The Problem
Rent-Seeking Using Bots
Last updated
Rent-Seeking Using Bots
Last updated
“We are constantly looking at the best way to combat bots across our digital ecosystem. Nike is fully committed to making sure that our real, loyal consumers are the ones who get fair access to our products and that we continue to evolve best-in-class solutions in the marketplace.”-Sandra Carreon-John, Senior Director of Communications @ Nike
“People will try to jump the line and leverage automation to grab anything that has a limited inventory. It used to be concert tickets, then purses and tennis shoes, and now it’s vaccine reservations and even more mundane things.”-Patrick Sullivan, CEO @ Akamai
For years performers priced tickets below the market-clearing price, either out of fairness or out of concern for the long-term value of their brand.[iv] In addition, as many tickets are given away or sold to primary channels at contracted rates, keeping premiums in check. Traditional resale markets for tickets reflected a ‘truer’ premium, but historically these were limited to smaller individual resellers whose labor added a degree of fluidity to the market – thereby adding some value to the exchange as a whole. Think of the lone ticket scalper outside of Yankee stadium.
Beginning with the streetwear drop culture spearheaded by Supreme, this began to change. Drop products are priced to their target consumers, but while relatively low retail prices give consumers of varying financial means an opportunity to buy, high demand for the product feeds into the resale market, and product hits the secondary market at inflated prices. For example, Supreme box logo crewnecks that originally sold for $158 resell for a minimum of $500.[v]
These Supreme drops would occur at their physical store every Thursday, with people queuing in line sometimes for days for the chance to score a drop item. In order to ensure drops were getting into the hands of their actual customers, limits to purchasing were enforced, and Supreme security personnel both inside and outside monitor activity to see if people trade places in line for cash, or if items were deemed being purchased purely for resale.[vi]
Still, this didn’t prevent resellers with the means to do so from paying individuals to wait in line for them, knowing they would more than recoup the cost in the secondary market.
However, as more retailers began offering drops online, the process that used to involve camping out has now entered the world of high-tech arbitrage - in particular, automated Bots: web scrapers, automated shopping cart ‘sniper’ bots, and login and checkout abusers.[vii] These Bots are run by everyone from individual 15-year-old kids sitting in a basement somewhere making $200,000 a year reselling sneakers, to organized reseller syndicates called “cooks” who deploy professional scraping software to scour the website for the stock-keeping units, or SKUs, associated with new inventory. As new SKUs come online, the bots add each item associated with that unique ID number to a shopping cart, and once the sale starts, they try to complete the checkout process using a preloaded credit card or gift card information. Non-bot-using customers hate them because it’s almost impossible to check out faster than a bot can. Frequently, one or two bots buy up a large chunk of the product simply to resell it – a poor customer experience for everyone.[viii]
These bots have led to hugely inflated prices in a secondary market effectively controlled by rent-seeking individuals, making many of the products inaccessible to the primary customers who value them most. Nike sees this as a problem: “We are constantly looking at the best way to combat bots across our digital ecosystem. Nike is fully committed to making sure that our real, loyal consumers are the ones who get fair access to our products and that we continue to evolve best-in-class solutions in the marketplace.”[ix]
In 2016, Congress enacted the BOTS Act (Better Online Ticket Sales Act) attempting to legally close this loophole for event tickets.[x] But in 5 years only a single case has been brought to court by the FTC, who are tasked with enforcing the act.[xi] Meanwhile, Bots are still wreaking havoc on ticket markets. Take for instance Burning Man, whose core values are “Radical Inclusion, Diversity, and Equity”. They admit that their 2019 public ticket sale (the last year the event was held due to COVID) was dominated by Bots.[xii] That’s a direct affront to their values.
Regardless of the BOTS lack of bite, the legislation does not cover other products. As such, companies are taking it upon themselves to combat Bots in the name of equity for their loyal consumers. “People are still asking for transparency, and they are still frustrated and angry”.[xiii]
Primary retailers tried using online raffles rather than first-come first-served sales, but those too have been defeated by bots buying up all the raffle tickets. This has led them to fighting fire with fire, utilizing anti-bot software such as Akamai, at great cost. Akamai brings in just under $200M a year and is growing 40% annually.[xiv]
It’s turned into a cat and mouse game, with Bots becoming more sophisticated in response. Disturbingly, with the COVID-driven increase in ecommerce, and current worldwide supply chain issues, the problem with Bots is only getting worse. “People will try to jump the line and leverage automation to grab anything that has a limited inventory. It used to be concert tickets, then purses and tennis shoes, and now it’s vaccine reservations and even more mundane things.”[xv]
“People are still asking for transparency, and they are still frustrated and angry."-Jacques Slade, Sneaker Influencer
