New Auction Site: A Little Ingenious, A Little Evil

Ok. I came across near the end of the work day, and nearly an hour later… my mind is still reeling from the underlying business model. I’m AWED. On the one hand, it’s an ingenious variation on the traditional online auction… and on the other hand, I feel like this has GOT to be some kind of scam. It’s got to be illegal somehow. Somehow.

Here’s the premise as I understand it:

1) Various items (primarily high end electronics) are made available by Swoopo.
2) Users are required to register on the site, and to purchase “bids.” Each bid costs $1.00, and can be purchased individually, or in packs of 5, 10, 50, 100, etc.
3) All items begin with a price of $0.15 (I think).
4) All items have a set time limit, with a clock that counts down to 00:00:00.
5) To win an item, you need to be the last person to place a bid.

While there are some similarities to Ebay, the Swoopo model has a few interesting twists that center around what happens when a user places a bid. Keep in mind now that in order to win a particular item, you need to be the last person to bid… and the time needs to run out.

When you hit the “Bid” button, here are the things that happen:

1) You use up a “bid.” Remember that each bid costs $1.00.
2) The item price increments by $0.15. Each time someone bids, the price goes up 15 cents.
3) Here’s the kicker: an extra 15 seconds gets added to the countdown, allowing others to potentially swoop in and place their own bid before time runs out.

So what ends up happening is that an item will be up for auction at a fairly low price, and as it nears its expiration (15 to 20 seconds left), a ton of people place “bids” to try to be the last person. Each bid in turn bumps the time remaining a little bit, making it easier for someone else to come in and place their bid.

To get a better handle on how things work, and just how much money flies back and forth here… let’s go through a sample scenario. Assume that there’s an auction for a Playstation 3. Technically, it’s worth about $400.00 if you were to go to the store and buy one.

Let’s also assume that at $200.00, all bids stopped and the auction ended. Finally, let’s assume that the winner of the auction placed a bid approximately 50 times, in order to win.

Here are some numbers:

1) For the winning user, he paid $200.00 for a $400.00 item.
2) In order to win the auction, he used 50 bids… which translates to $50.00.
3) In total, the user paid $250.00 for a $400.00 item (plus shipping).
4) In order for the price of the item to have increased from $0.15 (where it began) to $200.00 (where it ended), this means that there were approximately 2,667 bids made in total, by numerous users.
5) Translated to dollars, 2,667 bids = $2,667.00.
6) Swoopo makes enough from the item to cover the cost of the item, and a remarkable profit besides.

And if that’s not enough to get your mind racing, you should know that they have a variety of different auction formats as well. Including:

1) Fixed Price Auction: Regardless of what the ultimate price ends up being, the winner of the item pays the original fixed price. Example: Canon Digital Rebel, with a fixed price of $79.00 (retail is about $900).
2) Penny Auction: Bids increment the price by $0.01 and increment the time remaining by 1 second.
3) Nailbiter Auction: Manual bids only, as using BidButler (the site’s automated bidding process) is not allowed.
4) 100% Off Auction: Winner of the auction pays nothing, except shipping costs.

All of the above auctions focus on maximizing the total number of bids made. Ultimately, the winner of the auction gets a great deal… but as a collective, people have spent a great deal of money.

And as a final mind-blower, the site also has a “Vouchers” section. Here, they sell things like packs of 300 bids, or even out and out cash. Let me take a moment to separate those two out.

By making a 300 FreeBids Voucher available, Swoopo is essentially offering up its own currency in some respects. Similar to how people can purchase gold in WoW, you can purchase “free bids” by buying them. In this way, Swoopo has found a way to turn a profit off of something it created: the “bid” itself.

Additionally, they’re auctioning off money. Actual, honest to god cash. And while the winner of that auction may have paid $40.00 to win the $80.00 cash… overall, I’m betting Swoopo saw a lot more profit off of the individual bids made ($40.00 equals 267 bids equals $267.00).

This is a lesson in basic Math right here. Bidding on high ticket items seems like a sucker’s bet. I’m still trying to figure out how this site can be legit, as it feels so very close to a scam or a raffle or gambling. But it seems just shy of all that, and falling just barely on the legal side of things.

To me, this site is as ingenious as it is evil. And basically it’s a punishment for people who can’t work out the Math behind it all. But hey – the Lottery is legal, and takes advantage of the same sorts of things.

It’s hours since I first saw Swoopo and I’m still playing back their business model in my head, over and over. When I stop to think about what might actually be going on, in terms of financial transactions… it’s stunning. Absolutely stunning.

Additional Background:
The Dollar Auction and Swoopo (MetaFilter)
Vickrey Auction (Wikipedia)
Dollar Auction (Wikipedia) – Absolute Insanity (Everything2)
Swoopo: “Entertainment Shopping” With a Hint of Scam (TechCrunch)
Is Swoopo Nothing More Than a Well-Designed Gimmick? (Technologizer)

This Post Has 8 Comments

  1. I just can’t see using this… I just watched a few minutes of the end-bidding for an iPod Touch. I don’t think I’d have the patience to see this thing through to the end. Just when you think it’s close to being finished, the clock is back up to 3 minutes, over and over again. Maybe the kids will dig it, but to my mind there’s no fun in being frustrated. It is an ingenious model though and clearly attractive to some.

    Alex Reply

  2. I am so intrigued. I’m watching a camera that I don’t need right now (w/ about a minute left in the auction) to see what happens.

    Brian Reply

  3. Wow! Yeah, this auction isn’t gonna end anytime soon. I’m curious to check it out later to see how it ends up unfolding. I’m worried if I look too much I’ll find something I want, or possibly even bid on the countless things I don’t.

    Brian Reply

  4. I was interested in this site..always looking for a bargain. However, after spending $150 and a few hours sitting in front of my computer I have nothing to show for my money or time. It could have been a $150 towards the item I was trying to buy to start with. You think you may be close to winning but the clock always adds time so the auction never seems to end. Totally a gambling type site.

    Anonymous Reply

  5. If you look for bargains go and visit I check this swoopo and most of the auctions are closing for more than retail price, so at the end is better to by from the store.kcbidz auction products for few dollars , they have a max bid required to close, but you pay much less for the product plus shipping is free.For example they have a PS3 for $6.49 plus free bid auction, plus bonus points and up to 10% goes in your account when you buy credits.

    Malinda Reply

  6. From a visual standpoint, I’m not going anywhere near that kcbidz site. For my tastes a site needs to be designed to a certain standard before I will take it seriously/professionally. The only exception for me to that rule is probably I totally agree with you on the swoopo thing, as the closing price almost invariably is more than retail (to say nothing of how much one would spend on “bids” alone).

    avoision Reply

  7. by googeling found another one, although principals are bit different, it’s same s*** anyway

    maddor Reply

  8. Maybe the lottery *shouldn’t* be legal.

    Jesop Reply

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