Scalper robots are a scourge for online retail, but is it time to tighten up the law as the most recent target is life-supporting deliveries of baby and infant formula?
It sounds like the plot of the next James Bond movie. A sinister group of hackers creates a software algorithm that scours online marketplaces and buys up valuable scarce commodities like gold or oil to stockpile them before reselling them at soaring prices, leaving destabilized markets and crashing economies in their wake. A little far-fetched? Maybe, but not a million miles from reality.
Anyone trying to buy a game console like the PS5 when it launched in November 2020 has encountered scalperbots, automated software that constantly monitors online stores and buys up inventory as it becomes available. These products then appear at much higher prices on auction sites such as eBay. It doesn’t stop at game consoles. Graphics cards, training shoes, popular Christmas toys and even hot tubs have fallen victim to scalper bots, lurking where hyped-up demand meets a new product ‘drop’. Bots are even used to book appointments for government services, such as driving tests and visa applications, and for supermarket delivery times to resell them.
For procurement and supply chain professionals, the risks lie in a number of areas. First and foremost, loyal customers are likely to feel significantly less if they can’t get a company’s products at the retail price, but are forced to pay through the nose on eBay. Brand reputations could be at stake. Second, demand planning becomes more difficult and forecasting much more difficult because scalpers typically suck up products where supply is high and unload them where demand is strongest, to maximize their profits. And finally, third-party relationships can be compromised as companies may be reluctant to supply organizations whose websites are inundated with traffic from scalper bots. In turn, companies may not want to stock products which puts them in the scalpers’ firing line.
The Ethics of Scalping Essential Goods
It’s not just toys and luxury goods that grab the scalpers’ attention. The Federal Trade Commission (FTC) has launched an investigation into the ongoing shortage of baby food in the US and the impact scalpers have had on the crisis. The shortfall was caused by the closure of Abbott Nutrition’s Michigan plant plus a product recall following a contamination fear in February. Given that the company controls about 40% of the US baby food market, scarcity quickly led to panic buying and — surprise, surprise — scalpers’ attention.
FTC Chairman Lina Khan said staff will “investigate and fully enforce the law against anyone who defrauds, exploits or defrauds American families trying to purchase infant formula.”
“This includes those who use online bots to automatically buy formulas and then resell them at exorbitant prices. While resale of these products is not illegal and can serve a useful function, using bots or other automated tools to sell large quantities diverting life support products from mainstream retailers and then falling prey to desperate families is an unfair practice under the FTC Act.”
The magnitude of the impact of bots on online marketplaces makes for sobering reading. According to Imperva’s 2022 Bad Bot Report, “bad” bots – defined as those that perform tasks including price and content scraping (looking up IP and pricing information), inventory rejection (keeping products in shopping carts to prevent access by valid customers), and scalping – accounting for an astonishing 27.7% of all global web traffic in 2021, up from 25.6% in 2020. The most common tasks for the bots were account takeovers, testing stolen credentials, plus scraping and scalping.
During the busy holiday shopping season in December 2021, bad bots accounted for 30% of all web traffic. In October 2020, when new game consoles from Sony and Microsoft were launched, Imperva saw a 788% increase in bot traffic to retail websites. According to an analysis for website Tom’s Hardware, scalpers made a profit of about $59 million on these game consoles in the fourth quarter of 2020. The median price of a PS5 during this time was about $1,021, $522 above the recommended retail price.
Retailers vs scalpers
It is therefore not difficult to distinguish the motives of the scalpers, but who exactly are they? To begin with, it is not a new phenomenon. References go back to the 1800s, when train tickets were sold in secondary markets in the US. However, it is the use of technology that has given them the power they have today, with their ability to scan multiple pages on different websites hundreds of times per second.
They first gained notoriety for event reselling in the 2000s and 2010, when tickets to concerts, shows, and boxing fights sold out in minutes and then appeared on secondary sites for insane prices. However, this practice came to an end when governments in the US and the UK passed laws against the use of automated software to purchase tickets in 2016 and 2018 respectively.
Rather than giving up, scalpers turned their attention to other products, and the trend toward online sales, accelerated by the pandemic, has played into their hands. At the same time, the practice has evolved from individuals treating it as an afterthought in groups and forums operating as businesses to achieve their goals. According to a Deloitte report, individuals are joining online “cooking groups” to share knowledge and bypass retailer controls.
One of the companies at the forefront of the fight against bots is Nike, with limited editions of the company’s shoes selling to “sneakerheads” on the resale market for hundreds of dollars above retail price. In 2015, Nike introduced its SNKRS lottery system, which required a verified account login to participate, after several product launch cancellations due to the intervention of bots. But like other attempts by retailers to stamp out the bots, such as the introduction of Captcha, SNKRS has been successfully circumvented by scalpers, according to Ron Gordon, a communications specialist at the University of Arkansas Supply Chain Management Research Center.
“While retailers’ efforts to stop bots have frustrated many botting businesses, it’s not clear whether they’ve reduced bot purchases,” Gordon said in a blog post. “It’s possible they’re only channeling products into the hands of advanced botters. It’s also uncertain how many more retailers can (or will) escalate the battle. It’s hard to blame retailers if they don’t go full throttle in the battle. against the bots because they make money no matter who buys a product, selling to scalpers can be even more lucrative.”
Could bots be a force for good?
It would seem so. In the US, bots are used as alerts for when baby food will be back in stock, not for profit, but to get it into the hands of parents who would otherwise spend hours searching in stores.
“Not all bots are bad and there are many examples of good bots that provide useful services,” the Imperva report says. “For example, good bots are used to discover online services and content and make it available to search engines. This ensures that online companies and their products can be easily found by potential customers.”
For purchasing, bots can be programmed to handle basic transactions to free up time for valuable, high-risk items. Jens Roehrich, professor of supply chain innovation at the University of Bath School of Management, tells Supply Management, “Bots are especially useful where workflows can be programmed — in other words, when we’re talking about standard data input and output.”
Given that good bots will only account for 14.6% of web traffic in 2021 – half the share of bad bots – further legislation may be the only way to really address the situation. Politicians in the US have proposed the Stopping Grinch Bots Act in response to scalpers targeting Christmas toys, which would ban the use of automated software on e-commerce sites in a similar way to event ticketing legislation. The baton has also been picked up in the UK with the Gaming Hardware (Automated Purchase and Resale) Bill.
Member of Parliament Douglas Chapman (SNP), who proposed the bill, raised the specter of crime and told Parliament: “Questions need to be asked about how [scalpers] generate funds to make these large-scale purchases online. What are the profits generated from this? What are they used for? We may be entering the field of possible money laundering, organized crime, tax evasion and fraud.”
Roehrich: “At the moment it is difficult to estimate how the use of bots will develop. With the adoption of smarter bots, legislation will have to follow, as smarter bots will open other avenues… For most organizations, provisionally establishing responsibility for monitoring and regular daily monitoring activities is vital to counteract problems.”
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