This is a companion discussion topic for the original blog entry at: http://www.codinghorror.com/blog/2008/12/profitable-until-deemed-illegal.html
A fool and his money are easily parted.
As much as I think it’s a scam, that is pure genius. I’d heard about the dollar auction from economics, but never thought of putting it in to use like this.
Yes it’s extremely unethical… but my god it’s clever.
Funny part is, there are more fools then there are money.
I decided to check the site out and see how things worked. They must be rolling in money. I did some quick calculations on one of the Toshiba laptops they had listed as a penny bid, staring at a penny and they are reporting the last one auction closed at $109.27. One the surface someone got a heck of a deal, less than 10% of the retail price, I would hate to think how much the winner paid in bidding fees.
Swoopo made out like bandits, almost $8,200 in bidding fees and after buying and drop shipping that laptop they probably pocketed around $6,800. Actually lets be generous and say the ‘administrative costs’ for the auction was $800 - that is still $6,000 in pure profit on one item.
The sad thing is in troubled economic times people will find this site looking for a bargain and greatly enriching those running this company.
Awesome post. I saw you mention it on Twitter and had a gander at the site. I can’t believe that people are this uneducated to not understand the simple Algebra behind this. Then again, American Idol gets great ratings…
On the surface someone got a heck of a deal, less than 10% of the retail price, I would hate to think how much the winner paid in bidding fees.
One person gets a great deal (depending on how many 75 cent bids they placed), and hundreds or thousands of other people lose money.
The only way to beat this system would be for every bidder to collude not to bid. Worldwide. So, impossible, in short. You can’t beat the house.
I’m not sure what law you think they must be violating, offhand.
It’s pretty vile, but I see no reason to imagine it must be illegal.
(I also find it hard to believe the employee’s claim that they lose money on 70% of the auctions… unless they’re only getting one or two bidders.
I suppose it possible they have a lot of low-value auctions of cheap stuff, so they can lose a small amount of money on them to pad the stats; things like the aforementioned laptop are Iinsanely/i profitable.
I’d love for that employee to tell us what the average profit/loss per auction was.)
They put Vegas to shame. Pure brilliance. If you’re going to build a gambling website, this is the way to do it!
I discovered Swoopo a few months ago and had pretty much the same reaction as Jeff and most of the commenters here.
I also spent a couple of hours on Wikipedia, starting on the Dollar Auction page, moving on to Logical Fallacies, Irrational Escalation of Commitment, and Cognitive Biases pages (and lots of subpages) looking for ideas for my own barely-legal psychological-trap site.
Learned a lot, but didn’t have any ideas.
Here’s how to make a nice profit off of the profiteers.
Set up your own website. Charge 40 cents per bid and drive up the price by 10 cents for every bid received. Every second bid, you pass through to swoopo. The other half of the bids you make a record of, but otherwise don’t act on.
Your website would make 80 cents per swoopo bid, which cost you 75. It would also drive up the price by 20 cents per swoopo bid, of which you keep 5 cents. All of swoopo’s customers would come to your site because on the face of things it offers a better deal.
Someday, I will have an idea as good as this.
The director of business development for swoopo, Chris Bauman, responded to an interview here:
Some unbelievable responses… apparently the only reason we are angry is because we are losers:
This is about as evil as the win a free ipod crap!!
It is evil, but the people who play it must be really dumb or desperate. Works maliciously well.
(The verb playing fits well. They should use it)
The whole swoopo thing actually reminded me of a joke that I heard on the www.boagworld.com podcast a couple of weeks ago. Seems like the joke is maybe on those who are bidding! The joke went like this:
A city boy, Kenny, moved to the country, bought a donkey from an old farmer for $100.00.
The farmer agreed to deliver the donkey the next day.
The next day the farmer drove up and said, Sorry son, but I have some bad news, the donkey died.
Kenny replied, Well then, just give me my money back.
The farmer said, Can’t do that. I went and spent it already.
Kenny said, OK then, just unload the donkey.
The farmer asked, What ya gonna do with him?
Kenny, I’m going to raffle him off.
Farmer, You can’t raffle off a dead donkey!
Kenny, Sure I can. Watch me. I just won’t tell anybody he is dead.
A month later the farmer met up with Kenny and asked, What happened with that dead donkey?
Kenny, I raffled him off. I sold 500 tickets at two dollars a piece and made a profit of $898.00.
Farmer, Didn’t anyone complain?
Kenny, Just the guy who won. So I gave him his two dollars back.
And others could do the same to your service (with decreasing profit margins) and just have a big happy chain of it. My god, it’s full of scams!
Why would you waste keystrokes on this? Who cares?
I just saw a wii fit sold for $93.60 (RRP = $89.9)
Until $80 there were more then 10 people still going.
5 people went until $90, and 3 battled for the final price.
money cow. or money tree.
Why would you waste keystrokes on this? Who cares?
swoopo is the perfect storm of wild west anything goes internet business models, designed to make money by any means necessary.
Only on the internet…