Sunday, July 19, 2009

Swoopo is a Scam

There is a saying about playing cards - If you can't spot the sucker at the table, you are the sucker. This rule also applies to Swoopo.com.

The only reason this blog post exists is to warm people to STAY AWAY from Swoopo. If you're familiar with the site and do not believe it is a scam, you are either too daft to recognize the scam, or are part of it.

If you're not familiar with Swoopo, it is a reverse auction site that works like this. Swoopo will post a listing for something like a mac or an iPod. The listing will start at$0.00, and will usually end in 24 hours. The catch is that every bid placed on this item will cost the bidder $0.60, and will only raise the bid a few cents. This bidding system tricks another bidder sucker into thinking they can still get a good deal. So, they bid, it costs $0.60 and the cycle continues till every sucker is out of money or simply pays a higher than retail price for the item. In the end a mac may go for $200. Great deal huh?...and it might be to the person who clawed their way to the top of the pyramid last. To make matters worse though, Swoopo will tell you how great a deal the item was for the buyer who pulled it off. What they don't tell you is how many suckers paid $$$$ to LOSE that auction. In the case above that $200 mac garnered 10,000 bids at $0.60 each. That equates to bidders collectively paying $6,000 for a $2,000 laptop. Hmmmm, wonder why they don't advertise that deal. Get it?

Basically, it's like eBay, no limit poker, and a slot machine all rolled into one.

Don't just take my word for it. There have also been numerous articles written about Swoopo that describe the site as:

"a gimmic" - http://technologizer.com/
"controversial" - http://en.wikipedia.org/wiki/Swoopo
"Pure evil genius" and "Too good to be true" - http://blogs.zdnet.com/BTL/?p=14122
"Profitable till deemed illegal" - http://www.codinghorror.com/blog/archives/001196.html
"Shopping's steep spiral into Addiction" - http://www.washingtonpost.com/
"eBay's More Evil Twin" - http://www.theregister.co.uk/2009/01/02/swoopo_startrup/

In fact it seems that the only sites that seem to say good things about Swoopo are the ones advertising "guides" on how to "beat Swoopo." There are a few who say it is not a scam, that it's just a good business model. Perhaps, but it is gambling, and because they do not call it gambling, it is a scam. Simply, it MUST be gambling because you are paying for a chance to win. This is very similar to a raffle, or poker, which are both regulated commercial activities.

The secondary reason for writing this post is because I actually tested out the site to see the entire process. After handing over a few dollars for bids, and taking down a cheap auction. I knew I had seen enough. It's simply gambling. If I can't play poker online, I sure as hell shouldn't be allowed to take part in this scam. So, I have sent a request to Swoopo to refund my remaining bids (before I call the credit card company to do if for them). I am also sending Swoopo a link to this blog post. Lastly, I will be reporting Swoopo to the California Department of Consumer Affairs, the California Gambling Control Commission, and the FTC.

Again, if you're reading this, I highly encourage you to stay away. As another article pointed out, the only way to win, is not to play.

7 Comments:

Blogger pennyauctionguy said...

Hi Josh,

You take a stance similar to many, you think penny auctions are a scam and that they are gambling. I would argue that this really depends on how you define scam. If you mean fraud, than no Swoopo and other sites are not scams, however, there are some sites that have been accused of committing actual fraud, which is different. If you mean scam in the sense that those who are unfamiliar with the concept can get burned, than OK, I don't completely disagree with you. However, there are a lot of people who participate in penny auctions who know exactly how the games are played and are OK with spending money on bids with a chance that they lose it all. EBay also pits people against eachother. To your second point, that Swoopo and penny auctions are gambling, I must disagree. Gambling is defined as paying or giving-up something for the chance to win something. With penny auctions, like with eBay, we are not talking about chance or probability. If you bid and then walk away there is no chance of winning, you must take active steps to be the last bidder and win the auction, therefore I think it is not gambling.
I blog extensively about the topic at http://www.penny-auction-insider.blogspot.com

I don't believe penny auctions are good or bad, but I do find them interesting and I call it as I see it. Check out my blog and let me know what you think.

Thanks,

PAG

11:32 AM  
Blogger The Josh said...

I'm sorry, but I respectfully disagree. They are not fraudulent, but they are gambling. Gambling is risking something to have the chance of winning. There is simply no difference between that description, and Swoopo. It is based on chance, and game theory, unless you are willing to be the last man standing, in which case you overpay by an order of magnitude. eBay however, poses absolutely NO risk to the bidder. I agree they are interesting though.

P.S. I speak from personal experience with swoopo for the purpose of evaluation, and an education in economics.

12:30 PM  
Blogger John said...

Hey Josh,

Seems like you know a lot about this relatively new shopping platform so figured i'd send you a post in hope of getting some info.

This past week I found this new site, www.BIDZONE.com, and it looks pretty interesting. The product price actually decreses everytime someone places a bid on the item?? (50cents to bid/50cents reduction)

Have you heard of BIDZONE and could give me some insite? Let me know!

-John

12:38 PM  
Blogger The Josh said...

(The following assumes bidzone is a legitimate company - to which I cannot personally attest)

Hmmmmm. If I understand correctly, the price starts at (let's say) retail. Each "view" costs $0.50, and lowers the price $0.50, thus creating a game of chicken between bidders.

Assuming the start prices aren't overinflated, it couldn't be that bad of a deal.

Also, you're not paying for a chance to win, you're paying for an opportunity to BUY, NOT BID. Sounds a bit like Costo no? You pay $50 to get a discounted price. In this case, you just don't know the discount beforehand. So...doesn't sound like gambling, just game theory.

I would be terrible because I know (or can find) the absolute lowest price of any given product. Thus, I would wait too long, and lose.

On the other hand, if I'm "viewing" at 2AM when there is low traffic... I could shell out some cash to lower the price, but the net effect is $0. Thus I NEED someone else to come in and compete. Not a bad model for them.

They buy at wholesale, and sell at retail no matter what. The difference in the sold price and retail is compromised of others "views." This seems much better than Swoopo selling at 3X retail (if you include bids).

I say if you need an iPod, and are willing to pay retail... This site would probably be worth your $0.50. You will notice though, they do not tell you when the item began. Meaning: you're going in totally blind regardless...

3:05 PM  
Blogger John said...

Ok yea I agree. I looked closer and see that they do just that... It doesnt look like there is a competition as you pay the .50 to see the discounted price.

The "fun" aspect of it is that my .50 cents dropped the price. So the price continues to drop until someone buys.

The discount is a factor of traffic - but only over time. I dont think it matters if you are in at 2am or 2pm... the price drops which I dont know where it is...until I make a 'view'.

I think it seems to be a pretty fair, logical model.

I would definitely check the prices before I brought... to you point is a zero sum game (worst case I am the first bidder and I still buy it at their original start price).

Very interesting...

6:34 AM  
Blogger pacinigirls said...

Josh,
I just signed up today on swoopo, not really getting it. A friends told me it was like Ebay so I signed up and bought a 26.00 pack of bids. (40 bids). I used 4 bids and have a balance of 37 bids. I quickly realized this was an extreme game of chance that I cannot afoord to play, as I am a single parent of two. I've emailed them and requested a refund for my remaining 37 bids, with no response. Did you ever get a refund? If so, how? Thanks! Feel free to email me dawnapacini@gmail.com Thanks again!

10:22 AM  
Anonymous John said...

Hi,

I am with a law firm that is investigating complaints about Swoopo.com auctions and the various problems users have been having with them. If you have bid on items on Swoopo.com and would like to learn more about our investigation, please visit our website at www.GirardGibbs.com/Swoopo.asp or give me a call toll-free at (866) 981-4800. You can also reach me by email at jwh@GirardGibbs.com.

Thanks,

John

6:12 PM  

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