Comments on: The Dollar Auction and Swoopo

The Dollar Auction and Swoopo

Zarkonnen — Wed, 01 Oct 2008 14:10:53 -0800

An online auction site called Swoopo, once called TeleBid, has hit upon an ingenious way to make money. They are an auction site not entirely unlike Ebay - but using a different auction scheme. Where EBay uses a slightly modified Vickrey auction system, Swoopo uses an auction system based on the "Dollar Auction" game - with interesting results.

Their system is an open auction with a very tight time limit, where each bid made increases the price by seven pence, costs the bidder fifty pence to make and increases the time limit by a couple of seconds. This might seem benign at first, until you do the maths: For example, a camera worth £679.99 was recently sold for £189.49 to someone who had made 81 bids. This particular bidder paid a mere £229.99 for the camera. But to drive up the camera's price to £189.49, some 2706 bids had to be made, at a total cost of £1353. Hence, Swoopo ended up receiving £1542.49 for a camera valued at less than half that. It's a good deal for the winner - but an even better one for the company. An even stranger kind of auction takes place on the site - a "100% off" auction, where the final price does not have to be paid. Whoever makes the final bid before the timer runs out gets the object of the auction for no additional cost beyond the bidding fees. The object of the auction is five hundred pounds. So the deal is this: keep on giving money to Swoopo in 50p increments, hoping to be the one to get the money at the end. Whenever that is. At the time of writing, there was a £500 auction that has climbed to £738.08. If it ended at that point, one of the parties would walk away with £500 in exchange for however much it cost them to bid. And the company would end up with £5272 in fees in exchange for that £500. Is this auctioning or entertainment? A clever application of game theory? Gambling? A scam? It's probably not illegal, as far as anyone can tell. The decision on its morality is left up to the reader... Previously on Everything2 and TechCrunch, including a comment from (apparently) the CEO of Swoopo.

By: acro

acro — Wed, 01 Oct 2008 14:21:46 -0800

I'd lean toward scam, but this might just take a while to digest.

By: GuyZero

GuyZero — Wed, 01 Oct 2008 14:23:40 -0800

Possibly crazy. One of many business that's profitable until it's deemed illegal.

By: orthogonality

orthogonality — Wed, 01 Oct 2008 14:26:24 -0800

Gambling. And exploitation; no one rational plays a pure dollar auction twice.

By: vorfeed

vorfeed — Wed, 01 Oct 2008 14:26:38 -0800

Wow, this might possibly be the only business model which guarantees even more insane profits than Ebay makes, and with even less effort. Capitalism is over, everybody, we've finally found the winner!

By: ssmith

ssmith — Wed, 01 Oct 2008 14:26:46 -0800

This strikes me as more like gambling and less like auctioning.

By: GuyZero

GuyZero — Wed, 01 Oct 2008 14:29:29 -0800

Also, I often wonder if sites like this are really fronts for some economics PhD student who needs to do some experiments for his thesis.

By: tehloki

tehloki — Wed, 01 Oct 2008 14:31:04 -0800

The 100% off auction is definitely gambling. The payouts for that are structured like a slot machine jackpot - everybody keeps putting in money until a random person gets a payoff, and the house walks away with the difference. The auctions for actual items just seem like a combination of scam and gambling. It's just a kind of lottery which is really easy to lose a lot of money on, with no realistic chance of winning.

By: smackfu

smackfu — Wed, 01 Oct 2008 14:33:11 -0800

So it's like a raffle. Sorry, so it IS a raffle.

By: shockingbluamp

shockingbluamp — Wed, 01 Oct 2008 14:33:54 -0800

"Users cannot just simply register and bid. Instead once registered a user must fill his or her account with prepaid bids. Yes, that's right, you pay to bid. Each bid costs the user $1, and can be purchased in packs of 20, 50, 100, 200, and 500. There is no discount for buying larger packs. Here's where it begins to get gimmicky, and Swoopo begins to lose me. Before the first bid, you're already financially into the whole thing for as much as $500. What's worse is that if you lose an auction, you also lose all the bids you placed, and thus have essentially given the site free money for just giving you the privilege to bid on the item." -quoted from technologizer
...one born every minute..

By: fcummins

fcummins — Wed, 01 Oct 2008 14:34:24 -0800

Wow. But it's clever, the bastards. I'd back them in the ultimate showdown of ultimate destiny, if I hadn't invested the house in bindle futures.

By: aubilenon

aubilenon — Wed, 01 Oct 2008 14:42:25 -0800

Paying money to lose auctions doesn't sound that appealing to me. But I guess there are people who think it's great?

By: adamrice

adamrice — Wed, 01 Oct 2008 14:45:06 -0800

A strange game. The only winning move is not to play. How about a nice game of chess?

By: cortex

cortex — Wed, 01 Oct 2008 14:51:14 -0800

The auctions for actual items just seem like a combination of scam and gambling. The term you are looking for is 'scambling'.

By: ardgedee

ardgedee — Wed, 01 Oct 2008 14:57:15 -0800

It's probably going to keep buyers happy until they realize that the money they're wasting on the auctions they lose more than offset the discounts they're getting on arbitrary items they win. This might take a while, depending on how thick their members are.

By: davejay

davejay — Wed, 01 Oct 2008 15:01:06 -0800

The basic premise of this is well known, at least in florist circles, but the per-bid fee is what makes it sketchy. And ardgedee's got it; this site will succeed or fail based on whether their customers are able to recognize the pattern of profit and loss from their actions. Which, historically, people are (supposedly) really good at. And yet, how many people look at the unit cost of the products they purchase, versus just grabbing the cheapest one?

By: solipsophistocracy

solipsophistocracy — Wed, 01 Oct 2008 15:10:38 -0800

This might take a while, depending on how thick their members are. I had not realized that particular demographic was ripe for exploitation.

By: symbioid

symbioid — Wed, 01 Oct 2008 15:13:50 -0800

davejay: "And ardgedee's got it; this site will succeed or fail based on whether their customers are able to recognize the pattern of profit and loss from their actions. Which, historically, people are (supposedly) really good at. And yet, how many people look at the unit cost of the products they purchase, versus just grabbing the cheapest one?" Umm, last I checked, Amway was still in business.

By: davejay

davejay — Wed, 01 Oct 2008 15:20:00 -0800

Thinking about this a bit more... On eBay, the seller pays a known fee based on the price of the sale. On this new site (I've already forgotten the name) the buyer pays a known fee for the opportunity to bid, that has no direct cost to the seller. For eBay's sellers, the cost is known on a percentage basis, but the control over seling price (assuming it's not a buy-it-now deal) doesn't exist. For this new site's sellers, the control over price doesn't exist either, but the cost to the seller is unknown...because the cost is determined in real time by the buyers, who factor their bidding costs into their actions. Since the new site's buyers have an interest in minimizing their bidding (as well as their overall) costs, odds are a seller will make less overall on their sales versus an eBay sale, because eBay (who deals in aggregate purchases) likely takes a much smaller per-transaction cut than an individual (and during the bidding process, only potential) buyer is willing to give up on a per-transaction basis. Meanwhile, the total cut to the auction site is exponentially higher that eBay receives on low-cost popular items, because their cut is collected in aggregate from all the bidders (not just one sale) and is a fixed cost (not based on percentage) -- and somewhat lower for low-bid, big-ticket items like a car. So if I'm right about this (which I may not be) you should expect to see eBay focus on expensive (to maximize their cut) transactions, this new site focus on cheap, popular (to maximize their cut) transactions, sellers of expensive and niche items to flock to ebay, and sellers of cheap, popular items to flock to this new site. Buyers, meanwhile, will stick with eBay, because (for expensive and niche transactions) the sellers are more likely to be there, and for cheap, popular items they'll stick with eBay, because otherwise their per-bid cost will be extremely high proportionate to their final purchase price. So I don't forsee a strong future for this site, although it will fill up very quickly with relatively low-ticket items for sale.

By: davejay

davejay — Wed, 01 Oct 2008 15:20:36 -0800

Umm, last I checked, Amway was still in business. Yeah, exactly. Favorited for truth, baby.

By: 23skidoo

23skidoo — Wed, 01 Oct 2008 15:21:35 -0800

These deals sound too good to be true to you? In a way they are. Users cannot just simply register and bid. Instead once registered a user must fill his or her account with prepaid bids. Yes, that's right, you pay to bid. Each bid costs the user $1, and can be purchased in packs of 20, 50, 100, 200, and 500. There is no discount for buying larger packs. Here's where it begins to get gimmicky, and Swoopo begins to lose me. Before the first bid, you're already financially into the whole thing for as much as $500. What's worse is that if you lose an auction, you also lose all the bids you placed, and thus have essentially given the site free money for just giving you the privilege to bid on the item. Thus once you start bidding, you have a vested financial interest in winning that item. 1. If you can purchase packs of 20, 50, 100, 200, and 500, and there is no discount for buying larger packs, then there is no good reason for someone to be "already financially into the whole thing for as much as $500" before the first bid. What the heck are you going to be bidding on where you are going to bid on it 500 times? 2. Once you start bidding, you have a vested financial interest in winning? Before you start bidding, you should know exactly how much money you are willing to spend, and spend no more than that. Sure, in some sense that makes it similar to gambling, but the "don't spend more than x" applies to Ebay-style auctions as well. Sometimes I think "I could get that item if I spend a liiiiitle bit more to outbid that guy who swiped it from me" but then I remember "I decided at the beginning that this thing was worth $30 to me. The fact that I can now get it for $1 MORE ignores the $30 that I've ALREADY spent. I don't want to spend $31 on this. Walk away."

By: cosmac

cosmac — Wed, 01 Oct 2008 15:29:03 -0800

Ok, lets cut to the chase. Auction for $80 in cash... I can see why these people are smiling.

By: Zarkonnen

Zarkonnen — Wed, 01 Oct 2008 15:45:56 -0800

davejay: One thing I should have mentioned is that only the company puts up items for sale. Users can't.

By: cortex

cortex — Wed, 01 Oct 2008 15:53:17 -0800

Oh, so no independent sellers. That makes a little more sense. Swootpoff?

By: jeffmik

jeffmik — Wed, 01 Oct 2008 16:10:00 -0800

From their help section On rare occasions we are no longer able to source the specific item detailed in the auction. When this happens, we will contact you and offer to send you an equivalent item of at least equal value. Many of the products we sell are high-technology items that have a short life-cycle, so often this will mean an upgrade to the newer version of the item. So they're not even buying the product in advance - probably just drop shipping. Good for them. Any business that doesn't require any sort of inventory is a big step ahead.

By: mrgrimm

mrgrimm — Wed, 01 Oct 2008 17:49:37 -0800

Well, that seems like an obvious scam. Even the straight-up dollar auction is a loser's bet, but when you add in the a per-bid fee ... that's Ludacris.

By: mrgrimm

mrgrimm — Wed, 01 Oct 2008 18:04:01 -0800

Also, what's to stop Swoopo "users" from manipulating prices in collusion with the company.

By: sexyrobot

sexyrobot — Wed, 01 Oct 2008 19:00:40 -0800

oh yeah, this doesn't look horribly addictive at all. also, my guess is that you're likelier to win at around 4am.

By: avoision

avoision — Wed, 01 Oct 2008 21:15:56 -0800

I keep trying to figure out why this isn't illegal. And given the various auction types they have (Fixed Price, Penny Auction, 100% Off)... this site seems to me as ingenious as it is evil. I'm in awe.

By: markr

markr — Wed, 01 Oct 2008 22:55:30 -0800

There is something mesmerizing about watching a Nintendo DS get bid up in 15 cent increments, and having the clock reset back to 10 seconds to go each time, knowing each bid is costing someone $1. I like that it has an inbuilt auto-bid system so that you can hemorrhage money without having to sit there and do all that clicking.

By: Senator

Senator — Thu, 02 Oct 2008 07:43:47 -0800

These guys are my new heroes. No inventory...check....sell items just from company... check...charge customers to bid...check....profit from each item over 1000%..check.. Gentlemen......a toast......to evil!

By: metaBugs

metaBugs — Thu, 02 Oct 2008 09:36:02 -0800

That is genuinely inspired. In a particularly fun twist, one can bid for bundles of free bids. Then, presumably, be more willing to use those free bids to drive the price up for other bidders. Evil? Yes. Genuis? Probably also yes. It definately smells like gambling to me, in that each bid is effectively a bet that the other bidders will give up soon.