A group of jellyfish is called a smack, so it made sense for Jellyfish.com CEO Mark McGuire to call his site's new social commerce event "smack shopping."

"We call it the Internet's first live shopping game show," McGuire says. Like a more interactive, socially oriented version of television's QVC shopping channel, smack shopping turns marketing into entertainment.

Jellyfish launched last summer, promising unsurpassed e-commerce deals by taking half the ad dollars merchants would have spent to promote their products and using that to fund discounts in the form of rebates on the products consumers buy. Jellyfish calls this approach value-per-action advertising, in which the merchants pay Jellyfish only when customers buy the discounted products.

(click image for larger view) Online shopping with a twist

The idea has been slow to catch on, but McGuire says smack shopping is changing that. The online shopping events are bringing in more than 100,000 participants a month and have boosted the site's user base by a factor of five since the smack shopping beta test began in November, McGuire says.

Smack shopping is a reverse auction in which sellers compete for buyers by offering increasing discounts. Jellyfish's Web page features a product with a steadily improving discount that starts at zero and rises toward 100%. Shoppers must strategically gauge when to buy, because the product supply is unknown and limited. Those who hold out for too long will find the item sold out. Those who time it right, however, can get significant deals. Smack shoppers have gotten Apple iPods for 41% off, Microsoft Xboxes for a 46% discount, and TiVo Serial 3 DVRs with a 23% price break, McGuire says.

An Xbox smack in February featured five Xbox 360s from J&R.com that were purchased with discounts of 31.31% to 36.76% off a $299 list price. That's about $110 off, making the final price about $190, significantly better than the best price listed on Amazon.com ($283.95) and on par with used Xbox 360s sold on eBay.

A live chat board lets social dynamics play a role as well. Groups of shoppers try to discourage others from buying too early so they can profit from the rising discount. McGuire acknowledges that some buyers represent "the eBay mafia," taking their discounted goods and reselling them on eBay for a profit.

Customers receive their discounts in the form of rebates that are paid 30 to 45 days after the sale closes. This time lag is necessary to keep people from buying items, collecting cash, then returning the items for a profit.

Smack shopping has an added benefit for Jellyfish: It makes users aware of the site's search engine, which offers cash-back discounts all the time. McGuire says that 20% of smack shoppers have become users of the Jellyfish search engine.