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What, exactly, is "Entertainment Shopping"?
Friday - October 03, 2008 01:11 PM in
by Peter Leppik
I discovered the most amazing website last night, at least until an enterprising attorney general somewhere decides to shut it down.
The site is Swoopo.com, and offers something they call "Entertainment Shopping," though in my view it's more akin to gambling for plasma TV's. At first glance, it looks a lot like an auction site like eBay: items are for sale, there's a clock ticking down on each item, and you can bid by clicking a big friendly BID button. Each bid increases the price of the item by $0.15, and most items start at just a few cents.
Unlike eBay, however, Swoopo charges $1 for every bid, win or lose. Oh, and bids near the end of an auction add time to the clock, so there's always time for someone to outbid you.
Let's say you see a Nintendo Wii (normally about $250) selling for ten bucks. Even though you have to spend a buck to bid that's not a bad deal, right? So you wait until there's two seconds left on the clock and click BID. You spend $1, the price goes up to $10.15, and the clock resets to fifteen seconds.
Well, there's someone else who already bid on that Wii, and odds are he's watching, and he's already spent at least a dollar on it. Not wanting to lose his buck, he bids again.
Guess what! That Wii now costs $10.30, the clock is back to fifteen seconds, but you're out a buck. But since $10.30 is still a great price for a Wii, you bid again. And now you're into that Wii for two dollars, win or lose.
As the price goes up, the bidders have more and more invested in the item for sale, and are more and more motivated to not lose. This plays on a well-known tendency for people to go to irrational lengths to avoid a financial loss. Some items actually wind up selling for more than what they would cost in a store, and even if the nominal price is less than retail, some "winning" bidders spend more than retail by the time all the losing bids are counted.
Since Swoopo keeps all the money from everyone's bids, they make money if the final price is more than about 15% of retail. If that $250 Wii is above $37.50, Swoopo is actually selling it for more than retail if you include the price of the bids.
It's an amazing bit of financial engineering, specifically designed to use our cognitive biases to generate huge profits. I have to admire it as a tour de force of applied behavioral economics.
The reason I think this is more like gambling than shopping is because the "winner" of any given item is essentially random. There's very little skill involved, it's more like a game of financial chicken where the last one to run out of money (or give up) wins. I'm not enough of an expert on gaming laws to know if Swoopo actually meets the legal definition of gambling, but this hardly seems like any kind of bargain to me.
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