evil blogger

Swoopo sounds like a scam.  Well, it really sounds like a new kind of popsicle, but bloggers on the web claim it’s a con, and a rip-off.  Is it? No, but you best be careful.

Swoopo is an auction site that works with two pricing strategies: dynamic and fixed.

At second (or probably third glance), Swoopo’s business model is genius.  The premise works as such:

1. Users register for free.
2. Registered users buy “bids” in packs of 30, 50, 100, 300 and 700 bids (called “BidPacks”).  Each bid costs $0.75, and there are no discounts for buying larger “BidPacks”.
3. Brand new products (predominantly electronics) are available starting at $0.15.
4. When you place a bid, the time remaining on the product increase by 20 seconds.
5. When the product counter reaches zero, the last bidder wins.

The process results in brand new products like a 40” Sony Bravia LCD TV selling for $12.71.  So how can Swoopo possibly turn a profit when $2,000 TVs are selling for what users have in their pockets?  Swoopo’s U.S. Business Developer Chris Bauman says the company loses money on about 70% of its auctions.

Swoopo immediately earns at least $22.50 for each active, registered user.  Those bids can disappear quickly since would-be-winning users find themselves watching the counter hit 00:00:02, only to see it jump to one minute and beyond after a number of other users rapidly bid in the waning seconds.

Users become more invested in the product since each bid literally is an investment.  Winning bidders must pay the cost of the product, plus all of the money spent on the bids.  For example, that 40” TV that sold for $12.71 cost $259.50 in bids to reach that deal.  Hypothetically speaking, If a product is sold through a “penny auction” for $60, and has a MSRP of $1,000, 6,000 bids must be placed.  At $0.75 a bid, Swoopo earns $4,500, and turns a profit of $3,500.

These situations earn Swoopo enough to cover the auctions it loses money on, as well as turn a profit.  In 2008, the company posted a revenue of $28.3 million.

The biggest barrier to the site’s expansion has been the negative criticism of its pricing scheme.  The fact that users must pay for bids and the generally stark difference in auction style when compared to eBay, have people questioning the site’s legitimacy.

In truth, Swoopo is more akin to real-life auctions than eBay.  Anyone who watches TV or movies knows of the fast-talking auctioneer calling out prices and waiting for bidders to respond.  After a period of non-bidding, he calls out “Going once, going twice…” and if no one speaks up, the item is sold.  If another bidder jumps in, the “countdown” resets, and the bidding continues.

The fact that users have to pay for their bids is more like gambling than it is a sneaky scheme by some shady foreign (German, to be precise) company.  As mentioned previously, users become far more involved in winning the item when they’ve already sunk money into the endeavor.  Nobody wants to start bidding on a brand new TV only to leave empty-handed with a lighter wallet.

The strategy can be addicting for some (and is probably the reason the site considers itself in the “entertainment shopping” category).  And because of this, some losing users may walk away unhappy. But it is a unique blend of task-oriented and experiential services.  And despite some negative criticism, it only took three weeks for the US launch of the site for traffic to jump from a pittance, to 20,000 visitors a day.  And Swoopo’s aggressive advertising is sure to increase that number.

In a world devoid of new ideas, I find Swoopo to be a very refreshing and unique business model that seems to be working successfully.  I may have to pony up $22 and try out the site myself.  There is a “Beginners” area specifically for people used to the eBay-style of auctions, and it’s probably the best place to start.

[References:  Swoopo, technologizer, Wikipedia]

Tags: auction, bid, dynamic, ebay, fixed, pricing strategy, Swoopo

This entry was posted on Monday, April 6th, 2009 at 10:45 pm and is filed under Marketing, Save money. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.