Why Amazon needs to look to Blockchain technology to help combat the growing issue of counterfeit goods
Counterfeit goods on Amazon?
When you buy a product of Amazon, whether it is clothing, sunglasses, shoes or electronics, you would never consider it to be counterfeit. That is true to a large extent hence the success of the online retailer. However Amazon is having an increasingly large issue with counterfeit products flooding their site and even being listed under FBA (Fulfilled by Amazon’s) Prime label.
How do you, as a consumer, really know that you purchased an authentic item? Why is authenticity important? Some consumers want to make sure that fair trade and fair labour standards are upheld in the products that they have purchased. Another example is that others are concerned with the use of harmful chemicals during product manufacturing. Those consumers are willing to pay a premium to make sure that they are not funding operations that are not in line with their values. Counterfeit products take advantage of the higher price point a brand that upholds strict standards can demand. Their margins are increased over the authentic brand because they cut corners during production.
A recent study by The Counterfeit Report (TCR), a group that works with brands to detect counterfeit goods, has found a staggering 58,000 counterfeit products on Amazon since June 2016. When applied to the context of Amazon having 560 million items on its multiple sites, that number may seem quite redundant however for a retailer any fake products is too many. If it wants to compete and maintain its monopoly, Amazon cannot become associated with selling ‘fake goods’. Theo Crosby, the publisher and CEO of TCR, said that as Amazon’s sales keeps growing, so does the counterfeit-goods problem. The TCR group has managed to get 35,000 items delisted, but the total number of fakes on Amazon could be significantly higher than 58,000 mentioned earlier, since it only reports on brands that are its client. Birkenstock, a designer footwear brand, in 2016 said it would suspend business operations with Amazon, citing an increase in counterfeit products and “a constant stream of unidentifiable unauthorised re-sellers.” The CEO David Kahan reported that policing “this activity internally and in partnership with Amazon had proven impossible.”
Amazon has made efforts to combat this growing issue, such as requiring sellers to get permission from individual brands to list their products. However as highlighted above, more work clearly needs to be done. That work does not involve crawling the site and removing cases on an individual basis. A business the size of Amazon needs to act smarter and implement a more intelligent solution to this issue, and quickly. This is where blockchain technology comes in and the principle of a decentralised ledger.
Provenance and why blockchain could be the answer
Provenance is a record of ownership used as a guide to authenticity or quality. The overhead involved in traditional provenance records means they are only available for very large ticket items, such as works of art not your typical £60 pair of shoes on Amazon. With the efficiencies gained from blockchain technology, provenance records can be available for a wider range of goods. This improved information can aid consumers as they make purchasing decisions on Amazon.
In order to be certain that your product is authentic, you would need either a record of all the transactions for the life of the item, or a trusted third party intermediary. Trusted third parties certify the authenticity or quality of an item on behalf of both parties. They function as a new data layer and increase costs of transactions by charging for providing data and certifying products. Examples of trusted third parties include the National Organic Program (USDA Organic) for produce and Fair Trade USA for human worker conditions. However the main point is that Amazon and every other larger eCommerce business (Alibaba, Taboaba, Ebay) cannot sell goods authenticated through these trusted third parties. There is also not an expectation from the consumer that they should be doing this as it would increase the costs of the goods significantly, so it is in neither party’s interest.
How can Blockchain technology aid this
Blockchain technology can serve the function of these trusted third parties by uniquely identifying products, and certifying their authenticity. Alternatively, these trusted third parties can leverage blockchains by recording their audits and inspections on blockchains. This would reduce the overhead needed to certify products. For example, a manufacturer could prove that its sources also abide by the certification authorities’ standards if those sources are listed on blockchains as having passed all requirements. The timing of the source’s original certification and renewals could be viewed by any interested party.
As a consumer reading from Amazons blockchain, you would be able to verify a product’s authenticity by seeing the full chain of custody for an item. Blockchain technology such as Hyperledger allow Amazons consumers to view important data attached to the goods, without necessarily viewing exactly who conducted each transfer down the supply chain line. Therefore, the promise is that you will be assured that the product you are purchasing is an authentic product, without necessarily allowing the public to view your Amazons purchasing habits, all leveraging distributed ledger technology.
However, the question you’re probably asking is what stops the counterfeiters from falsely writing their products to the blockchain? This is where hardware and RFID technology can come in. When the product is first produced it can be assigned an RFID chip that can be broadcast to the blockchain. This chip can then be scanned at every point of its journey from manufacture to reseller to Amazon warehouse. What this means is that unless it was produced and assigned this unique chip that was broadcast to the network the product is counterfeit.