The WSJ article also briefly touches on the ethical nature of this activity - an important topic which I will leave for discussion in the future.

The paperback edition has been updated to include more current data related to eBay and other sites.

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.

Countering the ease of trade in electronics is the steep depreciation curve that exists across the category. Products are introduced more and more frequently these days, putting significant price pressure on the older models. As I explain in FutureShop, the key to leveraging the auction culture when it comes to electronics is to time the sale and replacement of your goods around the “sweet spot” between when a new model is released and when the prior model is still considered current. Swapping models during that period generally provides the greatest net value and is a good way to own rapidly evolving electronic products that you frequently use (like a cell phone, pda, or pocket digital camera).

Recently, several consumer electronics companies have introduced programs to further facilitate this concept.
CompUSA, one of the nation’s largest computer retailers just introduced a program where you can trade in products you purchased from them for new goods in the store. It’s called “Easy to eBay” and they sell the goods for you on eBay, giving you the choice of either store credit or cash in return. Sony just introduced a trade-in program for your camcorder. Here is an excerpt from their website regarding the program:

The Sony Style Camcorder Trade-Up Program
“Now you can trade in that old camcorder, help the environment, and receive Sony credit. Use the credit for a brand new Sony camcorder purchased online at SonyStyle.com. Click on ‘Get Started Now’ to complete the online estimator and get your estimated trade-up value.”

Watch for more electronics manufacturers and retailers to introduce similar programs as consumers come to expect this type of service as a key part of their shopping experience.

As more and more people adopt the auction culture, we will begin to see a renaissance in recycling - but in a much broader and different way than we did in the past. Our past recycling initiatives revolved around the conversion on trash back into raw materials that could be reprocessed into useful things. Aluminum, paper, glass and plastic were core commodities associated with the past recycling culture. In the new auction culture, people will expand their notion of recycling to tangible products that still have useful purposes in their present form (unlike, for example, a used can of Coca-Cola). We are already seeing this with computers and other consumer electronics ( although products from a large percentage of programs targeting technology are not recycled but rather disposed of in an environmentally safe way).

As more people resell their under-utilized possessions rather than throw them away, less waste will be produced since these items will find their way to people who will use them rather than the dumpster. Unlike the prior recycling mindset which was solely driven by either a desire to behave in an environmentally responsible manner or by local ordinances that forced you to do the same, the new mindset will be driven in part by money. There is little direct or measurable benefit to the citizen who recycles newspapers or containers. There is, however, a direct and measurable benefit when you receive a check in the mail from a buyer of your old notebook computer.

Capitalism preaches that if people behave in a purely self-interested manner, such activity will ultimately benefit society as a whole. This axiom plays out in an ironic and powerful way with regards to the concepts in FutureShop. Look for a positive and meaningful impact on our environment as people seek to improve their lives through auction culture and our society begins to adopt the culture of selling our possessions rather that holding onto them until they need to be thrown away.

In the new auction culture, you are doing good whether you think of “green” as an environmentally friendly icon or simply as a synonym for cash.

This new program effectively reduces the cost of a book to a reader that intends to consume it over a short period of time. It is a price discrimination scheme that charges less to someone who wants a quick reading fix as compared to casual readers who prefer to read at a more leisurely pace.

Offering this service at the airport seems logical. After all, Paradies has a captive audience of readers looking for a source of quick entertainment for their flight. But the industry isn’t likely to stop there. Publishers have used price discrimination as a tool to extract premiums from readers interested in being the first to read new books. That’s why hardcover books come out well in advance of, and at a significant premium to their paperback counterparts. Booksellers may have found that price discrimination works for them too. Today it’s the airport. Tomorrow it might be every bookstore. Imagine – an incentive to read quickly! Buy a book today, read it and return it within a specified timeframe in good condition for cash or credit. Perhaps there will be different rates for books depending on how long you take to read them: 50% if returned within one week, 40% within two weeks and 25% within one month.

So, how will this impact the booksellers, publishers, readers and authors? Booksellers should presumably sell more books since they have just cut their price in half for brisk readers as well as for those willing to buy used copies. Correspondingly, readers should buy more books, armed with lower cost alternatives. Publishers and authors may lose out because they don’t participate in the recycled revenue.

How will the industry respond to this trend? Perhaps publishers will increase the length of their books to make the reads longer. More likely, they will just increase the price of their books to offset their losses. Alternatively, they might restructure their deal with booksellers to insure they get a piece of the second sale.

Whatever the outcome, this issue will be dealt with by more that just the book industry. Look for more brick and mortar players in other industries considering similar strategies that embrace auction culture, as they realize that consumers want more temporary ownership choices.

All this talk about guns reminds me of an early commentary on my book that I came across in this blog. The blog was posted on, of all places, a second amendment website. The blogger argued that if eBay will be a big part of our future of shopping (as I predict in my book), then it could ultimately affect our right to bear arms. Why? Because eBay doesn’t allow the sale of guns on its site. As eBay gets bigger and becomes mainstream, the blogger argues it could eventually control what we buy and sell.

Perhaps his argument has some merit.

This week, a government agency forced Wal-Mart to carry emergency contraception in response to a complaint filed by three women who were refused the ‘morning after’ pill. Why? Wal-Mart’s decision not to carry the product (except in Illinois where it is required to by law) had the potential to affect a large amount of the population. “Wal-Mart is not only the world’s largest company; it is also the largest company in the history of the world,” according to Charles Fishman, author of The Wal-Mart Effect.

Ebay facilitated the sale of $44 billion last year. Over 180 million people have registered to transact on their site. As it grows and becomes mainstream, its influence on consumers will match, or perhaps exceed, that of Wal-Mart’s.

Like Wal-Mart, we may soon see the day where, for better or worse, our government limits eBay from restricting the sale of certain goods because of their massive influence as well.

Cultural and language barriers may need to be bridged, but for the most part, eBay has the technological means to wire up the world today into one giant trading platform. The real challenge is logistics. In this global marketplace of the future, how do goods move from one corner of the world to another at a cost that makes one-off transactions between individuals feasible?

Built into the price of everything we buy is the cost of transportation across every point on the supply chain – all the way down to the retailer where we incur a direct and more easily measurable cost when we either consume fuel as we drive to the store to pick up the products we purchase, or pay separately for them to be shipped to us. The most significant influences of this cost are energy and efficiency.

Efficiencies resulting from technologies and economies of scale have shrunk the world – even in the face of skyrocketing energy costs. The Internet economy exists because the added cost of transporting goods is offset by the savings driven by a competitive and transparent market. But the big question remains whether there will come a day soon when someone in Bombay can purchase a computer from an apartment dweller in New York City in a transaction that makes economic sense to both parties.

The promise of a global exchange seems within reach. Will the increased market size alone create sufficient competitiveness to offset the relative high cost of international shipments? Competitiveness can only drive lower prices to the point where they hit floors created by raw materials and labor costs. Additionally, energy is intimately tied to eBay. With no short term expectations for significant reductions in energy costs, we must look to new and innovative businesses to develop novel and efficient methods to move goods across borders.

Will these services be offered by the dominant logistics players or will new companies emerge to connect the dots and reap the big rewards? How will governments respond to these transactions if at scale they threaten their local economies?

While it may seem like a flip of a switch for eBay to connect the world, there are many pieces to this puzzle that still need to be solved.

Stay tuned.

The personalization of our possessions seems to be slowly becoming a thing of the past. Sentimentality is drifting away as consumers choose value over the novelty of an inscription. The retailers have realized this too and are using the knowledge in creative ways. I recently asked a contact at Tourneau for a watch that was in great demand. His response – “sure I can get it for you. I only sell that watch to good customers. But I won’t sell that watch to anyone unless they have it engraved.” Why? The watch was so hot that it could be flipped on eBay for 30% over the retail price. Will top brands use personalization as a way to diminish the flow of their goods into the secondary market?

At my book launch party this week, I personalized almost every book I signed. Why? Because I hope people keep their books after reading them – the personal note helps insure that. It also dilutes the value of a signed copy which should discourage people from hawking it for a quick profit on eBay.

Will monogrammed shirts and inscribed watches exist in the near future? Perhaps, if the demand for sentiment and the value placed on it is high - or if a shrewd brand gatekeeper uses personalization as a strategic weapon.