A couple of days ago, I wrote why you should avoid the bidding fee/penny auction scam. If you haven't read that article my conclusion after much research was that adding up the high probability of losing money, the potentially illegal lottery/gambling with penny auctions, and the potential for the fraud by the auction company itself, the only logical conclusion is that the Washington Post is dead on with bidding auctions, "the only winning strategy is not to play in the first place."
Today, I'd like to explore one example of such a penny auction scam, Zeekler. Zeekler is your typical bidding fee auction. There's nothing too unique or different then what I explained yesterday about other bidding fee auctions are. I'm singling out Zeekler to write about today to nail the point home about the scam and also as an introduction to tomorrow's article (Yep, today's article ends in a cliff-hanger). I could have easily written about Quibids and/or Skoreit. Quibids in particular has been running some advertising campaigns afoul with the FTC guidelines which I covered yesterday.
When looking at Zeekler, I found the things that the FTC warned consumers about that I covered in the previous article. In fact, it seems like Zeekler has purposely tried to hurt consumer through disinformation. This was clear in Zeekler's How it Works FAQ. Specifically they say:
"Here's how it works: Every person who bids on Penny Auction site Zeekler, purchases what is called a "Bid Pack." Our bids cost the bidder 65 cents each. When a bid is placed on a penny auction item (let's say for the sake of this example – it's an Apple iPad.) the company receives that 65 cents on every bid. So, on a $10.00 item – 1000 bids were placed – and the company received the equivalent of $650.
We pay commissions and overrides up to .13c per bid – so the company now has $520 to work with. Then we purchase and ship the iPad to the winner which costs us $499. The company just retained $21, you just walked away for an iPad for $10 and the referring affiliates responsible for your coming to bid (and win) on Zeekler earn "thank you" commissions on the bids you purchased. That's what we like to call… "A Win – Win – Win Proposition!" We are extremely dedicated penny auction site to our Fair Bidding Policy and to maintaining a fun, safe and profitable environment for our bidders and representatives."
That sounds good in theory, but how does it work in practice? I clicked on one item that seemed interesting on the home page. It was an Intex Pool Set with a retail price of $149. As I write this the product has been bid up to $5.78. Because each bid raises it a penny, we know there have been 577 bids. At 65 cents a bid, Zeekler will collect $370 in bid fees, plus the $5.78 from the "winner." Even if they only make 52 cents a bid by paying commissions of 13 cents, they collected $300 on a $149 product. In addition, I found the same set here for less than $125 shipped. Logically, the Zeekler can (and likely do) make the purchase from these discounters to ship to the "winner" lowering their cost from the retail.
In the win-"win-win proposition" the company forgot about the bidders who bought the lottery tickets for this "auction" and didn't end up as winners.
In the time that it took me to give the above example the price of the pool is up to $7.54 and still going. Zeekler's profit on the product is $242.56 after all its expenses (bid commissions and overrides and buying the product) and counting...
The example Zeekler gives of the Apple iPad getting them $21 does not seem to be the average. Instead it seems that the New York Times example previously mentioned of earning more than twice the product's costs is playing out.
Our parent company Rex Venture Group has been in business 13 years and has historically paid its representatives in the field every commission check earned since its' inception. "Is this a Pyramid Scheme?" Of course not!! "Pyramids" or "Money Games" are illegal and ask its' participants to wrap money in tin foil and FedEx it to "someone else" with no exchange for product or service!
The pyramidal structure is actually the "model" structure of every corporation and even the U.S. Social Security system. Why then are pyramids illegal? Because there is no "exchange" of product or service for the money spent and the only ones who "collect" money are the people at the top of the pyramid. When there are no longer enough people coming and sending money "up" to move people thru the pyramid – the pyramid collapses. An example of a legal – yet collapsing pyramidal structure/system is what is happening to social security. The baby boomers are all coming of age to collect (at the top of the pyramid)- with not enough people paying in from the bottom!! The structure will then collapse. Every CEO is at the top of his/her company's pyramidal structure. That's why he/she makes so much more than a mailroom worker.
I don't know of any pyramid schemes that have ever asked people to wrap money in tin foil and FedEx it with no exchange for product or service. While that may be part of some pyramid schemes, that isn't how they typically work. Zeekler either clearly doesn't understand what a pyramid scheme is or is purposely lying to others. I have documented many sources from the FTC that Multi-Level Marketing companies with products can be illegal pyramid schemes. One such example is the FTC's case to shut down JewelWay back in 1997. JewelWay did indeed have a product, jewelery.
I already have a three part series on Social Security and how it isn't a Ponzi scheme: Is Social Security a Ponzi Scheme? (Part 1: Ponzi History). The Social Security system is sustainable because it can sustain payouts indefinitely. The payouts might have to be reduced to match the workforce, but it isn't a pyramid scheme where someone at the top gets the majority of money and many people at the bottom get nothing.
Zeekler then goes on to tell the other classic lie about pyramid schemes, that corporations are actually pyramid schemes. This lie is told so often that I had to write this article: Corporate America is Not a Pyramid Scheme. Disreputable companies like Zeekler are creating disinformation to confuse consumers about the differences of a hierarchical organization versus a pyramid scheme.
I'm not suggesting that Zeekler is a pyramid scheme. My point here is that it is dishonest to spread this false marketing... and it has no business at all in a FAQ about how Zeekler works. As we found with the previous article, bidding auctions can be seen as illegal gambling or an illegal lottery. Rather than an education on pyramid schemes, it would seem more prudent to address why this these might not apply to Zeekler. As best as I can tell they clearly do.
Intex Pool Update: It's been about an hour and half since I first looked at the pool auction. That pool now is up to $17.42 meaning that at $0.52 cents a bit after paying out the commissions the 1741 bids have totaled $905.32 or $756.32 of bidder's money after paying the expense of $149 for the pool to ship to the winner. The auction continues...
Continuing on with the Zeekler How it Works FAQ, the company then puts up some testimonials to try to make it seem like a legit company. One example is "Zeek=Verified Online Penny Auction!!" referring to this Pennyburners website (accurately named because participation in these schemes is like burning money). The first article I see on Pennyburners is this one about a Ford Mustang on Zeekler:
"Sometime Thursday morning, a long-running penny auction on Zeekler.com for a brand-new Ford Mustang finally ended! The final price? $4,077.07!
As this was a traditional penny auction, this final price means that there was a total of 407,707 bids placed during the auction. And, as this was a "VIP Auction", every bid placed was worth $1 each - as compared to $.65/bid. On the surface, it looks like Zeekler raked in $407,707 total for the auction.
The winner of the auction goes by the username "Gloo". S/he won the auction with a total of 105 bids - for $105!
Talk about a good day for both sides!"
You can see that auction on Zeekler here. It doesn't take a genius to realize that it is a good deal for Zeekler as they grossed $407,706 (I presume it started at $1) in bids plus $4,077 from the winner for a total of $411,783. They "only" netted $391,783 after paying for the Mustang. Clearly it's a good deal for the winner who ended up paying $4,182 for a $20,000 car. It's just a gigantic loss for the people lost $390,000.
Getting back to the How it Works FAQ
There's a Seal on the Zeekler page saying "Zeekler Receives the PennyAuctionList Seal of Approval." The consumer may think this "seal of approval" is from a reputable organization that watches over these companies. Nope, it just goes to PennyAuctionList.com which according to their FTC disclosure is a resource maintained by penny auction bidders. The link to penny auction bidders is broken so there's really no disclosure who they are. One thing is clear, their seal of approval carries no authority.
In a similar attempt to confuse consumers they display a PennyBurners.com "Verified Penny Auction" seal, which also is not from a reputable organization that provides any verification features.
After many hours the Intex pool auction finally ended at 30.80, or $1601.60 of bids (at 52 cents a bid) for a $150 product that it sold for $30. Zeekler spent at most $120 for $1601.60, while its customers lost $1481.60 of value. Deceptively Zeekler mentions that the item was won with 2 bids, which means that the winner only bid twice, concealing the 3078 losing bids.
If you thought that consumers got ripped off there, it's nothing compared to this $100 Red Lobster Gift Card that was sold for $67.16. Consumers spent $4,365.40 in bids and one lucky person saved less than $33 on a gift card.
If it wasn't obvious by now, participating in Zeekler auctions is simply making a very poor financial decision.
In a future article, we'll explore Zeekler's ZeekRewards program, which adds a multi-level marketing (MLM) that may be a pyramid scheme component to the mix.
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