Swoopo raises $10 mln from August Capital

Online auction site allows consumers to get products at deep discounts

Swoopo, an online auction marketplace that helps consumers buy products at deep discounts, on Thursday announced it's raised a $10 million round of financing from August Capital, joining Wellington Partners, which invested in late 2006. 

The idea behind Swoopo, which takes inventory of the goods it sells, is to start the bidding price very low. For each bid, a person has to pay 75 cents. When a person is bidding for an iPod at $5.00, 75 cents isn't much. Swoopo often sells products below retail. But as long a product sells for more than 20% of the retail price, Swoopo can break even. This is because the bidding revenue can cover the remainder of the cost. 

Recently, Gunner Piening, CEO of Swoopo, came to Vator studios to do this interview with me. Here's the interview, partly edited. Be sure to watch the video for the demo as well. 

BF: Why is Swoopo a compelling retail site that consumers need to be on?

GP : So what we are doing with Swoopo is that we are marrying entertainment and shopping. The way it is working is that we have developed a unique model of how we get the fun way back to commerce into auctions. So let me show you how it works with the auctions on the site. So we're looking at this Nintendo Wii and you see the current price which is $81.90. There is the highest bidder. There is also a timer because the countdown represents how much time remains in the auction. When  the countdown goes down to zero,the auction is over and then the current highest bidder can buy the product at the price indicated here on the site. So people can place bids and you can actually see bidding activity going on at the moment. Whenever you see a flash here on the right, someone has placed a bid.

BF: You can see the bidders, right?

GP: Exactly. Whenever a bid is being placed, there are a few things that are happening. For one, the price goes up by fifteen cents, and then we are extending the auction by twenty seconds.

BF: So if somebody doesn't come in at this point, such as this bidder, this product is worth a certain amount and you at least get a savings, but they still pay  a small amount each time they bid and this is how you make money. Please explain that.

GP: So what we like to do is that we like to keep our item prices very  low. We can do that by charging a small amount per bid. So for the participant, it's kind of a mixed calculation of the total costs of their bids and they can but the auction if they end up being the winner.

BF: Can you show a closed bid?

GP: So we are now showing all of the end auctions on the Website and the one we had most recently. Here is one of our winners who saved around $60.

BF: Can you explain how you made money off of this?

GP: Basically, it's a borderline pay so even though we lost some money on this bid. We make up on bid revenue amount and the winner pays a certain amount as well.

BF: What percentage of the auctions do you lose money off of?

GP: More than 50%. But we're not looking into individual auctions.We are looking at a 24 hour period and then the  auctions that turn out to be positive for us are usually used to help us make up money for lost money.

BF: Are you making money right now?

GP: We are profitable as a company.

BF: And what is the demographic?

GP: More than 50% are male users but we do have ordinary people like you and me. If you would like to have a new Mac book, then this is probably the cheapest way of getting one.

BF: In terms of the product, what works best on a site like this? What are the products that you could make money off of and that typically sell well?

GP: So on average, everything that we are selling should make money. It's not working every time.

BF: But what are the products?

GP: We are pretty much down to this tech stuff and refrigerators in the summer.

BF: You don't pay for shipping?

GP: The consumer pays for shipping unless it is being delivered to our warehouse.

BF: Right, because you own the inventory.

GP: We own the products and we ship them from our warehouse.

BF: That's expensive. Please explain why you're doing this.

GP: We do this so our vendors ship it directly to our customers. It depends on what our product is. We also want to deliver at a reasonable amount of time so we like to rely on ourselves as much as possible so we keep a lot in our warehouse.

BF: You launched here in the U.S. in September of 2008 so now you are really going to be pushing forward. How many employees do you have?

GP: We have seven employees here and we are looking for more. We will also be launching in Canada as well.