A month and a half ago, I twitted that I thought madbid.com was the best business idea I’d seen that month.

I still think it’s a brilliant idea, but given the calls for penny auction sites like it to be regulated I should probably explain.

Auction sites like madbid.com are different from regular auctions.  First of all, you have to pay for each bid.  Secondly, all your bid does is increment the bid by a penny and reset a countdown timer – if the countdown reaches the end and your bid was the last one, you win!

What you win is the opportunity to buy the auction item at the bid price.

This can lead to some fantastic bargains, such as the guy that got a car for £7.

Brilliant, right?  Well, that’s not the brilliant part.

It’s quite addictive to watch, and I can see how people would get caught up in it.  I can even see how it could feel quite like gambling, and if some body or other determines it to be gambling, it’ll be regulated as such.  I don’t really have a problem with that regulation, but nor do I have a problem with people gambling if they want to.

But the brilliant part, the real masterstroke, is what happens when you do some simple calculations.

Here’s a current example from the current live auctions: an 8GB ipod nano.  The current bid stands at £4.37, and every time someone bids the countdown timer gets reset to 30 seconds.

Now, you can buy bids for anything from £1.50 to £0.75.  It’s only if you buy bids in bulk (more than 100 bids) that the price falls below £1.  So let’s call £1 the average, just for the sake of simplicity.

That means that right now you could bid – costing you £1 – and reset the countdown on the ipod nano auction by 30 seconds, and – maybe, just maybe – win the opportunity to buy the ipod nano for £4.38.

It also – and this is the brilliance – means that so far madbid.com has made £437 on an item you can buy for £109.  That’s £328 pure profit – and the auction hasn’t even finished yet!

So madbid.com makes a huge profit, and the winner gets a bargain.

Brilliant!

The only real problem is that the money has to come from somewhere, and it comes from all the bidders who didn’t win.

They’re paying £1 (on average) for each bid, just to reset the counter and have a brief moment where they think they have a chance of getting a bargain only to have that chance snatched away.

I can see how the ‘rush’ that people get from bidding like that might be like gambling.  Doesn’t mean it shouldn’t be allowed though.  Maybe that ‘rush’ is worth £1 to them, just like the ‘rush’ people get from buying a lottery ticket.  So maybe it should be regulated like the lottery.  I don’t know (I’ve never bought a lottery ticket, and never bid in a madbid.com auction).

I just think such an addictive way to separate people from money is pure genius.