Penny Auctions: They're Gambling

Late last year, I encountered what may be nearly perfect evil in business plan form: Swoopo. What is Swoopo? It's a class of penny auction, where bidders pay for the privilege of bidding:

This is a companion discussion topic for the original blog entry at:

Amen to that!

A lot of bloggers have seen the evil of these types of sites. It’s just taking advantage of stupid people.

The BBB isn’t a government regulatory agency. It’s a private organization.

I never understood anyway why web auctions end at fixed time, unlike offline auctions which end when there is no higher bid. The bidbutler problem goes away if the auction ends after time X IF no new bids were placed for Y minutes. Or something like that. Of course it wouldn’t be so profitable; it would just make more sense.

This is quite a timely post, as just this past week I thought I would take Swoopo for a spin to see what I thought.

I would agree whole-heartily with your post, except for the part about the bidbutler–Having used the bidbutler, I would have to disagree with the statement “exploitatively expensive.” It does not cost anything extra, nor does it put any exploitive conditions on how you use it. (except of course with the already-mentioned manual bid delay fluke)

As for people being taken advantage of, I have seen a number of auctions where people have paid >$1500 for a $1200 macbook, because of the way they are bidding/the way it is setup.

It truly is a racket.

The first red flag for me comes up with any auction service that requires me to lose money and not get any return from the item. That’s a gamble on its own, since no real auction site would force me to lose money just for trying.

Swoopo is more than just a scam, it’s an insult to the internet in general. I’ll definitely be telling friends and family about this.

Gambling can be fun if you know what you’re in for, and you don’t expect to win. It’s about playing the game. I know for one that my parents could find a site like this, think it’s a great way to make a bargain, and lose incredible amounts of money and not understanding WHY they just seem to keep missing a bid.

Fight the good fight Jeff!

Man, this is one of the oldest tricks. Here (Spain) on every fair, you can find several Gypsy stands that use this auction method, and I believe this has been this way for the last thirty years. They auction everything, people buy auction tickets, and loose. Scams 2.0 baby!

Why do you care, man? No one’s a kid here, if someone wants to go and spend their money on that website they’re going to do it regardlessly even if it were classified as a gambling website. Other than hurting their business itself you aren’t going to achieve anything or convince anyone. So why bother with this? There are better ways to use your energy.

Unless of course, you have a personal beef with that site, which you do seem to have.

Oriented strand board is evil?

While I agree that it probably is gambling, I just have to say, who cares. Why do we need the government stepping in? As long as there are only adults bidding on the items, it’s their own choice what they spend their money on.

Worth taking another swing at these sites.

So, besides, Swoopo, any other sites you would go on record against?

Vigilante justice! Hack everything!

The Swoopo business model is underhanded verging on dishonest. I doubt the average Swoopo user has any idea that he’s stuffing money into what is essentially an online slot machine.

Regulatory agencies should spend a little less time harassing legitimate games of skill such as online poker, and a little more time harassing sites that offer what amounts to a Mafia-style numbers game, thinly disguised.

is it really that much of a scam? I see it as nothing worse then a Chinese auction (some call it tricky tray). You pay a fee to get n number of tickets, and can buy more if you want. Then you walk around putting as many tickets as you want, into cups in front of merchandise. In the end they pull random tickets from the cups to see who won. You can easily spend money and get nothing in return. I’m not trying to say that I approve of Swoopo, but a fool and his money is soon parted…

@NJ Brad:

The difference between what you’re describing and Swoopo, is that after the winner is picked (from people paying for that privilege, which can have no end if people keep on bidding) the winner has to still pay for the marked price of the item! Sure, it could be only 35% retail price, but each 15 cents of that cost someone 75 cents, so in effect they make 5x of the final bid cost, just from running the auction, 6x if the person buys the item!

Just let this sink in…Swoopo doesn’t even need to have the item in stock. As long as it sells for more than 1/6th its retail price they can just buy the item from amazon, ship it to you, and make a profit.

And there is a huge opportunity for just plain fraud. What if they just had an insider automatically win every auction? No downside whatsoever, just pure profit from nothing.

It’s a scam of the highest order and probably a moneyprinting scheme for the owners.

It is a scam, reason being that the collective cash of all the unsuccessful ‘bidders’ far and away exceeds the value of the items being sold. It’s more akin to pyramid schemes, where one small group gets unjustifyingly rich at the expense of a large number of other groups.

There is no way you can call this any kind of auction. It’s gambling through and through and it should be labelled as such and policed as such. You shouldn’t have to buy bids in an auction any more than you should be able to buy votes in an election. They’re about as corrupt as each other. Can someone explain how 10 people can bid on a $20 item, 9 people bid $10 and 1 person wins the auction by bidding $11. The owner of the item gives away $20 and recieves $101. Have I got that right? If so it comes under the ‘freedom to print money’ title.

I think you missed a very important point in a Swoopo auction. “If a bid gets placed in the final moments, we extend the auction by up to 20 seconds”.

This does skew your analysis.

Your statement “…your client-side bid … ending up at the top of a queue with dozens or hundreds of other bids placed within a fraction of a second of each other.” especially neglects this point.

A client-side bid will win if it managed to be the only request within the subsequent (upto) 20 secs.

Otherwise, great article as usual.

Thanks for the post. I clicked through an ad to the swoopo site just the other day. I reached the same conclusion that it was a scam. Here’s a thought for others out there. Every time you see an add for the swoopo site, go ahead and click it. I assume a lot of the ad revenue they pay is based on click throughs. We can cause their ad revenue to go through the roof! Just don’t bid on anything!!!

While I agree that it probably is gambling, I just have to say, who cares. Why do we need the government stepping in?

For the same reason those payday loan joints need to be regulated:

capitalism gone wild: 3,685% interest rates. Sort of like the 3,685% house profit that swoopo rakes in.

Gambling corporations have become adept at exploiting such human inclinations to the point of addiction, encouraging people to part with money they and their families often can’t afford to lose. It is a legitimate use of law to regulate organisations who exploit the weakness of other people for monetary gain. Banning gambling altogether would be going too far, but putting limits on the number of outlets and the size of the winnings is sensible, given human nature as we know it.