Limbo Auctions: Gimmick or the Real Deal?

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Limbo is a San Mateo, California startup with funding from Draper Fisher Jurvetson and Azure Capital. The purpose of the service is to auction off things like plasma TVs, iPods, cars and event tickets, with bids being placed via text messages. The hook is that the winner of the item isn’t the highest bidder. The winner of each auction is the person with the lowest unique bid for that auctioin, meaning no other person bid that exact amount. If lots of people bid $0.01 and you are the only person bidding $0.02, you win.

The company is quick to issue press releases around the incredible deals that winner’s managed to get. This press release, for example, talks about a Salt Lake City woman named Sondra Peterson who won a $35,000 Hummer on a bid of $36.65.

It’s not quite that simple, of course, or Limbo wouldn’t have much of a business model. Bids must be placed via text message or via regular phone. I placed a bid on the 42 inch plasma TV and it required a total of four messages – two sent and two received, to finalize it. Based on my pricing plan, that’s $0.22 on my cell phone bill, some of which Limbo will receive in revenue share. Also, the TV is a Limbo premium auction, which means I was charged an additional $0.99 for my bid. That’s a total cost to me of $1.21, and Limbo is going for more: my last text message said

“Too High! Your bid of 1938c is unique, but there are 265 lower unique bids. Bid again? Rply “HDTB XX” where XX is yr bid in cents. *Bid award: 10 Loot”

If I place another bid, another round of text messages will be billed to my phone along with another $0.99 bid charge. With all of these charges it isn’t hard to see how Limbo can become profitable on a per auction basis. All of these “loot” points are designed to get me to bid often as well. You get these each time you bid, and they can be traded in for tshirts and other items once you’ve accumulated enough of them.

If you aren’t skeptical enough after understanding the basics, the fine print may be enough to keep you away.

Auctions run for a very long time (the TV auction runs from May 15 to June 5. Such a long auction period means there will be a lot of bids, and the chances of winning go down dramatically. Once you place a bid you are automatically going to receive a text message every time a new auction occurs, which you can opt out of only by sending another text message. If you use your home phone, things may be even worse. Limbo explicitly states that they will use your information for marketing purposes. Expect tele-sales calls.

And if you win, shipping isn’t free. You will be charged normal UPS rates on the item (or alternatively you can give them rights you use your picture for promotional purposes). And finally, you will be taxed on the difference between the value of the item and what you actually paid as normal income. So that Hummer that Sondra Peterson won cost her a lot more than $36.65. Not only was she taxed on $35,000 in income, but I can’t imagine what the UPS shipping charges on a Hummer might be. :-)

So all in all, the vast majority of bidders will be paying Limbo without any meaningful chance of winning, they will be subjecting themselves to numerous SMS and other fees, they will be giving explicit consent to use their phone numbers for marketing purposes, and the winners are forced to pay out of pocket fees for taxes and shipping of the item. So, after trying out the service and reading the detailed rules, Limbo seems like more of a gimmick to me (and a costly one) than a chance to get cool stuff for nearly free.

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