I found a new site last night that lured me in with low prices on nice items. However, after watching the site overnight, I can see that I will never bother bidding on any of these auctions, but there’s a great profit-generating machine behind these auctions you’ll be amazed to see.

The site I stumbled upon is called Swoopo. It’s an “entertainment shopping” site that at first glance, appears to be a fairly normal auction site with one exception: their prices are VERY low. I looked around the site and it’s well designed and even gives you some fancy AJAX type real-time clocks showing time remaining on bids and other tidbits of information. I even found one particular Samsung 46″ LCD TV I was interested in and the bid was only $132. Very interesting!

However, in the interest of figuring-out what’s going-on, I didn’t sign-up and bid. Instead I watched. And watched. And am still watching. Let’s just call it the Neverending Auction…

That TV auction I found at 9:05pm on March 29, with only 30 seconds left to bid is STILL going right now, March 30 at 1:30pm. Every time someone bids on the TV, the time is extended anywhere from a few seconds to several minutes.

And therein lies the genius of Swoopo as a cash generator for its owners.

You see, the auction in question is a “penny auction”. This means that every bid raises the auction only 1 cent. Of course, that means that with the bid increment only being a penny, people bid constantly, thus constantly adding time to the auction. It’s always in a state of “almost done!” but never gets there.

No problem right? So the auction drags-on for weeks until the hard-end date of April 30 (yes, over a month after I discovered the auction – who knows when it started).

If you read Swoopo’s site, you’ll see that every bid costs the bidder 75 cents. So, to have your chance at the $200 TV, you raise the bid 1 cent and pay 75 cents in fees. Of course, since the price of the TV is now only 1 cent higher, there are dozens of other users ready to out-bid you, and they do, raising the bid price 1 cent and paying their 75 cents. And the process repeats ad nauseum.

So, let’s stop and think about the money involved here. Just using the time that I discovered this particular auction last night when it was $132 and right now as I type this, it’s at $208.20. Since each bid only raises the price one penny, we can thus calculate that there have been 7,620 bids just since I’ve been watching. 7,620 bids at 75 cents each is $5,715 in bid fees alone! And, the auction potentially has weeks to continue taking 75 cent bids!

Imagine if you’re Swoopo. You could walk down to your local WorstBuy or any other store and paid the full retail price of $1800 to buy that TV and even if you sold it for the current $208.20 bid price, you’d still have pocketed over $4,000 in pure profit (again, remember that these numbers are just since last night – if the auction opened at $0.01 bid, the number is much higher)! And, it’s very likely that the bid price will get driven-up another couple hundred bucks (minimum) thus adding several thousand more dollars in profit from people doing “entertainment shopping”.

Anyway, this is genius level stuff from the Swoopo guys and one of those “wish I had thought of it” ideas. The penny auctions give the impression that it’s cheaper and easier to bid, when in reality, it works against the bidder who has to constantly re-bid, at 75 cents a pop, to try to stay at the top of the penny pile. For every $100 the bid price goes-up, Swoopo makes $7,500 in bid fees. If that TV in this example goes to $500, sure it’ll be a good deal for the winner, but Swoopo will have made more than another $18,000 in bid fees. They got the better end of the bargain IMO.

Oh how I wish I would have thought of that idea…