There are quiet a few reports about a new online auction site called PsychoAuction.com. The basic idea behind the site is that users bid on an item (like an iPhone, USB Stick, …). Each item has a starting bid of 0.01 CHF. Now each time a user bids on something, the price rises for 0.01 CHF and the countdown timer is reset to max 5 minutes. Now, the chatter is that you can get an iPhone for under 1 CHF / 1 USD. Sounds promising and I really think this is working. For the site operator more than for the users. Why? Well, let us do the math:
Lets take the MacBook that sold for 16.58 CHF. At a starting bid of 0.01 CHF, a total of 1657 bids have been put on this notebook. 1657 times 1.30 CHF (an average price for a bid) equls to 2’154 CHF. Thats right. People bid 2’154 CHF on the notebook which only ONE person one in the end.
And because we know that the site directly ships the products from Amazon it is interesting to see how much PsychoAuction pays for the actual notebook:
Yes, that is right. The MacBook sells for 1’364 CHF! That is a profit of 790.- CHF! For doing NOTHING!
So next time you think somebody is giving away something for free, do the math first.
I just came accross your calculation and I admire your optimism. Unfortunately the reality looks slightly different. Have you thought that the majority of the bids are from invitations and sign-ups and not from purchasing users? Have you thought about server costs? Have you thought about administrative costs? Unfortunately the reality looks significantly more difficult.
regards
Nicolas Dickreuter
CEO
PsychoAuction ltd
Hello Nicolas
Thank you for your feedback. I like to continue with my “optimism”
> Have you thought that the majority of the bids are from invitations and sign-ups and not from purchasing users?
Could be, but if you observe the bidding users a little bit, then you will see that the same users are bidding more then two times for an item.
> Have you thought about server costs?
Well, let us say you have one dedicated server. This is a monthly bill of $130 (140 CHF).
Add a .ch domain for 17 CHF, a .com for $35 (37 CHF) – you could have had that so much cheaper at any other registrat. Why choose Register.com??
PsychoAuction.com was registered in March. So 4 months times 140 CHF is 560 CHF for hosting, 54 CHF for domains equals to 614 CHF. You got that money with the MacBook sold. Or the one on auction right now. Or the Wii that sells for 4 time the street price.
My guess is that your investment in marketing is close to zero. Am I right?
The only unknown variable in the whole system are the development costs. But a short source code analysis tells me, this wasn’t done by professionals. Looks more like somebody did a quick hack. Which is fine for me. But you could speed up the page by just having cleaner HTML, proper notations and moving some code to external files.
Don’t get me wrong. I do not want to attack you personally. I was just impressed by how TagesAnzeiger, 20 Minuten and so jumped on this whole thing without thinking a second what could be the business model behind this. I think you are a very smart person for releasing this system.
Oh, I really could use a new MacBook. What is the best strategy to win one? 🙂
Hey Nicolas,
I remember you from the HSG. A fantastic Idea you had although it is not new.
Wow lucky i read this, thanks!!.. i also ralso found this review which seems interesting. How can he complain about server costs. bet hes making a mint!!… if you read the other review and look at how the system works hes always going to make profit
http://www.review-hub.co.uk/2009/05/psycho-auction-wwwpsychoauctioncom/
hey Pete
Thank you for your comment and the link.
Yeah, I am sure he is making a ton of money – or else he is doing something very wrong.
Like the last MacBook that auctioned for 69.59 CHF. This equals to 6958 bids. At 1CHF each that nets to 6958 CHF. And the MacBook still is on sale for 1400 CHF.
But hey, if people are willing to do this. And at least one person wins.
Only question I still have, if this is a “lucky” game or if there really could be tactics behind it.