Understanding Ended Auction Prices

I'm still not over thinking about the Mini Cooper that Swoopo auctioned off last week. The selling price was just under $4,000 for the $24,550 car. Why did the car sell for such a low price? Since this was an auction, you might reasonably conclude that $4,000 was the highest price any of the bidders was willing to pay for the car, even though the winner got a phenomenal deal. This thinking might also be used when looking at other ended auctions where the auction price was a fraction of the retail value. If a TV that retails for $1000 sells for $100 does that mean $100 was the most any of the auction participants was willing to pay for it? The answer, as you might have guessed, is no. Sometimes we see items sell for more than their MSRP and sometimes we see those same items sell for a fraction of the retail price. I see this happen a lot with bidpacks on Swoopo - the ended auction prices are all over the board. The question is why? It might have to do with auction dynamics like how many people are watching an item or whether any known "hawks" (game theory) are playing. But I think it has more to do with psychology and the bystander effect. I'll elaborate.

Psychologists have determined that the grater the number of people observing an emergency situation, the less likely they are to assist. This is not because they are apathetic, but because they believe someone else will help. This is the bystander effect. In penny auctions, I believe the same theory applies. If the group of bidders believes the ending price should be significantly higher than it currently is, they logically assume casting a bid at this time will only cost them money since surely someone will bid over them. Thus, no one wants to bid just yet because doing so is a waste of $0.60. However, as the clock winds down to zero someone has to bid or the auction is over. Often, bidders will hold out till the last second hoping someone else will bid and increase the auction time. These bidders will place a bid only if it seems like no one else is going to. We see this happen all the time on Swoopo, and I saw it happen repeatedly during the auction for the Mini. As the clock ticks down to zero there is a pause and then two or three bids come in at the last second.

I think that when items go for shockingly low prices (even by penny auction standards) it's because bidders believe someone else will "save" the auction by bidding to prolong the ending time. When all of the bidders think this, no one bids and the auction expires. All of the bidders who did not win are upset because they would have loved to purchase the item for the closing price, but hoped that someone else would extend the auction time.

So how does one use this information to their advantage during an auction? By knowing that anytime you are the high bidder, even early on in the auction, there is a chance you win the item - not because no one wants the item, but because they all think someone else is going to bid first. The odds of you being the lucky high bidder in this situation are not good, but odds of winning should only be considered relative to similar alternatives, right? Just for fun I looked into California lottery odds and if I had my choice I'd spend $0.60 on a small shot of winning a Mini for $4,000 over a 1 in 240,000 chance of winning $500, the top prize, on the Let it Dough scratch-off lottery ticket.

But not to get confused, on this blog we maintain penny auctions are not gambling. However, the element of chance is introduced through the bystander effect.
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Penny Auction Traffic Data for August

Compete.com's monthly traffic scores for August are out. Below is a graph of the top 39 penny auction sites by unique monthly traffic. We see that Swoopo and Bidcactus are far ahead of the competition and that the distribution of sites follows a long tail pattern. So does this fit the Chris Anderson "selling less of more" philosophy of ecommerce 2.0? No, not really, more of a coincidence I think.

One of my friends made an interesting point when I showed him this chart. What if Swoopo owns Bidcactus, he asked. While we have absolutely no reason to believe this is true, it does make for interesting dinner table conversation. What if, in order to dominate the market Swoopo opened a second site, which happens to have a very similar color scheme and aesthetic, and funded that site from their own operations. Bidcactus does spend a huge amount of money on AdWords, after all.

Either way, I think I'm going to start calling Swoopo "Coke" and Bidcactus "Pepsi." The Dr. Pepper Snapple Group of the group has yet to be decided but there are a few strong contenders including BidRodeo and Rocky Bid as well as newcomers For10Cents.com and Winners24. This is actually the first time I've visited Winners24 and their site looks pretty clean.


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Swoopo Mini Cooper Sells for $3939.36

Swoopo's auction for a new 2009 Mini Cooper convertible with a street price of $24,550 ended minutes ago at a fraction of that price. The winning bidder, CaCO3, won with 2655 bids and will pay a total price (bids + ending auction price) of $5,532.96 + a $550 delivery charge.

32,828 bids were cast in the auction which started last Wednesday and stretched across Labor Day weekend. If Swoopo collected full revenue from each bid (they didn't) their take from bids would be just under $20,000 which when added to the final selling price of $3939.36 brings them pretty close to price of the car. While we don't know what Swoopo's purchase price of this car was we have no reason to believe they bought at a substantial discount, meaning they almost certainty lost money on this item.

I originally guessed the car would sell for around $18,000, which to me allowed for the winner to take a small margin that I perceived as sufficient compensation for the risks and efforts involved in acquiring the car. Boy was I wrong. Now Swoopo has a bit of a dilemma, do they put another car up because people saw what a great deal it is or do they never mention this day again? I expect we won't be seeing another car on Swoopo anytime soon.
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Here's an Honest Penny Auction Site

I've been using this lazy Labor Day to take inventory of all the penny auction sites out there. I want to see how many old ones are still active and how many new ones have sprung-up, at last count the field stood at 52. I'll post the full report later, but in the meantime I thought I'd share this landing page announcement from Hasteno, perhaps the last honest penny auction.

I don't know what it was about Hasteno that caused it to fail, the name and the color scheme are two obvious choices. However, if one thing is clear it's that in this industry there will have to be lots of losers. With more than 50 penny auction sites currently in existence and more starting-up all the time the market is simply too small to support all these sites. Economies of scale and credibility should allow the top few sites to dominate the industry while others fail and die out. Credibility might be the largest barrier to entry and if this is the case Swoopo should be just fine - I think the guys over at August Capital who plunged $10mm into Swoopo should breath easy - although, I really don't know what their exit strategy is. I can't imagine seeing SWPO on my Bloomberg Terminal anytime soon.

I'll post the full report later today, and FYI the Swoopo Mini auction is now at just under $4,000 with no sign of stopping anytime soon.
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Swoopo's Mini Cooper auction stopped being exciting hours ago, now in marathon phase

If one thing has become clear from Swoopo's auction of the red Mini Cooper convertible, it's that they need a better (quicker) format for selling expensive stuff. The Swoopo bidding model works well for moderately priced items, but a $24,550 car is going to take forever to sell. I understand Swoopo wants to minimize the risk of the car selling too cheaply (like the $1.24 Honda over at Rocky Bid) and so putting the Mini up in a 24 hour auction was smart. It increases the number of people who see the auction and gives them time to prepare to bid. However, as the auction approaches the 48 hour mark, with a price of just over $800, we here at Penny Auction Insider are starting to experiencing mental fatigue and wonder how much longer this thing will go for. I speculated earlier that I thought the car might eventually sell for around $18,000. Even if the car sells for $10,000 we've got a long, long way to go.

In the future I think Swoopo should tweak the auction format for expensive items like the Mini. A faster countdown or less time added to extend the clock with new bids might be a good solution.

The Mini has a current price of $806.40 with about 30 minutes on the clock. Last night we saw the time go to under one minute before spiking due to a BidButler war. Why anyone would exercise their BidButler so early in the auction escapes me. We'll continue to follow this auction and provide updates on the blog.
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With just under 4 hours to go Swoopo's Mini Cooper auction at $109

The price of the 2009 Mini Cooper convertible Swoopo put up for auction yesterday is at about $109 with just under 4 hours to go. Should Swoopo be concerned that the price of this $24,550 car has risen to just over $100 (910 bids) as time winds down on the 24 hour auction?

No. We observe two things about everyone who has bid thus far. 1. They are placing single bids, not using BidButler and 2. They're not seriously trying to win the car, at least not yet.

Any serious contenders for the Mini won't jump in until the auction approaches closing or until it goes into overtime. Once the auction nears close I think we're going to see a huge increase in bidding activity and see the price rise quickly from a few hundred dollars to several thousand. However, there is always the chance that bidders feel winning the car is so unobtainable that they don't try and someone scoops it on the cheap, but I find this outcome unlikely. I think bidders will be reluctant to use BidButler and that we're going to see a lot of single bidders in a very long, drawn out bidding war. But who knows, I could be completely wrong in my predictions. We have never seen an item like this on Swoopo before so it's hard to tell how bidders will react.

Also, I received an email last night from someone close to Swoopo who asked not to be named but who said my break-even estimates for this auction are too low. This person said I failed to calculate the cost of acquiring customers and that I should give it another shot. I'll scratch my head on this one for a while and post something later.
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Updated: Swoopo Auctions Mini Cooper

Update 8:08 pm EST:

We are watching this Swoopo auction for the Mini Cooper very carefully, as I am sure Swoopo executives are, and wanted to let everyone know what the magic number is. Assuming everyone paid full price for their bids and Swoopo paid full price for the car, the selling price of the car needs to be $4091 for Swoopo to break even. If 24% of users are bidding with FreeBids or bids subsidized through winning bidpacks, etc., the car needs to sell for $5168. Anything over that is pure profit for the company, and we do expect the car to go for well over $5168. However, this auction for the Mini Cooper introduces one dynamic not seen in auctions for less expensive products: the winner needs to be able to pay for the item. Most Americans do not buy new cars in cash, instead they finance or lease and most often trade in an old car. I speculate that most people bidding on Swoopo don't have $24,550 to buy a car with, or even $20,000 or $15,000, this will limit the number of people who are competing for the car. Of course, the winner could borrow money from the in-laws, but that complicates things.

My prediction is that this is going to be be a wildly successful auction for Swoopo and also that someone is going to get a great deal on the car - not a $1.24 great deal like at Rocky Bid - more like an $18,000 good deal.

End of update, original post follows



Today Swoopo put a red Mini Cooper convertible up for auction. The auction lasts 24 hours and each bid raises the auction price by 12 cents. As of 4:46 EST the price was $6.60. This is the first time Swoopo has offered such an expensive item, valued at $24,550, and the second time (to our knowledge) a penny auction site has auctioned a car. The first was Rocky Bid which sold a Honda Insight for $1.24 back in June. Rocky Bid lost some serious money on their auction, but tried to use the event to generate strong PR for the site. How Swoopo's Mini Cooper auction goes is anyone's guess, but they have much stronger site traffic than Rocky Bid did in June - that site said there were just two bidders when the Honda Insight auction closed for $1.24.

We will watch this auction closely and update the blog accordingly.
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Swoopo Promotion With a Twist

Swoopo sent me an email promotion on Friday night saying they would give me all my bids back on the first auction I won in the next 24 hours. The bids are refunded in the form of FreeBids and usable in the next seven days. It would be interesting if two people in this boat found themselves bidding against each other. I expect this would increase their willingness to expend bids to win the auction and this drive up the profit for Swoopo and the cost to the bidder(s) who doesn't win.

This concept does have its limits because people are only being refunded bids in the form of more bids and there is a limit to the amount of money anyone is willing to spend on bids. However, if Swoopo wanted to be truly diabolical they would refund the winner's spent bids in cash.

Imagine if two people who received this modified promotion found themselves bidding against each other. Each would expend ever larger amounts of money on bids, confident that eventually the money would be returned to them when they won the auction. However, as the auction progressed, each bidder would find himself desperate to win - having passed a point of no return in which they would see devastating losses if they failed to win the auction. The price of the auction item would easily go beyond MSRP with both bidders determined to win. The problem is that eventually someone must lose and when that happens one of the bidders will get out alive but the other will take a huge hit.

Swoopo isn't doing this though, and I'm glad they aren't. While a huge fan of free markets, self control and personal accountability, a system like this would be rigged to hurt people and penny auctions should be entertainment, not mechanisms of self destruction.
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In His Own Words: Swoopo CEO Explains How His Company Works

Swoopo CEO walks a reporter through how is site and his company work. Very cool, not a lot you probably didn't know already, but cool to hear it from the boss.
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How Swoopo Alters Dopamine Levels in the Brain

Swoopo is addictive not because of sunk cost (as we have argued here) but because it impacts dopamine levels in the brain, says writer Jonah Lehrer of The Frontal Cortex, a science blog. Lehrer writes this fascinating article comparing the results of a scientific experiment - one where the impact of a reward on dopamine levels in monkey brains was tested under various circumstances - to Swoopo. In the study Lehrer describes, scientists found that monkeys responded to the expectation of a reward (apple juice) with an increased flow of dopamine to the brain, the same increase in dopamine as when the juice was actually received. However, once the monkeys became conditioned to expect the juice, their brains no longer responded with a dopamine spike, neither to the expectation nor to actually receiving the juice. The study concludes that neurons are concerned with expected rewards more so than actually receiving a reward. This applies to Swoopo, Lehrer writes, because bidders are kept in a state of perpetual expectation. Every time a user places a bid he becomes the high bidder and hopes/expects to win the item. According to the monkey experiment, this act causes dopamine levels to spike and since the reward is never guaranteed the brain is kept in a state of perpetual suspense, which stops the dopamine spike from diminishing over time. This spiking of the "happiness" chemical in the brain is what causes people to bid over and over and over again, says Lehrer.

Apart from being interesting, Lehrer's article adds legitimacy to Swoopo's claim that the site offers "entertainment shopping," for better or worse.
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Response to reader: Since we don't know how much an auction winner payed for their bids how do we know if they got a good deal?

An anonymous reader left the following comment on a post I made about a Swoopo auction in which the winning bidder lost money and would have been better off purchasing the iPod he won at the retail price. I decided to post my response here instead of in the comments because I think many readers will find this argument interesting. Here is my original post and below is the comment:

"Swoopo also auctions of bids. Hence, you assume that he paid $108 in bids, but he may have purchased the bids at a substantial discount. 50 bids recent sold for $3.62. It is likely that his cost of bidding was below $43.60 and he earned positive profits."

You make a good point Anonymous, the winner may have paid less than retail price for his bids which would increase the value he received from winning. However, your argument is incorrect because in actuality it is highly unlikely the winner spent less than $43.60 on bids, as you suggest. Here is problem with your argument:

If the bidder paid $43.6 in bids (which is, as you point out, the most he could have paid to have received a favorable price on the iPod)and he cast 144 bids ($108/.75), he would need to be paying $0.30 per bid (43.6/144) to stay below $43.6. This means he would need to have won the bidpack in your example (and several more just like it) with just 15 bids or fewer.

Here is where 15 comes from:

3.62 +.75(X) = 50*.3

Where X is the number of bids cast to win (rounded), .75 is the price of a bid, 3.62 is the cost of the 50 bid bidpack for the winner, 50 is the number of bids won and the .3 is the required price per bid won.

Winning a 362 bid auction with 15 bids (4% of bids cast) is unlikely. It's possible but I don't think you can argue this is the norm and not the exception. I'm not saying winning is based on odds, it's not, but people tend to win when they demonstrate their willingness to win at all costs, ie exhaust their competition - a feat than cannot be accomplished with 15 bids. People do win with only one bid, but these situations... are highly, highly unlikely, especially on Swoopo, the most popular penny auction site in the world.

Let’s take it one step further. Say this bidder is a repeat player and acquires all of his bids by winning bidpack auctions (never buying any) and let’s assume in doing so the price per bid he receives from winning bidpack auctions is $0.30. If we use this as the price per bid cast for him to win the bidpack auction in your example he would need to win the bidpack with the following number of bids or fewer:

3.62 +.3(X) = 50*.3

X = 38

He would need to win the bidpack auction with 38 bids or fewer to hold his price per bid at or below $0.30. Winning a bidpack auction in which 362 bids were cast with 38 bids (10.5% of bids cast) is still highly unlikely and even more unlikely on a repeat basis – which is required for his price per bid placed to stay at $0.30.

This outcome also fails from a theoretical standpoint. If users could expect, with a high degree of certainty, to win bidpack auctions at a cost per bid won of $0.30 on a regular basis they would never buy bidpacks at the retail price. Swoopo would be losing money on almost every single auction and would also have to be auctioning off far more bidpacks than we see them doing.

Note: the auction for the iPod in my earlier post is from a period of time when Swoopo charged $0.75 per bid, the auction for the bidpack Anonymous cites in his comment is from a more recent auction after Swoopo started charging $0.6 per bid. The change in bid prices would likely alter the outcomes of these two auctions slightly, but the general argument still holds.

Anonymous makes a good point that we don't know how much other bidders paid for their bids or how this impacts their bidding decisions. However, in the case of the iPod auction discussed here, the winner almost certainly lost money.
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On The Media Continued: Penny Auctions Featured on Motley Fool and in the Economist and Time

Penny Auctions have been a fairly quiet affair for the past year. When Swoopo entered the US market last September, the media barely noticed. This spring as new penny auction sites started cropping up all over the web, with dozens to date, few in the media took note. This is part of the reason why we founded Penny Auction Insider. Then, this summer, journalists started to write. There were articles in the San Jose Mercury Times, Washington Post, New York Times, a local ABC station in Philadelphia and on many blogs. Now that the cat is out of the bag, the rest of the media appear eager to follow the story. Last week, the Economist had an overview of penny auctions and earlier this week there were articles on Motley Fool and in Time magazine. I expect an AP or other wire-source story soon that will be syndicated by many more news outlets (if one hasn't already appeared, let me know in the comments if it has).

However, it should be noted that the vast majority of the articles published in the mainstream news are real snoozers for people already... knowledgeable about the world of penny auctions. We at Penny Auction Insider will continue to follow how the media covers the industry, however, will spare readers from summaries of articles that are themselves summaries of the penny auction industry. If you read this blog you are well aware that Swoopo is the biggest site and was first to market, and launched in Germany before coming to the US, I'm yawning , and you know full well that some people get good deals while others lose money, and the games are viewed as deceiving by some because they pit people against each other and some spend more than they realize, exc. exc.

What is most interesting about these recent penny auction articles (most feature Swoopo and mention others in passing) is that there are articles about penny auctions. What will this do for the industry? I think it will allow penny auctions to move closer to the center from the fringes, I think more people will check them out and I think society will become more polarized with some people loving the excitement of playing the games and some people hating them. As I mentioned in an earlier post, the penny auction industry is a small fraction of the size of the big e-commerce sites like Amazon and eBay and has lots of room to grow. In July, eBay had 10 times the traffic on Swoopo.
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On The Media: Swoopo in The New York Times Today

Flipped open my New York Times today and what did I see? Well it was an article on a topic I know and love: penny auctions. The Times offers what for the in-the-know penny auction enthusiast would be a fairly blase overview of how Swoopo works, with a few interesting facts laced in.

We learn from the Times article that Swoopo has 2.5 million users, a number that would be more significant had Bidcactus not declined to state the number of users they have in our interview last week.

We also learn that former... hedge fund quant Glen Whitney, who the Times asked to review Swoopo, believes the site is a "chump's game."

And most interestingly, we hear from a lawyer who says It Isn't Gambling, which was also the title of an earlier Penny Auction Insider post on the topic. The lawyer backs-up the claim Malvolio and I have been making from the beginning which is, in lawyer Anthony Cabot's own words, "Lotteries are games of chance, and an auction does not have what you would call any systematic chance, a random event that determines the winner." We rest our case.

On a side note: compare this Times article to the ABC 6 story on GoBid I reviewed last week and you see why the Times is "All the news that's fit to print," and ABC 6 is something less than that. Sorry ABC, but you didn't even tell your readers the name, title or significance of your only source, a guy who's opinions formed the bulk of your story.
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Bidcactus Overtakes Swoopo After Just Five Months

Bidcactus overtook Swoopo in unique visitors in July according to data collected by Compete.com. This is surprising news to the penny auction universe where Swoopo has long been seen as the industry leader, both in the US and Europe and is the oldest penny auction website, having launched four years ago in Europe and one year ago next month in the US.








Bidcactus, a Connecticut based company, launched on April 23 of this year and has experienced phenomenal growth. The company reached 693,013 unique visitors in July, to Swoopo’s 578,712, despite being in operation for less than five months and launching with only 36 users on its first day. Swoopo's growth in terms of unique visitors for July was 13.34%, BidCactus’s was 275.38%.

Penny Auction Insider spoke with Bidcactus Director Marjorie Almansi earlier today to discuss her company’s breakout success in a marketplace than has become crowded with competitors, knockoffs and scams.

“We’re growing in leaps and bounds,” she said. “We have great customer service; we’re the only [penny auction] site that offers 24/7 customer support and 9 a.m. to 5 p.m. phone support.” Almansi also credited ... player referrals, satisfied users who become repeat players, a strong engineering team and successful online marketing strategy that targets Google and Yahoo as key components to her company’s success. “We’ve surpassed every monthly goal we’ve ever set,” she added.

However, Bidcactus also appears to have spent slightly more than Swoopo on keyword advertising in July, an advertising method popular with penny auctions that drives significant traffic but can also be expensive. According to data collected by Spyfu.com, Bidcactus is spending between $991 and $7,370 on keyword advertising per day, while for Swoopo the number was between $725 and $6,530.

In turning to questions about the state of the penny auction universe, Almansi said she is concerned about rumors of fraudulent practices at some penny auction sites. “Unfortunately many people who are getting into [the penny auction business] are questionable. With box software you can get [a site up] for next to nothing. There are a lot of new sites out there and I don’t know what is going on behind the scenes,” she said. Almansi said she would be happy to lead the push to develop an audit panel that examines penny auction sites and certifies them as being legitimate. She also said she would welcome auditors to inspect her company and hopes others would be willing to do the same. “I’d be happy to carry the torch,” she said.

Almansi is optimistic about the future of Bidcactus and the penny auction industry as a whole. “There are very few people who know about us or who use penny auctions, but I think this could be a whole new way for the masses to shop,” she said. Amazon.com and Ebay, the two preeminent ecommerce storefronts on the internet each get about 70 million unique visitors per month, or about 14 times the number of visitors Swoopo and Bidcactus receive.

Bidcactus is currently running about 150 auctions per day and will soon expand operations to offer bidding around the clock.

Correction: An earlier version of this article quoted the advertising expenditures of Swoopo and Bidcactus in dollars per month, the figures given were actually for dollars per day. Thanks to Weronika Cybulska over at BidRodeo for pointing this out.

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The Sunk Cost Fallacy

Penny auction critics say these auctions exploit the sunk cost fallacy, ie "throwing good money after bad." I don't know if the average user experiences the pitfalls of sunk cost (irrational) psychology, but Zorro2612 certainly did in this recent auction over at Swoopo. This user spent $108 on bids and $155.40 on this iPod Nano worth $199 retail. Swoopo gives users a hand by automatically calculating their savings on an auction (retail price - (bids +cost)). Too bad this calculator only goes to $0 because you can have negative savings, they're called losses. Zorro2612 had savings of $199-$155.4-$108 = -$64.4. Didn't exactly slash a bargain now did we Zorro?

Here is what I bet Zorro was thinking:

Aye corrumba, i've already spent $100 on this auction, now I have to win it no matter what. If I back-off now, I'll have wasted that $100.

The problem with thinking about sunk costs this way is that it leads to irrational decision making. Having "sunk" $100 worth of bids into an auction does not make you more likely to win, therefore Zorro would have been best off to walk away after his total money spent on bids + cost of the item passed the retail price of the iPod. However, he did not do that, and in this case did end up winning the auction. Note that the outcome he received ie paying $263.4 for an iPod (including bids) is a better outcome than walking away at say $90 in bids and then buying the iPod at the street price of $199. However, when he made the decision to "go for it, all or nothing," there was no way of knowing he would be the winner. There very well could have been only one competitor on that auction who's strategy was also "go for it, all or nothing," and who got nothing. Zorro could have easily been out $200 with no iPod, instead of out $90 with no iPod as in the hypothetical situation I construct here.

To maximize value in all things; cars; houses; investments; penny auctions, users need to ignore sunk costs. As many critics point out, this seems especially hard to do in penny auctions, institutional investors (who I'll assume to be more sophisticated, but perhaps undeserving of the distinction) are known to be more likely to sell portfolio holdings that have appreciated in value by a certain amount to "take some profit," then they are to sell holdings that have declined in value by a similar amount, which they should do to minimize downside risk if the same standard of logic is to be applied evenly. This comes from a field called behavioral finance, which I find to have much in common with penny auctions, and is part of what initially drew and continues to hold my interest in these types of auctions.

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Attack of the clones

"Craig", presumably Craig Pratka, part-owner of Zoozle.com, wrote to us to correct the timeline we have up about bid-fee sites. I'll leave it to my co-blogger, who likes doing stuff like that, to make the correction to the graphic, but I'm always excited to hear from other people in this industry.

In doing some research about Zoozle, I came across the press-release they put out on the occasion of their going live. It included this shocking paragraph about their experience with the standardized "turnkey" software so many penny-auction sites use.

The software came with an 'Autobid' feature and instructions for the site admin to set fake user names and autobid timing from the back end. The feature can be disabled.. but when disabled, the sites critical functions, like bidding, did not work properly.

Shocking, but candidly, not surprising. It's very easy to be dishonest in this business -- even the word "dishonest" is somewhat euphemistic, here; "autobid" is shilling and in a bid-fee auction, shilling is outright fraud.

Cynical as I am, I was still shocked that the commercial software had shilling built in, had defraud-your-customer built right in. Wow, how do the people who develop that software justify what they do for a living to themselves?

So stay away from clone sites. They're easy to spot, they look just like Swoopo. Same green buttons, same unmistakeable red flicker when the timer is pushed back. They are all using the same software underneath. I have no idea what fraction of clones are actually using the shilling feature (or doing anything else dishonest), but why take the risk?
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GoBid.com Is Blessed by the Gods of Publicity

Local ABC affiliate WPVI in Philadelphia ran a story about GoBid this past week and had nothing but good things to say. The story, which runs about two minutes, profiles what in my opinion is one of the lesser penny auction sites out there in the station's "Saving With 6" segment.

ABC describes GoBid as a site where users can get amazing deals, but where they might spend more than they realize. An ABC reporter talks with who I will assume is a GoBid executive, but I say "assume" because the guy's name and title are never mentioned. The report never even mentions whether or not he works for GoBid.com.

I thought it was interesting that ABC chose to profile GoBid without any mention of other penny auction sites. GoBid is one of dozens of small penny auction sites that cower in the shadow of Swoopo and Bidcactus. Ok, "cower" is a bit of an exaggeration, but they're certainly much smaller than Swoopo and Bidcactus from a traffic perspective.

So why did ABC choose to profile GoBid?

Is GoBid doing something unique that warrants media coverage?
No, they're just like 15-20 other penny auction sites.

Is GoBid from the Philadelphia area, and ABC wanted to focus on a regional business to better connect with their audience?
No, GoBid has offices in Miami and San Francisco.

In other breaking news, ABC WPVI sucks.

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Living in SIN

I've been following Swoopo's new feature "Swoop It Now" (SIN) with considerable interest. This is a feature that allows non-winning bidders to apply the cost of their expended bids toward the outright purchase of the merchandise. My prediction was that it would drive the bid levels way up, as a bidder who was interested in buying the merchandise would have no reason to stop bidding once he had invested enough bids to make buying the item a good deal.

This has not happened. At all. At least, it hasn't happened yet. And I want to know why not.

Right now, Swoopo is selling a Nikon D90, a very nice camera, I happen to have one myself. Amazon sells it for $1,139.95 and by what is certainly not a coincidence, Swoopo shows $1,139 as its list price. So if you want the Nikon, instead of going to Amazon, go to Swoopo, buy 1900 tokens at 60¢ each, $1140.00 bucks works, and load them into the BidButler.

You might win and get the camera for something around $76.00 (1900 of your 2¢ bids plus the same number of 2¢ bids from whoever is foolish enough to bid against you). In fact, you'll probably win, because you have the huge war-chest to discourage rivals.

And if you don't win? You buy the camera for the same price you'd pay on Amazon.

Somebody should try this. I'll wait here.
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The wages of SIN

For several weeks, German customers of Swoopo have been allowed to use their expended bids as credit against the purchase of the auctioned merchandise, calling it Swoopo It Now (or "SIN"). Today (or recently -- I do have a life and Swoopo doesn't seem to send out press releases), they extended that courtesy to American bidders as well.


Of course, the merchandise is sold at MSRP, but if you lose big, you can salve your wounds a bit by buying the item for a not-terrible price. Say you blow 100 bids in a failed attempt to get that flatscreen TV -- Swoopo will give you $60 (100 bids at 60¢ each) off list if you buy it outright (and spot-checking a few items against Amazon suggests that Swoopo "list" is a pretty reasonable price).

Several issues:

1. There's a tight time-limit: you only have an hour to redeem the bids
2. You can do it while the auction is running -- but then you automatically lose.
3. Free bids are excluded, of course.
4. It isn't clear from the terms whether bids you buy at auction are valid: "vouchers" are excluded and auctioned bid packs are sometimes, but not always, referred to as "vouchers" on the site.

It's my analysis that SIN will drive up the price level. A bidder who has already expended more bids than the difference between "list" and what the product is worth to him has no incentive to stop bidding, since every 60¢ bid saves him 60¢ on the purchase if he doesn't win, and he might win.

Of course, that assumes that there are a lot of bidders out there who think like I do. We'll see.
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The Penny Auction Paradox or Why Users Flock to Swoopo

In earlier posts I began to flesh out ideas of safety in numbers and group dynamics surrounding the penny auctionosphere ("penny auctionosphere" term coined here and now by me: Thursday, July 30, 2009) and how the economic idea of pooling is present and how this concept makes auctions safer but also harder and more expensive to win.

The idea that the QWERTY keyboard, Blu-ray dvd players and English as the language of business have evolved to be (virtually) universally accepted is because certain products or situations require that all users behave the same way; this is the idea of pooling. The QWERTY keyboard has been proven not to be the most efficient layout of keys for quick typing, so why don't we change to a more efficient layout? The reason is that re-training millions of people to use the new keyboard would be more trouble than the gains are worth. Why Blu-ay as the standard for high definition DVD? Because electronics companies don't want to have to make a DVD player for each new format (remember HD DVD, It lost), consumers don't want to have to worry about getting the correct disk from Blockbuster, and content providers don't want to worry about making the correct number of each format, exc., exc. English has become the "universal" language because the world needed one and as the largest economy and most influential country, the US probably seemed like a good choice. I don't know the specifics on how English came to be the "universal" language, but it did, maybe it has to do with all that colonization. In penny auctions, a kind of pooling is also starting to take place. However, this pooling is less like Blu-ray and more like Ebay and Craigslist, perhaps the two best examples of "e-pooling." If you want to sell your old coffee table you post it on Craigslist. All people who want to sell old furniture sell on CL and all who want to buy also look there. There is no other practical way to sell used furniture anymore (newspaper classified are dead). Ebay is the same way.

With penny auctions the market is still highly fragmented (37 sites in the US and counting at last check) however, Swoopo is without doubt the standout industry leader. But this is an industry still in its infancy, so will the kind of expansion we have seen over the past year continue, or will one or several penny auctions come to dominate the industry? I think one would be hard pressed to argue that penny auctions require the type of pooling seen in Craigslist and Ebay, however there are benefits to going with the industry leader that are becoming more apparent.

Users flock to Swoopo because the site has a professional layout and is perceived to be trustworthy, especially when compared to many of their peers who's penny auction sites look like they are being run out of a garage in Mexico. I won't name names here but just go down the list in the directory on PennyAuctionWatch.com and you will see what I mean about quality. With Swoopo, users can feel safe that they will get their products and that the site is not manipulating or gaming the system on the back-end to cheat them - others have been accused of doing so. In this sense, Swoopo represents a type of pooling, one based on safety in numbers.

Yet the concept of safety in numbers in the penny auctionosphere is kind of ironic because the more users who to go to Swoopo, the harder and more expensive it becomes to win auctions. There are deals to be had at the lesser known sites, like RockyBid selling a car for little more than $1, but there is also risk. So does herd mentality make sense in penny auctions? Sure, humans always do what others are doing when they know no better, but the key to being successful at penny auctions is finding the credible and less popular sites. How does one do this? I just analyze the market, I don't play the game.
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