Digital Life »News & culture
Swoopo and BidsTick…is the ‘new online auction’ a big sham?
beingzoe about 1 year ago | 19 responses    

This article is about telling you how to get $1000 electronics and other products for pennies on the dollar and then to explain why it’s a big sham you should avoid at all costs (unless you like playing the lottery).

We’ve all heard of eBay. Online auctions are fun and exciting. Some folks even manage to make a living buying and selling through similar online auctions. Ordinary people and businesses post items to be auctioned off. Sometimes they set a reserve price that must be met, but for the most part the auction is timed and whoever has the highest bid when the clock runs out wins the auction.

Now I understand this is different than a traditional “live” auction. In a “live” auction for antiques or cattle there is a speed talking barker managing the bidding process, keeping it exciting with his slick talk and constant reset of the clock, “Going Once, going twice…$300 to the man in black in the back…Do I hear $325? DO I hear it…”

Today I discovered a whole new kind of online auction and I immediately sensed something wrong with it.

Enter BidStick and Swoopo. On the surface it looks like the excitement of a live auction. With every bid placed on an item the “tick” clock is reset and more people get to jump in on the action. It all sounds fun and exciting with the chance to get outrageously good deals on electronics and a variety of fantastic items.

It only gets better. Did I mention that most of the auctions are only 1 cent bids? That’s right, the price only goes up a penny with every bid. So when I say outrageously good deals, I am talking about a $1140 Nikon D90 DSLR camera with the 18-105mm lens package for $41.62. Or how about a normally priced $500 plus Samsung SGH-i900 Omnia phone for only $16.66. But that’s just the beginning. Folks are winning auctions for things like Bose In-Ear Headphones that retail at $100 for a measly $1.14.

That’s incredible! Who can beat those prices? Nobody!

When good auctions go bad

So what’s the problem right? How can saving up to 99% on things you want and need be a bad thing? Well the problem starts with how the whole thing works.

You are only bidding a penny more each time you hit the ‘bid’ button. However, you have to buy those bids for anywhere between $0.75 cents and $1 dollar. So even though you only raise the bid by a penny, each bid actually costs you $1.01. You bought the right to bid a penny for $1 dollar.

Okay even still, where’s the problem. Even if you bid 50 times on the Nikon camera mentioned above (retail $1140) I’m only spending $50.50. That’s a fantastic deal, that is how do you say, too good to be true.

Except it isn’t too good to be true. If you win the auction you just got yourself a deal that is by any measurement a phenomenal deal. But that is assuming this is the only auction you bid on. That you hadn’t tried and failed at 10 other auctions that you blew $50 bucks each on. But hey that is still only a net cost of around $550 for a camera package that you couldn’t buy outright for under a $1000.

Oh wait, but there are ten, or a hundred, or thousands of other people doing the same thing, some of them never winning an auction ever. And that’s the rub. If you win the auction, you just made out like a bandit, because that’s what you and the creators of these new online auction sites are, dirty ugly theives in the night.

The real price

It’s an incredible deal for the winners because, the losers of every auction are generously buying the item for you in a twisted capitalist version of ‘pay-it-forward’. Of course I might also be inclined to think of it as pyramid scheme. You give me $100 and then get 10 other people to give you $100 and you just made $1000 (well $900 really but that doesn’t sound as exciting). Except that one level down from you, two down from, a hundred people are just throwing away a $100.

Perhaps the pyramid scheme is too harsh. A more fair and realistic way to consider these new auction sites is simple gambling. I am willing to bet $50 on this hand of win the camera. But the odds appear to be stacked in the house’s favor worse than an unregulated casino.

Let’s take a deeper look.

NOTE: The following numbers are from real products being auctioned while I wrote this article. All retail prices are based on Google Product searches during the writing of this article.

Starting with a penny auction at Swoopo:

Nikon D90 12.3 MP DSLR Camera with 18-105mm Kit (Auction #1)

• Retail price range: $1140 – $1600
• Swoopo bid cost range: $0.50 – $0.75

  Auction final price = $41.62
  Total bids ( $0.01) = 4162 <br /> Total bidder fees $0.75 = $3121.50 + $41.62 = $3163.12
  @ $0.50 = $2081 + $41.62 = $2122.62

  Cost of goods = $1140

  Gross profit low = $982.62 ($1082.12 – $1140)
  high = $2023.12 ($3163.12 – $1140)

The winning bidder get’s the deal of the century, assuming of course that this person did not bid a 1000 pennies (er, dollars) to get that winning bid. However, the real winner here is Swoopo. They swoop in here with a potential profit of $2023 for an item that retails at it’s lowest for $1140 and they no doubt are getting at least a slightly better wholesale cost than that, but I want to give them as favor as possible.

In these examples for the low profit I am assuming that they have given away enough free bids to lower the average bid cost to $0.50 per bid AND they were really paying retail prices to get the goods they are shipping.

But, as luck would have it, the same exact camera package was also being auctioned off right next to it at Swoopo. And it went for only $30 more. Take a look.

Nikon D90 12.3 MP DSLR Camera with 18-105mm Kit (Auction #2)

• Retail price range: $1,140 – $1,600
• Swoopo bid cost range: $0.50 – $0.75

  Auction final price = $72.74
  Total bids ( $0.01) = 7,274 <br /> Total bidder fees $0.75 = $5455.5 + $72.74 = $5528.24
  @ $0.50 = $3637 + $72.74 = $3709.74

  Cost of goods = $1140

  Gross profit low = $2569.74 ($3709.74 – $1140)
  high = $4388.24 ($5528.24 – $1140)

In these two examples alone Swoopo made a gross profit of at least $2569.74 and as high as $6411.36. That is an outrageous markup that no single human being would ever pay. And fortunately they don’t have to. These new online auction sites have figured out a way to dupe the public into collectively paying as much as 6 times the normal retail price.

Like a twisted carnival game

As I already mentioned, with every bid the clock is extended on the auction. There is no such thing as swooping in at the last second and stealing the prize. There is no last second. There is only everyone else giving up because they spent too much and walking away with less chips than they started with, defeated and looking for the next ‘hot table’ to make up for their loss.

Unlike auction sites like eBay where you might ever see an auction closing in a week, that doesn’t exist in this new auction landscape. From the moment you hit the home page of either Swoopo or BidsTick you are bombarded with 6-10 clocks all under the minute mark, counting down before your eyes, some of that at 2 seconds, oh wait, now at 20 seconds, wait, no, make that 2 minutes. This process repeats over and over until finally someone wins, ten minutes or hours from now.

With this type of setup it is no wonder people aren’t thinking before they drop their money into the machine and begin clicking away trying to get that $1.00 television. But like a carnival game you can count on the fact that you are going to be dropping money in until you can’t stand it anymore.

So is Swoopo or BidsTick a scam?

In my world these sites are the ultimate scam. I say ultimate because they are not illegal unlike other confidence games and frauds. The scam is similar to that of the Clearinghouse Sweepstakes. All people see are the exciting headlines telling them that they won a million dollars or a Samsung 61 inch 1080p LED Powered HDTV for $86. They don’t notice that only one person is going to win, and that along the way they are going to pay a lot of money in magazine subscriptions and bid buys for the chance to win.

It’s a scam because these types of businesses prey on those who don’t see through the charade. It is impossible for everyone who buys 100 bids for $75 to win, otherwise these companies would go out of business. To put it another way, it is impossible for everyone to ever get a $1500 hundred dollar television for under a $100 bucks and expect that company to stay in business. And that’s where I cry pyramid scheme once again.

What online auction companies like Swoopo and BidsTick are doing is currently legal. I’m not even suggesting they shouldn’t be. I believe in gambling. I believe you should be allowed to gamble, on or offline. However, call it what it is. Don’t wrap it up as something else and make it look like you are doing us a favor. The only one getting the favor is the so-called auction company, from the public at large who are either too excited, too high, too dumb, or just bored enough to use your service and make them rich.

So what do they have to say for themselves?

In an Oct. 3, 2008 article at Gadgetell entitled Gadgetell interview: Swoopo speaks JG Mason interviewed Chris Bauman, Swoopo.com’s Senior Manager of Business Development.

JG’s first question, “Why are some people are getting really pissed off at Swoopo?,” garners this innocuous response from Mr. Bauman:

It is unfortunate that an auction has just one winner. It is the nature of the beast. People that don’t win are going to be mad, even regretful sometimes, but those very same feelings happen on other auctions like eBay too.

You simply can’t compare Swoopo or BidsTick to eBay. In Bauman’s own words, they are very different beasts. Where eBay offers a legitimate service where the loser pays nothing, the loser in a Swoopo or BidsTick auction can lose nearly as much as the winning bidder pays. I am sure in certain cases depending on how smart the winning bidder played their hand, the losers often spend more than the winner.

It is so interesting to me that from the outset of the interview, Swoopo’s representative calmly acts as though nothing could possibly be wrong with what they are doing; they operate a wholly legitmate service. However, in TheGoont.com’s blog post, Swoopo – Scam Alerts are Ringing the author says of the JG/Swoopo interview:

“It kind of reminds me of ‘Thank You For Smoking’ – if Swoopo does get sued out of existence, I think Chris might make a great lobbyist for the tobacco industry. Just my opinion.”

I couldn’t agree more.

Later in the interview JG asks, “How are you trying to educate users on the differences in your model vs. a traditional auction?” Bauman responds:

Our about page is very simple explanation about how it works and has sufficed, but can be clearer. We are looking to expand it. We are also looking to do videos as well. The thing that really sets us apart is allowing users to purchase bids and then bid with those. It is definitely not a try before you buy.

Of course not, we can’t have people figuring out the scam before they’ve paid their admission fee to keep the pyramid going another day. To Bauman’s credit however, their ‘new user/tour’ page does in fact outline exactly how the bidding process works. It clearly shows how the bid process works, how much a bid costs vs how much it increments the bidding itself, it also clearly shows how the clock is reset with every bid. The instructions, which were nicely tucked into a single word link on the registration page did not outright lie about anything that is going on. The instructions were simple and clear to understand. They just don’t run the numbers for you and show how much you might end up paying if you lose.

The instruction page at Swoopo even clues you in to the BidButler in case you can’t afford to sit around and pay a dollar to click the button yourself. Their automated system will handle it for you. That’s right they have a system for automated bidding when you can’t be around.

The only problem with the BidButler is that unlike an eBay auction where the automatic bidding only happens when someone exceeds your bid, the BidButler will keep raising the stakes just before the time runs out, because every bid exceeds yours. And as we’ve already pointed out the time is always running out. Swoopo flat out tells you in the help section:

When there are two or more BidButlers set on the same auction, they duke it out there and then, placing all their bids immediately. This tit for tat battle means that the price and countdown both increase with each bid placed. (We do this so that bidders can easily see the auctions that will end soon unless another bid is placed).

I can’t be positive, but I am pretty sure that I personally witnessed it happen. On an auction for a Panasonic Viera TH-42PZ85U 42-Inch the cost shot from $45.89 to $46.99 in less than 5 seconds and brought the clock from 1 second to around 13 minutes remaining. Thanks BidButler! While that may sound like an insignificant amount, the price went up by $1.00 to the eventual winner, Swoopo made an extra $80 bucks or so. Whether it was BidButler or a hundred people clicking wildly, it wasn’t in anyone’s best interest except Swoopo’s.

If you were to see your friend or spouse behaving similarly in Las Vegas you would probably be worried for them.

Farther on in the JG/Bauman interview, JG asks, “Are you concerned about being viewed as gambling?” Bauman responds:

Gunnar, our CEO has been keeping an eye on the auctions for years and has not seen people bid outrageous and not won. Typically been when you come to the site, you came there for a product. We’ve not seen a lot of people go nuts. We try to encourage safe bidding in newsletters, and realize we are introducing a new auction style. There is a skill to Swoopo.

A skill like how to beat the craps table or how to beat the house? And newsletters encouraging safe bidding sound an awful lot like state mandated programs for providing gambler counseling and ‘responsible betting’ leaflets. But fortunately for most people who will experiment with these sites, they don’t have to go nuts for these new online auction companies to make bank.

Breaking news…Coach Handbag auction about to end!

No really, this is really happening in real time as I write at BidsTick where the cost per bid is $1.00 instead of $0.75 like at Swoopo.

Even as I finish this article, A Coach Leather Shoulder Bag is hovering at 1-5 seconds remaining in a ridiculous bidding war. (Though I can’t quite understand why each bid isn’t pushing the time back up more than a second or two as the stated tick time is 2 minutes per bid). Two bidders who we will call Cher and BeHappy, together drove the “price” of that Coach handbag from around $9.50 to over $12.50 in the past several minutes. Every tenth exchange or so between Cher and BeHappy another name will pop up as the current high bidder, but they are few, and one of them using some kind of strategy only appears when the clock actually reaches 1 second (which happens every 14 seconds or so). Oh wait, what is this, we were stuck at 2 seconds, and now the time has vanished, instead proclaiming, “Auction is paused, you can still bid!” What? First we get rid of the tick timer, then we pause the auction while Cher and BeHappy continue to exchange penny, er $1 bids. Ah, now with the clock running again at a fairly 2 seconds remaining the price of lovely Coach Handbag has reached $14.68. And oh my god, I actually saw it close and Cher is the winner with a winning bid of $14.70. Hooray for Cher!

Now let’s examine what just happened. In the course of about 6 minutes, we had two bidders almost singlehandedly bid up the price of the Coach handbag by a little over $5.

$5 in penny bids = $500 in bid fees at full BidsTick prices, but let’s be generous and say that everybody bought in bulk for this auction. So instead of $1 per bid, we’ll go with $0.50. So our total bid fees for that 6 minutes alone now becomes a more reasonable $250.

I will further be generous and say that Cher and BeHappy only accounted for half of those bids. So that means that both Cher and BeHappy both spent at least $62.50 each in those final 6 minutes to acquire the precious handbag. But those other random bidders also covered another $125 of those valuable 6 minutes. So while Cher who won the bag will be paying her $62.50 + the actual $14.70 the auction closed for + however many other $0.50 bids she made during the course of that grueling 2 hour battle consisting of 1,470 individual bids, she at least gets a bag out of the deal.

BeHappy on the other hand might not be so happy anymore. She spent the same $62.50 + however many other $0.50 bids she made during the auction and get’s nothing. She might have just spent a hundred dollars for nothing but the chance to click a button over and over in the hopes of getting a new Coach handbag.

In total this is how the handbag breaks down:

Coach Madison Leather shoulder bag

• Retail price range: $498 – $519
• BidsTick bid cost range: $0.50 – $1.00

  Auction final price = $14.70
  Total bids ( $0.01) = 1,470 <br /> Total bidder fees $1.00 = $1470 + $14.70 = $1484.70
  $0.75 = $1102.5 + $14.70 = $1117.20 <br /> $0.50 = $735 + $14.70 = $749.70

  Cost of goods = $498

  Gross profit low = $251.70 ($749.70 – $498)
  high = $986.70 ($1484.70 – $498)

Not a bad haul for BidsTick! They made at least $251 on a $498 handbag (which might be it’s own article). Actually after looking over the numbers, I’m going out on a limb and saying that Swoopo is kicking BidsTick butt when it comes to massive profit margins. I’m tired now and won’t be able to get the complete list of auctions I documented in the article tonight, but I will post them shortly and I think you will agree, Swoopo knows how to get the money. But if you want to put it in more positive terms, that means that if you were going to try one of these services, I would go with BidsTick.

But of course I’m not going to suggest or recommend either of these services. In fact I’m not even going to link to them for fear that Google will think we are linking to a bad neighborhood and jeopardize our fragile page rank (which actually happened in another article where I linked to some sample spam sites to demonstrate a point).

This article is about to end…BID NOW!!!!

I had hoped to close by simply showing you the numbers, but since I’m not going to get to that immediately, I will leave you with this quote from Chris Bauman of Swoopo from the Gadgetell interview with JG Mason in response to the question, “How are bidders made aware of who they are bidding against?”

We do not make them aware. We don’t say which bidders you are bidding against simply because we are not assured of the outcome. Our business model says the more bidders we can open an auction to, the more likely we’ll cover costs, which doesn’t happen 70% of the time.

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Oblong Valley Celebration Sale – Cattle Auction image used under a
Creative Commons License
courtesy of jonathanvlarocca at Flickr

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