Jellyfish.com's Smack Shopping Makes Paying Into Play.

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

"We call it the Internet's first live shopping game show," says McGuire.

Like a more interactive, socially oriented version of television's QVC shopping channel, smack shopping makes marketing into entertainment.

Jellyfish launched last summer, promising unsurpassed e-commerce deals by putting half the ad dollars merchants spend to promote their products in the pockets of consumers rather than third-party promotions companies. The company calls this form of rebate value-per-action advertising, in contrast to pay-per-click, cost-per-impression, or cost-per-action advertising.

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

Smack shopping is a form of reverse auction, which consists of sellers competing for buyers by offering increasing discounts. For participants, the event involves a Web page that features a product and a steadily improving discount that starts at 0% and rises toward 100%.

For shoppers, the trick is knowing 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 46% off, and TiVo Serial 3 DVRs for 23% off, according to McGuire.

An Xbox smack that took place on Feb. 22 featured five Xbox 360s from New York-based merchant J&R.com, which were purchased with discounts of 31.31%, 33.63%, 34.15%, 35.64%, and 36.76% off a $299 list price respectively. That's $109.91 off (for the best discount that session), making the final price $189.09, which is significantly better than the best price listed on Amazon ($283.95) and on par with used Xbox 360s sold on eBay.

Because there's a live chat board component, 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" -- they take their discounted goods and resell them on eBay for a profit.

Though the marketing dollars Jellyfish shares with its users to create discounts represent real cash, buyers don't get paid immediately. It usually takes between 30 to 45 days for individuals to receive their rebate. This time lag is necessary to prevent 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.

Editor's note: This story was altered on March 2 to include the proper title for Jellyfish.com president Mark McGuire.