The site where you can buy an iPhone 3G for $7.48

He is selling $25 for 87 cents. He's sold Michael Jackson tickets for next to nothing. And now he's selling an iPhone 3G for $7.48.

Perhaps you might think Nicolas Dickreuter, the creator of PsychoAuction.com, is a few bills short of a fold himself. Some of his friends think so.

Dickreuter used to work for Lehman Brothers and now he doesn't. So he set up the site, a sort of eBay on ganja, on which auctions last only a few minutes and prices are absurdly low.

The old European HQ of Lehman Brothers. Perhaps PsychoAuction was born in a meeting room there.

(Credit: CC Jim Linwood/Flickr)

"I appreciate that some of my friends are concerned, but I can assure them I have not lost the plot," Dickreuter told the Sun. "This is the next generation of online auction sites. Once it attracts more users, there will be more bidders--and more realistic prices."

Currently, you get three free bids, but then have to pay to bid more. However, the more people you bring to the site, the more free bids you earn.

In case you think this is all, as Ali G might put it, a little whack, please let me assure you that an iPhone has already sold on PsychoAuction for 28 British pennies. That is roughly 43 American cents.

I would be fascinated to hear from anyone who has bought something for an insane price at PsychoAuction. It really does sound like my kind of crazy, your kind of crazy, everyone's kind of crazy.

Oh, and just in case anyone was still wondering, that would include Lehman Brothers kind of crazy, right?

[gmcbay]

Typical penny auction set up, like Swoopo.

Nothing new and nothing anyone with any economic sense should participate in, it is basically a lottery. "In for a dime, in for a dollar"... at least their motto is an honest representation of how penny auctions work.

[Hep Cat]

Still no breathless comment on HP's revenue dump. I saw he sory earlier, but it got sunsetted quickly.

Apple, OTOH, gets a massive amount of press. Why do you think that is? Page view revenue?

Naaaw. couldn't be..

[Hep Cat]

Pyramid. He haz it.

[yogibear224]

You might want to apply the exchange rate the right way round. 28 british pennies is roughly 45 american cents.

[ChrisMatyszczyk]

@yogibear224,

You're right. you're right. That was just my own wishful thinking for the state of the exchange rate.

I have amended.

thank you for pointing that out.

Chris

[assman]

Pretty obvious how he's making money. Read the site clearly, the timer resets with every bed. Basically, with enough users, the auctions won't end until the prices are too high. And even if people get the offers cheaply, they still buy more bids which makes it profitable. Clever.

[MajorSlax]

There's more and more of these sites, with more or less similar models, the only thing they need to be profitable is a userbase consistent enough so that the total amount of money engulfed in each auction (bids used + final item cost for the user) is greater than the cost of the item of the auction. Given the nature of the items (really popular and relatively expensive items, such as video game systems, computers, digital cameras, smartphones...), it attracts loads of people, who altogether spend loads of money... An easy and not-so-risky way to make money, once the userbase is consistent enough, and won't go through the trouble of communicating to take advantage of the site (there's no official swoopo forum or chat for instance, isn't that weird ? :P ). As long as the userbase is big and fragmented, it works.

The math is simple : let's take Swoopo, a PS3 penny auction that finally sells at 100$, and bids cost 15 cents each. 100$ = 10000 bids, 10000 bids = 1500$ for Swoopo. + 100$ the final price of the PS3 for the lucky winner. 1600$ for Swoopo. A PS3 costs 400$. Swoopo just won 1200$ over a single PS3. Easy. Even with bids at 5 cents they still make 200$. But then again there would be more bids (and the final price would thus be a little bit higher...)

It's a smart system, very criticizable, but smart :)

[gordianknots]

Honestly, doesn't news.com do it's homework. Swoopo made a splash about this months ago, and news.com is covering a rip-off site? There was a large discussion about this on the NYTimes Freakonomics blog.

I would argue that these sorts of sites are in fact gambling and ought to be banned.

[yanchineseguy]

Just because it's not the first site to do something doesn't mean that it shouldn't be covered in the news. By your argument, then Google shouldn't be written about since they were not the first to offer online search.

[Peet42]

I notice you can't take part unless you have a mobile 'phone and are willing to give them the number. (I don't have a mobile 'phone so I'm excluded...)

I'd check out the T&Cs to see what they're allowed to do with that information... If they're going to be selling your number to marketers along with a profile of the kind of stuff you've been bidding on that would soon fill the perceived "hole" in the income stream.

[awaken41]

it's a scam. I can't believe the "award-winning" Matyszczyk didn't at least Google this site for reviews. Here's one:

" ... it works very well. It?s all legal, legit etc. Though a point worth noting is, if you actually want to win anything (which is what we all want) you?re best off getting yourself to eBay or some other real auction site. From what we can see it?s nothing more than a scam. Granted its all legal but once it gets going and has some users (which it already does) then no one will ever win. It?s a little deceptive. They?re not auctioning off an iPhone every 5 minutes (as one would think). Auctions will last as long as people keep bidding and this could be.. hours, days?months. ... The iPhone were interested in is currently at £2.50. That means it?s had 250 bids (remember a penny a bid). Now when you register you get 3 free bids. After that your main source of bids will be buying them. You can buy in bundles but 1 bid costs 66p.
So if everyone who has bid on this item used a bid that they ?paid? for that is 250x£0.66 = £165.00.
Now do you see how it works? Let?s say the auction for the iPhone states it?s at £13.00. We all look at that and go ?wooooow, only 13 quid that?s well cheap, I?m going to bid on that?. What we don?t realise is it?s already had 1300 people bidding on it! Which means Mr Dickreuter has just made 1300x£0.66 = £858 (now we can see how he can afford to give away free shipping!). "

There's only 1 iphone, at best. The owner of the site will make thousands before it's ever sold.

So what does this mean? Anyone can write an article. Now give me an award!

[tektaktyks]

Now,do you know how many ppl read cnet news?and how many dont read the comments?he just generated a lot of traffic for that site.is he in on it?

[msjonker]

Like eBay, except now you also pay when you lose...

[monkeyboy281k]

he gave an interview here worth a read http://www.review-hub.co.uk/2009/05/psycho-auction-interview-rh-exclusive/