New York, NY - August 17, 2009 (New York Times)
By BRAD STONE
Published: August 16, 2009
Some people will stop at nothing to snap up a bargain — even if it means paying too much.
Swoopo starts the bidding at zero dollars and zero cents.
That is the paradoxical principle behind Swoopo, a Web site that offers a seductive and controversial proposition to online shoppers.
The site, which started in Germany and was recently introduced in the United States, sells appliances, electronics and other products in auctions that typically top out at a small fraction of the retail price.
This month, a new 40-inch Samsung TV, which normally sells for $1,500, sold for $67.92, and a white LG refrigerator with a price tag of $1,498 went for a cool $77.90.
But there is a catch, of course: Swoopo users are charged 60 cents every time they bid, and those charges add up quickly.
The complicated machinations behind Swoopo and its online imitators are drawing attention from critics who say they prey on human foibles, like the tendency of people to overlook the small increments of money they spend to pursue alluring discounts.
These critics also say that players face long odds in Swoopo’s auctions, where they must compete against people in the United States, Britain and Germany. And they say that Swoopo is making a nice profit on each item when all the bidding fees are tallied.
Competing bidders spent a cumulative $2,337 in their losing effort to buy the $1,498 refrigerator, for example.
Swoopo says it must spend much of that revenue to advertise the auctions and attract customers to the site, which it says had 2.5 million visitors in July, double the number it had a year earlier, and a total of 2.5 million registered users.
“In aggregate, consumers trying to obtain these products are overpaying,” said Glen Whitney, a mathematician and a former quantitative analyst at the hedge fund Renaissance Technologies, who was asked to evaluate Swoopo. “Unless you have an edge over other people who are bidding, and you can get them to subsidize your purchase, you shouldn’t do it. It’s a chump’s game.”
Executives at Entertainment Shopping, the German company that runs Swoopo, counter that the auctions are fun and challenging while offering the possibility of a killer deal.
“We are combining elements of online auctions, skill games and traditional e-commerce,” said Gunnar Piening, the company’s chief executive. “We are trying to bring back fun and excitement into shopping, which hasn’t been there in a long time.”
Swoopo recently acknowledged that one aspect of the game is not much fun: spending money to bid on products that someone else wins. Last month the site began allowing American users to apply that money toward buying the product at full price. Swoopo’s retail prices are marginally above those offered by sites like Amazon.
Mr. Piening says that auctions have lost much of their luster online. EBay’s marketplace, once a mainstay of e-commerce, has been shrinking for years amid complaints of fraud and the proliferation of automated bidding software that allows people to win auctions at the last possible moment.
Swoopo avoids fraud by selling all of the products itself, often shipping them directly from suppliers. Bidding starts at zero, and players can bid up the auction price only in small set increments, like 1, 2 or 6 cents. Swoopo also offers its own automated bidding tool on the site, called Bid Butler. There is no possibility that users can “snipe” an auction at the last moment, because a few secondsare added to the clock with every new bid.
That, incidentally, creates the impression of Swoopo auctions that are about to end but last for hours more, a feature of the site that critics say is subtly misleading.
Nevertheless, Swoopo’s spin on the Internet auction appears to be suddenly in vogue. This spring, August Capital, a Silicon Valley venture capital firm, invested $10 million in Entertainment Shopping, to help it expand worldwide.
In addition to a growing number of small Swoopo imitators with names like GoBid and Rockybid, another start-up, Project Fair Bid, has raised $4.5 million from three American venture capital firms and plans to unveil its site next March.
People who use these sites say they can be addictive, frustrating and potentially rewarding with the right combination of patience, timing and perhaps luck.
Last month, Carolyn Parslow, who manages a flea market in Trumbull, Ohio, won a new refrigerator on Swoopo for $9.66 — plus the $61.80 she spent on bids. But she sounds a note of caution, saying that she has lost far more auctions than she has won, and that there does not appear to be a way to gain a persistent edge over rival bidders.
“It’s not easy. As soon as you think you have it figured out, you lose,” Ms. Parslow said. “You pull your hair out more than you jump up and down with excitement.”
Nick Marchevsky, a 27-year-old unemployed piping draftsman from Sewell, N.J., is more successful than most Swoopo users: he says he has won 27 items in the last few months, including digital cameras, TVs and Mac computers. But his strategy, he says, is simple, bullheaded persistence. He spends up to two hours in each auction and makes sure he outspends other bidders.
That also means he has, on occasion, spent more money in a winning effort than the item itself would have cost.
Mr. Marchevsky argues that winning on Swoopo requires dexterity and patience — players must know when an auction is likely to end, so they can allocate their time and money. And they should never casually bid if they are not serious about prevailing.
“You have to have some skill at it, or you are not going to go anywhere,” Mr. Marchevsky said. “I wouldn’t call it gambling at all.”
In that regard, the company behind Swoopo is not taking chances, retaining a well-known gambling lawyer, Anthony Cabot of the Las Vegas law firm of Lewis and Roca, as an adviser. “Lotteries are games of chance, and an auction does not have what you would call any systematic chance, a random event that determines the winner,” Mr. Cabot said in an interview.
I. Nelson Rose, a consultant to the gambling industry and professor at Whittier Law School, said federal regulators would probably evaluate Swoopo and its ilk not as games of skill or luck, but as auction sites. In that respect, he said, the law on the topic is somewhat of a gray area.
“It turns out the idea of paying for bids does not seem to be specifically allowed by states, as it is in most of Europe,” Professor Rose said. “But it doesn’t seem to be explicitly prohibited either.”