My Review of Bid Bots: a one year experience.

This is a review of Bid-Bots.
I would like to review my understanding of: How they work, How you Bid and How to calculate your return on your investment.

How they work.
In order to understand how Bid Bots work we need to understand voting power. We all have ten votes per day at 100%, but making a vote reduces your voting power by about 2%. So while the power of your first vote is 100 percent the next votes are reduced by approximately 2% each vote, so in reality they are worth less then 100%. The math is like this: the first vote is 100%, the second is 98%, the third is 96%, etc until your at 80% and then it takes 24 hours to regenerate your voting power back to 100%. So ten votes, 2% drop in voting power with each vote and 24 hours to regenerate your voting power to a true 100%. So how do the bots give true 100% voting power votes each day? They wait 2.4 hours between each of their ten votes. So instead of voting ten times and waiting 24 hours, the bid-bots vote one time and wait the equivalent of 24 divided by ten or 2.4 hours. This waiting gives the bid-bot back their true 100% voting power every 2.4 hours. So that’s why the bid-bots wait 2.4 hours for the next vote.

How you Bid.
The next thing to understand and perhaps more important is how the bidding system works. This is my understanding based on daily bidding for over a year. A bot has a maximal amount it can vote, a 100% vote based on its SP. The bots pay every “round” or 2.4 hours, according to how much is bid or sent to the bot that round. This reward is calculated using the value of one 100% vote in proportion to the total bids during that round. The greater the difference between the value of the 100% vote and the amount of the bids, the greater the reward per bidder. Conversely a large number of bids reduces the reward or return on investment, which is abbreviated ROI. Bids are accepted during the entire 2.4 hours. You can calculate your ROI based on the amount of bids at the time you bid, but you don’t really know the total amount of the bids and thus the ROI until the very end. Because many people wait until the last possible time to bid, the ROI often changes from the time of your bid until the end of the round. This’s is best explained by the examples below.

Biding Bot Bidding Process Examples:

Example1
My bid-bot has a 100% vote equal to 100$

There are 5 bids during the round which total 50$

Each bidder gets paid the total value of the 100% vote or 100$ divided by the amount of the bids or 100$/50$ or 2$ per dollar invested.
In this example the ROI is 2$-1$=1$ Profit per 1$ invested and 1/1 equals 100% Profit or 100% ROI.
So the person who invested 2$ makes 4$ and the person who invested 20$ makes 40$.
Every investor made money in this example.

Example
2
My bid-bot has a 100% vote equal to 100$

There are 9 bids and the total of all bids are 90$

Each bidder gets 100$/90$ or 1.1$ per dollar invested.

In this example the ROI is 1.1$ -1$= 0.1 dollar, or 0.1/1= 10% profit or 10% ROI.
The person who invested 1$ gets 1.10$ and the person who invest 10$ gets 11$.
Every investor made money that round.

💡As you can see the ROI is dependent on the total bids per 2.4 hour round.
💡And you don’t know the ROI until all the bids are made in that round, so you can’t control or predict the ROI.

Example
3
My bid-bot has a 100% vote equal to 100$

The total of all bids in the round is 100$.

Each bidder gets 100$/100$ or 1$ per dollar invested.

In this example the ROI is 1$-1$= 0 and 0/1 equals zero % profit or zero ROI.
Every investor got their investment back with no gains and no losses.

Example
4
My bid-bot has a 100% vote equal to 100$

There are 11 bids and the total of all bids is 110$.
In this example the total bids are Greater then the value of the 100% vote.
Each bidder gets 100$/110$ or 0.90$ per dollar invested.
In this example the ROI is 0.9$ -1$= -0.1 and -0.1/1.0 equals -10% or a negative 10% ROI.
Every investor lost money that round.

Exceptions, Rules and Quirks.

Some bid-bots pay out the entire vote so 100% ROI is possible.
Some bid-bots limit ROI to 10% so you can never make greater the 10% regardless of the number & amount of bids.
Some bid-bots limit your loss to minus 10% or zero loss.
You need to know the rules for each bot.

Steembottracker
The application steembottracker calculates the ROI for you at any given time during each round.
If investors check the ROI they can be warned there are to many investors and a bid during that round will probably not be profitable or even cause a loss, so its good to check this page before sending your money.
Unfortunately, your success or ROI with bid-bots depends on factors you can’t control and a bit of luck.

Are Bid Bots profitable for the users?
The short answer is it depends.
To explain that answer let’s look at the math. There are certain facts we must remember and then compare the numbers.
Fact #1: You as the author get 75% of the total rewards on any post.
Fact #2: 25% of the rewards on any post go to curation. These two facts lead to Fact#3.
Fact#3: If you invest 1$ in a Bid Bot, you only get 75% of any reward generated by that Bid Bot.
Fact#4: Since 25% of your total post reward goes to curation you have to get a 25% profit or ROI on your money invested in the Bid Bot just to break even.

Those are the words, let’s look at the numbers.
Example:

You invest 80 (eighty) SBD in a Bid Bot.

You get a 25% ROI or Profit from the Bid Bot, 25% of 80=20 SBD, and 80 + 20 = 100 SBD

Now your probably dancing because you got a 25% profit!

However we are not done here.

The Bid Bot pays you 100 one hundred SBD in rewards.

25% or 25 SBD goes to curation.

75% or 75 SBD gets paid to you.

So now you look at this investment again.

You invested 80 SBD

You got 20 SBD from the Bid Bot
, 80 +20 = 100
25% of 100 or 25 SBD went to curation.

75% of 100 or 75 SBD went to the author, you.

Your net return from your 80 SBD was 75 SBD

You lost 5 SBD or 5/80= 0.0625 or 6.25% loss!
You probably lost your urge to dance at this point and your wondering why people use Bid Bots.
Well you can make a profit if you make a larger ROI.
It’s just difficult and unpredictable.

Reasons People Use BidBots
Why do people use Bid Bots if the net reward just from the Bot is frequently less then the amount invested?
I don’t know, but I can tell my opinions.

Profitability
It is possible to make a profit on Bid Bots, people routinely make a profit when the number and amount of bids during a 2.4 hour round is small enough that your profit exceeds curation.

Visibility
In this context purchasing votes, so the reward is bigger makes people pay attention to your posts and your post is listed higher on trending. visibility means people find and read your post, the first step in it getting upvoted. Posts with large rewards go to the top of the list on the Trending Page, which is the first place many people go to find posts to read. So using Bots can get you near the top. If your near the top more people will read your post. Many believe that this leads to more upvotes and more follows. Also the visibility of high reward posts attracts people looking for curation rewards. Many believe that these increased votes make posts which use Bid Bots profitable.

Advertising.
The increased post reward improves a posts visibility.Sometimes people use Bid Bots to Advertise or diseminate the point of view or sell an item in the post. In this example the creator of the post isn’t trying to make a profit of the post. The large rewards from the Bots push these posts up on the Trending list to where people will read them. In any list of articles the ones at the top get read and the ones at the bottom get ignored.

Pride

The other reason I think people use Bid Bots is pride. They think the post is full of valuable information or that the artwork is of good quality and deserves a large reward amount. So they use Bots to improve the perceived value of their posts. It’s a well established business concept that appealing to people’s vanity is profitable. The multi billion dollar cosmetic industry which appeals to the vanity of people wanting to look young is a good example. I am sure you can think of others.

Perception of Profit

I also think that Bid Bots give the perception of large profits. Unfortunately the rewards system for Steemit is complicated and I have just scratched the surface with my examples above. It is easy to look at the large rewards and be happy with the 10% or 15% ROI the Bid Bots generate. Unfortunately it’s only when you truly understand the reward systems math that you find out that what initially appeared to be a 20% gain is in reality a 6% loss.

Conclusion:

Bid Bots can be profitable if you can manage to get a high enough ROI > 25%. While ROI is truly unpredictable due to the bidding process, it is possible to wait and bid late in the round when it’s still profitable or certain times of the day when bidding is slow and it’s easier to have fewer bidders. However there are other things then the initial ROI which can make posts profitable due increasing visibility and increasing potentially the number of upvotes your post receives. Additionally there are other nonprofit motives which motivate people to use the bots.

I realize that any explanation increases understanding but raises questions as well. Feel free to put your questions in the comments below.

What do you think? Comment below.