A chump's game? Swoopo VC responds

Separating fools - or, in my case, the momentarily bored - from their money is an ancient occupation. So is 3 card monte. That doesn’t make it right.

At least, I think one did.

I got an email from someone identifying himself as Howard, a Swoopo board member, taking issue with yesterday's post. His note, in full:

Hi Robin,

It appears you didn't finish your research on Swoopo before writing your article. If you lose an auction, you can apply all lost bids towards purchasing. Yes, it is hard to win. But it is impossible to lose. I would appreciate if you'd update your article to reflect the facts, which would be good journalism. Thanks, Howard (Swoopo board member)

The venture capital firm August Capital web site lists a Howard Hartenbaum as a partner. Howard was a founding investor in Skype and an MIT graduate, so he didn't just fall off a Gilroy garlic truck.

It was a nicer note than some I've received, so assuming I've got the right Howard, I'm sending a response.

Dear Howard,

Thanks for taking the time to comment. But let me clear one thing up: I'm not a bad journalist. I'm a good capitalist, with a Wharton MBA and a business.

Since you presumed to tell me my business as a journalist, let me return the favor in the spirit of what diplomats call "full and frank" discussion.

I like being a capitalist and running my own business. And I hate it when bozos make capitalism look bad.

The word "capitalism" appears nowhere in the US Constitution. In a democracy, capitalism needs a good reputation to maintain public support. Swoopo doesn't help.

Capitalism's basis - greed - is a moral problem, as Adam Smith acknowledged in The Wealth of Nations. He argued that capitalists may be greedy and amoral, but the "invisible hand" of the marketplace makes them improve the lives of others nonetheless.

That's great when it works. But Wall Street's greed - and the lack of responsible supervision - led to the gross irresponsibility and dereliction that caused our Great Recession.

Capitalism's excesses can overwhelm the goods. What Swoopo is doing may not be illegal - just as Goldman Sachs betting against the toxic securities they sold wasn't - but it smells. And that is bad for capitalism.

The fig leaf Your fig leaf argument for Swoopo - lost bids can be applied to the purchase price - has a big hole in it: Swoopo's prices are well above their claimed "Internet deals" prices.

For example, the Nikon D90 that I bid on was listed on Swoopo at $1339, is available from the excellent B&H Photo for $1149.95, while the reputable PC Connection offers it for $1099.95.

Out of 52 vendors found on Google only 3 list the D90 at a higher price than Swoopo does - and one was out of stock.

Would netizens shop Swoopo at those prices? No, the come-on is the potential for good deals.

Only the deals are - as you note - hard to win. Very hard to win.

I've followed one "auction" that has lasted over 12 hours. It keeps resetting to 60-90 minute waits. Great way to get a fresh batch of "bidders" in the door.

A chump's game Glen Whitney, a mathematician and former quant at pioneer hedge fund Renaissance Technologies, told the New York Times that with Swoopo:

Unless you have an edge over other people who are bidding, and you can get them to subsidize your purchase, you shouldn’t do it. It’s a chump’s game.

Howard, what say you? You are an MIT grad and can do the math. Do you encourage your family to bid on Swoopo?

As a board member you see the numbers. You know how Swoopo works, how insanely profitable it is, how it preys on bad judgement. Is funding a company like Swoopo why you became a Valley venture capitalist?

Separating fools - or, in my case, the momentarily bored - from their money is an ancient occupation. So is 3 card monte. That doesn't make it right.

I hope you'll reconsider your support for Swoopo. August Capital funds many promising companies, but Swoopo isn't one of them. Please do not demean the good name of venture capital and August Capital with investments of this sort.

Sincerely,

Robin Harris President TechnoQWAN LLC

The Storage Bits take Call me an idealist, but I chose to work in technology rather than investment banking. There is true innovation in technology, not the Ponzi schemes, financial engineering and regulation-skirting that passes for innovation on Wall Street.

Can you name one real innovation on Wall Street in the last 25 years? Overdraft protection? Sub-prime loans? That's it.

Many of my classmates made a different decision and I don't judge them. "Time and chance happen to all men" as the good book says. But August Capital has a chance to lead Silicon Valley away from lucrative but exploitative businesses.

I hope they'll take it. And leave the rest to Wall Street.

Comments welcome, of course. Folks, please stop calling me a journalist. It bums out the real journalists at ZDnet who've worked a beat for years, learning their craft. I'm not cut out for it.