Slaying the Hydra of Counterfeits

In Greek mythology the Hydra was also called Lernaean Hydra, which is a serpent-like monster. The Hydra is a nine-headed serpent like snake. It was said that if you cut off one hydra head, two more would grow back.

This perfectly describes the counterfeits and fake products issue on Amazon. For every fraudulent seller suspended, for every knockoff brand removed from the catalog, and for every deleted fake glowing review for a product, there are twice as many the next day. Like the Hydra in Greek mythology instead of getting weaker as it is being attacked, it only grows stronger. The issues of fraud on Amazon are only getting worse.

Greek hero Herakles did eventually slay the Hydra when he found a way to stop the heads from regrowing. Yet the challenge for Amazon - and for other marketplaces worldwide including eBay and Alibaba in China - is that much bigger. E-commerce marketplaces are perfect breeding grounds for fraud because the cost of trying is virtually zero. And yet those marketplaces all host millions of brands with dozens of products, making it unscalable to verify anything by hand. They all rely on automation for most of the policing instead.

Retail store

Traditionally retailers achieved trust by improving the supply chain quality control, from manufacturing to last mile delivery. Customers shopping at one of the Apple stores can trust it blindly; after all that is the whole point of an official store. Apple allows other stores to become “Authorized Apple Dealers” too as long as they meet certain requirements and get certified. The key here is that Apple is making the decision because it knows its supply chain and can certify retailers best.

This is almost exactly the reason why at the end of 2016 newspapers reported that “Apple Says Most of Its ‘Genuine’ Chargers on Amazon Are Fakes.” The processed used by Amazon is a virtual copy of the “Authorized Apple Dealer” one by Apple itself, except that it doesn’t work - Amazon has limited visibility into verifying the supply chain of sellers. Some brands, including Apple, are “brand gated” on Amazon, a process which requires approval to sell. But it is Amazon making the decision.

The issue is not limited to counterfeits, though. There is also the ocean of knockoff products, powered by black-hat techniques like fake reviews making them appear as well-liked products. Amazon’s catalog as a result is a mess. Type in “wireless headphones” into the Amazon.com search bar and the top results look more like what you’d find on a corner in Chinatown than a legitimate electronics store (from Amazon Is the New Canal Street).

Amazon trusts the vendors it buys from directly. But trusting the marketplace sellers can never be as solid. This is one of the reasons why they continue to do some retail combined with running a marketplace - it is unclear if 100% retail marketplace can function and deliver the trust Amazon wants consumers to have. There is no marketplace worldwide to have achieved this.

Shopping online

Amazon wants to be trusted more than anything else. The message to consumers is that shopping on Amazon is dependable, trustworthy, and convenient. Sellers on the marketplace, the cause of the majority of counterfeit issues, get to hide under that trust and reap its benefits. This has allowed the marketplace to flourish since combined with the Prime membership and the Fulfillment by Amazon (FBA) service few consumers even see the marketplace. They shop on Amazon as if it was a retailer.

This renders any sort of rating or evaluation of sellers virtually pointless. Like many marketplaces Amazon has seller reviews, allowing consumers to rate a seller after a purchase, but a decreasing amount of them do, and even less pay attention to them when buying. This is trust Amazon is trying to establish: consumers don’t need to trust sellers, they only need to trust Amazon. It’s up to Amazon to police the marketplace and weed out bad players.

When that same consumer is riding in an Uber or Lyft taxi they are instantly aware of the rating the driver has. Most will leave a rating after their ride because the app prompts for it. Uber and Lyft are marketplaces for car sharing, but make it clear that some drivers are better than others. eBay uses the same model for their marketplace. And so does Amazon, but over time they have changed the user experience to rarely feature that. Again, it’s all about trust in Amazon itself.

On Amazon the official store selling their own product will share the buy box with anyone else who claim to have the product in stock. This is the model of the Amazon marketplace. It got Amazon to where they are now. But in technology business there is a saying “What Got You Here Won’t Get You There.” Maybe the marketplace is unfit for what it needs to be for the future.

Problem

The challenge for Amazon is multi-dimensional. It needs to a high quality catalog from trusted brands sold by verified sellers. But instead it has a catalog of endless copies of the same products, and millions of somewhat-unverified sellers sending pallets of new inventory to Amazon every hour. All of this mostly works most of the time, after all consumers continue to shop on Amazon in increasing numbers. But surely it is going towards a cliff.

It might be an impossible problem to solve. In business, of course, few things are impossible. They are instead unprofitable. Which is exactly the problem Amazon and other marketplaces are facing - they found ways to grow fast, but now have to find ways to keep up the quality while still growing. There are many ideas which appear like obvious solutions to counterfeits on Amazon, but scaling them to the level Amazon operates at is not free.

Other companies in technology are facing similar challenges. In the wake of “fake news” Facebook announced that by the end of this year they will employ 20,000 people to “better enforce our Community Standards and review ads,” and Google is also on target to have over 10,000 people addressing content that might violate their policies. These problems are still not easily solvable through automation, artificial intelligence is not there yet. One has to wonder what 20,000 people at Amazon tasked with policing the catalog and sellers could achieve.

Today, not unlike the Hydra in Greek mythology, Amazon suspends sellers every day and 1,000 more join the Amazon.com marketplace alone the same day.

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Juozas "Joe" Kaziukėnas

Founder of Marketplace Pulse, Joe wears multiple hats in the management of Marketplace Pulse, including writing most of the articles. Based in New York City. Advisor to other startups and entrepreneurs. Occasional speaker at conferences.

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