Swoopo Warning. Not as it first seems.

I hesitate to write about Swoopo. They have apparently hit upon the recipe for making a lot of money on the Internet. They do this by taking advantage of the learning curve of many new “customers”, and perhaps compulsive gamblers. My fear is my blog post telling the story will also introduce new people to the slaughter. Think long and hard before you add your hard earned money to the torrent they appear to be raking in.

Your first impression when you see the ads for Swoopo, is it is an Ebay competitor. I clicked on an ad for “A New Asus Laptop for $55″, and was brought to an old “auction” page that showed someone in November of 2008 “won” a new Asus laptop for $55. My first reaction was that this is old. Maybe every four months someone gets a good deal. Next I noticed a current auction for an Acer laptop. Current “bid” was only $12.78 and there was only 5 minutes remaining in the auction. The recommended retail price is advertised as $899.99. A nice discount. How can they afford to sell this so cheap?

The site is well designed. The time and auction price is updated dynamically. You don’t need to reload or refresh to see the current “bids”. So I watched. The time advanced, and still no new bids. Now I am getting interested. Should I sign up and bid? There is a detailed graphic that explains how to sign up. There is mention of “Buy each bid for $0.75″. That sounds strange, but not too expensive. I figure I’ll make more sense of that later. There is also mention of “Each bid increases the bid price and the auction time.” That sounds fair. On Ebay, a common bidding strategy is to snipe. Ebay doesn’t change the auction end time with bidding. So sniping developed. This meant bidding in the last few seconds of the auction. This strategy still works, and is how I recommend you bid on Ebay auctions. You are keeping your interest in the auction a secret from the other bidders. Other bidders tend to bid in small increments over the current bid. Meanwhile you should bid the maximum you would want to pay for that auction. Ebay rules limit the amount you pay to one minimum bid increment over the next highest bid. You are likely to be the winning bidder, but only a couple of bid increments over the current bid price. The other bidders have a strategy that has failed them. They would likely have been willing to pay much more for the items they bid on. The strategy they use makes sense for a typical live auction where the auctioneer keeps the auction going until nobody wishes to raise the bid. On Ebay time is up, and they missed their chance to raise the bid. So now you see why Swoopo sounds better than Ebay. The auction doesn’t have a fixed end time. If there is interest in the auction, there is time to put in a new bid. That system sounds fair.

But is it? One other item the Swoopo graphic mentions is each bid “increases the bid price”. On further examination, you learn that the bid increment is very small, and you can’t bid by more than one increment! Most of the auctions have a 15 cent increment. The Acer laptop auction is a “Penny Auction”, with, you guessed it, a one cent increment. Every bid means one cent higher in price, and a few seconds longer in auction time. To accelerate the action, something called BidButler is advertised. Some of the bidders are using an automatic bidding rule on the site. As the seconds count down to below nine seconds, the BidButler bids step in. Multiple BidButler bids seem to be competing. The auction jumps by a few cents, and there is more time on the clock. This happens so fast, that it is not immediately clear what happened, or what it means. I have been writing the blog post for almost an hour since I looked at the Acer laptop auction. That auction is still going on! The current auction “price” is $16.04 with two minutes 19 seconds to “go”.

Let’s work backward, and figure out the story here. $16.04 minus $12.78 is $3.26. That is 326 pennies, or 326 bids! Remember, each bid costs the bidder 75 cents. A total of at least $244.50 was spent so far in bidding! And the auction isn’t over yet. This auction advertises that someone lucked out and recently bought the same model laptop on Swoopo for $74.86. Since this is the advertisement, I would guess that this is the lowest they have “sold” for. I didn’t see the start of the auction, so I don’t know what the starting bid was. But let’s err on the side of caution, and guess the starting price was $12.78. Although, it was probably lower. So $74.86 minus $12.78 is $62.08. 6208 pennies; 6208 bids; 6208 times 75 cents per bid; At least $4656 dollars was spent on “bidding” for that bargain.

Now you can see how they can sell a $899.99 laptop for only $74.86 plus $19.90 shipping. All the losing bidders are paying for it. To be fair, new registrants are given a $10 coupon. But that coupon is only valid for the winner. So the winner got the equivalent of $9.90 shipping.

Nothing is hidden. All the rules are printed. They even have a tag line “Entertainment Shopping”. It is entertaining. My eyes are glued to the site. I am watching in a combination of horror, disbelief, and fascination. This is a game of lottery chicken. Each lottery ticked is 75 cents. You win by being the last person to bid. So far, there seems to be an endless supply of bidders. I am starting to wonder if the auctions ever end. The Acer is up to $18.24 now with five minutes 12 seconds “to go”. Maybe November 2008 is when the last Asus auction ended? Actually that would be good news, because that implies a limit to how much money people have lost on this site. The $74.86 auction was four days ago on March 21st.

This site is disguised gambling. If you are going to gamble, there are places with much better odds than this. Don’t participate. It is a warning I hope everyone heeds. I don’t want to be contributing to the carnage by posting yet another advertisement for this site. The small print under the Acer laptop “auction” says “This auction will end latest on Apr-27-2009 at 07:10 PDT”. That is just over 30 days from now. And only Nine minutes 4 seconds until the auction is “over”.

If you want a low risk place to gamble, try Pogo.com.

If you want to see the train wreck for yourself:
http://www.swoopo.com/auction/acer-as8730-6918-18-4-inch-laptop/165275.html

Update: The auction ended at $26.60. Sounds like a deal. But the starting bid was zero dollars. So $1995 was spent by all the people that lost. That is a pretty good markup on a $899 (suggested retail price) laptop. Most places have to discount when they sell.

Update: I just noticed a new aspect. When you look at a completed game, you can see a count of the number of “Placed bids” and “FreeBids”. These numbers look pretty low. They don’t seem consistent with the math I did above. That is until your realize they are only reporting the costs of the one person that won the game. There are many other bidders that lost, and they too spent money to lose. What was their savings? Also, “FreeBids” is a new word they coined. You have to win a game at some cost to get those “FreeBids”. Their true cost is also hidden. I don’t have a total cost, but they are not free. It is possible that the total dollars spent bidding on “FreeBids” can exceed their face value, just like the Acer auction/game did. The one example I looked at, did seem to cost less than this. I don’t trust it though. They have erased the bidding history. Not even the winners bids are showing up. If total dollars spent was less than face value, I would think they would highlight that, not hide it.

Update: Ok, so the bid history is blank. I forgot my own logic from above. A game for 300 “FreeBids” shows the winner placed 29 paid bids to win. His final price on a “Penny Auction” game is $19.29. He spent $41.04 for his 300 “FreeBids”. But the bidding started at zero dollars and increased by one penny at a time. So $19.29 means 1929 bids at 75 cents each. Total cost to everyone is $1446.75. 300 “FreeBids” would only cost $225 if just regular bids were used. Instead the bids are costing over six times as much. The lucky winner did well, but the crowd lost. Based on the costs to the crowd, each “FreeBids” cost $4.82 instead of 75 cents. Not a good deal. So the Acer laptop above might gross to Swoopo, not the $1995 I guessed, but as much as 2660 times $4.82. A total of $12,821. Of course, this assumes only “FreeBids” were used in the game. But the total could also be more if overpriced “FreeBids” were used to bid on the “FreeBids”. A truly astonishing multiply effect.

Update: The Coding Horror blog says
“swoopo is about as close to pure, distilled evil in a business plan as I’ve ever seen”

And the Freakonomics Blog tells us it is an all-pay auction:
“Martin Shubik invented a famous game-theory exercise, sometimes called “the dollar auction,” where a teacher auctions off a $20 bill to the highest bidder. Bids have to be in round dollar amounts, but the twist is that both the highest and the second-highest bidder have to pay. When uninitiated students start to play this game, someone rushes to bid $3 or $4 dollars for the prospect of winning $20, and then other students respond by bidding up the price.

But then something amazing happens as the auction price starts approaching $20. The remaining bidders realize that they could end up having to pay a lot of money and not win the auction. Imagine that you had bid $19, and another bidder upped the ante by bidding $20. What would you do? Is it better to bid $21 for a $20 prize or to remain silent and pay $19 for nothing?”

The auction tends to end around $30 dollars. The teacher sells the twenty dollar bill for about $60.

Another couple of interesting tidbits about Swoopo. A lot of people see the profits being made, and they want to duplicate the business plan. There are already a number of competitors. Some with even more confusing operations. There are lots of people online asking for Swoopo scripts. It is a buyer beware world on the Internet.

There are ebooks being sold that will tell you how to win at Swoopo. I have not bought one, but I gather they teach you to find the games that have fewer competitors. Avoid the front page games. Avoid the penny bid games. Play off hours. Bide your time. Somehow get a good deal on FreeBids. I still think you are going to lose in the end. And you are also out the money for the ebook. Off hours won’t work, because you are competing with Swoopo sites and players around the world. There is no down time.

Swoopo used to “sell” money. I think that was too obviously gambling, so they stopped it. Swoopo also used to have a “100% off” game. No matter what the price was at the end, you didn’t have to pay it. Your only cost was the bid fees. That was a game that could go on forever. That too made the nature of the gamble too obvious. It is a better money maker to start new auctions. If auctions never end, the bidders will get weary.

Wikipedia has a page on Bidding Fee Schemes.
“The primary risk of the bidding fee scheme website is that it attempts to masquerade as a legitimate auction of goods. Unsophisticated participants will not understand the distinction between a true auction and a fee-to-bid auction-like game, and so might apply poor judgement to the auction-like contest.”

On the Techcruch site, a person comments:
“I am retired and on a fixed income and tried to win my granddaughter a Wii setup. I did not realize that Swoopo kept all your bid monies and when i lost the bid at $100 for a Wii, I was shocked to see that the whole sum was gone,just gone! I immediately wrote an email explaining that i apparently did not understand that they totally kept the $100 and asked to be contacted about this since it was all i had and now can’t bid anywhere. For all they brag about, they won’t even answer an email , and i have sent one two days in a row. I unknowingly made a bad move and you would think they would respect that or at least contact me about it. Call me stupid but i can’t read that well anymore. I guess if i hear nothing i will have to report this event to the BBB and all the blogs i can reach. Do they really want this? Or maybe they just don’t care. Thanks for listening”

Update: The Central Gadget Blog says:
“And, unfortunately, we found problems. Bids timed out many times we tried to lock in bids at the last few seconds. Of course, Swoopo will argue that waiting until the last few seconds of an auction is risky. However, that is a bit of a lie of omission. Chances are, if you don’t place a bid in the last few seconds, you won’t win an item. Your bid will accrue more time on the auction unless it is placed within seconds of the end. This gives people dramatically more time to “out bid” you.”

Photo credits, John, Justin Henry.