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Profitable Until Deemed Illegal
- tialys 18y agoWow. This is both genius, and despicable. It's amazing what kind of profit they drive, yet it seems like they're really taking advantage of people with gambling addictions, or poor money management skills.
- gnaritas 18y agoIsn't that what most businesses do?
- steveplace 18y agoGeneralisation. Making money and creating value are independent of one another. Good businesses do both.
- run4yourlives 18y agoActually, good businesses only do the former. Great/exceptional businesses do both.
- steveplace 18y agoSorry for my improper adjective use, apparently.
- stcredzero 18y agoI think it's more that you two have different opinions on percentages.
- run4yourlives 18y agoThat shouldn't be downmodded. The guy is technically correct.
- mynameishere 18y agoAn annoying attitude. I spend 2 dollars on a box of crackers. Here's the rough process: 1. Farmer takes out a loan at Wells Fargo. 2. Loan clears, Farmer buys seed, etc. 3. Farmer grows 2000 acres of wheat. 4. Summer passes, farmer harvests wheat, and it travels 1000 miles to be processed. 5. Nabisco (Altria) buys wheat for a pre-agreed price (determined months ago by the Chicago futures exchange--a bunch of speculators who took risk on themselves so Nabisco and Joe Farmer could get to business.) 6. Nabisco puts the wheat (plus 10 other commodities) into its industrial mixers, ovens, packaging machines, fleet, etc, until it winds up at Walmart. 7. Walmart (which did 1001 separate things in order to make the deal go down) puts a $2.00 electronic price on the crackers. 8. I show up, put some plastic through a device, some digital numbers go through 2 thousand miles of wire to 5 different financial institutions, and then I get a box of crackers. Game over. I've participated in 500 billion dollars worth of business without even realizing it, getting a day's worth of calories for a tiny percentage of my daily income. That's "evil" somehow?
- gnaritas 18y agoWhere exactly did I say anything about evil? The goal of business is to fleece its customers of their money. Some do it in nicer ways than others but they all do it, poor money management skills on the customers part is always good for business. Our entire consumer economy is based on that fact; we spend all of our excess money rather than saving it like we should.
- eru 18y agoWhy should you save all your money?
- gnaritas 18y agoI didn't directly say you should save all of your money, I said you shouldn't spend all of your excess money. You should be saving for an emergency fund, retirement, kids college, things you want to buy in cash rather than putting everything on credit. American are horrible at this, they live right at the edge of, or above their means rather than below it as they should.
- stcredzero 18y agoFred Allen's dictum: "No one ever went broke underestimating the intelligence of the American Public." http://www.bewilderingstories.com/issue147/ed.html http://www.bewilderingstories.com/issue147/ed.html
- run4yourlives 18y agoSo does the government and many charities, the entire city of Las Vegas and churches on Saturday nights across the country, every major sports league (not often directly), etc etc etc. Pretty much every business takes advantage of the fact that the consumer is lacking something, whether that's knowledge, time, money or material. It's the way capitalism works.
- fallentimes 18y agoGood point; it's like a stupid people tax. Unfortunately it's tricky for even smart people to avoid some of them.
- eru 18y agoStupidity is not binary.
- fallentimes 18y agoNo one said it was.
- eru 18y agoYes. I just wanted to second that you can be stupid to a certain a degree in one area and to another degree in another one.
- fauigerzigerk 18y agoNo. Capitalism is a system of decentralised decision making on resource allocation, ultimately leading to increased productivity and innovation. I have no idea how a ponzi scheme that makes "simple" people overpay fits this description as it leads to incredibly bad resource allocation. You could argue that such failures are part of capitalism and I would agree. But they are still failures. Capitalism depends on such failures being fewer than those cases where funds go where value is being created.
- 18y ago
- andreyf 18y agoIt's amazing what kind of profit they drive... I wonder how one could estimate their income...
- vaksel 18y agothe wiki page lists revenue: 20 million Euro in 2008 ($28.3 million USD)
- mattmaroon 18y agoI don't see why it's despicable. The format of the auction seems to be clearly available to all participants. It's all consenting adults, who have all of the information needed to make their own informed decision as to whether or not to participate. If people want to gamble, why not let them? How is this any different than operating a casino? It's not wrong to provide a service that many people deem enjoyable just because a small portion of them can't exert the self-control to use it responsibly.
- axod 18y ago"How is this any different than operating a casino?" Operating a casino requires a license for a start afaik, and there are checks to ensure things are fair. How do we know the winning bidders actually exist? I agree people should be able to make their own minds up in the main, but they should be doing that safe in the knowledge that they are being treated fairly.
- mattmaroon 18y agoIsn't that endemic to any auction site? eBay knows your max bid and could easily have bots forcing up the incremental bids to earn themselves more fees. Perhaps all auction sites should be audited, but I don't see how this one is any worse than the rest. And sadly the licensing requirements for online casinos are a joke. Read up on the Kahnawakee Gaming Commission some time, you'll get a kick out of it. Until we legalize and regulate them, they'll never improve.
- joeyo 18y agoThis is actually a really good point. Why does anyone entrust eBay with knowledge of their maximum bid? A hypothetical shill-bot 9000 could easily bid up auctions without ever having to worry about accidentally having to own the item. It seems like it would be far better to have your own bidbot handle things for you...
- mattmaroon 18y ago
- staunch 18y ago"Entertainment Shopping" is their slogan. I wonder if that's going to be their legal defense. "You're paying for the entertainment..not the item"
- tlrobinson 18y agoSounds like gambling...
- fallentimes 18y agoEven if it's gambling it still should be legal.
- time_management 18y agoReminds me of the old party game, Dollar Auction. Bidding's in 10-cent increments, and the prize is $1. The twist is that the top two bidders pay their bids, but only #1 gets the prize. Bidding will go far past $1 because, even though it's a loss to pay $1.10 for $1, the 90-cent bidder would rather lose 10 cents than 90. I've heard of bidding going up into the $20 range.
- run4yourlives 18y agoWow. I need to play poker with those people.
- dfranke 18y agoAfter hearing about the outcome of this game you'd think that you'd have to be an idiot to get sucked in, but you'd be mistaken. We once did a dollar auction in an auditorium at Canada/USA Mathcamp -- not exactly a dimwitted group -- and bidding went up to $5.
- time_management 18y agoCanada/USA Mathcamp: What year?
- dfranke 18y ago2002 and 2003.
- time_management 18y agoCool. I was 1998 (Toronto) and '99 (Seattle).
- ig1 18y agoIt's not just a party game, some auctions are actually run with those rules.
- Shamiq 18y agoPardon my ignorance... Why does the author call this website illegal? I'm not sure what laws they are violating.
- potatolicious 18y agoNot sure, but I'm pretty sure these guys are not licensed by any state gaming boards to operate as a legal gambling establishment. So I guess the author thinks this qualifies as gambling (and it probably does) and therefore these guys are in violation of said laws. Remember, when you're a legal gaming establishment there is a mountain of red tape and paperwork to stay legal... and this company is probably engaged in enough shenanigans that it would be considered a Bad Thing.
- imgabe 18y agoHe doesn't say that it is illegal, only that it's so shady that it's likely someone will make a law against it. It could fall under gambling laws, since you're basically buying chances to win the opportunity to buy something at a low price.
- patio11 18y agoOh, I don't think they'll need a new law in most jurisdictions as soon as they find out about the "Auctions for money". "Wait, so let me get this straight, people routinely 'buy' $100 for $20 on your service, and you profit $300 from the transaction from selling the 'bidding rights' to 'non-winning bidders'?" "Yes." "Oh, thanks. What determines who wins?" "Final bid price." "But paying $20 for $100, why, anybody should offer to pay $21.15 right?" "Yep, you have to pick when to make your bid though, so you are not outbid." "That sounds totally random, like a lottery." "No, it takes some skill." "Ah, thank you for clearing that up. Now, in your copy of the state code, look up 'games of skill' which offer a monetary prize."
- byrneseyeview 18y ago"Ah, thank you for clearing that up. Now, in your copy of the state code, look up 'games of skill' which offer a monetary prize." At which point they say "Don't be ridiculous. Every thrift store is a 'game of skill' with a 'monetary prize' by your standard. Have fun shutting down Aunt Ruth's House of Lamps and Doilies, pal."
- alfredp 18y agoI was in a game theory class and we were learning about auctions. Just don't ask me how much I paid for his $5 bill in his "all-pay" auction - it would have been evil if it didn't go to charity. (http://en.wikipedia.org/wiki/All-pay_auction http://en.wikipedia.org/wiki/All-pay_auction)
- Alex3917 18y agoI've always thought this would make a great game show.
- deleted 18y ago[deleted]
- brianr 18y agoThis is awesome. They must be raking it in.
- bd 18y agoHere somebody who claims to be the CEO of Swoopo tells: "We are currently shipping items totaling about $1.5 million to our winners every month." http://www.crunchgear.com/2008/09/24/swoopo-entertainment-shopping-or-scam/ http://www.crunchgear.com/2008/09/24/swoopo-entertainment-sh... (Sorry for no permalink to comment, couldn't find one) Also Wikipedia entry on Swoopo has unsourced revenue 20 million Euro in 2008. http://en.wikipedia.org/wiki/Swoopo http://en.wikipedia.org/wiki/Swoopo
- bemmu 18y agoThere are tons of sites with this concept, or at least the variant of "least unique bid wins". The most evil part is how they manage to get so much media attention, now even our beloved Coding Horror has been reeled in.
- axod 18y agoSounds very similar to pyramid reward schemes to me.
- newt0311 18y agoWell... Both rely on their customers being complete fools...
- steveplace 18y agoVery evil, but I'd love to see the data that comes out of it.
- qqq 18y agoWhat's despicable about offering a service people want to use? Isn't this just like offering poker games and other gambling, or selling beer (you pay for something that harms your health, and the only saving grace is that people enjoy it)?
- Dilpil 18y agoIn many (popular) moral systems, nothing is wrong with this business model. In our legal system however, something is probably wrong with it.
- paulgb 18y agoNothing is inherently despicable about the model. What is despicable is that it is advertised as an auction site, not a gambling game. Also, a lot of these sites (there are many like it) don't have very much transparency, and it would be easy for them to not award a prize at all while still collecting the bidding fees.
- owkaye 18y ago"What is despicable is that it is advertised as an auction site, not a gambling game." If the winner becomes the winner because he bid the highest price, then it's an auction. Since when are auctions considered to be games? Sure, it's an auction in which bidders must pay to bid, but are there laws that ban the charging of fees for participation in an auction?
- sachinag 18y agoWhat they're doing is most probably not illegal. What they are doing is leveraging a lot of little things to make themselves good cash. Let's be very clear - they use auctions. This is not a lottery. At the end of the day, the high bidder "wins" and pays the amount of the high bid to win the auction. Then Swoopo adds the (.75 * number of bids placed) to that figure. It's not inconceivable that that sum is less than MSRP. At the end of the day, you can ensure that you win by placing the last (and highest) bid. Because there's certainty of winning - it's not random - it's not a lottery, and as such, doesn't need to be state-sponsored (as is the case with lotteries in most jurisdictions). What's fascinating about that is that very few retailers use auctions to sell goods that they own/control/are obligated to ship. Auctions historically have only really been done by venues - eBay doesn't sell their own goods on the site; neither does eBid; and neither did Yahoo Auctions or Amazon Auctions (remember those?). So Swoopo reinforces online marketplace psychology and eBay-style dynamics by having auctions. This is even though Swoopo is the retailer and has to ship the good (whether Swoopo's dropshipping or not is irrelevant; they still make sure the high bidder gets the item or its nearest equivalent). On Dawdle, we initially launched with a structure that eliminates the "sniping" problem that you have with eBay. We had a structure where you could name your own price and any seller that had what you wanted could sell to you. However, your offer was blind to the seller and the seller's minimum price was blind to the buyer. It was very similar to the Priceline model, except that on Dawdle, the selling price was limited to the amount of the next highest offer + a bid increment. So when the listing ended, the price that the item sold for was the 2nd highest amount + bid increment. (On Priceline, whatever the offer is is the selling price; we wanted to give the impression to the buyer that they were getting a deal as they were paying less than what they had offered.) I bring this up only to show the difference between having a different kind of auction structure (like Dawdle did, and we retain in a limited fashion with our StandingOffer technology) and what Swoopo is doing. All Swoopo is doing is charging people to bid, setting the bid increment, and being a retailer disgused as a venue. The question is, can this last? Given the limited amount of differences between Swoopo and eBay, my guess is probably. They'll have a branding issue if people keep attacking them, but at the end of the day, it's transparent.
- Dilpil 18y agoExcept you CANT guarantee yourself a win, and you certainly can't guarantee yourself a win at any price. It IS essentially random what the bidders competing with you do in response to your "last" bid.
- paulgb 18y agoI've always been fascinated with the game theory, math, and psychology behind these schemes. There's a bunch of variations of the auction model that can guarantee or nearly guarantee a profit. One of the more popular auction models is to make the winner the person with the lowest unique bid, but it costs to place bids.
- Dilpil 18y agoThe lowest bid game is equivalent to simply giving it to the last person who bid isn't it?
- paulgb 18y agoGood point, I forgot to mention that it is a timed silent auction.
- mmcelhinney 18y agoActually, no. In those games, its the lowest unique bid. check out http://www.bidster.com/ http://www.bidster.com/ . This way, if more than one person choose the lowest bid, then those cancel eachother out, and the next lowest, but non-duplicated bid wins. There's a large number of these sites out there actually, but none-the-less a very profitable business. Might be less of a lottery though, because one could claim its a game of skill.
- sgman 18y agoI don't see the difference between this and playing the slots in Vegas. In both cases the house has the advantage; in both cases more is paid for the final prize than what it's worth; in both cases the winner likely gets a good deal on the prize and the losers lose their investment.
- mattmaroon 18y agoThere's nothing random involved in this, whereas there is with slot machines. Legally that makes a world of difference.
- asdflkj 18y agoSomeone who can see the slot machine's internals and understands how it works will be able to predict the outcome, so in that sense it's not "truly" random. The reason it's still legally random is that it's as good as random from the point of view of the player. Same applies here. No?
- deleted 18y ago[deleted]
- mattmaroon 18y agoNo. This auction system is no more random than chess. In chess, your opponent can just blunder and give you a win. Bobby Fisher once lost to a newspaper reporter. But just as in chess, this auction system determines a result based solely on the actions of the participant. There is no roll of a die, turn of a card, or reading of a number from an RNG. Legally you need something like that to be considered gambling. You're right of course that slot machines aren't truly random in the sense that they use a pseudo random number generator. I don't think they have any hardware in them that reads thermal noise or anything like that. But that's sufficiently close to the roll of a die to qualify. Philosophically I tend to agree with you since I believe the universe is deterministic, and nothing is truly random. But I'm pretty sure that legally this would not be gambling or sweepstakes in at least most states.
- ComputerGuru 18y agoIt's a really well-written and well-researched article.... been a while since I've been this impressed by a Coding Horror article's fleshing out the details and stuff! :) Very interesting read... and ingenious idea.
- sdurkin 18y agoThis is online gambling. Isn't that already legally problematic?
- flavio87 18y agoThis is like running a casino. People that play know the odds are against them. They still play. It's about the fun/excitment, the possibility that YOU could beat the odds. trading the stock market has negative expectancy as well, if you count in trading costs (against just owning the index like the S&P 500 or the MSCI world, with almost no trading costs) Is running the NYSE immoral?
- Sam_Odio 18y agoGood article, but the author is a little rusty on his behavioral economics. The anomaly he refers to is not the endowment effect but the sunk cost fallacy: http://en.wikipedia.org/wiki/Sunk_cost#Loss_aversion_and_the_sunk_cost_fallacy http://en.wikipedia.org/wiki/Sunk_cost#Loss_aversion_and_the... http://en.wikipedia.org/wiki/Endowment_effect http://en.wikipedia.org/wiki/Endowment_effect
- eyudkowsky 18y agoIt's both. You're told you own the item, then suddenly that you don't own it any more.
- fallentimes 18y agoI wonder if there's a correlation between using Swoopo and winning one of these awards: http://www.darwinawards.com/ http://www.darwinawards.com/
- mattmaroon 18y agoThis won't last long. Eventually people will realize they'll have more fun buying the iPod and playing craps instead.
- byrneseyeview 18y agoI can't believe this company is offering a scenario where you pay an upfront cost to try to get something for less than it usually sells for. I haven't seen anybody get away with that since basically every retail outlet in America charged an upfront cost -- time and inconvenience -- for the chance to buy stuff at a discount, on Black Friday. Unprecedented. I have no idea why measuring certain things in dollars rather than hours or oranges or whatever else throws people off so. If this business freaks you out, and regular retail stores don't, you haven't been thinking hard enough about the latter.
- nazgulnarsil 18y agoI agree 100%. this is essentially a sucker tax. why does everyone spend so much time worrying about suckers? Oh right, because we all subsidize suckers with taxpayer dollars in socialism. poor people are good at wasting money, that's why they're poor. giving them the money of non-suckers fixes NOTHING.
- cousin_it 18y agoThat's a great argument that I haven't heard before. Thanks.
- natch 18y agoThey are passing some of their earnings on to Google in the form of advertising buys. I just saw an ad for them in my Gmail account. So one step that could be taken would be for Google to ban them from their advertising network. Would Google do this? I don't know, but the answer would be revealing.
- c1sc0 18y agoI was contacted last week by a headhunter for this company. At first I was very uncomfortable about their business plan. But I talked to them and they seemed on the legit side of the law, at least over here in Germany. To sum it up: pure Faustian brilliance. I guess they're still looking for devs, so if you want an inside look, get yourself invited to an interview.
- mattmaroon 18y agoIt's actually humorous to me how many people here are expressing firm opinions about whether or not this is legal despite the fact that they clearly have no understanding of the complexities of gaming law in the United States. This is why I always tell people "ask a lawyer". Non-lawyers think they know far more than they really do. As someone whose startup has spent huge amounts of time and money on online gaming legal advice, my guess is that this is legal in at least 44 states, and possibly the other 6 as well. It's certainly not gambling, since there appears to be no random selection of the winner, but it may fall under the sweepstakes header. It may merely be an auction (legally, though maybe not morally).
- sachinag 18y agoYeah, it's been a while since I've boned up on my online gaming/online poker stuff, but I would consider myself an expert on marketplace dynamics and structures (as we invented our own structure for Dawdle.com). This meets all the requirements of an auction site, and by a country mile.
- mattmaroon 18y agoAre auctions universally legal?
- froo 18y agoJust did some napkin math for this site (please bare with me, there are a few assumptions based off the figures I could actually find) They say they have 50k users, and in 2008 their revenue was $28.3 million USD (from wikipedia). Theres also a comment on a related Crunchgear article from the "CEO of the company" (linked at the end), which states he is shipping about $1.5 million (presumably) USD in value of goods each month which totals $18 mil for the year. So thats around $10.3 mil a year profit (roughly) making around $26 per user. Although, I'm wondering how many of their users are actual active users. so they're making about $26 per user (roughly) http://www.crunchgear.com/2008/09/24/swoopo-entertainment-shopping-or-scam/ http://www.crunchgear.com/2008/09/24/swoopo-entertainment-sh... EDIT - actually on quick reflection, I wonder if the value the CEO stated was retail or wholesale value of the goods (I expect retail) and if the value listed on Wikipedia is correct (which it might not be) then that number may be higher. These also don't take into account their advertising budget, but I wouldn't think they'd spend close to $10 mil a year in advertising. These guys are definitely making a tidy profit thats for sure.
- mmcelhinney 18y agoSo I have a personal experience with this idea. I was living in Finland for the past year and a half, and came across this same idea with a site called fiksuhuuto.fi. I didn't have any moral opposition to the idea, because I believe that its no different than any other sort of lottery or game of chance. Adults should have the right to risk their money for the possibility of reward. I was working remotely for a company at the time, so gave them 2 months notice and started developing, with the intention of launching a similar company in Canada in 6 months time. I had another Canadian partner, and started looking into all facets of the idea. The site development went fairly straight forward and allowed me the chance to return to web development after 5 years of Mac and Windows application development. We had contacted the best law firm we could find with experience in gaming and intellectual property. After spending a fairly large sum of money to get a risk assessment, it was clear that the idea was definitely illegal. Because many people were paying for the chance to win a product, it was online gaming and illegal in Canada. We had a few options, none of which were very reassuring. I am rambling now, but I just wanted to mention that I paid nearly $10K to have this looked into by lawyers, quit my job to implement it, and moved back to Canada from Finland to go ahead with the project. I am stunned that this is being done in the US, and am no going to be surprised at all when it goes bad for them. If it doesn't, then I made the wrong bet of calling it quits. On a side note, if anyone wants to buy a nearly completed site with the same idea as this, feel free to contact me.
- mcdowall 18y agofeel free to email me - jameskmcdowall at gmail dot com
- mmcelhinney 18y agoI realised that my email wasn't in my hacker news account, so if you want to email, its markelhinney at gmail dot com.
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