It appears that Louis Vuitton and Christian Dior are following the path that Tiffany took a while back, and are suing eBay for facilitating the sale of counterfeit products. For more detail, see this Financial Times article. Rather than comment on the merits of their objectives, I prefer to share with you an op-ed piece I wrote on the subject matter earlier this year. It is as relevant a message to Vuitton and Dior today as it was to Tiffany then.

Tiffany Actually Loses if it Wins eBay Lawsuit

As Tiffany’s lawsuit against eBay gets closer to trial, it has inspired many a doomsayer to challenge the continued viability of eBay’s business model. If eBay facilitates counterfeiting, Tiffany argues, they should be held accountable or not exist. Like many companies with lofty pedigrees, Tiffany is acting on fears of more than counterfeiting. They want to clamp down on the online trade of their branded goods - both counterfeit and real - because they fear losing control over the distribution of their products in the face of a growing secondary market. But strategies based on fears never work.

Fighting auction culture today is tantamount to the bricks-and-mortar businesses that tried to block the proliferation of ecommerce in the late 90s. There is no stopping it. Business leaders don’t have to like eBay, but if they want their brands to thrive, they will have to accept its legitimacy as one of the world’s largest and fastest growing channels of commerce.

Innovative corporations have found opportunities in the secondary market for enhancing their brands and have found innovative ways to deal with counterfeiting without resorting to lawsuits.

Instead of suing eBay, Kate Spade chose a strategy that combats counterfeiters of their luxury handbags head-on. The company employs a team of law school interns to monitor online auctions for fakes. Kate Spade maintains a detailed archive of its collections so it’s been easy to spot counterfeits from uploaded photos on listings. eBay provides them with tools to report offenders and terminate their auctions with the touch of a button. The system works well as counterfeiters, dissuaded by their efforts, move to other, less vigilant brands.

Callaway Golf Company, maker of the famous Big Bertha driver, chose a different tactic to deal with the challenges of the growing secondary market. The company built its own online exchange and introduced a trade-in program that allows customers the ability to easily sell or exchange their old Callaway clubs for new ones at participating authorized retailers. The used clubs get certified by Callaway and resold on the exchange. This strategy gives Callaway more control over the flow, pricing and presentation of their products in the secondary market. The program has been extremely successful for Callaway, creating significant customer goodwill and corresponding brand loyalty.

A similar strategy with a slight twist is the lifetime trade-in program offered by Tourneau, the world’s largest watch retailer. Tourneau allows you to trade in any Tourneau watch for credit towards a new, more expensive one. This program drives their inventory back to them rather than directly to eBay. After inspecting the watches for authenticity and refurbishing them, they channel them back to eBay through online auction facilitators that sell them as “certified-pre-owned,” insuring the ultimate recipient has a positive experience with the brand.

The executives at Kate Spade, Callaway and Tourneau already know what Tiffany and many other companies have yet to realize - that the secondary market is a good thing for brands because it actually increases the value of their products in the primary market. People pay a significant premium to buy a Mercedes-Benz automobile because they know that there will be a strong market for the car when it comes time to sell it. Imagine what would happen if Mercedes found a legal way to stop people from being able to sell their cars, or make it more expensive for them to do so. The value of their new cars would plummet and their brand would erode.

Resale value is quickly becoming a relevant criteria for consideration when purchasing consumer goods, as marketplaces like eBay are creating unprecedented levels of liquidity for items ranging from baby strollers to leather goods. As an informed consumer, you will soon choose the brand of your next purchase based in part on how much it will fetch on eBay next year, which corresponds to how much it will really cost you to own it until then.

We are at the very early stages of this new auction culture, and have much to learn about how it will affect our lives and businesses. While there are many challenges to overcome, there are also opportunities to leverage. Trying to thwart the auction market without examining the broader consequences makes no sense, and ignoring the challenges and opportunities will only risk losing customers, revenues, and brand value in the future.

Tiffany’s lawsuit is designed to make it prohibitively expensive for eBay to allow their users to trade Tiffany products on their site. If Tiffany wins, it loses.

One of the more common New Year’s resolutions of 2006 will be to unclutter your life - this will especially be true once FutureShop goes on sale (January 23) and finds its ways into the hands of people that want to improve their lives. Getting rid of the things you no longer use will allow you to enjoy more fully the things you really love. Martha Stewart is pushing the same message as she advises her readers to “clear out the clutter” in this New Year’s Day article she wrote.

Prudent auction companies and dropshops will drum up business by echoing the same timely message to their communities.

Yesterday, I replaced my electric toothbrush with an Oral-B Pulsar - a high quality electric toothbrush that is completely disposable. It is sleek, compact and could easily pass for a regular toothbrush. On the back of the box it clearly states: “Fully disposable - no need to change parts.” And if that isn’t clear enough, it goes on to reinforce its disposability: “Includes 1 non-replaceable Duracell battery. Product is not designed to be opened.” Oral B doesn’t want you to change the battery or the brush - they want you to use it like you do a regular toothbrush and throw it away when it’s time to replace it. I used it this morning and experienced the best brush of my life - no exaggeration - and all for $5.99.

I bring this up because auction culture will necessarily cause consumers to choose between buying something that has resale value and something that they will eventually just throw away. There will be a flight to quality on one end of the consumer spectrum and a flight to disposability on the other end. This phenomenon will cause two things to happen. It will squeeze manufacturers that produce lower quality, non-branded and non-disposable products. Additionally, as the quality of disposable versions get better, manufacturers of non-disposable versions will have to offer more in their products to stay in the game.

We have been making the choice between permanent and disposable products in our everyday lives for years. Do you use a fancy, gold plated razor or a Gillette? A Bic Pen or a Montblanc? A Dunhill Lighter or a .99 cent special? Can you remember when disposable diapers didn’t exist? Twenty years ago you might not have believed that cameras would be available in a disposable version. And while the economics of an inexpensive cell phone makes it technically disposable, we haven’t officially embraced cell phones that way yet. What happens when the economics of buying something used makes an otherwise permanent acquisition technically disposable - will you treat the product that way?

The disposable electric toothbrush has officially arrived. The cell phone is just around the corner. The computer is close behind. What’s next?

And how will the permanent versions of these products evolve to compete?

Today I was quoted on the front page of the Financial Times in an article that discussed ‘regifting’, a term used to describe the behavior of giving someone a gift that one received as a gift from someone else. There were a flurry of similar articles in leading papers across the country. FutureShop was extensively excerpted in the FT article. I also appeared on CNBC to discuss the same topic this evening.

The general interest in the topic stems from the belief that people are starting to sell unwanted gifts on eBay rather than regifting them - a newsworthy topic for the week after Christmas.

Gifting is generally an economically inefficient behavior (unless you are giving cash, of course). Think about it for a moment. You are buying something for someone, yet you don’t really know the value that person will place on the item. In fact, it’s more than likely they will value the item at less than what you paid for it. Why? Because, if the recipient valued it as much, they would have likely bought it themselves (assuming they knew the item existed). And if they did buy it (and already own it) your duplicative gift is certainly worth a lot less to them than the first one they bought for themselves. (For example, how much would you pay for an identical shirt to the one you already own?) .

Fortunately, there are new and evolving practices that are helping make gift giving more efficient. The gift registry allows the recipient to tell its would-be gifters exactly what he or she wants. But gift registries are traditionally used for weddings (and more recently for baby showers). It is not yet culturally acceptable to register for birthdays, anniversaries, bar mitzvahs etc. Problem solved with the advent of the wish list, an Internet innovation that allows users of sites offering this feature to keep a running list online that lets the world know exactly what they want.

If you dont like to be told what to give - after all, a certain component of gifting is self serving…like getting the satisfaction of delivering a surprise to a friend or loved one, or deriving pleasure from making someone feel good - you can make the process more efficient by including a gift receipt with your gift. Gift receipts allow the recipient to exchange the gift hassle-free with something they prefer. Think back to the time when the only alternative would have been to include the actual receipt which revealed the cost - too tacky to ever have become mainstream. There is also the gift card, which like the gift receipt, allows you to control the venue of the purchase but not the actual item. There is an interesting secondary market for gift cards developing online as discussed in FutureShop as well as in this article.

If the gifts you received for the holidays this year didn’t come off your wish list or didn’t include a gift receipt, there are always the dropshops who are ready, willing and available to sell your unwanted gifts for you on eBay. They’ll even sell your gift cards if you don’t like the stores they came from!

So you’ve read FutureShop and want to keep up with the new auction culture revolution. Well then, you’ve come to the right place.

Check in frequently for real world updates on how people and businesses are embracing this new paradigm. And when you visit, look for tips, advice, strategies and other information that will help you understand and benefit from our rapidly changing world of buying and selling.