E-commerce gaming finds a new target: travel deals
Sunday, June 13, 2010 at 06:59PM
Melody in Decision making, Off & Away, Swoopo, e-commerce

In an online marketplace already rife with distortions of limited time offers, opaque pricing schemes, deal aggregators and misleading hooks, a new online entrant offers yet another time-sucking deal variant: variable auctions. The web savvy traveler already operates in an online world where travel deals abound, but the deal is rarely exactly what he hoped for. You can sacrifice certainty on Priceline, stress over price trends on Kayak, and accept suboptimal pairs in the name of bundling on Expedia.

But if you're willing to add more stress and uncertainty to your travel planning, check out Off & Away, a Swoopo-like platform to auction off luxury hotel rooms at bargain pricing. As in Swoopo, the hook comes in the form of costly bids. In order to raise the price of the room by $0.10, you need to place a "bid" which costs you $1.00. As the clock winds down, each additional bid raises the countdown by 30 seconds, so theoretically it could go on forever, in reality, the last couple of minutes take about 45 minutes, from what I've seen.

I've discussed my opinion (hint: it's negative) of Swoopo before and most of that analysis applies here. While I generally love online markets that open up new buying/selling opportunities, the Swoopo and Off & Away model is market distortion, not market efficiency. Bidding is more of a game of luck of getting in at the exact moment than a mechanism to determine true market value.

I followed this afternoon's bidding on 2 nights at the Trump Hotel in Las Vegas:

The winner of the deal paid $86 in bids in order to secure a $38.20 deal. This scenario is fairly reflective of other deals. All of the other participants lost all the money that they put down in bids (they can however apply it to a full price room at the Trump hotel if they like). So, Matt L. won big, but the other 5 or so participants in the bidding war of the final 15 minutes or so that I watched lost probably around $80/each and came out with nothing. How is this efficient pricing?

I understand why hotels might participate in a scheme like this: they have expensive suites that they would rather fill at a discount than not fill at all. But why are they willing to give up 3/4 of the purchase price to the middleman of Off & Away? Why not just post a last minute deal and put up the price that makes it worth it to them. This approach, on the other hand, empowers the middleman while harming most of the consumers and reducing the take of the providers. AND it encourages massively inefficient behavior of sitting around in the final "moments" (which could be minutes or even hours) to win a deal. Sometimes complexity in transactions just makes the deal not worth it. $124 for an $879 room? It sounds too good to be true, and it is. Go play the lottery, at least then you know what you're in for.

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