Jeff Atwood on Swoopo: "Pure, distilled evil in a business plan."
Jeff Atwood of Coding Horror tears into Swoopo, an online auction site that promotes itself as a hip, smart alternative to eBay but instead feasts upon the desperation of its losing bidders... resulting in thousand dollar profits on $200 iPods:
It's not clear that Swoopo even has the items they auction; they appear to sell first, then use the money they gain from the completed auction to buy and ship the item. Furthermore, they have a clause in their Help under Delivery and Shipping that lets them ship "equivalent" items...There are also rumblings that swoopo silently pits users from the different territory websites against each other in individual auctions, such that UK users are unwittingly bidding against US users. This is done to ensure that there is around the clock bidding to extend auction end dates as long as possible.
In short, swoopo is about as close to pure, distilled evil in a business plan as I've ever seen. They get paid for everything up front, and as they drop ship everything there's no inventory or overhead to worry about. It is almost brilliantly evil, in a sort of evil genius way. You can't stop people from endowment effect fueled bidding when they have the individual chance, however small it may be, to win a $2,000 television for $80 -- while collectively sending the house $10,000 or more.
Atwood's conclusion? Bidding on Swoopo is sheer gambling. Who thought eBay could seem so comparatively upright and moral?
Profitable Until Deemed Illegal [Coding Horror]
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Holy crap, paying for the 'right' to bid. bids only increase the current price by $0.15. 'Auction' length extended by every bid.
Man, this is completely an evil genius idea, seemingly forged from the depths of Mordor to prey upon a lethal cocktail of auction fever, sunk costs, and the endowment effect.
I don't know whether to hate or worship the founder(s).
Going to the site is great -- virtually every item has just 10-20 seconds "left" on the auction, but every time the counter goes down to 2-3 seconds there are a flurry of bids.
Guys, it's not eBay -- sniping at the last second *does nothing*!!! *facedesk*
Hmmm... a little more studying makes me think that this a little more interesting.
In the majority of the cases, from a quick look at the most recently ended items, the winner really does pay quite a bit less than the final price, even when you include the price spent on bids (which is helpfully shown).
So the winner really does win, and they're not usually throwing good money after bad (usually... note the glaring exception below). So the problem is only that the losers lose. In this sense it really is like a gambling site, as the article suggested.
Below are the five most recently ended auctions, with how much was spent. Note that in several cases the total that the site received was under the selling price of the item (gleaned from Google Products), so unless they are buying with very good discounts, they are occasionally losing money. I'll bet, though, that they only lose money on the small-ticket items, and make huge bucks on the big-tickets.
Wii fit balance board
price $85
winning bid: $13.95
total to site: $83.70
total paid by winner: $62.54
Netgear wireless adapter
price: $80
winning bid: 20.25
total to site: $121.50
total paid by winner: $33
Samsung PN50A450 50" 720p HDTV Plasma TV
price: $1,000
"fixed price": $119
winning bid: $1,002.15
total to site: $5,129.75 (!!!)
total paid by winner: $1,963.15
(that guy is fucked when he tells his wife...)
Panasonic DMC FX-150K 14.7MP Digital Camera
price: $300
winning bid: $81
total to site: $405
total paid by winner: $86.75
Apple iPod Shuffle 2GB Silver 2nd Gen
price: $60
winning bid: $4.80
total to site: $28.80
total paid by winner: $9.30
There is no real problem with the design, only in that it exploits people's sense of self worth by getting them to believe they are somehow going to be the lucky one winning.
If you check out the "recently ended" auctions they list, you will see a lot of people who got great prices for what they won, but if you look through all ended auctions the picture is much different. They have picked out auctions that look good to customers to place on their list of example auctions.
The site is gambling because you pay for a chance to win something. It's really simple. You aren't bidding on a price, you are betting on the fact that no one else will play the game in the next 15 seconds.
It's gambling.
Definition: Gambling is the wagering of money or something of material value on an event with an uncertain outcome with the primary intent of winning additional money and/or material goods. Typically, the outcome of the wager is evident within a short period.
Pretty much sums up Swoopo.
Those who defend Swoopo usually do it by stating that they have won, or that it's legit because you CAN win. That's not the point. States didn't make gambling illegal because winners weren't receiving their winnings. States made gambling illegal because it's GAMBLING and that prays on people, especially those without the financial ability to absorb the large loses that do occur.
Ok, so here' the deal. On a majority of the wins, the winner has received a substantial discount from the retail price, but the house has won substantially because of all the non-winning bidders who still have to pay (up front) for their bids.
I hope this site is made illegal in a few other states soon to start an end to it being considered a legal auction site instead of the gambling site it is. It should still stay around as a gambling site though, because it can be played with skill and makes money for those running it, something which most websites just haven't figured out how to do.
nice! a new tax on greed and stupidity.
@downpressor:
I find the "greed and stupidity" take on economics and behavior rather hackneyed, and like this description better:
"There's something else at work here, though, and it's almost an exploit of human nature itself. Once you've bid on something a few times, you now have a vested financial interest in that product, a product someone else could end up winning, rendering your investment moot. This often leads to irrational decisionmaking -- something called the endowment effect, which has even been observed in chimpanzees. So instead of doing the rational thing and walking away from a bad investment, you pour more money in, sending good money after bad."
Also, note the careful language in the purported Swoopo employee's comment on the following blog:
http://jjbauer.blogspot.com/2008/09/is-swoopo-scam.html
I had a look at Swoopo the other day:
http://www.dansdata.com/danletters205.htm#4
Yes, it's a kind of gambling, but the rules are clearly disclosed - heck, all you have to do is sit there and watch the front page to see people getting lousy deals right, left and centre.
After that page went up, someone e-mailed me with allegations about non-kosher stuff going on on the site - odd results that could have been shill bidders or some other interference with the stated rules of the game.
I don't think they really NEED to do that, though. They're just dropshippers who've come up with a neat-o way to get people, in the aggregate, to pay well over the retail price for various products. So if they're NOT cheating behind the scenes, good luck to 'em, I say.
Yes, gambling is a chronic disease for some people. But so's alcoholism, and I don't advocate the banning of liquor stores.
I wouldn't be surprised if some aspect of Swoopo turned out to be illegal in at least some of the US jurisdictions from which it's accessible, though.
people get upset because they think they can get a TV for 10 bucks, but that never happens on swoopo! if you just use common sense along with some 3rd party research on the site, you won't lose all your money. just don't waste your bids early and use sites like http://www.swoopomanual.com for the research and you'll do WAY better.