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TheStreet Open House

This Penny Auction Site Could Actually Snag You a Deal

NEW YORK ( MainStreet) -- Penny-auction Web sites get a bad rap, and for good reason. The sites often advertise the potential to score pricey consumer electronics at a deep discount -- think iPads for $80, for instance -- but the downside is that unlike a traditional auction, you have to pay every time you bid. So while there is indeed a chance a lucky winner will be able to outlast the competition and get a very cheap iPad or other merchandise, there are also going to be a lot of losers who shelled out cash and got nothing in return. It's a business model that has sparked allegations of deceptive marketing and complaints to the Better Business Bureau.

But a new site, You Never Lose, introduces the concept to gift cards, and does it in a way that removes one of the more problematic aspects of penny auctions: the potential for financial loss. Rather than paying a small fee for every bid, you instead use points, which are earned by buying a gift card at its face value. So you can buy a $25 Sears (SHLD) gift card through the site for the full $25, and in addition to getting the gift card (shipped for free) you'll also get 25 points, which can be used on any auction to win another gift card. If you burn through all 25 points but still lose all your auctions, you're still getting a $25 gift card for face value. (Note that the site doesn't accept credit cards -- you have to pay through PayPal.)

A new auction site gives you the chance to get massive discounts on gift cards, with no risk of financial loss.

If you win, though, you can win big. I watched as a bidding war between two users ended with one going home with a $50 ExxonMobil (XOM) gift card for just 11 cents (each bid costs a point, and raises the price by a penny). The company set me up with some free points to try out this site, which I used to bid on a $10 Amazon (AMZN) gift card. After burning four points on the auction, I decided to drop out so I could go to lunch, and the winner was crowned shortly thereafter at a bid of 19 cents.

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