Swoopo

Swoopo
Type of site
 Bidding fee auction website
Available in English, German and Spanish
Owner Germany Entertainment Shopping AG
Revenue €20 million in 2008 ($28.3 million)
Employees 50
Slogan(s) Entertainment Shopping
Website http://www.swoopo.com/
Commercial Yes
Registration Required
Launched September 2005
Current status Inactive

Swoopo was a bidding fee auction site where purchased credits were used to make bids. Prior to changing its name to Swoopo in 2008, the website was called Telebid. In March 2011, Swoopo's website became inaccessible, and a notice page claimed that Swoopo was experiencing "technical issues." In February 2012, DealDash obtained the domain name for Swoopo.com. The penny auction was invented by Lloyd Liske and William Buckell when the site was first created and known as telebid.com. At that time the site received bids by phone and charged to transfer their bids to the internet site. This is where the format of paying to place a bid started. A lawsuit involving quibids.com and other major penny auctions was rumored to be coming and the site was sold to new owners.

Mechanics

In order to participate in an auction, registered users had to first buy bids (called credits, and henceforth referred to as "Bid-credits") before entering into an auction. For the US version of the site, Bid-credits cost $0.60 apiece and were sold in lots (called BidPacks) of 40, 75, 150, 400, and 1,000. Each credit is good for one bid. Standard auctions begin with an opening price of $0.12 and every time someone bids the price increases by $0.12. Other bidding fee auctions use different values - "penny auctions" use $0.01, 6¢ auctions $0.06, etc. The price of bids and the incremental values vary depending on the regional version of the site used.

The auction ends when time runs out. However, because each bid extends the length of the auction by 10–20 seconds, the auction could theoretically continue on indefinitely.

Besides making single bids anytime, users can place a so-called "Bidbutler", which is an automatic bidding tool. Users can employ a maximum of 50 Bidbutler bids each time. Once a Bidbutler is active, it will automatically bid in the final 10 seconds of the auction in an attempt to keep the user as the highest bidder. This means if two or more Bidbutlers are active they will repeatedly bid against each other (before the auction time increment is applied) until the one with the most bids left is the "winner". Bidbutler bids hold no more value than single manually placed bids, so once the bids booked for a Bidbutler are exhausted a single manually placed bid can become the winning bid.

The money collected by Swoopo consists of the cost of bids placed plus the final auction amount. As an example, a MacBook Pro with a suggested retail price of $1,799 was sold on Swoopo for $35.86. However, a total of 3,585 bids were placed, so the total amount paid by Swoopo customers was $2,151.[1]

Swoopo has claimed to make money on roughly half the items sold.[2]

In August 2009, Swoopo modified its business model to include a "Swoop-it-now" function which allows bidders who lose an auction to apply all of their lost bids towards the purchase of the item they were bidding on. If a bidder does not win, he or she can get back all their bids by buying the item directly from Swoopo.

Users from Swoopo must bid against users in all countries where Swoopo operates. As of August 2009, Swoopo operates in Germany, the United Kingdom, Austria, Canada, Spain, and the US. The same auction can be active on multiple regions, with the current price based on the opening price plus the number of bids times the bid increment price. So an item on the US site currently listed at $12 (Opening $0.12 and 99 bids incrementing the price by $0.12 per time) will be listed on the UK site with a current bid of £10 (Opening £0.10 and 99 bids incrementing the price by £0.10 per time). As it is not possible to determine the source of the bids, the amount collected by Swoopo cannot accurately determined. In the preceding example, it could be $59.40 if all bids were US based, or £49.50 if all bids were UK based. The closing prices will not necessarily represent a market based foreign exchange rate.

The item under auction may not be identical between regions, though it will be similar. For example, a different brand of USB memory stick may be offered in different regions, though the capacity is the same.[3][4]

Controversy

The method of selling employed by Swoopo is controversial and has been criticized.[5][6] The company, responding to claims that Swoopo is a type of gambling, stated that winning auctions involves skill and is not reliant upon chance.[2] Ted Dziuba writing for The Register stated that Swoopo "does not amount to a hustle, it's simply a slick business plan," and that while it might be close to gambling, "the non-determinism comes directly from the actions of other users, not the randomness of a dice roll or a deck of cards."[7] Nevertheless, the argument about "skill game" is put down by MSN Money: "Chris Bauman, director of Swoopo in the US, told one blogger: 'Winning takes two things: money and patience. Every person has a strategy.' Indeed, he undoubtedly does. The problem is that, as with the gambling systems peddled by countless books, none of those strategies will actually work. Just remember that no matter how many times you bid, your chance of winning does not increase".[5] Ian Ayres writing for New York Times blog called Swoopo a "scary website that seems to be exploiting the low-price allure of all-pay auctions".[8] MSN Money has called Swoopo "The crack cocaine of online auction websites", and stated that "in essence, what your 60¢ bidding fee gets you at Swoopo is a ticket to a lottery".[5] The New York Times has called the process "devilish."[9]

Speaking to the BBC, Professor Mark Griffiths of Nottingham Trent University, stated that "penny auction" sites in the UK should be regulated by the Gambling Commission. However the Gambling Commission said that it "was not convinced that penny auctions amounted to gambling".[10]

Speaking to the New York Times, Glen Whitney, a mathematician and a former quantitative analyst at the hedge fund Renaissance Technologies, stated. "In aggregate, consumers trying to obtain these products are overpaying. Unless you have an edge over other people who are bidding, and you can get them to subsidize your purchase, you shouldn't do it. It's a chump's game."[11]

Swoopo has hired the star gambling lawyer Anthony Cabot of the Las Vegas law firm of Lewis and Roca.[11]

German consumer protection bodies also warn about the auction type offered by Swoopo and other similar auction platforms, likening them to gambling.[12] Techcrunch states that Swoopo is an "'entertainment shopping' site that’s one part auction-house, one part virtual casino";[13] whereas the alarm:clock calls it a "gambling auction biz".[14] Toptenreviews states: "it warrants considering Swoopo with some different terminology. Rather than "auction" site, maybe we should designate Swoopo as a gambling site—a type of QVC-meets-the-internet-age ponzi scheme".[15]

Finances

Swoopo has received financing from two venture capital firms: an undisclosed amount in December 2006 by Wellington Partners[16][17] in Munich and $10 million in April 2009 by August Capital in Silicon Valley.[18]

Closure

Swoopo went offline on 17 March 2011, with a message that read

Dear customer,

Due to technical issues, Swoopo is currently not available.
We're working as hard as possible to restore the service.
When the site is working again, we will add ten minutes to the countdown of live auctions, to allow all bidders the chance to get back on-line and start bidding. Please check back regularly.
We're sorry that you're not able to bid at the moment, but we will be back soon.
Your Swoopo team.

On 23 March 2011, Swoopo filed for bankruptcy in Munich Germany.[19]

On 26 March 2011, Swoopo's parent company filed for bankruptcy.

In December 2011, the Swoopo website was inaccessible.

On 8 February 2012, DealDash, the longest running "penny auction" website in the United States acquired the domain Swoopo.com, and the URL currently redirects to DealDash's own website.[20]

See also

References

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