The Million Dollar Business of Swoopo – Penny Auctions Review

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swoopoAs a child, I was an avid sports card and coin collector.  Without the internet at my fingertips (early 90′s … that’s right, I’m young), I had three basic ways of obtaining new cards and coins.  I could either visit the local hobby shops, trade with my friends or my favorite, save up enough money to really enjoy a sports card or coin show.  A couple of times a year, my family would travel about an hour to a collectibles show where hundreds of foldout tables would showcase the newest and greatest in the hobby genre.  After walking around for hours, I would carefully generate a spending plan that left my wallet completely empty.  Once I returned home, I spread my wealth out on the dining room table and living room floor, stared at it for hours, then tucked it away into my collection.  Good times.

Now a days, it’s rare to find a deal in person because everything is done online.  No longer can a good buy be snuffed out by traveling place to place because the entire retail industry is at our fingertips.  If I’m not happy with what I find at BestBuy.com or Macys.com, I can visit the all-powerful eBay to find a lower price.  Millions of auctions are completed every week and I have to admit I’ve used eBay enough to have generated a feedback rating in the high hundreds.  With no apparent competitors in the online auction space, eBay continued to be the one stop shop for every kind of purchase imaginable.  That was of course until Swoopo had something to say.

In 2005, Swoopo revolutionized the online auction space, launching a penny auction site based in Europe.  For those unfamiliar with penny auctions, it’s a fairly simple set-up.  An auction will start for a high priced item at $0.00.  Each bid placed by a user will raise the auction price one cent.  When the time limit on the auction runs out, the user with the most recent bid wins.  Each bid placed costs the user a certain flat fee, usually between $0.50 and $1.00.  Its sounds so simple right … why not just wait until the very end and place the last bid, like eBay.  I mean, you could walk away with thousands of dollars in electronics and merchandise for a few dollars!

If only it were that easy.  Swoopo has designed a flawless and I mean flawless business plan that ensures they are not only profiting from these auctions but flat out raking the money in.  What better way to explain how this whole process works than by giving you an example.

To write this review, I’ve gone to Swoopo.com where I immediately see 10 auctions that are close to ending.  Each auction currently shows a very low price compared to a very high valued item, and I’ve chosen to use the Nikon D-90 camera (seen below) as the test subject.

Swoopo Auction part #1

Now you’ll notice from the graphic above that there is only five seconds left in the auction. But “time left” in a penny auction is simply an illusion.  You see, with every bid placed, the time remaining increases by 5-20 seconds.  If the bids never stop coming in, the auction does not end. (The auction above will end no matter what on March 30th, 2010).  The strategy of waiting until the end of the auction to bid is of no consequence because no matter how much you want to avoid it, your bid extends the auction.

You’ll also notice from the graphic above that I have drawn four blue boxes and arrows on four key areas that Swoopo wants you to focus on.

  1. At the top of the graphic, you will see that 150 free bids also comes with this auction win.  Swoopo recently added bids to the merchandise you win to entice users to bid more.  Once a user places a bid, it is lost forever regardless of whether or not the auction is won, so they are adding a nice “bonus” prize.
  2. To the right of the graphic in the big box, Swoopo happily lists where the last 9 bids came from and how many total bidders have placed bids within the last 15 minutes.  The value of this information is minimal at best because a Swoopo auction is usually won because your competition forgets to bid or runs out of bids.  Knowing who you’re bidding against seems like it could be valuable, but it’s not.
  3. Just below the camera is an enticing snippet of information stating that this very same camera just sold in an auction for $24.06.  The auction price that the camera is currently at would suggest this auction will end very soon, wouldn’t it?
  4. The last box I’ve drawn shows the manufacturers suggested retail price and subtracts the current auction price so you can see just how much money you have the opportunity to save by using Swoopo.  The $1,299.00 MSRP is always going to be higher than what you could actually find the camera for in retail outlets, so this number is a little overstated, but close enough to where Swoopo wants you to be blown away by the savings.

Now that you know how a Swoopo Auction works, there’s one more piece of information you will need in order to try these guys out.  A BidButler is an automated bidding system that can be used by anyone bidding on an auction.  This technique will allow you to mark off a certain price to bid between, so you cannot forget to place a bid before time expires.  For example, I could place a BidButler between $24.50 and $25.50 in the above example and at a random time between 1 and 15 seconds left, Swoopo would automatically place a bid for me.  Potentially placing every other bid, I could spend 50 bids per dollar the auction increases, which is quite expensive as I detail below.

The cost of playing the penny auction game is a steep one.  Every bid costs $0.60 and unless there is a promotion being run, there is no discount for bulk buying.  This means that in the case of the Nikon camera above, 2423 bids have already been placed by Swoopo users, which is the equivalent of $1,453.80.  No matter what happens, Swoopo has already profited from this auction. What’s left to decide is by just how much.

I started writing this article at 6:00 pm ET, which is when I grabbed the screenshot you see above.  I fully expected the auction to end within an hour, but to my surprise, it’s now 8:58 pm ET and the auction has just now ended.  The final price was a whopping $65.53 which means over 6,500 bids were placed.  At $0.60 a bid, $3,931.80 was spent in bidding and added to the final price of the auction, Swoopo just sold a Nikon D90 camera for $3,997,33.  WOW.

Swoopo Auction part #2

To be fair, the Swoopo of old was just a money hungry machine and adjustments have been made to give customers better value for their money.  Bid prices have decreased, the option to buy the merchandise after losing an auction by using your bids placed as a discount has been implemented, and promotions offering discounted bids are more commonplace. But even with the improvements, very few walk out of Swoopo a winner.  Even those “upgrades” can be construed as tactical as reducing bid sizes gets people to bid more and basing a purchase off of the MSRP still nets a profit for Swoopo.  There’s no doubt that Swoopo is extremely alluring, but while you might be enticed to consider giving it a try, “War Games” and I would tell you the only smart move is not to play.

Published or Updated: April 23, 2012

Comments

  1. Matthew says:

    I’m not so sure Swoopo is the “perfect business model” as you describe here. In a way they have the opposite of a viral business model. Because for every loser in an auction they have an unhappy customer who at the very least won’t talk about them, but at worst will talk poorly about them to anyone who will listen.

    For this reason, acquiring a customer at a high price is their best bet for getting new folks in the door. And this cost is what’s missing from the calculations here.

  2. Josh says:

    If a bidder does well, penny auctions can be a great way to score a deal. If a bidder does poorly, they can lose a significant amount of money with no real returns. This is why I prefer to bid on sites that offer a bid to buy option.

  3. Jeff says:

    The real problem with Swoopo, and any bidding site like it, is that it’s more akin to gambling than anything else. It’s like a lottery on the web, for much smaller winnings however. It is sheer luck when someone actually wins an auction. And most will have already gone through hundreds, if not thousands of dollars playing the game until they get lucky and end up being the final bidder, so they have saved – or won – nothing, really. As you stated yourself, there is no real strategy you can use with the information at hand. It’s pure luck and really plays on a “something for nothing” mindset. Hmmm…very much like gambling.

  4. I found this site a couple months ago. At first it seemed like you should win very easily and very cheaply. However, after watching it and trying it, it seemed almost impossible to win to be honest. I can see where it is almost addictive, because you can get so close to winning with each bid.

    Their business model is fantastic, but it was just not for me.

  5. Jamel Rose says:

    Walking away from an auction is difficult, but you will feel better knowing you did not end up in a bidding war with a more reckless bidder than yourself. Recollect your thoughts, pick another auction, and get back in the game!

  6. This is a pretty interesting business model. Would love to analyze its applicability with other online businesses.

    But first, I may have to try Swoopo myself as this is the first time I’ve heard about it.

  7. Wow..I had not heard of Swoopo and don’t feel like I missed much. :-)

    I’ll stick to Amazon, Ebay, and Craigslist…at least you don’t have to pay unless you actually get the item that way.

  8. Rabideagle says:

    Before you jump into Swoopo, or any other site for that matter, you should watch some of the auctions and see how they operate. This is something that you CAN win at. It’s just like anything else, you need to educate yourself and make a good decision about how you spend your money.

    There are also some sites that offer “free” bidding on certain auctions. Try some of these to test out the auction style.

    Bidpigs is one of the site, they have free bid auctions listed for bidpackages at this point. No cost to bid, you only pay the final cost IF you win.

    Like I said, educate yourself and this game can be fun and rewarding!

  9. Swoopo is gone! This is a big lesson to everyone who plan to make fast and easy money with a penny auction software.

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