Auctions have been in existence since the 500BC and we’ve seen many new business models built around it; be it eBay auctions or a marketplace like Amazon where sellers bid different prices for the same product. Running an auction-based business model requires a lot of research and adherence to legalities or your business model will be labeled as a scam. DealDash runs one of such auction-based business models where it auctions products which eventually is bought by the customers at a comparatively lesser price than its actual price. The business model runs on a penny (bidding fee) auction strategy and offers the bids for as less as 20 cents. But before moving on to discuss the DealDash business model or whether DealDash is a scam or not, let us first discuss what exactly is a penny auction strategy.
What is Penny Auction?
Penny auction (also known as bidding fee auction) involves participants to pay a non-refundable fee to buy a bid. That is, you pay a non-refundable fee for every incremental bid you place in the auction. Each of the bid carries equal weight and marginally increases the price of the item by a small amount, say a penny, and extends the time of the auction by few seconds. The rest of the rules of the auction remains the same and the auction ends if no one bids more than the current bid in a predetermined period of time (10-20 seconds).
This strategy involves auctioneer to get paid for each bid and also the final price the item is sold for.
DealDash Business Model
DealDash Business Model is a perfect example of bidding fee auction business model where people get what they want for lesser prices without the business owner making losses.
What is DealDash?
DealDash is a penny auction website started in 2009 which lets you bid for a exhibited product and offers the product to you at the price you bid for if you’re the final bidder. The website runs on one of the most simple yet interesting business models.
A bid is offered at a cost ranging from 14¢ to 60¢ depending upon the offers and discounts. These bids make you eligible to take part in an auction. However, these bids are non-refundable and if you’ve used a bid once for a product, you’ll have to use another to bid to participate again in the auction. This explains the revenue model of DealDash.
How DealDash Works & Makes Money?
DealDash, just like any other penny auction website, makes most of its money by selling bids. The bids are sold in packs of 100s and other sizes and the more you bid, the more money the company makes. In addition to the value of the bids, the company also receives the final price at which the product is sold.
Suppose there’s an auction for a t-shirt (actual cost – $10) at DealDash. Just like any other auction, this too will start at $0 and will go on to as high as bids take it to. Let’s assume that you won the T-shirt with your bid of $5. Dealdash will get $5 from you along with the total value of the bids (from all the bidders) for this T-shirt. If the cost of one bid was 20¢ and every bid increased the price of the t-shirt by 1¢, the total amount of bids on that t-shirt comes out to be 500 and the total revenue generated by the company from that t-shirt amounts to $5 + $100(500*20¢) which is way more than the original cost of the T-shirt. This also explains why the company offers free shipping.
However, unlike other penny auction websites, DealDash also offers you an option of getting your used bids back if you choose to buy the product at the original price. This is what separates
Is DealDash A Scam?
DealDash has received a lot of criticism and has been often compared to gambling as people lose money on bidding. Nonetheless, all of these terms and conditions are specified on the website and the people are well aware of the risk of losing money.
To get away with this criticism, the website also has an option of ‘buy it now’ where they give an option to the not so fortunate bidder to make use of his lost money and buy the auctioned product at the original market price and get back his lost bids.
Is DealDash A Scam? No. There are no proven reports of bidding computers or other shill bidding practices being used by the website.
The website is often given a tag of being a scam after a not so fortunate bidder loses a lot of money in bidding. One should limit himself while bidding on these websites and the results will be a healthy and not so scammy looking auction.
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A startup consultant, a dreamer, a traveller, and a philomath. Aashish has worked with over a 100 startups and successfully helped them ideate, raise money, and succeed. When not working, he can be found hiking, camping, and stargazing.