QuiBids: A Trip Down The Rabbit Hole

Introducing QuiBids

Sometimes the universe serves up flim-flam in its purest form. It is my delight to speak of QuiBids, a so-called penny auction website found at www.quibids.com and pronounced “kwee-bids,” to rhyme with “we-yids” in true Leo Rosten style.

Propaganda

It’s surprisingly difficult to describe QuiBids succinctly without using their propaganda terms. Let’s try it their way first and then break it down. QuiBids runs “auctions” on their website, e.g. a $500 TV. The “bidding” starts at $0.01, and there is a “clock” which announces the time until the “auction” ends, similar to eBay. When the “clock” hits 0:00, the winning “bidder” gets to purchase the item at the final price. The appeal is that the TV may sell for $25.00 at the end of the “auction.”

The Catch

Too good to be true? Yes, it is. Obviously, no company can afford to sell a $500 TV for $25 and be in business for long. What you realize when you sign up for an account is that “bidding” is, unlike a real auction, not free. In fact, each “bid” costs $0.60. So when you get an account, the first product the company wants to sell you is a package of 40 bids for $24. And if you want to buy in bulk there’s no discount: 800 bids costs $480. And the genius of this is that the marginal cost of the bid to the company is exactly zero. Thus it’s pure profit, only diluted by the credit card processing fees and, most likely, fending off Attorneys General nationwide.

The Catch #2

Another unusual aspect is how the “clock” works. Unlike eBay, where auctions end at a specified time, on QuiBids the timer gains an additional five seconds upon each new “bid.” When you watch an “auction” you’ll see it cycling between one and fifteen seconds for long periods of time as the “highest bid” increments.

The Offering Revisited, Without Propaganda

So here’s how QuiBids really works:

• The company runs events where entrants compete to win an option to purchase an item.
• Entrants spend $0.60 (which they’ve prepaid) to, for the moment, be the leader, and agree to give everyone else five seconds to decide whether to dethrone you.
• The last entrant wins the option.
• An interesting twist is that the losers also get an option, but a less valuable one. If an entrant spends $60 on “bids” to try to win the $500 TV, he or she is permitted to spend $500-$60=$440 to buy the TV. Thus, the company argues, you can’t lose because you never need spend more than retail but have a chance to get it for far less.

The Impact: Incredible Profitability

Consider the $500 TV event that goes to $25. The company has 2,500 entrants at $0.60 each, or $1,500. If the wholesale price is $300, the company has an 80% margin.

Down The Rabbit Hole

Things get even more interesting when the event is run for not a physical product but for “bids” themselves. A 100-bid package costs $60 retail, so entrants try to win them for $2.00. Of course, the company would collect $120 on 200 entrants, so profitability skyrockets. QuiBids also has rules limiting the number of wins and high value wins in a month, and it runs “auctions” that allow the winner to break these rules. So they set arbitrary rules, and collect money to allow people to break them. What a business model!

Shopping Entertainment

The CEO called QuiBids part of the “Entertainment Shopping Industry,” positioning the company as providing entertainment services instead of good product deals. Well, I’m certainly entertained (and horrified) by the business model.

Further analysis available in a spreadsheet where I explore a number of scenarios about gross margin, attempt to estimate company revenues, and more. See below for a sample.

Further Analysis: QuiBids.xlsm

Another related, Interesting Read: The Behavior of QuiBids and Its Users