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    Pure Profit: A Look at Swoopo

    This post digresses a bit from web analytics but the business concept of Swoopo is so brilliant – but not endorsed by myself – that I had to post on it.  Before I get into this post I want to make one thing clear:

    DO NOT USE SWOOPO!  YOU WILL LOSE MONEY USING THIS SITE!

    Now that I have made my position clear I can get into how brilliant this site is for making money at the expense of others.  It is not customer service oriented and it is probably not going to have a ton of repeat customers.  What it will have is a huge pocket book as long as P.T. Barnum’s phrase holds true: There’s a sucker born every minute.

    First I will lay out for you how the site works.  It is a ‘auction’ site…sort of.  Swoopo sells bids for $1.  Each time you use a bid on an item the price is increased by $0.15 for that item.  So here is an example:

    Person A buys 5 bids from Swoopo for $5 total.  Person A sees an auction for $1000 and places the first bid.  The auction is now at $0.15.  Person A now has a sunk cost of $1 (the cost of the bid they used).  There is no way to get that dollar back, win or lose.  If Person A wins they must pay the $0.15.

    Person B also purchased $5 of bids.  Person B sees the same auction and places the second bid.  The auction price is now $0.30 (because each bid increases the cost by exactly 15 cents).  Person B now has a sunk cost of $1.  If Person B wins they must pay the $0.30.  Swoopo now has $2 in the bank and the auction is at 30 cents.

    This can happen with as many users as there are suckers to start accounts.  Why are they suckers?  Because everybody that does not have the top spot just loses the money they spent on bids.  *Poof* Gone.  If you think this sounds a little like gambling or a complete scam you are not alone.  People get swept up into the auction and don’t want to get nothing for the money they spent on bids.  I think you will understand it better if I show you an example of people getting ripped off on the site.

    Please note that while the math in the laptop example assumes that the winner has to pay for the item, Swoopo has different types of auctions which are described in my post on types of Swoopo auctions.

    An auction for a laptop that says on the auction page, and I quote, “Worth up to $1,399.99″  The winning bidder, as stated on the site, placed 2020 bids.  That is $2,020!!  And the auction page proclaims “Savings: 0%”  when it really should read negative!  So Swoopo made like $600.  BUT WAIT!  The auction started at $0.00 and finished at $3,353.85.  Now read that again.  They were already up $600 from the winners bids alone.  The winner sucker still had to pay $3,353.85 because that was the price of the auction.  Okay, so Swoopo walks away with a cool $4,000 pure profit.  (Like a bad TV commercial) BUT WITH THERE’S MORE!  Remember that bids are placed in 15 cent increments.  That means that if the auction finished for $3,353.85 you take that divided by $0.15 which equals $22,359 in bids!!!!  That brings total profit to $22,359 (bids) + $3,353.85 (auction) -$1,399.99 (retail cost of laptop, probably not their cost) = $24,312.86

    This is not to say that there are no good deals on Swoopo.  The auction for $1000 finished at $568.20.  The winner of that auction placed 218 bids ($218 dollars worth) for a savings of 78%.  Why is it 78%?  because it is a 100% off auction  – see my post on types of Swoopo auctions- meaning that you don’t have to pay the final value of the auction (how sketchy is that).  In theory, if no one else would have bid, you or I could have spent $1 on one bid and won the auction.  If we would have won the other guys $218 would have been for nothing.  Now keep in mind that if this were not a 100% off auction that the winner would also pay $568.20 in addition to the $218 for bids.  Total investment: $786.20.  Is that really worth the risk of getting nothing?  I think not.

    There are 2 kickers that I have to throw in yet.

    1. Every time a bid is placed the length of the auction increases.  Therefore if a bunch of people “snipe” it at the end, the auction can go from 5 seconds left to 20 min.  Yeah.
    2. And in case you were worried about the one who got away, Swoopo provides a “BidButler” that auto bids for you up to your set amount when someone out bids you.  If you are going to spend $1 a bid, please don’t let some BidButler do it for you.  After all they don’t call it “entertainment shopping” for nothing.

    All said and done this seems like a little bit of a scam, praying on people that either don’t get it or are stupid.  If one were to use this site the only smart thing to do would be to research what auctions of stuff goes for and then place a single bid when it gets to that price and hope you are not out bid.  Anything else is just a waste of money.  That is, of course, if you ignore the fact that everybody else who has bid gets nothing.  It is a combination of eBay and gambling – more gambling (in that you must pay to bid but if you don’t win you don’t get anything).  Think of betting on red in roulette, you only get something if you win otherwise it is gone.  At least if you win there others can win as well.  If it were Swoopo roulette if you won everybody else would lose.

    It is just amazing – and yet totally understandable once you get the mechanics – that this site made money selling $1000.  $3788(bids) – $1000 (cost of item) = $2788 profit.

    Paraphrased Swoopo business plan in short: find 10 people to give us $10 each and one of them will get this $20 gift card.  Repeat.  Official Song: I Get Money

    What do you think?  Scam?  Brilliance? Awesomeness? Just another web site?

    10/6 UPDATE: Check out my new post on PennyCave, a Swoopo look-a-like!

    45 Responses to “Pure Profit: A Look at Swoopo”

    1. Chris Bauman says:

      ***disclaimer – I work for Swoopo***

      I am based out of our newly created Cupertino, CA office.

      By no means are we trying to pull the wool over anyone’s eyes. We try to explain exactly how our bidding process works, and what the costs are on our site. But, I am always open on how to make that better and more transparent.

      But, FYI… Swoopo loses money on about 70% of the auctions. So, we take a bit of a gamble in hopes that the remaining 30% of the auctions cover the costs of the products and our overhead.

      Rest assured though, we are no scam.

    2. theecakescraps says:

      Chris – Thanks for taking the time to respond.

      I don’t mean to imply that Swoopo is is scam in that it will only take your money. I even go so far as to point out that there are good deals on Swoopo. I guess my biggest issue is that at the end of the day it is more like gambling than anything else. You don’t really bid, you bet that you will be the last one to place a bet. If you are right you win, otherwise you lose your bet (money).

      I also don’t doubt that you do lose money on some auctions. You count on the high profile auctions to bring in money. Same as a casino. Casino’s have to pay out at some point. A casino may lose to a single individual, but overall you know they are making money, and lots of it. Selling a $1,400 computer for $24,000 gets you a long way.

      I perhaps frame the article a bit harshly, but that is only because of how easily people can get swept up into auctions and gambling. By writing about it, thus also promoting it, I feel that it must be framed this way so that the people that do use it know what they are getting into – I mean one guy spent over $2,000 in bids on a $1,400 computer. There are deals to be had, no question, (the $1,000 auction is a great example) but users should go in knowing they can lose all they put in with nothing to show for it. This is not eBay.

      That said, best of luck to all you Swoopoers. And thanks again Chris!

    3. Chris (not the Chris is reply 1) says:

      Just to let you know that $1000 auction with $218 of bids was a “100% off” auction, meaning that the winner really did win $1000 for “just” $218.

      Having looked at the site in depth I’ll agree that swoopo themselves will be making a lot of money, however if you bid well and have luck you can get some really good deals.

      Of course when you consider the time spent waiting for the auction to actually end, and bearing in mind you can likely find the items cheaper elsewhere, and throwing in the delivery cost slapped right at the bottom of the page… whether they’re still good deals with those considerations thrown in is up for debate.

    4. theecakescraps says:

      @ 2nd Chris

      Thanks for the catch Chris. It is true that the ones I listed were 100% off auctions (though the winner of the laptop still paid over the laptops retail in bids) but many are not and I didn’t even mention the penny auctions -where the price only goes up by a penny with each bid thus looking even more deceiving to the eye because of the low price. Just another method of getting people to bid/throw away their money.

    5. [...] (bids) + ,353.85 (auction) -,399.99 (retail cost of laptop, probably not their cost) = ,312.86 Pure Profit: A Look at Swoop (via Design with [...]

    6. Brian Boyko says:

      This is what is, in economic theory, known as a “dollar auction.”

      And yes, it’s a scam.

    7. Stephen says:

      You really should think about editing your post after having this “100% off” mess pointed out to you. It seriously effects most of your math and conclusions. I was all up in arms about Swoop until I took the time to read the comments and understand their implication.

      TheeCakeScraps Responds:
      I have made another post detailing the types of auctions Swoopo offers as well as re-worded part of the post. Note that not all auctions are 100% off and that while that 100% off may have swayed your opinion, Swoopo is still over $20,000 up selling a $1,300 laptop and also sold $1000 for over $2500 profit but you are entitled to your opinions.

    8. [...] of Swoopo Auctions From my previous post on Swoopo I generated a small bit of confusion because Swoopo has several types of auctions.  Here [...]

    9. michelle says:

      I think the clear thing is that Swoopo is a gambling site, not an auction site. You said it, people are simply betting that their bid will be the last. It’s one thing to lose an eBay auction – you’ve lost nothing bit you time. Bit with Swoopo, every auction you lose, you lose money. You only save money of you’re lucky.

    10. Koowan says:

      It’s gambling, plain and simple. You are betting on being the high bidder. It’s very likely that this makes the entire concept illegal so expect to see them shut down as soon as someone rats them out to the proper authorities.

    11. A says:

      swoopo is a flat-out scam. do not use it.

    12. aelfscine says:

      Scammy Scammy Scam. :)

    13. aelfscine says:

      Re: Comment 1: I just watched an auction for a Wii, and I’m baffled as to how you ‘lost money.’ It sold for $129.45, which means with a starting cost of 0.00, 863 bids would have been placed. Even if it had started at $65 and only have that many bids had been placed, you would have probably profited about 100%.

      Besides, the only auctions you’re going to ‘lose money’ on are for piddly small purchases. I see that an auction of Metal Gear Solid 4 went for $1.35, and you probably did lose money. Like, $20-40. At the same time as a Wii made you $613 over retail.

      It’s meaningless to say that you lose money on 70% of your auctions when those are undoubtedly the tiny ones, and the 30% profitable auctions are all big ticket items like Wiis and plasma screen televisions. After all, a game would only get bid up to $60ish dollars, but a television could go to $1k, easy. That’s 6666 bids, and that’s where your real money comes from, plenty enough to subsidize the tiny auctions.

      Nice job preying on the ignorant there, Chris.

    14. Scote says:

      ‘But, FYI… Swoopo loses money on about 70% of the auctions. So, we take a bit of a gamble in hopes that the remaining 30% of the auctions cover the costs of the products and our overhead.”

      Wow, if you really work for the scam site Swoopo you just admitted that your site is a gambling site. That’s going to be bad when the authorities finally come down on you, though, you’ll probably get away without jail time, though you shouldn’t since your site is so manifestly illegal based on the fact it is nothing but a gambling site, a gambling site with a higher profit margin than traditional games of chance like Blackjack or Craps.

      IMO

    15. Brad says:

      Not only is this gambling, but there doesn’t seem to be any safeguard in place to prevent Swoopo from bidding as well. In other words – Swoopo just needs a shill out there to place bids until everyone else gives up. Swoopo keeps the money earned by selling the bids. They don’t even need to buy inventory.

      I’m not saying that this is what actually occurs. But I don’t see how they can provide any reasonable reassurance that this doesn’t happen on at least some of the auctions without violating the privacy of the buyers.

    16. [...] + $3,353.85 (auction) -$1,399.99 (retail cost of laptop, probably not their cost) = $24,312.86 Pure Profit: A Look at Swoop (via Design with Intent) End of copied [...]

    17. Luke says:

      Buy bids -> Choose product -> Place bids -> ??? -> Profit!

    18. JohnnyRnR says:

      Without perfectly transparent oversight this type of system could be horrifically abused, but no more than any other type of “pay your money and wait” system. Gambling, raffling, internet purchases, etc etc. We depend on reputation and the legal system to snuff out fraud in these blind purchasing systems.

      I doubt Swoopo is any different from eBay, but they’ve managed to convince people to pay for the privilege of bidding. Bravo, Capitalists!

      If there really is a market for “entertainment shopping” then rest assured that Swoopo will make some money, but another company will copy their model with bids that only cost $.20.

    19. We went to this blog thinking it had stuff to do with cake. We love cake, and we bet everyone on this blog likes cake as well. Mmm, just thinking about the frosting… But that’s not the point! We thought we would get all this inside info about cake (which cake is dating which cake, did that cake gain weight? etc.), but we get all this business crap! We want cake! Give us cake!

      At the very least, we hoped we would get some stuff about Cake the band. “He’s going the distance!”

    20. Kohai says:

      Brad has an excellent point.

      This site *could* function as a legitimate, if dubious, gambling auction.

      But given that they would make a huge profit even if they ended up buying the product from themselves, this system is a huge red flag.

      Brad’s right–there could be no inventory at all, just some phantom last bidder paying phantom dollars for a phantom product, while the masses throw in pay to “play”.

    21. John McCain says:

      That’s a cool idea.
      I get back to you after I am elected president. Up to now I just have morons in my team for economy.
      But you have to promise voting for me first.

    22. greg says:

      In response to all of the above and JohnnyRnR there’s another site already out called Pennycave. Same idea and concept except there auctions usually end within $5.00 or less.

    23. Z says:

      I have my reasons to believe that this kind of “auction shopping” was in the first place started by this Finnish site: http://www.fiksuhuuto.fi

      Yes, it’s very controversial in Finland too. The officials haven’t really done anything yet.

    24. [...] my previous post on Swoopo I generated a small bit of confusion because Swoopo has several types of auctions.  Here [...]

    25. [...] Profit: A Look at Swoop Pure Profit: A Look at Swoop post has been moved HERE due to high [...]

    26. Mickey D says:

      Come on people. Swoopo, Pennycave…they are all genius. As soon as I figure out how this is legal….trust me, I’ll be the next millionaire.

      Ciao!

    27. Robin Hood says:

      It seems that we always must have someone to hate. Hate the Rich because they have something we dont! So what do we do? Take from the Rich and give to the poor. What happens when the poor gets rich? Hate and steal from them too? I’d sum it up by saying if your not smart enough to figure out how this stuff works and you end up losing money, well it was your fault to start with. You failed to read between the lines. Game over, lesson learned, try again.

    28. kip says:

      The better way to describe this is you are paying to “bid” on the product. In a typical and “ethical” auction, the last person to place a bid; wins the auction and pays the amount posted. All other bidders paid nothing.

      In this type of auction, you are not actually bidding a price for the product. In fact, you are bidding a “bid” (which immediately charged you when you bid regardless if you “win” or not). The person with the highest number of “bids” gets the product. So the auctioneer is collecting monies from all bidders instead of one which is the SCAM.

      This got my curiosity up because the profit is almost exponential for the auctioneer based on the number of concurrent bidders (the more bidders the more profit for them) Here is an example:

      Calculations below assume the following:
      – Auctioneer Purchased Item for $20 MSRP $80
      – A “bid” cost 15 cents ($0.15)
      – 7 bidders bid 43 times each on the item for a total of 301 “bids” and are active until the last bid is placed. Bidder

      301 individual bids translates to a total of 2,086 bids that the auctioneer has collected funds from. Think of it this way, if person “A” places 1 “bid”, person “B” places 2 “bids”, person C places 3 “bids” to win the auction (even though person C hasn’t bid, it costs them $0.45 (3*15 cents) to make their first bid). All person (bidders) must pay so the auctioneer collected profits from all bids placed (A + B + C + ETC + ETC).

      Breakdown::

      Bidders (Persons): A B C D E G H Total
      Total bids 295 296 297 298 299 300 301 2086
      Each Bidder paid
      this much to bid: $44.25 $44.40 $44.55 $44.70 $44.85 $45.00 $45.15 $312.90
      (Bidder “H” win’s this auction by placing the 301 and last “bid)

      Price of a bid $0.15
      Cost to bidder (301 bids x .15): $45.15
      Auction Site collected (2,086 x .15): $312.90

      Cost of Item Sold $20.00
      MSRP $80

      Auctioneer Profit $292.90
      Buyer Saved ($) $60.00
      Buyer Saved (%) 25%

      They buyer does get a good deal; but it is clearly at the expense of all other bidders who paid who didn’t win.

      Hope this helps explain the scam.
      -k

    29. steve says:

      kip, you misunderstood how Swoopo works

      See http://en.wikipedia.org/wiki/Swoopo for explanation and examples of how outrageous a scam it is

    30. JohnW says:

      It’s actually even worse, I think. If you read the terms and conditions, you’ll find that they have the right to offers another item of equal of greater value, if the one you bid on is not available. Come again ?! Why is it not available ? Weren’t all of those people bidding on a REAL item, or was it a non-excitant item ? Only the winner finds out that the item can not be sent, and is given the choice to get something from behind door number 2, the rest blew their bids on nothing.

    31. Kiing Jester says:

      THANK YOU! for this post. I had seen an advert for this site, and did a Google on it. Thank the maker I stumbled in here. If I had been idiotic enough to actually sign up, I probably would’ve been one of those ‘suckers caught up in the action’. I am a firm believer of forknowledge is forarmed, I am now a Tank ;-)

      Thanks again!

    32. mike says:

      I read the swoopo bidding rules quite a bit this evening but clearly it is not sufficient to decide whether to go ahead. I guess they want you to buy the bids before you can even satisfy your curiosity. Almost like the devil made me want to outsmart the devil, and who wouldn’t want to? So thanks to this blog maybe I can get away by asking if it is not in fact possible to direct the butler to bid say twice between $111 and $113; another twice between 113-115, and so on until $131 thereby using all your 40 bids and win if the final price were to fall between 111 and 131? I understand that this is a big if but at least you can make an intelligent guess about your parameters and increase your chances accordingly.

    33. mike says:

      Sorry, I take back that question… I went back to swoopo and realized that you could not get the butler to do this.

    34. ian says:

      Thanks, for the explanation. Neat little business venture to get money out of folks. Glad my internet warning lights came on as soon as I saw the site, just needed some clarification on what it is they are actually doing. Thanks again.

    35. Steam says:

      Ingenious and brilliant. This bidding scheme may give you what you wanted for a long time but you just don’t have the money to buy them. That is if you’re lucky enough to have no competition for that particular item. Think of it as shopping with a little twist.

    36. Jon Wesley says:

      Your absolutely right! I’m glad to see an article on the evil that is SCAMO. Swoopo is a complete scam with a touch of legalized gambling. I worked with Swoopo’s “Sales Monitoring & Web Specialists” department for Six months before I was “let go” for not reaching my weekly quota. We specialize in profit management as they call it. I went into the job because they wanted “highly motivated individuals with good computer skills to work in a fast paced environment” which sounded like me, except the highly motivated part. Anyway.. My job specifically was “profit management”. They trained us to look for auctions with a lot of people bidding on them, high-profile popular/expensive items, basically anything that had the potential to make money. Every item has a set “profit quota (PQ)”, which is the minimum amount of money/bids were allowed to let an auction end. During my shift I would control no less then 20 accounts at one time (though we were encouraged/threatened to do more) while simultaneously biding (“monitoring”) on 8 auctions per account. We were trained to engage bidders with various techniques specifically designed to trigger an emotional response. Causing bidders to spend more money, whether logical or not. So basically my job was to snipe auctions, meet the “PQ”, and keep the game going as long as possible. They do that with 50%-%60 of every auction, every month. So you may get lucky and find a deal, but most likely your gonna end up in a bidding war with someone with no limit. And Scote, Your dead wrong on that profit margin. Swoopo covers 100% of their overhead from the first 25-30% of sales, They are brilliant evil genius’s of this modern corporate world.

    37. If Jon Wesley’s comment above is true, then that would open Swoopo up to a class action lawsuit since it’s against Section 2 of Swoopo’s terms and conditions for employees to bid on any of their auctions. Not only that, it is straight up fraud.

      Regardless, it seems that more than half of the penny auction sites out there bid up their own auctions via “bots” or shill bids, so buyer beware. My company, Zoozle.com does not use any shill bids or fraudulent methods, it is an honest penny auction process. As the owner I can personally guarantee this. I feel there should be some government or 3rd party oversight to audit these sites from bidding on their own auctions.

      http://www.PennyAuctionWatch.com is a good venue to read and post experiences about the various penny auction sites popping up and read the dirt on the scam sites.

      I believe the penny auction concept is a fun activity, similar to a carnival game. The definition of “gambling” is very broad, and I feel that it really just comes down to a matter of opinion and ultimately what the gaming commission decides. Already, gaming commissions in several countries declared it not gambling.

    38. Jackie says:

      Hi Mr.Wesley,

      Do you have any hard evidence for this? Or is this there any way that we can meet in person to discuss the management at Swoopo?

      Regards.
      Jackie

    39. Cathy Saar says:

      Many Penny Auctions sites out there are failing. Whether it’s poor

      planning, lack of tech skills to run an efficient site, or all the above, the rate in which old ones die and new ones start is staggering. It is a good idea to research these sites and see which ones have been up the longest. A good way to find out if the penny auctions are good are to contact the customer service and see how fast you get a reply. If it’s within a few hours you’re probably on your way to finding a great penny auction site!

      Regards,
      Cathy Saar
      Penny Auction

    40. 1harry2 says:

      As with all new services, educating consumers and arming them with appropriate expectations is key. Much of the criticism penny auctions receive stems from the fact that few people win and everyone expects to get a great deal without much effort. Noone can fault the auction sites for channeling these human needs. It’s called business. It is up to consumers to educate themselves by doing their homework, such as checking out review sites like http://www.pennyauctionguide.com. It’s just like everything in life: luck favors the prepared.

    41. noshi says:

      You guys act as if someone could easily win even with preparations but swoopo is not much different than Lockerz. Get a bunch of greedy fools to pitch into a pool of money then pay out less than what you collected and reap the profits. Both are zero-sum. Both are evil but only one actually drains you financially.

    42. noshi says:

      You guys act as if someone could easily win even with preparations but swoopo is not much different than Lockerz. Get a bunch of greedy fools to pitch into a pool of money then pay out less than what you collected and reap the profits. Both are non-zero-sum. Both are evil but only one actually drains you financially.

    43. [...] posts with the most traffic are the ones that talk about these online ‘entertainment [...]

    44. Jocor says:

      For any of your readers that want more info, they should have a look at http://www.bestpennyauctions.com – as they appear to give an unbiased overview of most of the popular ‘penny’ and ‘unique bid’ auctions around.

      I found it an interesting read, but I have not played on any of the auctions yet :o)

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