We learn that Swoopo has filed for bankruptcy.
Good riddance.
In case you’re unaware, Swoopo and similar “penny auction” websites work on the basis of selling so-called “bids” to their “auctions.”
Say there’s a laptop on offer worth £1000. Bidding might start at £0.01, but prospective bidders must first buy their bids for – say – £0.15 each. Bids are usually sold in volume, and discounts for bulk might apply.
The first bidder places their £0.01 – actually costing them a non-refundable £0.15 – and the auction price rises to £0.02 as the length of the auction is extended. And so it continues, as new bidders come in and place their bids. The price rises slowly, and for every addtional penny bid, the penny auction site earns £0.15.
So if the winner of the £1000 laptop ends up getting it for, say, £400, the website has already earned £6000 in bids (40,000 x 1p bids at £0.15 each). Add in the £400 end price (which isn’t always payable), and there’s a healthy profit to be made on that £1000 value item.
And even if you’re the lucky winner, you might have spent several hundred pounds to reach the point that you win. Indeed, most gambling works on the basis that once you’ve lost, many try to neutralise their position and minimise their losses by gambling some more. With the result that end up losing even more still. A vicious cycle.
Unlike auctions on somewhere like eBay, this is gaming, pure and simple. When you place your £0.15 bid, you’re effectively buying a lottery ticket. You’re hoping that nobody will come in after you bid and that the auction will close.
And lotteries should fall under the aegis of the Gambling Commission in the UK.
The people who run these companies claim that tactics do come into play, and therefore skill is involved and not just chance. But I don’t buy this argument. If a subset of people do understand how to “game” the system and win, then that’s even worse! Mugs who are spending many pounds on buying batches of bids, have even less chance of winning than if they were participating in a random lottery.
But, thus far, the Gambling Commission seems not to care.
A certain major penny auction site buys full page ads in newspapers, and can be seen all over digital television. There’s money to be made.
Indeed I’d hypothesise that these sites can only continue as long as new blood enters the pool of players. While there are perhaps some players who’ve worked out systems to maximise returns, penny auction sites only work when there are “suckers” playing the game.
I have no problem with lotteries – except even lotteries usually have to give you some idea of the odds. Penny auctions mean that your chips are stacked against you, and you never even no to what extent they are.
That’s why they need regulation.