Amazon's Counterfeiting Problem

Going back in order to go forward

Welcome back to the Amazon Chronicles. Thanks for your patience these weeks while I’ve been recovering from shoulder replacement surgery. For those wondering how it’s going — it sucks! They try to make a completely different part of your shoulder do the work the rotator cuff used to do. It’s exactly as hard as that sounds. I’m doing rehab twice a week, and I’m sore all the time, and it’s impossible to get comfortable, and nothing works the way it should.

However.

I am getting better, and there’s discussion about Amazon to be had.

This week was Prime Day, which was, of course, two days, and also including a Prime Day strike of warehouse workers in both Minnesota and Germany. Other retailers got in on it, having their own sales, turning the first-quarter news-lite summer doldrums into a regular secular feast day over here. Amazon announced that the two Prime Days together passed last year’s Black Friday and Cyber Monday combined. (By what metric, exactly, wasn’t extremely clear. It looks like total items sold rather than total revenue, but, who knows.)

I’m still hung up on a slightly older story, though, and since I wasn’t around to write about it then, I hope you’ll forgive me for writing about it now. It’s David Streitfeld’s “What Happens After Amazon’s Domination Is Complete? Its Bookstore Offers Clues.” Despite that somewhat circuitous headline, what Streitfeld’s article is really about is counterfeit goods on Amazon’s platform, a root problem that affects everything from books to medical equipment.

This article touches on all the Big Amazon Questions we’ve discussed here at the Chronicles, like Is Amazon A Monopoly? Is Amazon A Good Partner? and Is Amazon Good For Its Customers? There’s probably a labor-rights and a real estate angle to this too, but it was cut for space. (Exaggerating only slightly.)

The World Cup, too, offered plenty of opportunities for counterfeiters, including on Amazon’s platform. This is not a problem that’s going away. All those new Prime subscribers are going to have to learn how to navigate between the real and the fake right on Amazon’s own website.

Meanwhile, entrants like StockX and The Real Real, which offer used but authenticated goods, are finding their own successes. Authentic goods may turn out to be a better business than being the Everything Store.

This is why I think that Amazon will continue to push its anti-counterfeiting efforts and try to control more of its own product stream. Streitfeld’s own article even shows this logic at work:

As AMT was getting ready this spring to release the 2019 guide, it proposed an even deeper integration with Amazon.

“To eliminate the possibility of Amazon facilitating the sale of counterfeit books, we would like to offer Amazon the opportunity to serve as a wholesaler of our titles, cutting out the middle man,” Mr. Kelly wrote to the company.

It was, in essence, rewarding Amazon by surrendering to its dominance.

“We’d rather not be on Amazon,” Mr. Kelly said. “But we felt like we didn’t have a choice.”

All of Amazon’s anti-counterfeiting efforts involve surrendering a measure of control to the platform. Amazon does have enough market power that it can make this demand, and most partners will acquiesce.

The other side is whether Amazon will take a reputational hit for selling counterfeit products. Most Amazon customers seem to carve around potential counterfeits, as they’ve learned how to do so on eBay and other websites. They’ll say, “oh, I just don’t buy _____ on Amazon any more,” but continue to use the site. What would happen if Amazon acquired a general, not just a specific, reputation for selling counterfeit goods?

I think it would be a total disaster. For one thing, it would be profoundly anti-customer. As we’ve seen before, Amazon has been able to skate on ethically slippery waters because it’s so resolutely pro-customer.

But as the range of goods Amazon sells gets wider and wider, it opens itself up to more and more abuse. I don’t know if that logic is avoidable either, despite all the checks Amazon may put in place.

Suffice it to say, this is Amazon’s greatest existential threat right now, and its greatest market opportunity. If it can turn itself into the world’s biggest market of authenticated goods, selling everything from books to cosmetics to electronics to luxury apparel and more, then its potential is limitless. The seedier it gets, the more limited it stays.

More thoughts next week.