I came across the new site PennyCave.com last night and was immediately impressed by whoever came up with the idea. The site is simple: An eBay-style auction site for brand new electronics, gadgets, and video games where every auction starts at 1 penny. Users place bids increasing the price by one penny at a time, until the time runs out and the winner pays a fraction of the cost of the actual product.
Here is the catch (there are actually two):
1. Each time you place a bid (increasing price 1 penny), you pay $1.
2. Each time you place a bid, the countdown timer starts over (most auctions are 1-3 minutes long)
Example: The bidding for an iPod touch starts at $0.00 at 10am. When the auction starts, the countdown timer starts at 2:00 minutes and counts down. Each time a user places a bid (adding a cent), the timer starts over. When the timer runs down to zero, the winner only pays the final bid price, plus 1 dollar for every time they bid.
The designers are making tons of money and creating an addicting atmosphere. If PennyCave.com lists an item they are selling (iPod Touch with retail of $230) and sell it for $10.00 ($1000 of bid money goes to them for each 1 penny bid made), they will make a heap of money. The countdown timer creates a sense of urgency for the bidder, and since it restarts with every bid, it actually doesn't matter if you bid at the last minute.
The risk to users is that you can sit there for hours increasing the bidding (the auction of the iPod touch I watched started at 10am today and is still going on right now), and end up investing a lot of money into the auction ($1 each time you bid), and then not actually winning. The auctions that are currently running never have their original start time listed, and there is no way to tell how far a bidder is in already or how far they will go. A bidder could have bid 50 times (spending $50 already to try and win) and a new bidder could enter the auction and drive the original bidder away because they had spent too much money. Caution to those thinking they can beat the system: You can't win.