Munich-based Swoopo, penny-auctions pioneer, files for bankruptcy

Swoopo, the controversial pioneer of penny-auctions, has filed for bankrupcy (Update – December 2022: The startup seems to be no longer in business and we therefore deactivated the link).

Swoopo, which was founded in 2005, was one of the world’s leading auction sites combining e-commerce and entertainment. In 2008, the young company launched its auction site in the US and opened an office in Mountain View, California. In 2009, they received 7.5 million iSeries B funding from August Capital. In 2010 the Munich-based Entertainment Shopping AG withdrew from Korea and there had also been rumours of layoffs.

This is how their controversial business model used to work. Online customers bought ‘bids’ in advance. They cost $0.75 each and were sold in packs of 30, 50, 100, 300 or 700. Bidders had the choice of placing single bids, or, to use an electronic bid assistant called the ‘BidButler’. Every bid placed increased the price of the product by 15 cents and the auction countdown by up to 20 seconds. Each auction then displayed the amount spent on bids by the customer and how much the bidder would save overall, if they won the auction at that moment. The ‘last bidder standing’ when the countdown reaches zero was the one to win the auction – usually at a relatively low price. The other participants used to get nothing, and they lost their invested bid-money.

After complaints were getting louder and louder, Swoopo decided to change its model slightly and enabled users to use the value of their lost bids in order to buy a product directly and for the full price from Swoopo. Some observers say this was the point when Swoopo lost its profitability.

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