Live auctions are turning shopping into gambling

If you haven’t heard of “live shopping,” you might soon. Livestream shopping is already a staple of e-commerce in China, where consumers log onto apps like Douyin and Taobao to buy products from a livestreamer — think QVC. Now, a new app is trying to bring it to the United States.

The Whatnot app features rolling live auctions that can last from three seconds to a minute. Users can bid on everything from trading cards to clothes to steaks. With about 550,000 hours of streaming per week, the site moves an extraordinary amount of product. 

Using Whatnot is fast-paced, and essentially frictionless. Users swipe at the bottom of their screens to place the highest bit for an object. If they win, the object is sent to their house, no confirmation screen needed. 

The system isn’t without its drawbacks. Hanna Krueger, a retail reporter for the Wall Street Journal, investigated how Whatnot has become an addiction for some users. She tells Today, Explained co-host Sean Rameswaram that she spoke to a user who spent over $1 million on the app — and lost everything in the process. 

Below is an excerpt of Krueger’s conversation on the podcast, edited for length and clarity. There’s much more in the full podcast, so listen to Today, Explained wherever you get your podcasts, including Apple Podcasts, Pandora, and Spotify.

Tell us about this app, Whatnot.

Whatnot is a live shopping app. Imagine the home shopping network had a baby with TikTok and eBay, and it was on your phone and it was running 24 hours a day. 

You open up the app [and] there’s countless numbers of categories. You can get coins. You can get cards. You can get horse tack, plants, goo, lobsters. I mean, the categories are expanding all of the time. And there are sellers live-auctioning off these goods in real time. 

There’s a countdown clock, and it’s counting down and the auctioneer or the seller is hyping up the chat, as they call it. And that chat is commenting like, “Wow, look at this. What a deal.” In the meantime, there’s some music. Sometimes it’s nice mellow music, other times it’s metal or EDM, depending on the personality of the seller. 

The end result is that the last person to swipe at the bottom of the screen, which is how you bid, gets the item. And once you have swiped and you’re the final person to do that, there’s no real confirmation screen. We’re just onto the next product and you only really find out what you got when it shows up at your door.

It started as a marketplace for Funko Pop figurines, which are these niche, squareheaded figurines in the collectible world, but it quickly expanded. I would say the biggest categories are sports cards and trading cards like Pokémon. And then the other one is women’s fashion and beauty products. 

I spoke to multiple people who found themselves just spiraling into holes of addiction and what they liken to gambling because of that “break format.” 

Tell us about the break format.

Break format typically applies to trading cards. That could be sports cards, Pokémon. It can also happen with rare coins, but the idea is that there is a sealed pack of cards and that sealed pack is pretty expensive to buy outright — say it’s $10,000. Before the show starts, they’ll say, “Okay guys, there are 10 slots that apply to this pack. So I need 10 people to buy in at a price of $1,000.” This is a steal, right? You’re getting a piece of the pie of a $10,000 pie for only $1,000.

The reason that they’re willing to do that is that within that pack, there might be cards that are worth $2,000, $3,000, $10,000. So you recoup quite quickly if you only paid a thousand for that. The other side, the flip side that often does happen is that the cards are worth nothing close to what you bought in for.

People will get a card that’s worth $50, $100, and at the end of it, all you have to show is these small-value cards. And those who have described kind of a cycle of problematic behavior say that when you lose, when you don’t make up the value that you paid, you just buy right into the next one until you get out of the hole. 

It’s this feeling of the high, the thrill, the adrenaline rush, the “Oh my God, look what I just did” when you get a card that’s way over what you thought. And there’s the despondency, this despair, the shame, and that feeling of, “Okay, I need to make my money back on that flip side.”

This is where this app really begins to look like gambling, to look like addiction, to look like a drug. As does the story of Sean Harding, with which you open your piece for the journal. Tell us about Sean.

Sean Harding is a 45-year-old finance manager from Denver. Sean found himself on this app and he wasn’t spending too much in the very beginning, maybe $100 a day. And then within 40 days he was spending over $1,000, $5,000 a day. Just swiping whenever he could get a free moment — when he was doing laundry, sitting on the toilet. 

It was only when his wife confronted him about this odd behavior, about some missing pages on his credit report, that he really looked at what he had spent and that number was crazy. It was $1.3 million in four months. He had borrowed money from a friend, he had taken out personal loans. And finally, when all that was depleted, he had used his employer’s credit card.

You spoke to the founder of Whatnot. What does he say when you tell him a story like Sean’s?

[Whatnot CEO and cofounder Grant] LaFontaine said that addiction does not register as a problem to them in their internal data, which they look at often. When we presented a story like Sean’s, they repeated that addiction does not register as a problem. When you breach the topic of gambling or people accusing this app of having gambling features, that’s where Whatnot definitely buttons up. They’re under pretty intense scrutiny surrounding that allegation.

They categorially reject that and they say they can’t comment on pending litigation. But they do say that they created an app that had the best user experience possible and that they’re new and they’re learning and they’re scaling and they’re assessing the marketplace in real time.

Are they implementing any guardrails to maybe prevent someone like Sean from ruining his life and his family’s life?

While they say that addiction doesn’t register as a significant problem, they also have introduced optional spending limits and watch time caps. They said that’s not because of addiction concerns, but because some users said that they spent more than intended. That was the distinction that they made. 

They said there’s other safeguards coming, such as “velocity of spend” alerts for sudden spending spikes. Some have PIN locking for categories, so you have to type in a PIN to go to a certain category. Some of these are self-policed. A watch time cap, you could presumably change that yourself, even though you’re the one that implemented it. 

They’re also saying that they’re going to develop some type of birthday reconfirmation option so they could catch underage users, which is coincidentally how I came to know about Whatnot. One of my colleagues’ daughters had spent over $5,000 in one night on Pokemon cards. And he only realized that when he looked at his credit card and was like, “What is this?” And he went to sell those cards at a card shop after the fact to try to recoup, and he could only get back like $300.

Is this just a Whatnot thing, or are there other ways kids and adults can be gambling their lives away on these live auction-type of platforms?

Live shopping has been one of the most predominant ways that Chinese shoppers shop for a long time, and the wave has crested over there a long time before it has here. It really started to take off and gain traction in America in the kind of post-pandemic world.

While Whatnot is definitely leading the charge, TikTok has their own thing called TikTok Shop that has a similar kind of setup. eBay is trying out stuff like this. And then for the card-collecting hobby specifically, Fanatics Live is a major source to get your cards and experience breaks and all that.

Do all of these different platforms, be it on TikTok or eBay, have the sort of gamified countdown clock to make it more intense, more exciting, and perhaps more addictive?

Whatnot’s found a way to create a really engaging and easy-to-interact-with atmosphere. They’ve also successfully merged the parasocial media aspect. There are relationships between the seller and the buyer, so if you keep going back to the same seller, they’ll remember your name, the people in the chat will remember. There are some folks who were like, ‘I found friends in here.’ 

Sean said that the night that he used his company credit card, he was reached out to by a seller and they were like, “Hey man, you got to join this. This break’s awesome. I have a great slot for you. I’ll give it to you at a discount.” And he’s like, “I don’t have any money.” And that’s when he realized that he had a little money. It just happened to belong to his employer.

That kind of shows that there’s this social atmosphere. Whatnot is definitely leading the charge, but other companies are seeing how successful this is, and I think it’s only time before they kind of merge all these aspects together in an attempt to take their market share from them.