A New Type of Online Auctions: Swoopo

One of my former students (from many years ago - it is wonderful to see he remembers his IE professors, although his career took him in a very different direction!) recently drew my attention to an online auction site called Swoopo. The novelty of Swoopo, as described on its Wikipedia page, is that its users must first purchase the right to make bids, called Bid-credits, before they can actually place those bids; Wikipedia explains: "for the US version of the site, Bid-credits cost $0.60 a piece and are sold in lots (called BidPacks) of 40, 75, 150, 400 and 1000. Each credit is good for one bid. Standard auctions begin with an opening price of $0.12, every time someone bids the price increases by $0.12... The money collected by Swoopo consists of the cost of bids placed and the final auction amount."

Swoopo has received quite a bit of attention in the press, not always in the most flattering terms. A July 2009 article in the Washington Post stated it "might be the crack cocaine of auction sites... combin[ing] the addictiveness of auctions and the chance of lotteries into what may be the most devious way to separate folks from their money yet devised." This article provides the example of a MacBook Pro with suggested retail price of $1,799, which sold on the site for $35.86: "For each 'bid,' the price of the computer goes up by a penny, and Swoopo collects 60 cents. To get up to $35.86, it takes a stunning 3,585 bids [auction started at $0.01] -- and Swoopo gets its fee for each. That means that before selling this computer, Swoopo took in $2,151 in bidding fees." The winner of the MacBook Pro himself "bid more than 750 times, accumulating $469.80 in fees." (He/she still obtained the computer at a discount.) The Washington Post article is truly excellent in its analysis of the customer behaviors that Swoopo has built upon to become so successful; see for instance the discussion on sunk costs.

A related article is Sites ask users to spend to save, in the New York Times (August 2009). It provides examples similar to that of the MacBook Pro and mentions a change that Swoopo implemented in the summer of 2009, which is to let users who have not won an item apply the costs they incurred bidding toward the purchase of the same item directly from Swoopo. The New York Times states that "Swoopo's retail prices are marginally above those offered by sites like Amazon"; the article also briefly touches upon the issue of gambling vs auctioning. Although its business models makes it closer to an auction site than to an online gambling website, Swoopo has even retained a well-known gambling lawyer as part of its team, just in case. A law professor explains: "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. But it doesn’t seem to be explicitly prohibited either."

Comments

[Ilya ^_^]

I wouldn't make my purchases this way. Considering that every single product is a massive iteration of a prisoner's dilemma, it can get fairly absurdly fairly quickly. Furthermore, considering that Swoopo doesn't actually keep archives for the products that it sold, it's impossible to actually perform any sort of analysis to try and find times that your chances would best be maximized of actually gaining any of these items.

While I don't have the numbers to back it up, I have a pretty intuitive feeling that in the long run, you'd actually pay more for the bids than if you simply bought the items at retail prices. After all, the only reason that Swoopo is still in business is that on a whole, this is true. For instance, if there's a penny auction (each bid increases the price by a penny), and each bid costs 75 cents to purchase, an item that sold for, oh, $160.00 has therefore had 15000 bids made on it. That means sure, some lucky guy got a $160.00 item that might have retailed at $2000. But Swoopo just got $12,000 for that same item. And that $12,000 was paid out by its end users.

That said, what does your former student do? Swoopo might actually be a decent place to work =P

[Aurelie]

Hi Ilya,
are you talking about BK? She's moving to Zurich, got a post-doctoral position at IBM Research Lab there. You'll be happy to know that she was selected as a finalist in the INFORMS Financial Services Section paper competition, for one of the papers she wrote as a doctoral student under my supervision (the one on short sales). Winners will be announced in November.
How are things with you?

[Ilya ^_^]

No, uh, not BK, the one listed in the blog post! That's great for her though! As for me...same as they've been for the past 3.8 months.

[Aurelie]

Hi Ilya,

The former student mentioned in the blog post worked at a consulting company for a few years and then decided to pursue a dream of his by becoming a doctor. He's now in medical school and doing very well.

Look up the job postings at http://www.lionhrtpub.com/orms/classifieds/ORMS-classifieds.html There might be a few of interest to you. I'd try the BofA one even if it requires 2+ years of experience; if they don't find what they're looking for among experienced applicants, they might give you a try. The business analyst position for the NYC startup (Rent a runway) also seems to have potential.

As companies start the recruiting season in a few weeks, you should see more and more job postings. Don't get discouraged! Good luck!