Auction website Smokoo.co.za has swept into SA’s online space, stirring a flood of criticism and scepticism about its business model. However, founders Jian Li and Thomas Pays are adamant the company is entirely above board.

Smokoo, started five months ago, has adopted a well-known international auction system known as the penny auction.

Users are required to register to use the auction site, and buy R5 tokens to bid on items. Each auction runs over a set period of time, with prices usually starting low and building up in small increments — sometimes 1c but mostly 5c — each time a bid is made.

All bids used to increase in 1c increments. However, the SA banking system is not equipped to process micropayments.

Each bid increases the timer of the auction by 10 seconds, allowing another bidder to either continue billing, or bow out of the auction. Once the timer runs out, the final bidder is given the chance to buy whatever item was on auction for the price listed on the site.

The fledgling company has faced a storm of criticism, with some people accusing it of running a lottery and others saying it is akin to a gambling operation.

Some critics have even accused the company of using “bots” — software robots — to prevent people from winning any of the listed auctions.

Similar international services also faced stinging criticism when they started, and some international sites earned a bad reputation for being exactly what Smokoo has been accused of.

Li says he is concerned sceptics are using public forums to damage the company’s reputation. Smokoo is self-funded by Li and Pays.

According to Li, Smokoo has legal advice that it is operating entirely within the law and is not a gambling venture or a lottery.

“There will always be a guaranteed winner, which means it is not a lottery. It’s not a game of chance,” he says. “It runs almost like it would if it were an auction with an auctioneer. Also, if I run a bot on the service to prevent sales, no one will ever be able to buy anything and I will never make a profit.”

The credit system Smokoo uses for bidding has also come under fire, with suggestions the company is making well in excess of the value of each item on auction.

However, Li says the token service only sometimes covers the costs of the items on auction, and although it does profit off others, it is not as large as many critics believe it to be. “Of course we make some profits, we are a business after all and we have salaries to pay.”

The company also incurs high costs, especially on bandwidth.

“We are trying to be as transparent as we possibly can and have an open-door policy,” says Pays. Potential customers who are concerned about the security or the validity of the service are welcome to visit the company’s office, which is listed on its website, he says.

Li says there are several ways to tell if a penny auction site is not legitimate. “You can check the site traffic on sites like Alexa.com and see whether traffic on the site is high or low. Then you can compare it to the auctions on the site, if the prices are high, and, if the traffic is low, it is probably not a legitimate auction.”

Though Li and Pays are both French, all the company’s infrastructure and services are obtained locally. “We are not hiding in a foreign country, with foreign bank accounts. We are hoping our transparent policy will encourage South Africans to accept the product,” says Pays.

The company has also employed an independent auditor to comply with local legislation. It employs nine people, with another two staff joining soon. Neither of the directors takes a salary yet.

The two founders spent more than a year planning the business before getting it off the ground. They say they wanted to ensure all aspects of it would meet legal and public expectations.

To make sure that user information, more specifically financial information, is kept secure, Smokoo does not keep credit-card information at all. It uses registered online financial services like Ukash as its provider.

“We are very strict about security because we don’t want ourselves or our users to be hit by hackers,” says Pays.

SA is only the first phase for Smokoo, which the founders will expand internationally in coming months. — Candice Jones, TechCentral

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