Proxy bids: are you brave enough?

When someone buys a domain or website on a not fully transparent auction site, it is really important to have maximal confidence that (s)he will not be cheated by the owners/employees of the auction site, the seller of the domain/website or any other third parties. Maybe the worst thing that can happen is the so called shill bidding, which means that there are bidders who do not actually want to buy a property but they just want to generate fake interest on an auction in order to trap real bidders and maximize the profit of the auction site or the profit of the seller.

Is shill bidding still happening? I think that most of the companies involved in auctioning domains and websites got better in the recent years but shill bidding is something that can be just never get rid of completely. Let’s discuss some historical scandal first.

In 1998, Godaddy VP Adam Dicker was found bidding on several auction on their own marketplace. Since he might have known the proxy bid of the external bidders, there was a possibility to maximize the sales prices but at least it was enough to manipulate the activity of the auctions. After the scandal, Godaddy has changed their rules and since than does not allow internal bidding anymore. Since there are external sellers in 7 days auctions, there is also a possibility that some sellers are guilty in shill bidding.

Maybe the biggest scandal was the one that involved Snapnames 6 years ago. Again, a VP of Engineering at Snapnames, Nelson “Halvarez” Brady was found to bid on their own auctions. The worst thing was the size of this bidding activity, since he was bidding for almost all worthy domains, so the manipulation was almost automatic (altogether 5% of the auctions was influenced). When this became public, Snapnames refunded cheated customers where Halvarez was involved in the auction and started rebuilding their reputation.

Namejet was quite happy with the Snapnames scandal and ensured that they do not allow their employees to bid on auctions. It might be true but what about a bidding bot? Namejet reserve bidder can be interpreted as a non-human VP of Engineering. While it was communicated that it is an automatic solution to have a reserve price on auctions, why are there reserve price for expiring domains at first place? What is the difference between Halvarez and the Namejet reserve bidder from a buyer point of view? Maybe Namejet was also not that confident in the ethical issues involved here, so it seems that this non-human bidder retired and a clear reserve price method was implemented.

What about Dropcatch? They are fairly new but very successful in catching deleted domains. The sale price of domains are often very high there as compared to competitors. It is possible that it is just because their auctions are open. Another explanation could be shill bidding, and according to DomainVP, unpaid auctions are quite frequent at Dropcatch.

Flippa is one of the favorite place of website and domain sellers, some of them with bad faith. Some sellers used third party sites to buy fake bids. Most of these external services are turned down now and the involved sellers were banned. Interestingly enough, Flippa staff members can bid on Flippa auctions. One can just hope that they have the same information as an external buyer and there is no shill bidding involved here.

My goal is not to scare you. Oppositely, I feel that in most of the cases things are real, bidders are real and everyone is happy. Don’t over-worry this problem. However, you can keep in mind the followings so you will not become a victim of shill bidding:

  • Don’t want anything too much, this makes you more vulnerable.
  • Who is the seller, is (s)he a reputable member of the online or offline community?
  • Try to find out who are the other bidders if possible. Avoid bidding wars with new bidders.
  • Don’t place a proxy bid if you worry about that. About 10% of the cases my experience is that there is a buyer(?) who just stops at my proxy bid. Test the systems and decide which one you trust, which you don’t.

Or the final tip: Buy domains and websites for a price that you feel is a good deal and makes you happy – and forget the cheaters.

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