I've had some more back channel conversations with Howard Hartenbaum, the VC partner who invested $10 million in Swoopo. Here's his unedited response to my posts on Swoopo:
Hey, nice post. Now that you've spent $24 on Swoopo, I am glad to see that you have some strong opinions. I'm guessing that the first book you bought on Amazon when it was a fledgling service cost $24 and you didn't like the book, so you wrote a scathing article how "Amazon's business is doomed to fail because they sell terrible books."
In Amazon's early days, there were also naysayers. Swoopo is simply something new. You haven't seen something like it before, so you are skeptical, which I applaud. But you need to look closer into the details. In your article you clearly state someone won a Nikon D90 for $1.33. Then you complain when the list price is $1,339 (and you leave out that the $1,330 price includes 150 bids worth $90). Sure, $1,240 isn't the lowest price on the web. If you want the lowest price guaranteed, then go to B&H. If you want to try to get it for $1.33 and have some fun in the process, then go to Swoopo.
You claim that Swoopo is "insanely profitable" and you liken it to Wall Street. Your quick analysis of the business leaves out some key facts such as Swoopo loses money on a majority of its auctions – you pointed out a Nikon D90 for $1.33. Was that profitable for Swoopo? I've seen a 42" TV go for $0.66. I'm sure the winners of those auctions are really happy Swoopo customers, just like Nick Marchevsky.
Swoopo takes a lot of risk on each auction and needs to get ten's of bidders concurrently to each auction to make it break even. That costs a lot of money. How much does eBay pay for a new registered user? Multiply that number by 35 to see what our customer acquisition costs are to satisfy just one auction.
Most importantly, if you don't win at Swoopo, you can buy the item at a discount equal to your bidding cost. You left out this very important point in your article. There is no risk to trying Swoopo.
You also tell me how to be a good venture capitalist. Nobody would argue that Skype isn't now one of the world's greatest companies, providing free telephony and improving communication throughout the world. Well, I was fortunate enough to meet the founders and finance their business, even though many other investors decided against it because it was "controversial" and "risky." If Skype didn't receive early financing, perhaps it wouldn't be around today, employing hundreds of people and providing a service to hundreds of millions.
And to answer your question: Yes, I became a venture capitalist to find exciting, innovative, creative and fun companies like Swoopo. My bet is that a few years from now when they have worked out the details, Swoopo will be a world class company that lives up to it's name "Entertainment Shopping." It has a long way to go, but it is young and working on it.
The Storage Bits take
Looks like Howard and I will have to agree to disagree. There are ethical and marketing issues that I believe will, over time, cause consumers to sour on this model - just as they have on Ebay's straightforward auctions.
An unemployed young man who spends up to two hours in each auction and has, on occasion, spent more money in a winning effort than the item itself would have cost is not a great example for Swoopo.
But I appreciate your hanging in there, Howard. Best of luck on all your ventures.
ZDnet readers: what say you?