E-commerce bots are buying everything and driving up prices. What can we do?

bots-ecommerce

We’ve seen it in tickets and gaming consoles. But now it’s happening in diapers and food and consumer goods: bots buying, taking up all available supply, and driving up prices for the rest of us.

What can we do about it?

In this TechFirst with John Koetsier, we chat with Niels Sodemann, CEO of Queue-it, about bots, e-commerce, pricing, supply, and what we can do to fix the problem.

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And a full transcript: bots killing e-commerce with Queue-it CEO Niels Sodemann

TF263 – Queue-it bots

(This transcript has been lightly edited for length and clarity.)

John Koetsier: So, Niels, you’re talking about bots that are not only driving up the price of consumer goods, but also kind of snapping up everything that people need, perhaps especially in a pandemic or in a supply chain crisis. Tell me about these bots. What’s going on? 

Niels Sodemann: So, first of all, bots [are] becoming an increasing issue, and the research we have and are seeing from other places indicate that more than 30% of the traffic on the internet is actually bots trying to do different tricks to leverage whatever they are up to. If we talk about like bots in general, where they go and take goods away from the market, the idea is obviously at-scale to resell it at inflated prices and thereby making a profit.

John Koetsier: Right. You’ve mentioned that this has happened with some commodities that are…you wouldn’t think, I mean, baby formula, vaccines, other things like that. Talk about that. 

Niels Sodemann: So, what has obviously become the game on the internet is that each time there is a possibility of actually doing arbitrage on anything, there will be organizations behind the bots that are willing to go and snatch their stuff out of the website and then find a way to resell it. It can be, as you mentioned, everything from baby formula; it can be work permits to actually go into Quebec in Canada, it can be reservations for vaccinations. Then the obvious stuff is like ticketing where you buy the tickets out of the big polls and then resell them. But it can also be commodities like PS5s that are put into the market by the producers. These bots here then snap them, buy them at $400 and resell at $1,000, and basically put $600 in their own pockets.

John Koetsier: Who’s doing this? Is this organized crime? Is this just entrepreneurs who have found a niche? Is this individuals? 

Niels Sodemann: So, it becomes very clear that it is getting more and more organized. And I think that the largest incorporated company doing this here probably have at least 200 employees … many sitting offshore, meaning in lower salary countries in Asia, and are helping on doing all this here. So it’s pretty organized. If we talk about the ticketing in North America, there’s probably 40 organizations, at least, that are snapping tickets out of the primary market. And again, if we go into another kind of a setup where it’s sneakers, we believe that there [are] at least a hundred organizations that, either directly or in a setup, where people can sign up to get the access to the sneakers. So you can say that it’s more than individuals, it’s actually an industry. 

John Koetsier: It’s kind of mind blowing, because we’ve heard stories a decade, decades ago, perhaps, you know, the person who had three browser windows open and was trying to get tickets for a concert or whatever, and maybe get extras and resell them or something like that. But this is organized, this is an actual company, this is people…they’ve hired developers, they’ve built bots to do this?

Niels Sodemann: It’s a pretty tech-savvy setup that are sitting around it. Obviously, because there [are] a lot of defenses out in the place that should sort of prevent them to do what they’re doing. And they are sitting day and night, and trying to circumvent all these defense mechanisms. So yes, there’s highly tech-savvy developers sitting in organizations and are doing this here again to earn a profit. 

John Koetsier: There’s a whole supply chain here too, right? I mean, because not only do you have to have the organization, the people, the technology, other things like that, you have to resell it somewhere. Where are people reselling it? Are they reselling as sellers on Amazon, on other online marketplaces? eBay? Craigslist? 

Niels Sodemann: So, this is of course something that [is] evolving and [has] been evolving over time. So, back in the old days before the pandemic, if you say it that way, the preferred way of doing that reselling was either secondary marketplaces or eBays and stuff like that. And one of the evolutions we have seen during the pandemic is that more and more of this here go into decentralized Discord forums where sort of the goods and the money is changing hands. So it’s, you can say that many of the people, young kids who are involved in, for example, botting sneakers, not only are they doing the reselling but they are feeling and acting like this is a computer game.

John Koetsier: Wow. Interesting, interesting. Okay, so the impact is somewhat easy to see from a certain perspective. I want a pair of shoes. I can’t get that pair of shoes. I’m trying to buy a PS5, they’re all sold out, and when I find one on a secondary market it’s $200 more or $300 more. Are there other issues that aren’t as visible?

Niels Sodemann: Yeah. So, first of all, you are pointing on what is happening on the consumer side. And our research sort of tells that we are talking about like $1,200 that each household, per year, is paying into something where it’s related to these different middlemen and whatever their business is. So it’s a substantial amount of money that [is] taken off the table, and that is obviously from the consumer angle. It costs money. It stresses people. It annoys people. And it basically annoys people, like you specified yourself, you want to have those shoes … you cannot get them. You are getting annoyed.

The other side of the table is obviously the retailers that do not sit there. They do, of course, endure the transactions but they want to deal with loyal customers, they don’t want to deal with middlemen. They want to bring connections to the loyal customers and see that as a part of their future revenue stream to be able to do that. Now they are dealing with middlemen instead. They are not happy about that. 

John Koetsier: How can this be fixed? What software, what processes can be put in place so that retailers or brands who sell direct to consumer can ensure that the people who are actually buying it are actually customers and not just resellers?

Niels Sodemann: Yeah. So, first of all, many of the retailers do obviously go in towards more and more correlation and interactions with the loyal customers so they know who they are. And that is, again, a strong mechanism of preventing all this because you can then just not sell to those that you don’t know beforehand … like creating a loyalty space, a VIP experience where you try to put these products in the hands of your loyal customers, not the middlemen.

John Koetsier: Mm-hmm. 

Niels Sodemann: And then there [are], of course, tons of electronic defense mechanisms, probably on the other side of a hundred companies out there are trying to do bot prevention software. We, in our company, have a virtual waiting room or traffic management solution that, again, helps on trying to put it into the hands of the right persons, and then at the end of the transactions, many of our customers do actually try post sale to go and figure out if they’re sending the stock stuff into the right addresses, and are actually canceling orders if they believe that it’s not going in the right direction.

John Koetsier: Interesting, because there ought to be, obviously there’s some signs, hopefully, technically, when a bot hits a server on the web or other things like that. But bots are pretty good, they make ’em pretty smart. But each bot has to have a credit card that functions, right? Each bot has to have a shipping address where it goes. And is that one of the ways, or those couple of the ways that you can correlate, hey, this is not an actual human who’s buying this?

Niels Sodemann: If you talk about the credit cards, again, back in the old days a handful of years ago, that was a mechanism. But it’s pretty easy for these organizations that are talked about to get their hands on thousands and thousands of credit cards. Because the opposite side of the equation here regarding privacy allows credit card companies to issue credit cards with rolling numbers, meaning that you can use the credit card for one purchase. So you can, even as a private person, probably get like your hand of 1,000 credit card numbers that goes into the same banking account without the payment provider and the other end being able to identify that it’s you holding those 1,000 cards.

John Koetsier: Wow. 

Niels Sodemann: When it goes to shipping addresses, it’s a little bit more difficult because that is a physical entity. But I can tell you, some of the best botters can easily get their hands on 1,000 delivery addresses … family, friends, post offices and a lot of post boxes, and whatever. So it’s not difficult to circumvent the protection mechanism even in the physical world.

John Koetsier: Talk a little bit more about this $1,200 per household that you mentioned. That’s $1,200 extra that household is paying — are you talking Europe? you talking North America? — for things that are above and beyond the actual cost of those things. How’d you arrive at that number and where’s that relevant to?

Niels Sodemann: Yeah, I mean, so the cost here is, of course, coming from the resale market. That’s obviously one of the places. And just to give you like the size of the resale market in sneakers, that is probably two to three percent of the entire sneaker market … just to give you that piece of information. And then it’s everything correlated to the entire setup on these bots here where, again, the retailers need to buy more capacity. They need to buy bot prevention software and they need to hire engineers to be able to help on solving this, here you have that post-transactional setup where a team is sitting and verifying credit cards and delivery addresses and so forth. All that does, of course, come at a cost. And at the end of the day, it’s only the consumers that can pay for it. 

John Koetsier: Yeah. This is frightening in some respects. In one respect, hey, it’s free enterprise, make it happen, find a niche, extract value. Laissez-faire, if you want to look at it that way. On several other angles, it’s injecting costs that shouldn’t be there, that aren’t real. It’s layers between an actual manufacturer or brand and their customer that don’t need to be there. But also there’s potential for real danger here, real societal danger. We’ve had it with Covid, we’ve had it with the shipping crisis, supply chain crisis where people can’t get commodities that they actually need. We had that with toilet paper. We had that with, believe it or not, I mean — you know this obviously, everybody knows this — baby formula, an essential commodity. Are these people exacerbating, making these situations worse by buying up in bulk? 

Niels Sodemann: So, to start answering the question like that someone cannot get their hand on a PS5, people can sort of survive that if you say it that way, and postpone… 

John Koetsier: Some people [laughing]. 

Niels Sodemann: …their purchase. Some people can postpone that purchase. But when we are going into something where it’s necessary and people are buying it up in volumes with the purpose of earning a profit, that comes relatively close to being like cheating…

John Koetsier: Yeah.

Niels Sodemann: …if you say it that way. And when it goes from like, okay, it would be nice to have that PS5 or go to that Taylor Swift concert, and go into necessities like baby formula or something where it’s really important that you get your hand on the product or get your hand on the information or do the registration, then it’s becoming a completely different game. And let’s say, not necessarily that it’s illegal, but the morale and the entire setting around that is very difficult to see that you should be able at scale to basically cheat and take money away from the table. 

John Koetsier: Mm-hmm. 

Niels Sodemann: And maybe to give a pandemic sort of example that we were involved in. This was Brazil summer 2020, sort of in the worst weeks of the pandemic in Brazil. A nationally owned bank in Brazil needed to hand out money to citizens, week-on-week basis, for citizens to actually be able to survive the next week to buy food, to buy necessities. We had 50 million people in a queue on a Friday … to get into an app, to get what is like critical in the sense of getting [that] money and move that forward. Here we are playing with something where it’s way, way beyond an organization just cheating and earning some money on a PS5, if you get that topic here. It also like, if you really elevated here, we have war in Europe, in Ukraine. Citizens need to go and figure out what is going on. They need to go and get information. The same in Florida with the Hurricane Ian. Like, people are hurt, they are suffering, they need to get access to information, to do registrations, to sign up and so forth. Here we are talking about issues that are well beyond the simple just earning a little bit of money on this here. And when people are starting in those situations to misuse the internet, then you can say that should not be allowed in any sense, whether it’s legislation, or morale, or for any other purposes.  

John Koetsier: Hmm. We talked a little bit about it already, but maybe spend a couple minutes on it. What does your software do? What does your company do to ensure that somebody isn’t getting cheated, and that brand isn’t or retailer isn’t selling all their stuff to people who are just gonna upcharge it? 

Niels Sodemann: Yeah. So, Queue-it here has a traffic management, virtual waiting room queuing solution that are put into play when these retailers and other organizations have a peak situation where the demand exceeds the supply. And, again, it could be like a consumer electronic component. So what we’re doing here is to take them into that queue. So, first of all, people are lining up and they are treated in a fair manner so that if I come before you in that queue, I’ll be able to go and do that purchase before you. Then, while all that waiting goes on, we are trying to eliminate the bots by a number of different electronic signals, but also try to do something where we are correlated it to sort of their loyalty score in whatever platform that they’re signing off for. And therefore trying again hard to take the resellers and bots away, real-time.

John Koetsier: Mm-hmm. Interesting stuff. We’ve seen it before in financial markets where the ability to kind of instantly trade sometimes does unpredictable things in terms of pricing, in terms of runs on certain digital commodities, stocks, bonds, other things, or crashes as well. It’s kind of a scary thing to imagine that since we’re transacting actual physical commodities, goods that we need to survive in digital ways, we could see similar things there where all of a sudden the bots see an opportunity, buy up the market, and boom, all of a sudden the price is 2X, 3X, 4X, and then it goes down again next week, and it’s a very … brave new world, shall I say?

Niels Sodemann: It is definitely a world, and a world that [has] evolved in a, let me say it that way, negative direction during the pandemic. And exactly why it [has] increased so much during the pandemic is of course difficult to say, but let’s say that people have been spending more time in front of the screen. The potential arbitrage and earning money on it have been substantially increased during that period, and the sophistication of the organizations doing the botting here is obviously also increased. So, you can say that it’s something that definitely goes in the wrong direction where we are now, and if we’re not sort of as societies and countries trying to get a little bit of better control on it, this is gonna take off. Because it’s not like only sneakers and PS5s or whatever, it’s to whatever new arbitrage possibility. These organizations are simply just moving their tools toward them. And…

John Koetsier: Arbitrage in everything. Wow. 

Niels Sodemann: Yeah. 

John Koetsier: Niels, thank you so much for this time. 

Niels Sodemann: Cool. Thanks.

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