Anyone who spends any time online will probably have come across ads for the newest craze of Penny Auctions, a.k.a. Entertainment Shopping sites. These are sites where bidders can bid an item up by one penny at a time using pre-paid bids. They are presented by tempting ads telling you of the tremendous deals you can get on the newest products and goods that 'sell' at a much higher retail price. One ad I saw said, "iPads for $35."

When you visit these sites, such as swipebids.com, swipeauctions.com, ziinga.com and swoopo.com, to name a few, you are presented with a page full of auctions that are about to end with great prices, or recently ended auctions with amazing savings.

An item is shown for sale with a timer that counts down until the auction is over. The site users can use prepaid 'bids' to force that item up by one cent, and maybe win it. However, when a bid is placed, the countdown timer is incremented by anything from 10 seconds to 2 minutes. This means that the auction can go on indefinitely, until the bidders either run out of prepaid bids, or just give up.

If you watch one item (before you make an account) you will see how long and dragged out these auctions are, and how the system works.

It is with the high cost of the bid 'blocks,' and the fact that the auctions can last indefinitely, that more questionable aspects of these sites come into play. The bid blocks the bidder can buy are not cheap, usually ranging from around $15 up to over $1,000. Each bid averages 50 cents to $1.

... bids are non-refundable,
so once they have gone,
they have gone, whether you win
that auction or not.
This is more like a lottery than an auction.

Therefore, if you are up against many bidders, while the actual selling price stays very low, you can easily and very quickly burn through a hundred dollars or more in bids, with no sign that the auction will ever end.

Furthermore, the bids are non-refundable, so once they have gone, they have gone, whether you win that auction or not. This is more like a lottery than an auction.

Any one auction can have hundreds or thousands of bids by the time it is finally over, and those bids, plus the final sale amount, more than pay for the auctions item.

For example, a $1,000 item may have 'sold' for only $120, but this means that there were 12,000 one-cent bids (at 50 cents - $1 each) before it closed. So while the site made a lot of money, a lot of people lost their money.

There are many stories of unscrupulous business practices, such as:

'Shill' bidding - where the site owners, friends, or employees bid on items to promote a bidding war with legitimate bidders.

Bidding 'bots' - Automatic scripts that create fake user profiles and place fake bids.

Non-delivery of won items, or accidental erasure of the auction winner's data, saying they didn't win at all.

There are currently numerous complaints against these sites, ranging from the BBB to FTC, and I have also seen mentions of class action lawsuits.

With the current economy, and with the holidays approaching, this really is a case of 'buyer beware.'

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Terry Young is the founder and CEO of Internet Marketing and Design. Since 1997,
his computer programming and graphic design knowledge have kept his company
at the forefront of the latest technology in web development.