The Big Money: The Pennies Add Up at Swoopo.com
Imagine for a second that you've set out to come up with an online shopping site that would take advantage of everything we know about consumer behavior.
Your goal is to separate people from their money as efficiently as possible. What would you do? You'd probably try to draw buyers in with bargain prices. You'd pit them against one another in an auction. You'd ask them to make snap decisions without taking much time to figure out just how much money they're spending. On top of that, you'd ask for only very small amounts of money at any one time, letting payments of a few cents build to hundreds of dollars.
But relax. Someone's beaten you to it: the folks at Swoopo.com. It's an online auction site that fiendishly plays on every irrational impulse buyers have to draw them in to what might be the crack cocaine of online shopping sites.
I discovered Swoopo through an online ad plugging its latest deal, a fancy desktop computer at more than 90 percent off. If you are already saying to yourself that there is a catch, you are right. Swoopo, which bills itself as an "entertainment shopping" site, combines the addictiveness of auctions and the chance of lotteries into what may be the most devious way to separate folks from their money yet devised.
At first glance, Swoopo.com -- which began in Germany as a phone and TV-based auction site called Telebid, migrated to the web as "Swoopo," and launched its U.S. site last year -- looks like an auction site patterned on eBay, with prices for most items starting at a penny and rising as members "bid" up the price. Like eBay, Swoopo has a full panoply of auction tools, such as comprehensive records of all completed auctions and an electronic bidding system ("Bid Butler") that will put in last-second bids to keep you in the auction. Unlike eBay, however, on Swoopo you pay 60 cents each time you make a bid.
Sixty cents? Sure doesn't sound like much when a $1,000-plus camera or computer is at stake. But consider the MacBook Pro that Swoopo sold recently for $35.86. Swoopo lists its suggested retail price at $1,799. But then look at what the bidding fee does. For each "bid," the price of the computer goes up by a penny, and Swoopo collects 60 cents. To get up to $35.86, it takes a stunning 3,585 bids -- and Swoopo gets its fee for each. That means that before selling this computer, Swoopo took in $2,151 in bidding fees. Yikes.
In essence, what your 60-cent bidding fee gets you at Swoopo is a ticket to a lottery, with a chance to get a high-end item at a ridiculously low price. With each bid, the auction is extended for a few seconds to keep it going as long as someone in the world is willing to take just one more shot. This can go on for a very, very long time. The winner of the MacBook Pro auction bid more than 750 times, accumulating $469.80 in fees.
What makes Swoopo so fiendishly compelling is the tendency of people to think of the bids that they have already put in as a "sunk cost" -- money that they have already put toward buying the item. This is an illusion. The fact that you have already bid 200 times does not mean that your chance of winning on the 201st bid is any higher than it was at the very beginning. A new bidder can come in at any time and at the cost of a mere 60 cents jump into the auction in which you've already spent more than $100. The money you've put in has gotten you no closer to the goal than a losing raffle ticket.
Some of the ideas behind Swoopo have been explored in a theoretical way by game theorists. The reluctance of bidders to say goodbye to their "sunk cost" has been explored by economists such as Daniel Kahneman and Amos Tversky -- and has been found to draw bidders deeper into the game. Swoopo plays off those insights to efficiently get people to make bad choices. It's the evil stepchild of game theory and behavioral economics.
Another irrational impulse Swoopo plays off of is an urge to believe that there must be some strategy that beats the system. As Swoopo's own business development director, Chris Bauman, told one blogger: "Winning takes two things: money and patience. Every person has a strategy." Indeed, they undoubtedly do. The problem is that none of those strategies will actually work. Just remember that no matter how many times you bid, your chance of winning does not increase. And the bigger Swoopo gets, the worse it will be. The more people sign on to bid, the lower your chances become -- and the more Swoopo collects in bidding charges. The only winning strategy is not to play in the first place.