buySAFE blog

Who can you trust these days? Eddie Bauer Holdings Inc. is the latest big name retail brand to file for bankruptcy.

Eddie Bauer now joins Circuit City Stores, Sharper Image, The Parent Co., Tweeter, Fortunoff, Myer Emco, KB Toys Inc., Mervyn’s, Steve & Barry’s, Goody’s, Gottschalk’s, Lenox, Home Décor Products and countless other retailers in going bankrupt in the last year or so...

 

You can see more about the Eddie Bauer bankruptcy filing here courtesy of InternetRetailer.com  http://www.internetretailer.com/dailyNews.asp?id=30842

 

Eddie Bauer, No. 80 in the Internet Retailer Top 500 Guide, on Wednesday filed for Chapter 11 in the U.S. Bankruptcy Court in Delaware.  The retailer also announced that subject to court approval and an auction it will sell its assets...

 

Jeff

Shopping Advisor approved by Mozilla for Firefox

After two months of testing in Mozilla's developmental sandbox, Mozilla approved the buySAFE Shopping Advisor for public distribution via the Firefox Add-on site starting this week.

If you aren't already using Shopping Advisor with your Firefox browser, you should install it as an add-on today.  You can check it out on the official Mozilla Firefox Add-on site here... https://addons.mozilla.org/en-US/firefox/addon/9009

We are obviously excited about this big milestone, and we hope you will continue to provide us with your feedback, insights and ideas on Shopping Advisor over the coming weeks and months.

Have fun, and happy new year!

Steve Woda

How Safe is Paid Search?

Today’s buySAFE Blog is contributed by Michael Beveridge, VP of Business Intelligence and Optimization. Michael has turned his formidable quantitative powers to a question that any on-line consumer – and merchant – should ask:  Are the results in paid search any safer than those you see in natural search results?

The Question

buySAFE recently conducted an in-depth study to understand whether online stores who use paid search are more or less safe shopping alternatives than those stores that a shopper would find using only natural search.

What is Paid Search?

Paid search simply allows a merchant to pay the search engine to elevate that merchant in the display of any search results. It is like any advertising: paying for the placement of the merchant’s name in a certain context. Paid search provides an incremental revenue stream for search engine providers — a revenue stream they optimize by allowing advertisers to bid for preferential placement. Advertisers are advantaged as they can precisely promote their products in search results to those shoppers who are looking to buy such products.  For consumers, there is expansion of product choice as paid search opens up a full second stream of responses above and beyond the "natural results" otherwise provided by the search engine. Given the search engine's ability to micro-segment and to provide real time market-clearing pricing, paid search is an efficient mechanism to provide relevant AND economically efficient choice to consumers.

But how does merchant safety compare in natural vs. paid search? When searching for a product, and faced with the option of engaging with a merchant encountered through organic search, vs. paid search, where can a buyer feel more confident that they will be dealing with the most reputable on-line seller, who is following best practices, and is most likely to follow through on their sales terms and conditions?

Forces that May Make Paid Search More or Less Safe than Organic Search

Moral Hazard — or advertising incents bad guys to disguise themselves as good guys.
The web  provides ample opportunity for less reputable sellers to use the anonymity of the web to disguise themselves as market leaders. There is ample evidence and examples of market actors attempting to manipulate their feedback rating, scores, customer feedback, etc. in order to provide buyers a sense of comfort dis-proportionate to the seller’s true track record and commitment to fulfillment. Paid search provides broad reach to a small, un-established seller, who would not typically show up prevalently in natural search. As it is very difficult, a priori, to distinguish the highly reputable small sellers from his disreputable look-alike, there is strong incentive for marginal players to leverage paid search.

Marginal Economics — or it’s cheaper to sell when  you don’t honor a guarantee. Reputation and the financial and operating investments required to run a reputable franchise are expensive. Building the security, compliance, privacy policy, product guarantee, customer services and dispute resolution process one would expect from a reputable seller are significant elements of the seller’s cost structure. Bad actors, by comparison, gain a significant cost  advantage by ignoring such expected best practices. By extension, the ROI decision for a bad actor is advantaged relative to a reputable seller, as both face market driven CPC or CPA rates for customer (click) acquisition.

The Economics of Advertising —or advertising signals institutional permanence.
Conversely, there is a well-established literature in economics that market leaders advertise as a way to signal financial stability and institutional longevity. A well- established player, while interested in advertising spends that are NPV positive, may also recognize that an advertising campaign will continuously establish them as market leaders. A reputable market leader may also have the incentive to establish a search advertising strategy that prevents competitors and/or less reputable predators from gaining a foothold on its natural sales arena.

buySAFE’s Findings on the Trustworthiness of Paid Search

Over the last several months, buySAFE has conducted an analysis to assess the relative ‘trustworthiness’ of merchants who show up in natural vs. paid search. By trustworthy, we applied a fully objective standard, the buySAFE Shopping Advisor. The buySAFE Shopping Advisor systematically examines online sellers and assesses them against a four point objective framework – Simply put, is the merchant following  best practices for online sellers:

• SSL Encryption: Is a valid SSL in use to ensure secure data transmission?
• Website Security: Is the merchant's website regularly inspected for security vulnerabilities?
• Privacy:  Is there a published privacy policy describing how the merchant will protect personal information?
• Bonded Shopping: Is the merchant bonded so the shopper can trust the merchant will perform as promised and that the purchase will be fully guaranteed?

buySAFE performed online searches for the 290 most popular consumer products, as measured and published by ebay pulse (http://pulse.ebay.com). We then compared the average buySAFE Safe Shopping Rating for search results for these common products provided by Google, MSN and Yahoo and compared the average results for natural and paid search.

In short, across the three major search engines – Google, Yahoo and MSN, the average Safe Shopping Rating for paid search was consistently higher than natural search.

So What Does this Mean?

At a macro level, this demonstrates that merchants using paid search results tend to be marginally safer, and adopt at higher rates the best practices of on-line selling. On the surface, this would suggest that the incentive for less reputable players to steal share is trumped by incumbents’ ability to finance ad campaigns and defend their natural turf.

However, the impact is only marginal. If a buyer were looking for a sure-fire way to find fully reputable merchants, paid search is not the entire answer. Put another way, paid search   gives the consumer higher odds of finding reputable merchants, but she is still not 100% guaranteed to find one.

And that’s part of the problem for the online shopper – you are either safe, or you are not safe – and, as with bungee jumping, you don’t find out until it’s too late to cancel. And if you are marginally more safe with paid search – you are still not 100% safe.

And that is where the buySAFE Shopping Advisor as a consumer tool comes in. By installing the buySAFE shopping Advisor, the consumer will know, real time, and at the point of sale, which seller (via natural OR paid search) is following which best practices, and can make an informed purchase decision EVEN BEFORE GOING TO THE MERCHANT’S SITE. No more guesswork, no more playing the odds.

But How Do I – the Individual Consumer - Benefit from the buySAFE Shopping Advisor?

Thanks for asking! It’s incredibly easy, quick and free (both to download and to use). Just click here to try Shopping Advisor.

— Michael Beveridge, buySAFE, Inc., VP of Business Intelligence and Optimization

Yes, people are nervous about shopping online.

Guest Writer, Morgan Wright, Director of Business Development, buySAFE, Inc

You may have noticed an article on PC World this week regarding buySAFE and the current state of safety in e-commerce. It’s safe to say we’re a bit perplexed with the author’s point of view, which you can find here :http://www.pcworld.com/article/149504/still_nervous_about_online_shopping_really.html. It’s completely counter to the point of view of virtually every other piece that has been written on the subject, including several on her own website. Whether it be PC World, the presidential candidates, the FBI, New York Times, Wall Street Journal or the Today Show, the amount of data and commentary that is directly opposite to her perspective is significant:

1. PC World – McCain Promotes Online Security Policies
2. Advertising Age – The Changing Face of the US Consumer
3. Today Show – Designer Duds: Fake vs. Real
4. NY Times – Beyond Grades: Business Students Put Their Start-Up Ideas to the Test
5. Wall Street Journal – Ensuring that your Cartier Really Is a Cartier
6. The FBI’s 2007 Internet Crime Report

I could include literally hundreds of other examples of her colleagues and contemporaries in e-commerce, the press, information security, politics and technology that have the exact opposite view on the state of e-commerce today, and ample statistical evidence to support their positions. But if we set aside the experts and pundits for a moment what’s most telling is the behavior of the marketplace around these issues. McAfee and AVG have spent roughly $75 million each on SiteAdvisor and LinkScanner, respectively, and both Symantec and Trend Micro have recently launched new consumer facing products dealing directly with online shopping safety (Norton Safe Web and Trend Micro’s Worry-Free™ Secure Site). I think it would be a fair follow-up question to her why four of the largest security companies in the world have aggressively moved to combat the problem of online shopping safety if it truly is no longer a concern.

While she’s an accomplished journalist, her comments the article indicate she doesn’t she fully understand the risks prevalent today. For example, her explanation of SSL (“a way to tell if a manufacturer sells their own products on their site”) belies a clear misunderstanding of the purpose of the technology. That has nothing to do with SSL. The article she cited at the end was great reading as it showed that despite the incredible growth in ecommerce, the market has barely progressed in addressing buyer concerns. A lot of what was said in the article is still prevalent today, and even ten years later the only way a consumer can truly be confident that they’ll get what they pay for online is to shop from a buySAFE Bonded Merchant.

Now, she does have a fair piece of constructive criticism for us, regarding our existing inventory in the Shopping Portal. However, although we just launched the Shopping Advisor and are currently in beta, today we have partnerships with “non-obscure” merchants such as Panasonic and have over 3 million SKUs of inventory with particular strength in certain categories such as home and garden, jewelry and watches, and certain segments of consumer electronics. For example, if you do a search for “Gucci watch” on Google, you will notice that there are at least four buySAFE Merchants on the first page of Google search results and in the Shopping Portal, above the likes of Neiman Marcus, Overstock, Amazon and Nordstrom. To be fair, we did not have any espadrilles at the time of her search. However, after her interview we called a great merchant that sells espadrilles and they are now implementing buySAFE on their site. This merchant has a ton of espadrille inventory and they will be participating in the Bonded Shopping Network within the next week or so. So yes, we do still have some gaps in our inventory, but it is incredibly easy for us to fill these gaps when we have specific buyer demand.

In summary, while she has fair questions around certain niches within our current product inventory, we’re working hard to immediately address and it’s clear her opinion that “all is well” is counter to the opinion of every expert, statistic, government agency and media outlet, and most certainly doesn’t reflect generic consumer concerns. If there’s anything you’re shopping for online that we do not currently have in our inventory, please let us know and I’m certain we can address your needs almost immediately. Email us at customersupport@buysafe.com with any suggestions. Thank you.

A Sermon on...Demand!

I was in Mexico City last weekend. It's amazing: 22 million people, fabulous Spanish colonial architecture, edgy street culture, enormous wealth, stunning poverty, world-class museums, fabulous food, traffic jams that take second place to none in the world. It's impossible to compress it into any statement, much less a short one.

So what do the Mexicans talk about, especially to an American? Drugs and corruption. The recent murder of the Police Chief of Mexico City by drug traffickers, and the series of “small wars” thoughout the country between narco-gangs/militias and the rest of society. And while very few Mexicans I spoke with blame the US for what many see as Mexico's problems, no one can ignore that the drugs move in one direction: north, to the markets, to the US. Face it: we, The People, import drugs, and so export some of the social mayhem that comes with the drug trade.

So this thought has been much on my mind lately: Demand matters. Let me say that again, since I'm worried you didn't get it the first time: Demand matters! What you buy or decline to buy matters. The economic world, the social world, the political world and all other worlds are to a large extent a product of what people spend money on, and want to spend money on. In a free democracy such as the US, this is all the more true: consumer dollars ARE votes.

So let's connect some dots:

• High fuel prices » choices about where to live, how to live, what to drive, that are certain to drive up demand for hydrocarbons;
• Narcotics-based corruption and unstable governments in Mexico, Central and South America » US demand for recreational drugs.
• Burgeoning international trade in fake and illegal goods, both luxury/fashion items, as well as pharmaceuticals, medical goods, car parts, media of all sorts, etc » global demand for these goods, led by consumer demand in the US.

The common thread is that demand matters; someone, often a poor someone in a poor country, will work to meet that demand, as surely as water will run downhill. I'm a believer in free choices and free trade. But it goes with that territory that I want to think that if consumers have reliable information, they will tend to make better choices, at least for themselves if not for society at large. And that is why I am optimistic that ecommerce can be a very effective force for a more transparent economy, where consumers can make their choices with better knowledge about both the good and the seller, if only (a) that information is available and (b) consumers are aware enough to use it. I would like to think that part of what we do at buySAFE furthers progress towards that goal, and that all systems that make online information more reliable and transparent will empower consumers to make smarter choices.

Pardon the sermon, but I fear that some of you may have missed a graduation speech this spring, and this should fill your quota!

Today's blog was contributed by Travis Brown, our VP, Communications and International. One of Travis’s particular interests is the dynamics of markets for fake and counterfeit goods, and ways to leverage consumer choice to combat this huge and growing problem. 

Protecting Brand Integrity in the Online Environment: A New Approach to a Monstrous Problem

Travis Brown is an occasional contributor to the buySAFE blog.  One of Travis’s particular interests is the dynamics of markets for fake and counterfeit goods, and ways to leverage consumer choice to combat this huge and growing problem. 

Travis recently published an article on this, arguing that brand owners could better protect their products from online sales of counterfeits if they required their online channels (resellers, etc.)  to become buySAFE Bonded Merchants. This would take a confusing, “grey” market and effectively split it into a “white” – safe – market and a buyer-beware “black” market. Consumers, brand owners AND honest retailers would all benefit from this clarity and safety. In the absence of a solution that scales at the rate of the problem, the situation will only get worse.

Check it out below …

Protecting Brand Integrity in the Online Environment:

A New Approach to a Monstrous Problem

It was the best of times;  it was the worst of times.

Charles Dickens precociously put his finger on the tension underlying the enormous growth in eCommerce. A merchant or seller of any kind can now, with a single virtual storefront, offer his wares to every shopper in the world with an internet connection… hundreds of millions of households with more purchasing power than ever assembled in one retail marketplace in history. Wow! Likewise a scam artist, selling fake goods marketed as authentic, can also set up a virtual storefront and offer his wares to that same audience.  Never has the enormous equity built into major brands been so vulnerable to destruction by pirates of all sorts. eCommerce is now a battleground for asymmetric commercial warfare.

Only recently has a technology been available that can suppress sales of fakes and harness the power of consumer choice to re-direct sales along the path of demand for genuine goods.

eCommerce: ePerfection or eNightmare?

Good news:eCommerce retail sales in the US are growing at about 20% a year – six times the rate of growth in the underlying retail economy.

Bad news: Online sales of counterfeit goods are growing at twice the rate of all online sales. This means, at current growth rates, counterfeit goods will outstrip sales of legitimate goods online in 2010 about 3:1. This is very bad news for any brand owner, manufacturer, or honest seller of legitimate product.

Why? The dynamics of eCommerce create a uniquely favorable environment for scam artists. Here’s why:

• Sellers tend to have more information than buyers, but on the web, this effect is amplified. The legendary cartoon showing one dog on a computer explaining to another dog best illustrates this issue:  “On the internet, no one knows you’re a dog.”  In other words, reputational markers of the brick-and-mortar world -- location, inherent promise of permanence, community reputation, etc. – are missing on the web. This creates an immediate disadvantage for consumers, and therefore scammers flock to this environment
• Powerful trends make counterfeiting a high-reward, low-risk crime for a number of reasons. For one, digitization of photos and other media make perfect copying easy. The massive production capacity in China and elsewhere means factories will bid very low for extra work. In addition, consumer place a high importance on brand names, which only further validates the desirability of goods, especially, but not exclusively, luxury goods. Lastly, the prevalence of search engines as a gateway to online shopping means that traffic can be manipulated in new ways.
• Globalization of manufacturing, increasingly complex supply chains, and porosity of national borders all mean that local governments, customs departments face a number of challenges in stopping global trade in fakes. In addition, internet technology is ideally suited to protecting the anonymity of the operator behind such trade. Websites are easy to set up, easy to take down and easy to relocate scam operations. Local police agencies are no match for this.

The internet can be a tough and frustrating environment for owners and sellers of merchandise with well known-brands and consumers who want authentic goods but don’t want to pay more than the market price for that product. It’s a lose/lose/lose proposition for these brand owners, honest online merchants, and consumer who still want to buy genuine goods. The only winners are the bad guys.

Limits of Conventional Approaches to Suppressing Sales of Fakes

So what can brand owners do to combat this threat to their most valuable property: the integrity of their brands? Let’s start by listing what they have done in the past. Common tactics include:

• Hiring private detectives to chase down counterfeit product and determine its source and path through the distribution chain.  If these investigative efforts yield real information, they attempt to build legal cases (civil and criminal) against counterfeiters and their distribution chains, despite the near impossibility of getting jurisdiction over the most effective counterfeit producers.
• Lobby governments to deploy resources against the problem: more and better trained customs agent, better intelligence to go after counterfeiting rings, higher awareness of the nexus between counterfeiters and organized crime and even terrorist groups, consumer education, etc.
• Build harder-to-counterfeit products, either by high technology (microscopic ID tags, hidden serial numbers, etc) or low technology (some luxury goods manufacturers make their product more labor-intensive to manufacture, making it more expensive to copy).
• Employ various authentication tactics to help police and other experts identify genuine product, to strengthen ability to bring case against fraudsters.

What do all of these tactics have in common?

They are all essentially reactive. They attempt to go after the fake goods after it has already been injected into the stream of e-commerce. And they are effective in capturing only a very small percentage of the amount of illicit goods in circulation. These actions resemble the popular arcade game, WACK-A-MOLE: as soon as one mole is whacked, another pops up. The algorithm of this game is instructive: since the moles eventually pop up faster than they can be whacked down, the player always loses, sooner or later. A player can “win” only by delaying losing -- the moles always win in any absolute sense. Unfortunately, this is strong and logical metaphor for the effectiveness and scalability of these tactics outlined above.

A New Ally: The Consumer!

Brand owners need to get smart about harnessing the power of consumers to express their preferences for genuine goods. But wait: aren’t consumers the problem? Don’t they buy the fakes? Yes and no. There is a certain sector of consumers that knowingly want to buy a fake Hermes or Gucci purse, but there is a much larger proportion of consumers who want to buy the real thing at a good price, and are frustrated by the difficulty of how to do that without risk. In other words, the increasing rate of counterfeit sales does not necessarily reflect demand for fakes… it reflects in large part the very low level of reliable, transparent information on most eCommerce sites, and the ease with which an illegitimate seller can camouflage itself as a legitimate seller.

How Does this Work?

The simplest and most powerful way to enable consumers to discriminate between real and fake goods is NOT to focus on the goods, but to focus on the merchants. Instead of chasing “bad” merchants,  consumers need to be able to identify “good” merchants: honest, reputable online resellers who have been inspected, certified and bonded by an independent third party. One firm that does this is buySAFE, Inc. When buySAFE, Inc. allows a merchant to display the buySAFE Seal, it means that the merchant has been inspected by buySAFE, is determined to be stable and trustworthy and is continuously monitored to keep that status. buySAFE then allows customers to bond any purchase from that merchant: the bond essentially means that the merchant will perform according to his own terms and conditions. If they don’t, buySAFE will pay off the claim via a surety bond. This way, the customer knows in advance that she takes no risk around buying a fake, or any other breach by the merchant, if she relies on that buySAFE Seal.

This simple solution flips the existing situation on its head. Armed with reliable information to identify good merchants, consumers who choose to buy genuine can now do just that… with confidence, safety and peace of mind.

Those customers who want to buy fakes are not the market that the legitimate brand owner or merchant wants in any event, they are essentially in a different segment altogether. While these people are no doubt helping to fund an illegal activity, they are not the core problem. The difficulty of the mainstream consumer buying a legitimate good with confidence is the core problem, and so that is where the greatest opportunity for solution lies.

Next Steppes: How to Defeat the Barbarians at the Gate

The most effective way to harness millions of online decision makers to tilt the market back toward legitimate product is for suppliers to insist that their e-resellers become bonded by a third-party trust company as a condition of being an authorized reseller for that brand. This will revolutionize the marketplace to let the consumer buy real goods without risk, without fear, without hesitation. It would split the marketplace into the honest, transparent market, and the un-lit, underground, black market of fakes and scams. It would harness consumer choice to let their purchases precisely reflect their demand for authentic goods.

Conclusion: It’s the Habitat, Stupid! 

If poisoning, trapping, fumigating and enlisting government help were effective, there would be no cockroaches. Cockroaches thrive because they have found a very pro-cockroach habitat, not because they are popular.

For counterfeit trade, the key to making quantum changes is to change the amount and type of information that the online consumer can rely on in making the decision to buy. If brand owners required their online resellers to be certified and bonded by a third party, it would be the beginning of the end of the habitat that allows sellers of fakes to flourish. Brand owners owe themselves no less.

************************************************************

Travis Brown is General Counsel and VP International for buySAFE, Inc.

For more information on buySAFE, Inc., visit www.buysafe.com.

© Travis Brown,  2007

buySAFE & HACKER SAFE in a Ground Breaking Announcement – Enabling Risk-Free eCommerce

buySAFE and ScanAlert, the provider of HACKER SAFE, issued a very important joint press release yesterday announcing a new strategic partnership between our two companies. As the release states, “the buySAFE/HACKER SAFE combination enables online merchants to address the two most prominent concerns among online shoppers -- merchant non-performance and data security assurance.”  This is really quite a groundbreaking event because by combining the two offerings, for the first time ever, truly comprehensive, virtually risk-free online shopping for internet users is enabled. The combined offering addresses all of the main trust threats online buyers are faced with and worried about. Please let me explain why… 

There are two main types of concerns that online users have when buying online – concerns over the security & privacy of their information and concerns over merchant trust & performance.  As shown in the following the chart, HACKER SAFE addresses roughly half of the concerns the typical shopper has and buySAFE addresses the other half.  The last area of concern which both solutions indirectly provide a consumer protections for is privacy (via ensuring a secure site and a trusted merchant). That said, TRUSTe is really the industry leader with regard to ensuring full privacy protection (TRUSTe is therefore also shown to reflect this). By bundling the HACKER SAFE and buySAFE offerings together so that every HACKER SAFE customer that qualifies for buySAFE can use buySAFE for free and so that every buySAFE merchant can now get deep discounts to use HACKER SAFE, it provides an exceptionally compelling offering for both merchants and shoppers.

There are very strong economic incentives for internet shopping to be completely trusted, reliable and risk-free (anything less than risk-free eCommerce is a major friction point that slows growth, reduces participation and triggers discounting that leads to markets for lemons) so it’s clearly the future of eCommerce. This announcement is major step forward toward realizing this vision of completely safe online shopping.

buySAFE Invited By French Government to Help Stop Online Sales of Counterfeit Luxury Goods

Travis Brown wears a few hats at buySAFE: Biz Dev, International and General Counsel. He recently returned from a trip as part of a high-level US delegation invited by the French government to learn about the threat that online sales of counterfeits presents to the French luxury goods industry and to explore innovative ways to fight this huge and growing problem. I’ve invited Travis to do a guest blog to pass on some thoughts from this trip. It follows now. I believe you will enjoy!

Back in early February, Jeff Grass posted a blog setting out some ideas about how a luxury brand can protect itself from online sales of counterfeit goods. You can read it by clicking here. Fast forward three weeks: buySAFE was invited by the French Government to be part of a US delegation to study issues around counterfeiting and the luxury goods industry and I spent last week in France learning more about issues and discussing solutions.

It was a tremendous trip: “we” were a group of about 16 Americans, including the head of the US Copyright Office and other US Gov’t officials, executives from US fashion industry organizations, journalists (Business Week, Harper’s Bazaar, Travel and Leisure, important trade journals), IP attorneys, and, most importantly, US designers (Kevan Hall, Anna Sui represented). “They” (our hosts and hostesses) were French Ministers of Budget, Industry, Trade; the Anti-Counterfeiting Agency; the Mayors of Cannes and Marseilles; the Customs Agency; and several luxury goods houses, including Hermes, LVMH, Baccarat, and PPR.

As I was the (lucky) buySAFE employee assigned to this dangerous mission to hang out in Paris, Marseilles and Cannes for six days, I want to share some of the key insights from this trip.

The Problem

The statistics boggle the mind: Counterfeit luxury goods may make up to 10% of all international trade and an even higher percentage of total revenues in the luxury goods category. The impact of this “underground” economy is enormous:

• It costs the French economy 30,000 lost jobs each year;
• It deprives young and emerging designers (as well as established firms) of the economic value of their work, and therefore literally steals livelihoods from a very creative (and already risky) sector;
• The trade in these goods diminishes the value of the legitimate brands because of customer confusion, inferior quality knock-offs, and ubiquity of brands that once stood for exclusivity and very high quality;
• Illegal enterprises deprive governments of legitimate tax revenues, foster the growth of related counterfeit trade in pharmaceuticals, fake car and aircraft parts, music, videos, movies, and software. I don’t have to elaborate, but health and safety implications of fake pharmaceuticals, etc. are about as bad as you think they are;
• Revenues from the sale of counterfeits have been traced to benefit organized crime syndicates, sweatshops that exploit child and immigrant labor, and to terrorist groups … precisely NOT the “stakeholders” that most consumers want to support by their purchasing … Indeed, it is now commonly thought that the Madrid train bombings were financed with dirty cash raised from sales of pirated DVD’s and CD’s. 

Diagnosis

The problem is complex, and any thoughtful response must include an understanding of the legal and regulatory landscape, of the dynamics of an industry that relies on creativity, while being led by relatively few dominant brands, of international trade and offshore manufacturing, of customer behavior in a fickle, trend-driven market, and many other factors. So any short statement is an over-simplification, but let me try one: The fashion industry is, at core, an IP business: that is, the value inherent in a Gucci purse or an Hermes scarf is first and foremost about great design -- which is, if you will, the Adam and Eve of Intellectual Property. Of course it’s also about very very good execution of those designs, but, the design comes first. In this sense, the fashion industry is very similar to the music business, the pharmaceutical business, and the software business: there is a huge investment in getting to “the first copy” – and huge risk around that bet. But once the first “run” finds a market, the cost of making incremental units is relatively small … in the case of software or music downloads, almost costless. And SO, it naturally attracts counterfeiting: the counterfeiter effectively steals the high-value element – the design – and incurs costs of only the lower value piece – manufacturing. A good formula for high margins, if you don’t care about theft!

The Response So Far

Many of the responses to date fall under the heading “How To Stop Bad Guys.” These include: 

• beefed-up efforts to intercept shipments of counterfeit and contraband goods shipped into France (but wait, that’s only 20-30% of the global market for French luxury goods!);  

• public prosecutions to go after bricks-and-mortar sellers of fakes;  

• a lot of energy in persuading the US to pass a law that would make our copyright protections for fashion designs conform to the French (and EU) law on this;  

• loud and frequent condemnations of eBay France (and, I understand, private litigation against eBay France) for allowing sales of fake goods;  

• industry-wide coordination and cooperation to combat trade in fakes.  

These efforts can be found both at the national level (I was told that the national police force has 50 gendarmes investigating transactions on eBay France) and at the local level (the Mayor Cannes says he hires 200 extra police (yes, 200!) in the summer to fight the influx of sellers of fake goods (and the criminal element that comes with them) in that resort town).

And, most recently, the French national government has sponsored a $6mm educational campaign directed at consumers that attempts to explain why consumers should say “Non, merci!” to counterfeiters. This takes the form of posters and short tv spots. 

Prognosis 

It’s a big complex problem, and judging particular results isn’t an exact science.  But … no one feels like the current approach is effective enough. Indeed, it feels like the rate of growth in the “black” markets is much, much greater than that in the legitimate channels. And so it feeds on itself: a Customs officer in Marseilles, showing me around a warehouse of confiscated “designer” shoes and bags from China and other goods, told me that drug dealers have been shifting to designer goods BECAUSE THE MARGINS ARE BETTER. That says it all …

I respectfully think that no solution (or set of solutions) will be very effective if it attempts to regulate only the supply-side. Criminal enterprise is simply too innovative, too nimble, too beyond the jurisdiction of any one government to be stopped (or much slowed) by governments’ responding to yesterday’s tactic. And the stakes are too high.   But there is enormous energy and high-level interest in protecting the French brands: it’s hardly an exaggeration to say that if the brands CANNOT be protected, and the most creative and internationally respected French businesses CANNOT collect the revenues and profits that properly belong to them, then both these businesses and the French economy are seriously damaged. Indeed, if you think of France as a business (a heresy, but bear with me), and if it cannot solve this problem, then sooner or later, it will trade at a discount.   

A Fresh Idea (Modest Proposal) 

So: How does this issue get solved? Not by more of the same. It’s not enough. Efforts so far may well be necessary, but they are not sufficient. I think the breakthrough that would make a difference is to focus with much more intensity on the demand-side of the retail equation. How to enlist the REAL support of the REAL customer who REALLY funds the entire engine.

Imagine, if you will, that there are three categories of transactions: 

First, there is what I’ll call the “carriage trade” customer, largely insensitive to price, who will go to (for example), the Hermes store in Paris (or London or New York or Dubai) and pay “list price” for what is certainly an authentic, and no doubt beautifully made, scarf. Let me add that, for about 150 years, this WAS the market.

Second, there is what I’ll call the “black market”, which lives both off line and on line, but is epitomized by the sidewalk seller of the $30 Chanel watch, or the $20 Gucci bag. Both the seller and the buyer know this is a fake, and agree to a “fair” exchange of value for that plainly fake (and illegal) good.

Third, there is a vast middle category, especially online, of price-sensitive buyers who WANT TO BUY THE REAL THING at the lowest price possible, and sellers who want to move their goods – legit or not – at the best price, perhaps exploiting the fact that the seller typically knows more about the goods than the buyer. Call this the “grey market”. 

The grey market is the key to the problem: if online shoppers could rely on a signal, some form of certification,  that they were getting authentic goods, even if from an unknown seller, then I predict that the overwhelming majority would choose to buy genuine goods in a risk-free transaction at a market price. (A few, I predict, once they see the price of “genuine”, might say to themselves, gee, I simply can’t afford a real Hermes scarf, and then they have to decide what every consumer decides: do I not buy this thing? Buy a less expensive alternative? Steal the appearance of the design via a counterfeiter? What do I do?)  The “carriage trade” market takes care of itself, and the true black market, while often illegal, is less of a threat to these brands than the “grey market.” 

The impact of EMPOWERING the consumer to be able to exercise a moral choice at the point of sale – to buy the real good from an honest seller – would transform the market. Honest sellers collect the revenue and profits, which are then channeled to rightful owners. This shift in the spending pattern effectively reduces (I hope, starves) the counterfeiters and their underground bad-guy owners of revenues and margin, and thereby makes that a less attractive business to enter or to stay in. 

And that’s where buySAFE comes in. If a manufacturer were to say to its online resellers: look, we need to give all these online browsers/ shoppers/ buyers an easier way of doing the right thing … of discriminating between authentic and illegitimate goods ... and so we will let you resell our luxury goods online, BUT ONLY IF you qualify for and continue to qualify to be a buySAFE bonded merchant and display the buySAFE seal. That means, among other things, that if you (m. merchant) ever sell a fake item,

(a) you’re responsible for delivering the real thing (or paying up) (so you cant get away with it) ; and (b) you’re out … no more certified re-seller status (you didn’t get away with it). buySAFE is independent, so can act fairly and neutrally in administering the program.

And who’s the winner with this new rule in place? There are really three: first, the online reseller who gets the sale; second, the brand owner / manufacturer who OWNS the IP and is entitled to capture that value; and third, the satisfied online customer, who in fact purchased what she intended to purchase, no if’s, and’s or but’s. Oh, and La France, which continues to do what perhaps it does best: create wonderful things that the French and the rest of the world value.

It would be, as the French say, ironique, if the creative sector of French business and culture falters because it is not quick and resourceful enough to adopt innovations necessary to protect and to preserve themselves. I come away from my trip confident that this will not be the case: there is a huge willingness in both government and the businesses to develop the combination of responses, tools and programs to curtail the growth of the counterfeit industry. I’m confident that buySAFE can be part of that solution.

Stop Worrying! How to Solve the eCommerce Trust Problem. (A must read if you sell or buy online!)

What’s the #1 problem slowing the growth and profitability of eCommerce today? That’s easy: it’s trust – more accurately, the widespread LACK of trust among online shoppers. A shopper becomes a buyer only when her confidence is sufficient to push the “Add to Cart” and “Checkout” buttons. Without those acts of trust, nothing else matters. As you already know, most people don’t feel completely safe when buying online, especially when buying from small and medium-sized merchants that lack a national brand, like Walmart or Amazon.com. In this blog, I’ll lay out theory and practice as to why the key to continued eCommerce growth is all about creating SUFFICIENT TRUST to transform the tentative shoppers into trusting buyers.

When a shopper perceives risk at a website, she either avoids buying (thus reducing the merchant’s sales and the size of eCommerce generally) or she discounts the price she’s willing to pay based on that perception of risk (thus forcing the merchant to reduce price to get the sale and thereby lowering margins and profits). Unfortunately, this lack of sufficient trust creates a major problem for online retailers as they see lower sales and profitability than they otherwise could or should receive. 

Put differently, online merchants currently pay a kind of “tax” – in lost sales and margin – that is larger and more damaging than any legal tax they pay. Who passed this tax? No one and everyone: it is the economic manifestation of all the fears, doubts, hesitations, etc. that ever killed on online sale, or re-directed it to another merchant. While every online merchant pays this tax, it is not applied evenly. It disproportionately hurts the smaller, lesser known merchant than the big national retailer. The small merchant likely pays more to acquire their inventory, they pay the same as a well known brand for the keyword that drives traffic to their site (or listing fee) and then because of the lack of sufficient trust they are forced to sell the product for less than the well known (and more trusted) merchant if they hope to maintain a similar conversion rate to the more trusted merchant. Alternatively they could seek the same price and but see a dramatically lower conversion rates.

This “tax” hits merchants in direct proportion to their LACK of brand and lower levels of trust. This insufficient trust problem is the primary reason why small and medium-sized businesses on the web or on marketplaces are suffering – and it threatens the continued success of eCommerce and artificially limits its full potential. buySAFE provides, in a sense, a form of “tax relief” for online merchants by reducing the trust gap and increasing website conversion rates.

Over 50% of online users in the U.S. still don’t buy online (astounding!) and a lack of trust is the #1 reason for this. Study after study shows that well over 85% of online shoppers are worried about their information security (will my information be stolen by a hacker?) and over 80% are also worried about merchant non-performance (will my item arrive?, will it be authentic and as described?, will the merchant live up to all promises made, including refund and return policies?, will the merchant treat me fairly?, etc.), especially when buying from a merchant that lacks a national brand.

While SSL certificates (e.g. VeriSign, Comodo, etc) and site scanning services (e.g. HackerSafe, ControlScan, etc.) are generally effective at solving the information security half of the equation, buySAFE is uniquely positioned to solve the much more problematic half of the trust equation.

There are five essential elements required to a create the perfect online trust solution and all current and future solutions can be judged against these elements. We have carefully built buySAFE to provide all five and be that perfect online trust solution. The five elements are:

1) Merchant inspection, verification and certification

Buyers must know who they are dealing with and whether the merchant has the character, capacity and capital to perform as promised.

Ø Character – Are they trustworthy and reliable? Can you trust they will try to do what they promise you? Will the product shipped be authentic?

Ø Capacity – Can they actually do what they’ve promised to do? Do they have the product, are they experienced enough to professionally deliver the product and handle any issues that might arise?

Ø Capital – Do they have the financial means to deliver on the promises made? Are they about to go bankrupt? Will their suppliers continue to give them credit to ship more inventory? Are they a viable business?

The buySAFE initial inspection and certification process looks at each of these factors to ensure a buySAFE Merchant has the character, capacity and capital to reliably deliver on every promise made to a buyer. And if a merchant doesn’t qualify, they do NOT become a buySAFE Merchant. Period.

 2) Continuous monitoring to ensure continued performance

Buyers need to know that a merchant who is good enough to become certified initially, CONTINUES to be good enough to earn that certification every day. This means an ongoing monitoring process is needed to ensure the merchant continues to deliver on promises made, stays financially strong and stable, etc.

buySAFE performs frequent check-ups on many of its initial screening criteria and it monitors every transaction a buySAFE Merchant is involved in. buySAFE also receives a fast feedback loop from buyers of bonded transactions via our dispute resolution process. If a good merchant goes “bad”, we know about it very quickly and can take immediate corrective action.

 3) Third-party endorsement that guarantees performance, where the third-party is held accountable for claims made about the merchant

A third-party obviously needs to be the one performing the inspections (#1 above) and the continuous monitoring (#2 above) for any representations of the merchant’s reliability and trustworthiness to be meaningful. But making the claim that the merchant is a good merchant because they’ve passed your inspection and verification process is an empty promise if you aren’t willing to put your money where your mouth is. Clearly, there’s a great incentive to just qualify everyone if there are few repercussions when you are wrong. Therefore, for a third-party to credibly make a claim about a merchant, they need to take the legal and financial responsibility for the claims they are making about the merchant.

buySAFE, via a surety bond backed by Liberty Mutual, Travelers and ACE USA, guarantees each and every bonded transaction up to $25,000. If we’re wrong – that is, the buySAFE Merchant doesn’t perform - we’ll step in and fully reimburse the buyer for his or her loss. If a third-party providing a trust signal doesn’t trust its own signal enough to guarantee it, how can a shopper possibly have any trust in the signal at all?

 4) Accountability, for both the buyer and merchant

There must be a mechanism in place to hold both the buyer and merchant accountable for their actions. If there is no penalty for cheating, there is too big of an incentive to cheat (e.g. merchant ships counterfeit item instead of real thing, doesn’t respond to return/refund requests, etc).

buySAFE protects buyers only if they’ve paid in full for the item purchased, so there’s a disincentive to avoid payment. When a purchase is bonded, buySAFE assumes the liability and accountability for a buySAFE merchant’s promises and will make the buyer whole in the event the merchant doesn’t deliver. That said, if the merchant makes a promise but doesn’t deliver, buySAFE will go back to the merchant and hold them accountable for the loss they’ve caused. The merchant decides what promises to make and buySAFE will fully back those promises, but if the merchant is dishonest or incompetent and doesn’t deliver, then it’s only right that they be held accountable for their actions.

 5) Independence, neutrality & regulatory oversight…

Finally, and most importantly, any trust solution must be unbiased and independent from the rest of the transaction, but be still held accountable for representations made about a merchant/third party. Since disputes will inevitably arise between buyers and merchants, the third-party trust solution must have a responsibility to each party in equal amounts. Just as a judge is required to be completely impartial and unbiased when deciding a court case, the third party trust solution must be the same for it to have any credibility and legitimacy. This means anyone with a vested interest in seeing one party of the transaction win cannot play the role of the trust solution.

A strong oversight function (via government regulation) and a high degree of transparency into the accuracy and legitimacy of decisions made by the trust solution (via government and third party oversight) are absolutely critical for ensuring all participants are looked after and kept safe. A trust solution with no accountability or oversight means that if they make a decision that your disagree with, you have no recourse, no appeal. You are simply forced to accept whatever judgment is handed down, regardless of whether it is right, fair or appropriate. If this non-accountable, non-transparent trust solution also has a great deal of control over you or your business, (e.g. they can effectively shut down your business on a whim), you are then effectively held hostage to the judgments of that solution.

buySAFE’s independence makes it a neutral third party to a transaction. It does not have a bias toward a buyer or a seller, but it does have a contractual, legal and regulatory obligation to both. To eliminate any chance of bias, buySAFE intentionally subjects itself to a great deal of oversight so that its role as an independent, discerning mediator can never be influenced. Via the bond and as a licensed insurance agency in all 50 states, buySAFE is subjected to regulatory oversight of every insurance commissioner in the country and every claim is decided by a fully licensed and regulated claims adjuster. Further, buySAFE’s partners (Liberty Mutual, Travelers, ACE USA) also serve  an oversight function as they are careful to ensure every interaction with a buyer or a merchant is handled professionally, appropriately and in a manner that is consistent with their own brand and corporate values. Only by being a neutral and independent third-party that is subjected to regulatory oversight, can buySAFE truly live up to its role as being the ideal eCommerce trust solution.

So there you have it: all the essential elements of the ideal solution for creating a justified and sufficient level of trust. buySAFE is a solution that INCREASES TRUST by reducing both real and perceived risk. It greatly reduces the likelihood of problems occurring by ensuring the merchant is reliable and trustworthy, by continuously monitoring performance, by holding the merchant and the trust provider accountable for the promises each make and it does so in an environment of openness, independence, neutrality and government oversight.

buySAFE’s trust solution is far superior to betting on the “wisdom of crowds” via feedback scores or merchant ratings which rely on imperfect information and are subject to significant biases and manipulation. It is also much better than relying on back-end financial protection programs like buyer charge-back protection or satisfaction guarantees which do nothing to ensure a reliable and trusted transaction. Because buySAFE HELPS BUYERS AVOID PROBLEMS in the first place – rather force them to fight for a refund after a problem occurs – it builds trust, reduces worry and makes for a much more enjoyable online shopping experience. This is essential to creating sufficient trust. I’ve talked to literally thousands of people about shopping online and 100% of them have told me, they’d rather avoid a problem in the first place by knowing which merchants are reliable and trustworthy, than rely on getting reimbursed after a transaction goes bad. Buyer protection and satisfaction guarantees are band-aid solutions that treat the symptoms of the problem, but not the problem itself.

By incorporating the five essential elements for ensuring sufficient trust, buySAFE transforms more shoppers into buyers … which lifts revenues and margins … which grows and deepens markets …which gives buyers more choice and better prices … which ensures the health and continued growth of online marketplaces. The invisible tax of discounting and lost sales is repealed. The viability and promise of eCommerce can be fulfilled. Problem solved!

The eFencing Problem. It’s easy, it’s profitable, no wonder its growing fast.

Have you ever heard the term “eFencing”? It’s a growing problem as thieves are increasingly using the internet and online auctions to sell stolen property. Rather than use a traditional “fence” (note, a fence is an individual who knowingly buys stolen property for later resale in a (usually) legitimate market) like a pawnshop or a passersby on a street corner to unload stolen merchandise, many thieves are now cutting out the middle man and selling directly to you, the consumer. The internet and places like eBay make this a compelling alternative.

Here’s why…

1) Anonymity and safety.

                        Ø "There's no need for the pawnbroker. Internet auctions have suddenly become a really easy way to fence stuff," said Frank Dudley Berry Jr., who prosecutes high-tech crimes for the Santa Clara County district attorney's office.

Ø Rather than walk into a pawnshop (who is careful not to put their business at risk by buying stolen merchandise) or otherwise put themselves at risk by trying to drive around and unload large quantities of stolen goods all once, it’s much safer to just stay at home, sell the stolen product online and mail it piece by piece to unsuspecting buyers.

2) Profitability.

Ø Selling stolen goods or gift cards on eBay, a thief can typically net 60-80% of actual value. This compares to 10-20% at a pawnshop. With eBay, thieves can steal less, but make more.

3) Economies of Scale.

Ø Pawn shops are local, so a thief has a limit on how much merchandise they can unload each month. eBay is nationwide making it a virtually unlimited market.  This means small time petty thieves now have a way to scale into major problems.

4) Lower risk of being caught.

Ø “It would be impossible for us to be able to pinpoint a stolen good before it gets reported to us," Hani Durzy from eBay has said. "We don't own it. We don't ship it. We never handle it."  Unfortunately, because eBay’s policy is to not rigorously inspect or verify sellers to ensure they are legitimate and because they don’t police for this problem very effectively, the thief can easily set up shop with a low risk of being caught.

Ø Even if a buyer of a fenced item reports it to eBay and the seller’s eBay account is shut down, they can simply open another one and continue selling.

Unfortunately, the reach and anonymity of the Internet have helped turn online auctions into the newest way to fence stolen property. Places like eBay, Yahoo Auctions and even CraigsList where little verification of the seller is performed, create a great incentive for thieves to use them to unload stolen merchandise. Unless these venues change their approach and introduce effective seller screening and verification practices and hold these sellers accountable for their actions, there is little doubt the problem will continue to grow.

So, next time you get pick pocketed or your house is robbed, first call the police, but second, look for your stuff on eBay. With eFencing so easy to do and with so little downside risk, you just might find it there.

For more on eFencing, a recent article from NBC can be found here.

How Can A Luxury Brand Owner Protect Itself Online from Counterfeits?

Luxury brand owners have a huge problem.  How to stop the growing online sales of counterfeits and how to protect the integrity of their brands?

The Problem

Luxury brand owners are groping for ways to protect their brands from online sales of counterfeits, which annually costs billons of dollars in lost sales and profits.  They continue to fight the problem with a variety of tactics:

1) They push law enforcement to try to stop the distributors. 

•  In Prato, Milan, Italian police recently confiscated more than 650,000 imitation Louis Vuitton and Gucci bags during a raid on a counterfeiting factory, according to Reuters.   (Note… given they believe this could be approx. 10% of the fake handbag population, this implies total fake handbags of 6.5 mm ... If you assume the luxury-brand owners suffer $50 per item in lost profit, that's $300 million net profit lost to legitimate producers and (if margins are 33%), as much as $1 Billion in lost revenue annually.)
•  In 2005, more than 13,000 counterfeiting proceedings and 6,000 raids were launched by law enforcement around the world, leading to the arrest of almost 1000 counterfeiters.  Unfortunately, for every one counterfeiter shut down and arrested, there are at least two more that spring up.

2) They employ teams of people and armies of lawyers to help find the perpetrators to supplement law enforcement’s efforts

• For example, Louis Vuitton has a team based in Paris, with offices around the world, dedicated to fighting counterfeiters

3) They are suing online marketplaces where counterfeits are commonly sold.

• The French luxury brand owners Louis Vuitton (LVMH) and Christian Dior Couture are suing eBay for $47 million over widespread counterfeits and fakes sold on the eBay site, according to the Financial Times

• Tiffany is suing eBay for the very same reason after they conducted a study that found that the vast majority of the Tiffany product sold on eBay US is counterfeit as detailed here. 

Unfortunately, these tactics are ones they’ve used for years and yet the problem continues to grow, especially online (see Ted Richardson’s blog on this topic for more great insights).  With eCommerce growing at more than 25% a year and the anonymity of selling on the internet a big advantage for counterfeiters, the online sales of luxury brand counterfeits is a major problem for the brand owners.

It’s really shocking how easy it is for counterfeiters these days.  To test this for myself, I just went to Google.com, typed in “Louis Vuitton handbag” and clicked through on the 2^nd highest paid search link (on the right hand side of the search results page).  Try it yourself!  The paid search ad is for a website called www.ask228.com While they claim to sell “100% authentic” and a listing for a Gucci handbag says “Made in Italy by Gucci”, I’m pretty much positive these are not authentic.  The website is based in  Beijing, China.  China is arguably the largest producer of counterfeit products in the world); they will only accept payment via bank wire, money transfer or Western  Union (red flag!); and its hard to imagine that a legitimate re-seller would advertise “100% authentic”.  Lastly, the prices of the Gucci handbags on this website are unbelievably low.  I can get a Gucci handbag here for ~$100, vs. on the Saks or Neimans websites where the cheapest bag I could find was around $600.  I’d say it’s a pretty safe bet that although they claim its the real thing, made in Italy, it would be a fake that shows up in my mailbox.  Given they are an advertiser on Google, I now wonder which other Google advertisers are also selling fakes? How many millions of other people who’ve had a similar shopping experience have asked themselves that same question? What is the impact to eCommerce globally if consumers conclude that they simply can’t know if they are buying genuine or fake goods?

So, if you were the owner of a luxury brand and counterfeiters from all over the world were selling fakes of your product to thousands of different distributors and retailers, how would you try to stop them?  Here’s my take… 

The Solution

I believe there are two components to the problem that need to be solved for:

1) Preventing online buyers from unknowingly buying a counterfeit and

2) Stopping buyers who intentionally want to buy a counterfeit

In the unknowing buyer scenario, which I believe makes up the vast majority of the problem, luxury-brand owners need a way to ensure buyers can be 100% confident – before they make a purchase – that the item they are buying is real and that they are buying from a legitimate and trustworthy retailer.  The luxury brand owners need a solution that works for thousands of online retailers and that does all of the following:

1) Provides buyers a clear signal that the item is legitimate and authentic and from a merchant authorized to resell that brand;

2) Ensures the signal is believable, valid and not easily faked by sellers of counterfeit items; and

3) Provides buyers with full recourse (100% protection) in the event the item sold by an authorized merchant turns out to be a fake.

The only solution that that exists today that can provide all of these is bonding the sellers of legitimate luxury items.  While this may sound self-serving coming from the CEO of an eCommerce bonding company, I fundamentally believe it to be true.  We’ve spent the last three years building and testing a risk management system that provides a highly scalable solution for bonding online merchants.  buySAFE 1) rigorously inspects online merchants to ensure they are legitimate, reliable and trustworthy, 2) continuously monitors each buySAFE Merchant’s performance in transactions with their buyers to ensure they consistently deliver on the promises they make (to ensure they always sell authentic product and fully deliver on their other terms of sale) and 3) buySAFE and our partners (Liberty Mutual, Travelers, ACE USA) also put our money on the line by financially guaranteeing each transaction – up to $25,000 - with a surety bond from a trusted financial institution.  This means that if a retailer doesn’t fully perform on all his terms of sale (including authenticity), buySAFE will step in and make the buyer whole (and you can be sure that merchant will never again be a buySAFE Merchant!).

Why this approach works so well is that it also benefits the merchants themselves. When buyers know for certain they are getting the real thing, they buy more often and they are willing to pay a fairer price.  It’s a real win – win – win solution.  Requiring every merchant that sells legitimate luxury-branded goods to be bonded, would solve this part of the counterfeit problem completely. Pure and simple.

The second piece of the problem – stopping the buyer who wants to buy a fake – is the smaller but  tougher aspect to solve for as it requires finding a way to change buyer behavior.  I believe the answer here lies in what we do for other illegal activity – help people understand it’s wrong, that buying fakes hurts people and that it’s illegal.  If the luxury-brand owners kicked off an education and awareness campaign that was effective at getting the message out, it could have a remarkably significant impact on the average person’s willingness to buy a fake.  Since those buying fakes are trying to be “fashion-conscious”, if you make it very “unfashionable” to buy a fake, you can play into their deepest fears. 

I can envision an industry-wide campaign that says knock-offs are theft – don’t be a thief!  You might think it’s good for you, but arguably so is shoplifting …that doesn’t make it right, legal or a cool thing to do.  An education campaign would also help people understand that the purchase of a counterfeit in fact helps fuel the underground economy … it creates sweatshops, it supports black market in other illegal goods and it provides huge flows of capital to bad people.   Implication: buy a fake Chanel, sponsor a terrorist, help launder drug money.  This is un-cool. 

The current approach -- cops and robbers, trying to find, capture and prosecute or sue every “bad guy” – is all too porous and ineffective to solve the problem. This approach combines a focus on identifying, highlighting and protecting the “good guys” (via bonding) and a public consciousness building campaign to let consumers know the implications of the choices they make. Consumers want to know what they are buying and, with a transparent choice, would act on their values and buy the genuine thing. This would create a “virtuous cycle” where designers, artisans, and brand owners are rewarded for their designs, and fraudulent sellers, knock-off artists, and their backers live in a much smaller and darker marketplace.  This doesn’t force consumers to be detectives – or dupes -- to buy luxury goods online, it simply allows for complete transparency so that everyone can make a fully informed decision. If you eliminate the risk in a transaction and ensure the consumer has completely accurate information on which to make a buying decision, they will make the right choices. As Pierre Omidyar, the founder of eBay, always said, “people are basically good.” Give them the means to do the right thing and most will.

buySAFE launches Developers' Network

October 31, 2006

A quick plug for a big, new announcement from buySAFE that enables third parties to leverage buySAFE trust signals at no cost…

Today, buySAFE made an exciting announcement – we’ve launched the buySAFE Developers’ Network (http://developer.buysafe.com).

The buySAFE Developer's Network is a program that allows developers to access buySAFE's API (Application Programming Interface) to seamlessly integrate buySAFE trust signaling into retail websites, marketplaces, and third-party shopping applications. By creating the buySAFE Developers' Network and opening our API, we are now able to signal trust to consumers earlier in their buying cycle, thus allowing them to make more informed buying decisions.

Online shopping applications like comparison shopping engines, browser plug-ins, and desktop widgets can benefit by utilizing the buySAFE API. In a search example, results from buySAFE Merchants will be identified by a small buySAFE logo, which signals to the shopper that the merchant is trustworthy and reliable, thus increasing the likelihood that they will make a purchase.

Developers can gain access to the buySAFE API by registering for free membership on the buySAFE Developers’ Network site, or by sending an e-mail request to developer@buysafe.com.

Over 50% of eBay sellers plan to stop selling on eBay?

Ina Steiner from AuctionBytes just released results on a survey of eBay Sellers.  Kudos to Ina as the survey is packed with lots of great information. 

The most shocking of which is what eBay sellers say they plan to be doing in 6 months… almost 60% said not selling on eBay.   Wow.  While its tough to tell exactly what people will do from surveys, they do reflect very much the current thinking of the respondents and it sounds like most eBay sellers are thinking about throwing in the towel.  What we typically see is a fair bit of eBay seller transition/attrition just after the Christmas selling season, so I’d expect the worst of it will hit eBay in the January/February timeframe. 

At buySAFE, we’ve see a marked softening in activity since the new eBay store fees went into effect.  The number of items sellers are listing for sale dropped deep double digits in just a couple weeks.  We’ve also seen an overall drop in sales/GMV as well, although not as significant as the reduction in listings.

The new fees are doing at last half of what eBay wanted – reducing the number of store listings.  So far, from what we can tell, it has had no (or negative) impact on overall eBay sales activity, so the second half of what eBay was hoping for – a rebound in core, hasn’t yet materialized.   Somewhat related, I’ve already seen a few eBayexpress.com ads on TV, but we haven’t seen dramatic changes on merchant sales.  That said, I suppose it is still early days.  My initial reaction from the ads I saw was that most people won’t realize that eBay Express is actually a different website called ebayexpress.com.   While it helps with overall eBay awareness, the ads I saw didn’t clearly make the distinction that eBay has a new/second website for you to look for new items.  Educating online shoppers of the new offering is clearly going to take some time.

Sheldon Liber from Bloggingstocks- I'd love your take on this.

Everyone's a critic? Not so fast

I think a lot about trust. E-commerce trust in particular. Lack of trust is the biggest reason why 50% of Americans still don't shop online. Trust is a powerful emotion. It can motivate us to participate in something outside our comfort zone, or lack of trust can cause the little voice in our head to say, “don’t do it.” So this week, when two conflicting articles about online trust came out, I had to put it all in context.

Guy Kawasaki writes about an article in the San Francisco Chronicle on the power of online reviews for small businesses. The article basically summarizes that online, consumer-generated reviews on everything from restaurants to websites are changing commerce and throwing off many small businesses.

In e-commerce, we've known the power of such reviews for years- otherwise known as feedback. In eBay-world, user-generated seller reviews are the gold standard for building trust online. Except that they don't work all the time, but that's another topic.

This is why I found this study so interesting:

"Only 21 percent of consumers trust product information within social media, such as blogs and public forums, when evaluating a product for purchase. In contrast, consumers are twice as likely to trust product information they encounter on a company Web site or a professional review site (such as Edmunds.com)." Hat tip to Jupiter Research and Clickz's Kate Kaye.   

eh? So, does all of Web2.0 for commerce go out the door? Not quite. They key here is context. I bet users trust product information on a corporate web site they trust. If they don't trust the brand, they don't trust its product info. Edmunds.com, eBay feedback: forums they trust. Word of mouth is no good if it's not in a trusted context. I trust my best friend's movie recommendations, but not some guy posting on a forum.

By definition, trust is the trait of believing in the honesty and reliability of others, but when it comes to e-commerce, it appears that trust is more about reliance- certainty based on past experience. As long as it’s from someone you know.

Sellers, eBay and what the Media Left Out

"If their new fee increases leads to increased revenues and stock price for EBAY, then the leadership is to be commended.  If they notice that the new fees have a detrimental effect on certain segments of their business, then I truly hope they reconsider their recent move.  No matter what they say to the press or how they try to frame it, it’s all about bringing increased revenues to their bottom line.  And a less-than-expected increase will likely be the only thing that would get them to change their recent fee increases."

This quote comes from a large eBay seller I spoke with last week, and it echoes the sentiments of many large volume sellers I’ve talked to recently. Most professional sellers understand that eBay has a business to run, but sellers have businesses to run too. If squashed margins driven by new policies hurt sellers’ businesses, what choice to they have but to shift their businesses elsewhere?

Articles, blog posts, and analyst coverage have taken note of seller grumblings about eBay’s new fee increases for stores and eBay's rationale that it was needed to “rebalance” the inventory levels between stores and auctions. eBay built its business off of core auctions, and developed a strong business model with the addition of stores.  The addition of eBay stores was the very reason hundreds of thousands of businesses could run off of the eBay platform each year.  By hitting these businesses where it hurts, eBay is forcing them to re-think their long-term business strategy, and the company is underestimating the ability of these businesses to sell off of the eBay marketplace.  As someone who speaks to hundreds of eBay sellers each year, what’s surprised me in the coverage of this recent issue is what is not mentioned:

1) They don’t discuss the inevitability of where this big eBay debate is heading: that some sellers will strongly focus on building their businesses outside of eBay. This is healthy and shows a maturing of the e-commerce market.

Multi-channel selling is the future- and it’s often misunderstood by the mainstream media. The media is harping on Google becoming the next marketplace, but I actually think the future has less and less to do with massive portal-like marketplaces. Free- standing stores, powered by software service providers like Channel Advisor - probably the best known of these in the eBay space, but also companies like MIVA or Yahoo Stores - are big players beyond eBay. This trend brings along with it a whole new suite of problems, but we see the growth in this sector, we’re excited about it, and we’re addressing ways to allow merchants to extend powerful trust signals backed by financial guarantees to make them mean something to their free-standing stores. Our other more eBay-centric colleagues like Channel Advisor also rapidly following their customers off eBay.

eBay still is and always will be an incredibly powerful and rich marketplace, but change is afoot and diversification, as I mentioned last week, is inevitable. We’ve certainly turned our business in that direction.

2) They don’t understand seller motivations- or at least they don’t seem to accurately report on them. As the quote above echoes, eBay sellers are businesspeople (many are quite sophisticated and are former investment bankers, lawyers, accountants, etc. with MBAs and other advanced degrees). Some articles have been quite patronizing in their discussion of eBay sellers and their reactions to fee increases and other new rulings such as the removal of many sellers’ stores listings. Hi-volume eBay sellers are smart entrepreneurs. They know eBay is motivated by the bottom line, and so are they. I think some analysts and journalists still think of eBay sellers as empty nesters wanting to clean out their attics and garages or stay at-home mom’s who have built a business out of the garage.  I assure you, there is nothing is further from the truth. These sellers want and need to run healthy businesses. High fees, lower visibility, and a lack of buyer trust conspire to create an atmosphere for some sellers that just do
esn’t allow them to run profitable businesses. Profitable businesses lift the e-commerce sector as a whole- and lift eBay’s value in the long run.

Professional sellers view eBay as a landlord, and when your landlord starts charging too much rent and letting the riff raff in, you move, or open another location. As Mylene Mangalindan mentioned this week in the Wall Street Journal, “there is a growing gap between registered users—people who have registered information about themselves on the site—and its “active” users, who have bought, bid on, or sold something in the past year.” The numbers I’ve seen point to active user attrition rate on eBay is now approaching 50% (annually).  This points to a massively high churn rate for eBay buyers, something more in keeping with the behavior of a search or comparison shopping engines and not a trusted marketplace. However, Wall Street (and journalists) often see eBay as an e-commerce play unto itself—or as an auctioneer, maintaining prices, courting buyers, and controlling inventory.

The truth is somewhere in between, but for the majority of serious merchants we work with, eBay is now just part of a multi channel retailing strategy. This is healthy, and to be expected.

Trust and the Little Guy

We now live in an era of declining trust in major corporations and those who lead them.  After management misdeeds ranging from Enron to WorldCom and accounting fiascos ala Fannie Mae, it’s hardly a surprise. And yet, huge companies who have lost trust in the past can regain that from consumers. I think of Microsoft, which was five years ago was vilified for its anti-trust and monopolistic tendencies.  After several years of consciously re-building their image couple with an effort to be more transparent—better press relations, more open product releases, blogging, employees feeling free to take on senior executives when they disagreed with company policy (see Scoble calling Steve Ballmer to task for MSFT's lack of support on a gay rights bill), and a generally more open spirit—Microsoft was this year named the “world’s most trusted company” in the Edelman 2006 trust barometer, an influential survey of business leaders, media etc.

Microsoft had been vilified because its most interested, invested users lost trust and respect in a company they simultaneously needed and resented. Although trust was re-built, MSFT alternatives grew apace, so that now the most believe they are less dependent on the giant company than they were in the past - one could argue Web 2.0 and its open source spirit was made possible by a sense that users just didn’t need Microsoft and its ilk to do what they needed to do online.

In many ways, we see the same thing happening today on eBay.  Citizen groups of alienated power sellers are revolting against eBay draconian policies and rising fees and organizing to fight back, or to create alternative marketplaces. See the growing “Powersellers unite movement,” which states as its mission:

"PSU was “born” when eBay implemented rate increases that significantly impacted sellers large & small. The fee hikes affect buyers also, as most sellers have no choice but to pass on the eBay fees to buyers. Our focus has now shifted away from the eBay boycott in early 2005 to helping sellers, and buyers, find the best alternative auction site(s) for their needs.

PSU is a fast- growing group of online members – seasoned and new – with common goals."

From an eBay competitor perspective, Overstock.com Auctions is gaining traction- this small competitor to eBay charges much less to merchants and gives them good visibility through search results and a “Trusted Merchants” gallery. As a result, we’re seeing movement to Overstock, and sellers are plugging Overstock on eBay message boards (link).  With their recent move to incorporate “Trusted Merchants” inventory in their core shopping site search results and their announcement today that they’ll automatically syndicate seller fixed price items to Google Base and Froogle, they are aggressively addressing the biggest knock sellers have had with them to date – limited buyer traffic.  These moves will no doubt have a significant impact in driving increased buyer demand for their Auctions site.

That said, thus far, these citizen actions have not gained significant traction, as Sheldon Liber mentioned in his follow up piece on Blogging Stocks. eBay is still the biggest game in town and sellers still need eBay. But citizen action and unrest is important, and eBay must listen. If eBay is seen as an unfair, monopolistic monolith then it will not win in the long run. Microsoft learned the hard way.

Plus, let’s not forget the recent lesson of the Connecticut Democratic Senatorial Primary. Who would have thought a little known guy with no government experience could beat a former vice presidential candidate and veteran Senator like Joe Lieberman? Ned Lamont won because grassroots supporters cared enough to force change. It all started with simple websites, like we’re seeing now with these grassroots anti-eBay sites.

 

Mpire: comparative data for shoppers

Good column from Bob Tedeschi at the NY Times on the launches of MPire.com and Slide.com, two new e-commerce comparison sites that allow shoppers to track and compare recent selling prices on specific items across the web. It's kind of like looking at real estate 6-month "comps" when you're buying property: ah-- unit 2A sold for $50,000 more than I want to offer...

...most promising for Mpire is that it started by only listing eBay prices, but now covers Overstock, Craigslist, and Amazon. Mpire CEO Matthew Hulett has a great track record and we wish him success.

Blogging Stocks lends perspective to eBay vs. Sellers

Sheldon Liber at Blogging Stocks provides reasoned perspective on the growing enmity between eBay and some of its sellers. Put simply he translates eBay's message to sellers as "grow or die." It's a Darwinian game, online auctions.

All this as sellers turn to Google for help in providing new outlets for auctions...hat tip to Ina Steiner for this article.

Band of eBay Sellers Petition Google to Open Auction Site.

"A small group of eBay sellers launched a discussion group on Google Groups to beg Google to consider opening an auction site. The move comes after eBay announced a significant fee hike for Store inventory listings in an effort to "rebalance" the marketplace toward the core platform (non-Store listings).

There are hundred people on the Google Checkout team in Mountain View who must be smiling a little at this one. 

3,000,000 listings bonded and counting

… about 2 minutes ago, we just crossed the 3,000,000 bonded listings (buySAFE Seals) mark for the first time ever.  This means there are 3,000,000 items out there serving our seal.

Shoppers to eBay Sellers: Ok if it's fake, as long as it's cheap

A German paper reports on a new study from the University in Mainz (Germany) that found that 85% of perfume buyers on eBay received counterfeit bottles. Ok, fine. Here's what's interesting:

    "While the actual fragrance of the imitations often displayed only a minimal deviation from the original, the differences were clearly recognizable from other features. The weight of the bottle, the lettering used or the curvature in the bottom of the bottle pointed towards them being forgeries. For the buyers it admittedly appears not to be so important as to whether they have bought a forgery or an original. They showed hardly any reaction.  It was only in only a few individual cases that they gave a negative appraisal and spoke out about forgery whereas, according to the study, 99 per cent (sic) of opinions were positive."   

Do people just expect they will receive counterfeit goods?  More likely, because they don't trust that they'll get the real thing, most just assume it's not real and adjust the price they are willing to pay accordingly.  They are willing to take a risk-- as long as it doesn't cost a whole lot.

Perhaps this is why, according to the Auction Trust Network, who has a great tool for comparing the average prices of products on eBay with those off eBay, “online shoppers pay an average of 34% less on eBay than they would on traditional retail shopping sites!” (from Steve Jones, the CEO of ATN, in a recent newsletter).  While this is great for buyers, if you sell on eBay this is really challenging for your margins.  Why is a buyer not willing to pay the same price on eBay that they are willing to pay FOR THE SAME PRODUCT off eBay?  This is a big trust problem.  If you are a seller who sells the real thing, you’ve got a tough challenge convincing every buyer that you are actually selling the real thing (vs. every other seller who is also saying they sell the real thing, but really aren’t) so that you can get a fair price.

Or perhaps, this is just a problem in Germany but not in the U.S. market?  Comments?

To see the full article on the study I’m referencing, go to http://www.markenbusiness.com/en/news.php?newsid=4026