimy a way to make money and we didn’t want to do it.

    One guy one the team actually became addicted to one of the auction sites and lost his job because he failed to show up for three days in a row.

  12. Terri T. says:

    Been there, done that Trent, but the site is called “Beezids”. I guess I was lucky; I signed up after a commercial advertised that Dish Network customers would automatically receive 50 free bids. I purchased 50 bids also, at a cost of $40, which gave me 100 bids total. While perusing the site, I place 6 bids on a Wii game console with Sports Resort and another game, plus a bundle of those Wii ‘attachments’… twenty in all. I priced the Wii package at $279.99. Truly, it was more of a ‘what the heck’ reason that I bid on it at all, but ended up winning after 6 bids, and with only $60 out of pocket cost ($40 that bought some bids, and $19.99 S&H).

    I have since returned a few times to bid on some things, but have not purchased more bids. I have a few left, and in all likelihood, may never return to use them up.

    After reading some other sites about Beezid, I began to watch the bidding “patterns”. I felt quite strongly, as others had commented, that there may well be ’employed bidders’, who run the auctions up and occasionally “win” to entice others.

    Long and short, I was very lucky and we’re enjoying the game. To anyone with a *hint* of lack of self-control over their spending/gambling, I urge you to “stay away” from these sites. There is much more at work than just patience and luck!

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