Low Bid? You're the Winner!

(Business 2.0 Magazine) -- Auctions in which the highest bid loses may seem like the product of a deranged mind. But for Burlingame, Calif., startup Limbo, it's a brand-new business model - and a marketing tool for major companies.

The winner of each auction, which is conducted by text message, is the person who suggests the lowest unique price, such as the $50.43 that 22-year-old Trisha Hepworth of Salt Lake City bid for a brand-new Mini Cooper. Since Limbo launched in mid-December, it has run more than 200 such auctions, and the company expects to rake in $5 million in revenue during the next year.

How?

Most of the money comes from media partners like CBS Radio (Charts), Fox (Charts), and Lifetime, which get charged for running Limbo promotions under their brands. Companies such as Procter & Gamble (Charts) and Virgin donate their products as prizes. If they wish, they can charge the participants 99 cents per bid, which is split three ways among Limbo, the wireless carrier, and the donating company.

But in most cases, it seems, the exposure outweighs the cost. "The brand becomes a thing of desire," says Limbo CEO Jonathon Linner. "You start imagining yourself using that product over and over, which is a much more effective type of advertising." About 53 percent of Limbo bidders are 18 to 35 years old, advertisers' most coveted demographic.

With eight patents pending and $9 million in funding from Azure Capital Partners and Draper Fisher Jurvetson, Limbo is on a roll.

"It's a fascinating concept," says Joe Laszlo, a senior analyst for Jupiter. "There's nothing like buying an iPod for $4 and telling your friends about it."