Mixing Entertainment and Commerce: Show Me the Fun

Anyone who knows me well always points me to new deals that look like Swoopo – I have a weakness for things that are clever. A lot of these new deals aren’t great venture investments, some might be good “lifestyle” businesses, but most of them prove to be neither great nor good. In the end, maybe a bit too clever.

But that doesn’t change the fact that the thesis of “entertainment commerce” is a compelling one – buying on eBay was once a thrilling experience where people ended up buying stuff they didn’t need just for the fun of the chase, or overpaying because they couldn’t stand to lose the bidding war. These days, buying on eBay seems a chore to me, and I suspect it does for most users. But the idea of making shopping fun – a mix of commerce and gaming – still seems a good one.

If we placed sites that incorporate elements of gaming and competition into the shopping experience along a continuum that stretched from Amazon (just shopping) to a casino (just gaming), we’re starting to see some success at the “mostly shopping” end – sites such as Gilt Groupe (a Matrix investment) generate excitement by offering great prices on desirable goods and an exhilarating race to purchase before those goods are gone.

Swoopo and its ilk are at the other end of the spectrum: mostly gaming with a little shopping element thrown in. One might characterize them as a stab at legal Internet gambling under the guise of ecommerce (though they would not define themselves this way). I think this is a clever idea (but note the caveat about clever ideas I mention above …).

Beware the churn out

Swoopo is a very innovative auction game that has generated significant revenue and uptake. While I have long known and respected Frank Han, now CEO of Swoopo, I have no inside information on how they are doing — but I hear that business is struggling a bit to control churn, and it doesn’t surprise me.

Swoopo acquires a lot of customers through adwords: “Buy an iPad for $100.” If you’re searching Google for an iPad, you’ll click through – who doesn’t want one for just $100? And you will see the results from a completed auction, where, sure enough, someone did buy (win?) one for $100. Maybe you’ll decide to join the game, buy some bids, and try to get it yourself.

The problem with this approach is churn. Swoopo can’t possibly afford to sell every customer an iPad for $100. When you play the game and lose, you get annoyed and churn out. Even worse, often you post (erroneously, in my view) on the Internet that Swoopo is a scam.  Swimming upstream through these negative customer reviews, Swoopo has to keep finding new, untainted fish to churn through this model, and at some point, the ocean gets fished out.

Swoopo could fix this through greater truth in advertising: “Join the game, have fun bidding against others, and have a chance to maybe win some great prizes at a big discount.” With this pitch, rather than “Buy an iPad for $100,” customers would presumably be more realistic about the game, less likely to churn, and less likely to flame Swoopo on the way out. The likely conundrum for Swoopo is that far fewer visitors would click through or sign up, perhaps not enough for an interesting business.

Despite this flaw, I think there is still potential for a great business that is on the “mostly gaming” end of the spectrum, and the lesson comes from Las Vegas. Customers come to gamble and are universally aware that it’s a losing proposition. Most people go to Vegas with a gambling budget – “I am willing to lose up to $200” (and then end up losing double that). When they go home a loser, they don’t flame Vegas to their friends and tell them what a scam it is – they blame themselves, or more likely blame no one because they got exactly what they expected.

The key for a great, new entertainment shopping business is to achieve what Vegas has: customers who arrive to the game with the attitude, “I am willing to lose up to $200.” Why do people have that attitude toward Vegas? First, because you might win. But just as important: because it’s fun! The game may be inherently interesting, it can be social, come with perks like free drinks, flashing lights, maybe a free room or meal. You’re buying entertainment.

That’s where this generation of entertainment-shopping sites fails: you might win, but if you don’t it’s really not very fun. By delivering little entertainment, there’s nothing but disappointment left when you lose. Of course, Vegas has huge advantages in delivering entertainment, given your physical presence at the game. But plenty of “virtual experiences” are super entertaining on the Internet.

Catch that fish, and you may just have a clever business that can scale up and retain its customers. And I’d love to hear about it!

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Written by Josh Hannah
Josh Hannah joined Matrix Partners after a career as a serial entrepreneur (Betfair, eHow, wikiHow.) Read more about Josh.

4 Responses to “Mixing Entertainment and Commerce: Show Me the Fun”

  1. Great post Josh. I'd love to see an option on Amazon to pay $1 more at checkout and potentially win the product for free. This way the purchase is guaranteed but I have the chance to win for free. If I'm spending $100 I would definitely opt in for the $1 lottery option.

  2. Nice idea. I think the legal implication of this might make it difficult to implement in some markets.

  3. BrianLey says:

    Fantastic insight Josh,

    I think I may have the idea you are looking for. Hope to talk with you soon!

    -Brian Ley
    Lead Founder BiddRocket

  4. David Sachs says:

    I’m rather late to this post, but it’s something I’ve been fascinated by as well.

    I’ve always been attracted to a class of what I thought of as “contest commerce” companies. I would argue that includes Swoopo, but it also extends to Woot and other businesses that infuse shopping with a gaming-like feel.

    What was most amazing to me about Woot was its economics–they turn over their entire inventory every 24 hours (usually in just 2-3 hours but once a day) and they enjoy negative working capital via collecting from customers well in advance of when money is due to suppliers. They turn their inventory faster than a Wal-Mart, at better (though slim) margins, and little to no physical inventory.

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