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New site looks to profit at the intersection of auctions, gambling
[February 04, 2006]

New site looks to profit at the intersection of auctions, gambling

(Boston Globe, The (KRT) Via Thomson Dialog NewsEdge) Feb. 4--Arif Mirza's sales pitch sounds too good to be true -- a laptop computer for $19, a $43 living room suite, a $70,000 Hummer SUV for less than $700. All that's missing is the deed for the Brooklyn Bridge.

But Mirza, a resident of Ottawa, insists he's on the level. His new company, Unique Auction, is an Internet auction site that lets consumers risk small amounts of money in hopes of huge savings on new merchandise.

"It's all the power of numbers," said Mirza, a man with experience in making lots of money a little at a time. His previous venture, a London-based Internet gambling site called iBetX, reported 1.7 billion British pounds in revenues last year.

Unique Auction isn't like other auction sites. It's more a cross between a discount store and a poker parlor that provides gamblers with a clean, well-lighted place to play, and then takes a guaranteed cut out of every pot.

Each item offered is set at a maximum price. A Sony Vaio laptop worth $1,900 is guaranteed to sell for no more than $19. "People will bid on it if they might not even want it, because it's such a ridiculous price," Mirza said.

But unlike the popular Internet auction site eBay, bidders at Unique Auction must pay a fee-usually $2-for each bid they enter. If hundreds of people bid on the laptop, Unique Auction quickly rakes in the purchase price and a good deal more.

The auction winner is the person who bids the highest unique price. If 100 people bid $19, but only one bid $16.93, the lower, unique bid wins. If there isn't a unique bid, Unique Auction identifies the amount that got the fewest bids, then awards the item to the first person to bid that amount. The winner pays the price he or she bid, plus the cost of shipping the goods.

The auction is canceled on big-ticket items and the bidding fees refunded if the fees won't cover the price of the product. But for less expensive items, Unique Auctions will sometimes take a loss to keep the players coming back.

David McAdams, assistant professor of economics at Massachusetts Institute of Technology's Sloan School of Management, said the bidding fees are so low that many consumers won't mind the risk of coming away empty-handed. "This design plays well with people's psychological behavior," said McAdams. "The losses are low and the gains are high. It's similar to playing a slot machine."

Mirza prefers to describe Unique Auction as "a strategy game," and he's added a number of features to make the game more interesting. The site lets users see what others are bidding so that they can make unique bids. "Platinum" members who pay an annual $100 fee get a feature that quickly tracks changes in the highest unique bid. The platinum members also pay half as much per bid as regular members, and they can sell any of the products they win back to Unique Auction for 80 percent of the retail value.

In December, Unique Auction sold a Nissan 350Z. Bidding was fierce. "We made about $85,000 in bidding fees," Mirza said. A platinum member won the car with a bid of $718, and sold the car back to Unique Auctions for $48,000. The winner got a large cash windfall, while Unique Auction sold the car twice.

R.T. Muir of Plano, Texas, resold three $200 gift cards from the electronics retailer Best Buy, which he'd purchased for $30 to $40 apiece at Unique Auctions. The 25-year-old computer programmer said he hasn't done as well in auctions where he bought Apple iPod music players or Microsoft Xbox 360 game machines.

"I've heard of people who've made a couple of thousand dollars," said Muir, an avid gambler just back from a trip to Las Vegas. "I'd say from when I'd started, I'm about even."

Another user, Roger Kim of Seattle, said he's paid out $800 in sales fees and purchases, but turned a $3,000 profit from reselling items he's won. "Personally, I'm into strategy," said Kim, 27, a database programmer.

But Kim warns, "there's definitely a big risk involved." A hard core of platinum bidders lurk online, waiting for the last minute of the auction. Their advanced software lets the platinum players unleash a flurry of bids in the last few seconds. They use these to match the bids of rivals, so that they're no longer unique, and to enter new unique bids of their own. Faced with these expert platinum bidders, those with standard Unique Auction accounts are like lambs going to the slaughter. "If you don't upgrade you're really pretty much not going to win," said Kim. And even platinum players like Kim often lose.

Pai-Ling Yin, assistant professor at Harvard Business School, said the Unique Auction system is too complex to appeal to many Internet shoppers. "The more they have to think about things," said Yin, "the less they're interested in dealing with it."

Mirza doesn't buy it. He said that Unique Auction has taken in over $2.6 million in fees since its September 2005 launch, and predicts that the service will become a global giant. "I am planning on competing against eBay," Mirza said. "It's only a matter of time."

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