In short our business model revolves around bid pack sales (Play Packs) and drop shipping products. This is what separates us from the majority of other penny auction sites.
Everything below is also explained in the Business PlanPlay Packs cost zero to manufacture and zero to deliver. While our 3 year projection conservatively estimates 50% or so of our revenue from Play Pack sales we would multiply profit margins substantially as that number increases to as high as 90%. Drop shipping products takes the burden of inventory and staff, etc. from bogging down our profit.
The majority of other penny auction sites instead develop a business model around product listings and in turn live or die by the number of customers bidding on the site and gross margin % between bid revenue and COGS. Ultimately, this is their downfall because people get bored and leave and sites relying on lots of customers that all of a sudden lose them close their doors shortly after.
2 examples of blown opportunities because of a faulty business model:1)
Penny Auction Solutions. Google it:
Penny Auction SolutionsTheir business plan:
PDFIt was flawed from the start for a number of reasons (MLM) but the main reason was no safeguards in the beginning phases of existence and the business model revolved around product listings instead of bid pack sales.
They even got $10 million in funding (talk about crazy valuation with $0 sales!)
via Kodiak Capital Group, LLC They have zero to show for all of this less than 4 years later.
2)
Swoopo. Arguably the pioneer of penny auction sites in 2008 and the biggest at the time of it's bankruptcy filing. "Overall, Swoopo operated a flawed business model as it relied on creating value (for itself and the 1% of winners) at the expense of the majority of its customers. For more on this, check out
http://t.co/O78595H"
We feel like this is our successful business model that will separate us from many other companies operating in this environment and provide stable growth year after year. It's the only sustainable model in this industry.
Yes, back in 2011 anyone could open up a penny auction site and they were very lucrative. Unfortunately, the history of companies in this industry is littered with questionably operators and unethical bidding practices. The past 3 years has seen upwards of 2000 "penny auction" sites created and currently less than 200 operational. Do a web search for penny auctions and the terms "scam", "cheat" and many more litter the page results. Customer complaints are mostly valid relating to deceased sites and even some still in operation. While Adeally does use the same auction platform as these sites it is much more than “just another penny auction site.”
Buy-It-NowOne game-changer the helped right the ship if you will was the creation of the Buy It Now option. Adeally will have this on every auction and it's explained in depth in the Business Plan. Essentially it's available to losers of auctions as a way to get their bids back and have a good experience on the site. Before this innovation was created the industry had a bad reputation and customers were rightfully pissed off because they didn't win anything and lost money to boot! Still, more than half the other penny auction sites out there do not offer this option to their customers.
As explained in our Business Plan regarding our 3 year projections, we ran 120 scenarios over 3+ years to determine our phased growth numbers. Below is an example of our numbers 1) disregarding the Buy It option and our customer's feelings and 2) our numbers with Buy It factored in and our customer experience.
http://adeal.ly/Npwja This is an excel file.
EDIT: Disclaimer
This document does not represent our full financial projections. The 2 values that are represented in the totals are related to auction listings and ecommerce listings only. The accounting terminology was for in-house purposes because these values are static copies of in-house documents used to project the next 3 years of the Company as laid out in detail in the "Financials Section" of our Business Plan. G&A, payroll, overhead, etc. are not included in this document.Compare the Total Revenue numbers for each year above and below and you can see how lucrative this business model can become with shady operators. Every investor would love to earn 3 x more profit every year, but we kept ourselves grounded in a conservative phased growth model explained in detail in the Business Plan.
Here's more on how we're different from the majority of other penny auction sites:Dual selling platform: conventional ecommerce and online auction platforms
While 100% of penny auction sites do penny auctions, only a few also have an integrated ecommerce platform. Adeally will have both. We realize that a good portion of our customers could care less about the gaming mechanics and social rewards we will build into the site. They just want to buy a product at the best price out there and get free shipping. We get it. So all of our products are available for purchase directly using our Buy It option.
Fulfillment A large portion of other penny auctions carry inventory of at least gift cards and sometimes smaller electronics and such. That adds extra costs on the company. Adeally will carry zero (0%) inventory, instead relying on our network of distributors to provide fulfillment services. Only about 20% of our products will be from other B2B partners like Amazon or Best Buy. If we list Apple products or Precious Metals or Mining Equipment we'll form partnerships with companies to list their products on our site and the prices we list will be identical to the Apple product on bestbuy.com. 50% will be from our wholesale distributors and our prices are competitive with Amazon (which seller's are only making 5-10% over wholesale on most listings). The remaining 30% will be our Play Pack items which cost zero to make, zero to ship.
SafeguardsThe majority of penny auction sites fail before they even get started because customers bleed them dry. They are at the mercy of aggressive bidding clans without a large customer base, which a site just starting doesn't have. Without proper safeguards in place before launch they might as well not start. Without the safeguards listed in our Business Plan and below we just might as well not even start. We wouldn't if we didn't develop these during our business creation stage. Every Adeally auction will have these safeguards.
Lockout Auctions - JUMPING - Prevents the tactic of a customer waiting until rest of the bidders have exhausted their bids and "jumping" in with a single bid to win the product.
2% Retail Reserve Price - TAGGING - Prevents the tactic of 1 customer placing the first bid (tagging) and all of their friends agreeing not to bid on the product.
Scrambled user names - COLLUSION, TAGGING - Prevents the tactic of a group of bidders forcing out other bidders and then stopping their bids so one of them wins.
Smart CurrencyThe Company is also partnering with Counterparty to make our on-site currency (bids) “smart”. Customers will be able to take their unspent bids off the adeally.com site and trade them for other things within the Counterparty marketplace. This is a first of its kind concept for our industry and a huge value to our customers that want to take their bought virtual goods (bids) to other vendors.
We are very excite about this because it's revolutionary in the industry. No other penny auction site, ecommerce site, online auction site has a site currency that can be taken off the site by the rightful owners, the customers. Typically it has to be abandoned if the customer doesn't want to shop there anymore. With Counterparty assets we can integrate our bids (Plays and Tokens) into the system and allow customers to leave with it if they are done shopping.
Plays we will sell on site and within Counterwallet. Tokens we will give away as rewards on site and within Counterwallet. They both have a $0.55 nominal value to start but can now be open to the free market.
Plays (paid bids) -
http://www.blockscan.com/assetInfo.aspx?q=PLAYSTokens (reward bids) -
http://www.blockscan.com/assetInfo.aspx?q=TOKENS
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