Saturday, August 01, 2009

These Aren't The Droids Deals You're Looking For

A few weeks ago, my wife discovered Swoopo. For those not familiar with Swoopo it is what is referred to as a penny auction site. The auctions run on a timer with a fixed bid interval (2¢, 6¢, 12¢, etc.). When you bid, just like in a real auction, time is added to the counter. In this way, you can be within a minute of the auction ending literally for hours.

The lure is that, sometimes (rarely, actually), the item goes for very very cheap. A Canon Rebel T1i 15MP Digital SLR for $6.80, an Acer 18.1" laptop for $3.20, and a 32GB iPhone 3G S for $1.14 are but a few of the extreme examples. But imagine that iPhone for even $263.88 (no contract required) - it's still a great bargain.

The catch is that it costs 60¢ to place each bid.

Some people have equated it to gambling and, honestly, the psychology involved is very similar and the site does a lot of things to enhance those effects. Having been a previous estate auction junkie, the psychology is very similar there, too.

After watching for a relatively brief time, the wife decided to jump in and give it a try. She bought some bids and started bidding on items. It took her a couple of days and a couple of bid packs to even start getting the hang of it and still she wasn't winning. She checked out the beginner auctions and won a 20-bid voucher for just under $2, I think. That got her back in the game and play the game she did.

Having been drooling over iPhones, I had been carefully watching the iPhone auctions. Looking at average prices, close times, etc. I registered so I could ad them to a watch list but I wasn't going to start bidding until I had a decent grasp of how things worked.

Then they got me. Do you remember me saying the site does a lot of things to enhance the psychological effects? They sent me an email telling me that "today and today only" the first bid pack I bought would include 25% additional bids for "free". Hmmm... I was planning on buying bids eventually anyway. Why not buy them now and get a little bonus? Which is exactly what I did.

I tried to be very judicious with my bids and was even bidding on bid packs to try to pad my stockpile. But, you see, they have this thing called a bid butler. You set a lower and upper limit and the maximum number of bids you want to allot within that range. The bid butler is guaranteed to place a bid for you within the last 10 seconds of the auction as long as the price is within the range you specified and it has not expended the allotment of bids you gave it.

Here's the rub. If I have an active bid butler set for, say, $5.00 to $15.00, the price is at $5.22 and my bid butler has bid for me in those "last 10 seconds" a couple of times already. Then, somebody else activates a bid butler starting at $5.24. His bid butler will make his first bid, the next bid, to which my bid butler will react and bid $5.26 (assuming a 2¢ auction) and what I have termed a Bid Butler Battle will ensue. The two bid butlers will continue to bid against each other (quite rapidly) until one of the contestents is out of bids or out of range. The bottom line is that a Bid Butler Battle can eat up bids very very quickly.

So, why use bid butlers? Because if you look at the ended auctions you'll see that the majority of the winning bids were placed by a bid butler. At any rate, I burned through a couple of chunks of bids before deciding I didn't necessarily want to use bid butlers anymore.

So, there I sat, placing bids now and then on this item or that (not simultaneously) until I had only a single bid left. I was just going to let it languish there until, on a whim, I took a look at the beginner auctions. Beginner auctions are reserved for those who have not yet won any auction. The participant pool is limited and the experience level is lower but you also won't find any big ticket items there.

At any rate, I was perusing the auctions and across the top the site was showing four or five auctions that would be "ending soonest" and I saw a 20 bid voucher counting down. 5... 4... 3... 2... 1... I clicked the bid button, I saw the bid amount flash and saw the timer jump up but my bid count didn't go down. I quickly clicked the title to go to the actual item page and discovered that my bid hadn't registered. So I waited a few more seconds and 5... 4... 3... 2... 1... bid! My bid registers, timer jumps to 20 seconds, and I watch it count down to zero. I won the 20 bid pack for $1.20 ($1.80 when you calculate in the cost of the bid). I was back in the game!

So here's what's happening. When you go to the site, you see a lot of shiny, valuable objects being auctioned off at very low prices. Those low prices are attached to a counter that is ticking away ever closer and closer to zero "Oh my God! I'm going to miss out on a fantabulous bargaination! I better get in on this before it gets away." Then they start enticing you in with special promotions and special deals and before you know it, they have you hooked.

So, I had my 20 bids and decided I might as well use them to try to get that iPhone. I got up this morning and started watching one who's timer was counting down. I bid very very carefully. The competition was tough but I was still in the fight. I had about 5 bids left and decided that I was going to use them up and be done with it. If I won with those 5 bids, so be it. If not, I was out.

Then I saw it. On the lower left of the bid button there were three little people figures. They had closed the auction to new bidders. It was just us now (however many that was). If they've closed the auction, maybe it's almost over. Well, I just have to stay in it now... so I bought another bid pack [hangs head in shame]. I actually made a good show of it but when the sale price got within a couple dollars of $100, I had to back out. The competition had gotten too rich for me.

Now, here's what I figured out. I went to the AT&T site yesterday and found out I can get a refurbished 16GB iPhone for $299 ($317 w/ shipping/tax/fees/whatever). Knock off the $100 gift card I got when I won the Matrix pro and that brings it down to $217. I sold the Matrix Pro for $182, leaving a manageable balance of $35. But because of the shiny psychology of Swoopo, I no longer have all of that $182. I still have a decent chunk but not enough to make as big a difference. So, I'm letting my wife use up my remaining bids and I'm walking away for good. If I ever win big in the lottery I may go back because the bargains are good if you can stick it out but the site sure isn't losing any money. Let me show you what I mean.

Let's first look at one of the cheap auctions. Remember the Canon EOS Rebel T1i I mentioned going for $6.80? Swoopo puts the MSRP for that particular item at $819.99. Now assuming it was a 2¢ auction, that means there were 340 total bids placed on that item (6.80/.02). At 60¢ per bid, Swoopo collected $204.00 (340*.60). Add the $6.80 and they sold that camera for $210.80. Now, Swoopo probably got it for wholesale so they're not losing the $609.19 it looks like they are but they've taken a loss on that camera.

Now, let's take a look at an iPhone. Swoopo puts the value of a 32GB iPhone 3Gs at $898.00. Looking at 27 sales over the past week, the average selling price comes out to be $124.03 (including one for $1.14 and another for $309.42). Let's just give the benefit of the doubt and say it's a 6¢ auction. Using that average selling price and dropping a penny to make the math come out even, that's 2,067 total bids. At 60¢ per bid and adding in the $124.02 selling price, Swoopo took in $1,364.22 for an $898.00 iPhone that they didn't pay $898.00 for. That's a little over 1.5 times the MSRP. And if you use the high-end number I quoted, you're looking at a raw selling price 3.8 times the MSRP (309.42/.06=5,157*.6=3,094.20+309.42=$3,403.62/898=3.8 times MSRP).

Whoever came up with this concept is a genius! I applaud you but I have to stay away.

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