Formerly - absolute insanity

I just couldn't not mention this, after figuring the site out. Whoever dreamt this up must have thought it was fucking Christmas. They probably have enough money now to have Christmas every day.

Permit me to explain.

You might have noticed's adverts on Facebook down the left hand side of the page. Crazy things like laptops being auctioned off for a tenner, PS3s selling for fifty quid or giant plasma screens selling for a couple of hundred. All brand new.

I wondered how this could possibly work legally. I nosed around their site for a bit, I even Googled the site name in the hopes of finding some BAN THIS SICK FILTH-type headlines, but nothing. That, the fact they've been running for over two years and are advertising on one of the most popular websites on the entire internet would suggest that what they are doing is, at least nominally, above board.

So, how does it work? It's an auction site for brand new stuff, all sold by the site itself. An auction runs for a set period of time, during which users can bid on the item. The difference from eBay is that instead of bids being up to a user-defined limit, a bid increments the purchase price of the item by a set amount: either 7p or 10p.

Fair enough so far. Users bid to raise the price until noone is willing to bid higher and the item is sold. Auction duration can also be extended by last-second bids. eBay-style sniping, while not quite a thing of the past, is greatly reduced in power. If anyone bids in the last seconds of an auction, its length is extended by a short period to give others a chance to bid again. Although there is still an absolute limit on how long an auction can run (albeit waaaaay in the future, compared to when the auction would end without any last-second bids), eBay could actually stand to gain a feature like this.

So anyway, that's the basic mechanic. But it doesn't explain how Swoopo can sell a PS3 for less than one-sixth its typical retail price, or sell £500 cash for £300 (I'm not kidding). How on earth are they doing this? Legally?

In fact, it's really rather simple. Users pay for each bid.

Let me explain. In order to bid on an item on Swoopo, a user has to pay for it. Each bid costs 50p (about ten million dollars) and, depending on the individual auction, will increment the item's sale price by 7p or 10p. And here's the kicker: buying bids does not contribute towards purchasing the item.

An example should illustrate this nicely.

As I write this, Swoopo has an auction running for an Apple MacBook. A quick Froogle search indicates a 'normal' price for that particular model of £822. On Swoopo the bidding is currently at £222.46 and the bid increment is 7p: each time a user bids, the item price increases by 7p.

A quick bit of maths tells us it took 3,178 bids to get the price up to £222.46. Each one of those bids cost the bidder 50p to make. Are we starting to get the picture here? That's £1,589 of revenue Swoopo has made from the auction so far, without selling any physical goods.

For the sake of argument, let's say the auction ended at that price of £222.46. £1,589 + £222.46 = £1,811.46. So Swoopo has made almost £1,000 of revenue in excess of the revenue it would have made if it had sold the MacBook in the normal way.

It is most interesting to consider the actual costs to the buyer: remember that bids have no value when it comes to actually buying the item. The money that the winning bidder spent on their bids has only permitted them to buy the item at the final price.

If we massively contrive this example and say that the auction has been a bidding war between seven individuals, each making an equal proportion of the total bids (454 bids per person), then the winning bidder will have spent £227 on bids to win. Once they have won, they can buy their MacBook for £222.46. So their total costs are £449.46. Still a hefty saving on the purchase price.

But spare a thought for the other six poor saps, who spent £227 on bids and walked away with nothing at all.

Don't spare any thoughts at all for Swoopo, who are laughing all the way to the fucking bank.

It should now be obvious how Swoopo can sell things for such ostensibly and ridiculously low prices. The amount that users collectively spend on bidding accounts for, and usually exceeds, the shortfall between the item's sale price and its actual value. This excess also accounts for the items which sell for less than their value.

Interestingly, Swoopo still allows for bidding wars and sniping. It would be quite possible for an individual to make a single bid on an auction that tips all of the other bidders over the edge in terms of how much they're willing to spend. The winner would only have paid 50p plus the final price of the item.

However, the relatively small value of a single bid in terms of incrementing the price of an item means that it's more likely for individuals to say "what the hell" and place "just one more" bid. This of course adds to the time remaining on the auction, giving others more time to make the same decision. This is the reason many auctions go on for hours with the counter hovering between zero and ten seconds remaining.

It is interesting to consider how an individual could work out their maximum spend. See, their 'budget' for an item has to be the combined amount they are willing to spend on bidding for the item, and paying for it after the auction. However, although these two figures combined should never exceed your budget, the balance between the two is not fixed at all. It depends entirely on the number of bidders.

Let's say you're looking at a TV that costs £500 in the shops. Given that you'd have to spend on shipping and wait for the thing to arrive, let's say that the most you're willing to spend on Swoopo is £400. That £400 has to pay both for bids and on paying for the thing at the end. If you divide it equally and spend £200 on bidding, that gives you 400 bids. Unfortunately it's not that simple. Let's say the bid increment for the auction is 7p: those 400 bids of yours would only add a total of £28 to the final price of the TV. You're quite a way below spending your budget, and probably quite a way below the budgets of the people bidding against you.

If you and one other person were bidding on the TV, you would be making half of all the bids and would quickly use up your 400 bids. BUT, those 400 bids - which would be reciprocated by the person bidding against you - would only increase the price of the TV by £56. Add your £200 bidding spend, that still leaves £144 of your budget. Assuming this bidding war continued, you could afford to make a further 226 bids before your combined spend on bidding and the price of the TV exceeded your budget. If you had won, you would have spent £313 on bids and £87.63 on the TV itself.

If, on the other hand, you were one of seven people, each spending £200 bidding on the TV, its price would increase by £196 which almost uses up your budget. You've not spent any more on bidding, but because of the participation of others the price has been driven up much more. Although this is a gross simplification which doesn't account for users with differing budgets, or the low likelihood that all participating bidders would make an equal number of bids at equal intervals, it demonstrates how the weighting of your spend between bidding and buying differs depending on the number of bidders.

If you consider that there will always be a point at which bidders start to 'lose' money - that is, if they won the item, the amount they spent on bids and the item itself would exceed the item's regular purchase price - it becomes plain that the more participants there are in an auction, the less each individual can spend on bidding. As the number of bidders on an auction increases, a given price may be reached with fewer bids from each individual; in this situation, because less pressure is placed on individual bidders, more bids may be made across the board. This in turn means the budget of individual bidders must be heavily weighted towards paying for the item, rather than paying to place bids for it.

It is easy enough for the individual to monitor their budget - they simply need to track the sum of the current cost of the item and their bids to date, and duck out when they reach their maximum (of course, if they hadn't won the auction by then they would have lost everything they spent on bids).

Blackpawn says re It's also worth considering that in your budget for an item, you have to account for failed auctions also. It might take you seven auctions before you win something. Or seven hundred even, it's gambling.

I wondered during writing this whether the behaviour of auctions in this system could be predicted. I wrote a crude program to output statistics for this in different situations (helluva way to spend NYE), but due to the many assumptions I was forced to make when coding said program (identical budgets for every bidder and every bidder except the winner making an equal number of bids in turn) I am neither confident its results represent reality, nor that I am qualified to make any qualitative assessment of their statistical significance. I would be interested to read an analysis by a suitably-qualified noder (and I know we have a few) of the relationships between these figures as the number of bidders and their respective budgets varies.

To summarise: Swoopo is pretty much the scammiest thing I've ever seen that isn't actually a scam by common definition. Provided users know what they're getting into and play the system right (which of course, requires that the vast majority play it wrongly) it can work well for them, but most of all it works for Swoopo itself. Fair play to them.

This is the first node of 2008 and I claim my five pounds.

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