Daily Roundup for 2008-04-21

Continue reading “Daily Roundup for 2008-04-21”

The eMarket for Lemons at The Wharton School

I had the opportunity to speak at The Wharton School, University of Pennsylvania last week about an article that Dr. Eric Clemons recently authored for the Journal of Management Information Systems, "An Empirical Investigation of Third-Party Seller Rating Systems in E-Commerce: The Case of buySAFE".  My presentation was focused on marketplace economics and specifically about information asymmetry, signaling, the "Market for Lemons" concept, and buySAFE.  In addition, I was able to share a few thoughts about my entrepreneurial experience with buySAFE.

As always, I had a great time as the guest of Dr. Eric Clemons, and I enjoyed hearing the passionate questions, insights and feedback from the students.  One of the students posted an article about my visit on his blog, The Un-Wharton

Continue reading “The eMarket for Lemons at The Wharton School”

Scam of the Month – Judge Judy Punishes an Idiotic eBay Fraudster!

In this "scam of the month", Judge Judy takes on an eBay fraudster and ultimately hands out the maximum punishment.  In spite of the fact that this scam seems audaciously ridiculous, it is actually quite common online.  Bottom-line, there are a lot of folks out there that lack any semblance of a moral compass.

My inspiration for starting buySAFE was a similar scam that I fell victim to on eBay during the summer of 2000.  The only major differences that I can point to are that I purchased a $400 PDA, and instead of taking the scammer to court with Judge Judy, I decided to instead start a company dedicated to making every online transaction trusted, reliable and risk-free… buySAFE!

Next time, I hope these two innocent victims limit their purchases to buySAFE merchants.  It will save them a whole lot of anguish and effort!

Watch this video.  It is quite enlightening.

Related articles:
"Judge Judy Episode on eBay Trust & Safety" on Psychohistory blog

Important eCommerce Trust and Safety Statistics

At the PESA Summit this past week, there was a lot of talk about how to improve e-commerce conversion rates. I believe there are three critical drivers for conversion: product selection, price, and trust. Each of these issues would provide substantial content for an article, but I thought I would dedicate today’s post to a number of very important trust-related statistics.

If you have any doubt about the role of trust and buyer confidence in your e-commerce business success, please take a quick look at these stats.

  • 55% of online shoppers say trustworthiness of the merchant is most important (vs. price, convenience, pleasure, other)
    (Source: Online Shopper Research Report, 959 respondents, August 2006)
  • 65% of online shoppers buy only from sites they know and trust
    (Source: VeriSign Secured Seal Research Review 08/06)
  • 72% of online shoppers are becoming more cautious when buying online
    (Source: Gartner Research, 5000 respondents, May 2005 survey)
  • 73% of online shoppers are concerned about the item being misrepresented (inaccurately described, counterfeit)
    (Source: Online Shopper Research Report, 959 respondents, 08/06)
  • 76% of online shoppers are worried about never getting their purchase
    (Source: Online Shopper Research Report, 959 respondents, 08/06)
  • 81% of online shoppers are concerned about merchant return/refund policies not being honored
    (Source: Online Shopper Research Report, 959 respondents, 08/06)
  • 84% of online shoppers are concerned about merchants not treating them fairly
    (Source: Online Shopper Research Report, 959 respondents, 08/06)
  • 85% of online shoppers are concerned about identity theft
    (Source: TNS Research, 08/06) 
  • And, amazingly, over 50% of all U.S. internet users still don’t buy online (even from Amazon.com!).
    (Source: Bear Stearns, September 2006)

With respect to this last statistic, "trust" issues are the primary
driver of e-commerce non-participation. Amazingly, more than 50% of
your potential customers will not buy online because they are nervous!
Are you kidding me? That is a huge number, and obviously, the time has
come for the e-commerce industry to take this issue seriously.

eCommerce’s “Shoot the Messenger” Strategy

When it comes to online fraud, the e-commerce industry seems to hate looking itself in the mirror.  Specifically, e-commerce executives cringe at the mere mention of the existence of online fraud.  Their first reaction is almost always to blame the messenger for sharing tough information about the industry rather than actually tackling the core issues driving the online fraud that victimizes consumers for millions of dollars every day.

I ran across the following quote from Scot Wingo of ChannelAdvisor in this blog post regarding eBay’s VP of Trust & Safety appearance on the Oprah Winfrey Show:

"Unfortunately it’s never a positive when there’s someone with Oprah’s reach out there associating eBay+fraud so I think it was a net negative."

I have learned from experience that Scot Wingo is a very smart guy, and he has proven to be a vocal educator regarding the e-commerce industry.  When necessary, he has also had the courage to stand up and point out what isn’t working in the e-commerce industry.  My interpretation of Wingo’s comment is that Chestnut’s appearance wasn’t a good thing for eBay’s short-term prospects or stock price.  I would agree with that.  However, I do not believe Wingo was suggesting that coverage and discussion of online fraud problems are a bad thing for eBay or e-commerce in the long-run.  If that was his suggestion, I would disagree with that.

Scot’s comment did make me think about an alternative point of view that I have heard many times from e-commerce executives over the years. I often the hear the following question from execs almost verbatim: 

"Don’t you think that by talking about online fraud you are blowing the issue up way beyond proportion and scaring consumers away from e-commerce?"

When I hear that question, I cringe because it displays a fundamental lack of wisdom.  Wake up everybody!

Today, more than 50% of all online surfers don’t buy ANY merchandise online!  That is a ridiculously high number, and when surveyed, these non-buyer internet surfers overwhelmingly cite distrust of and nervousness about e-commerce transactions.  Is that because the industry talks about the online fraud problem too much?  No!  It is because online fraud is, in fact, a huge problem as reported by many sources including the Federal Trade Commission.  Almost everybody knows somebody that has been burned on the internet.  Don’t you?  The 50% of internet surfers that avoid eCommerce do so because, to date, the industry hasn’t solved the problem for consumers. 

The industry consistently takes half-steps so that it can tell the press and consumers that "we are doing something".  My honest opinion is that it is a bit of joke (You will want to tune in tomorrow for a very specific example that will probably shock you.), and any smart e-commerce executive knows that is true.

Buyer protection plans and merchant rating systems are simply not enough.  If, for example, eBay’s Feedback Rating system and PayPal’s Buyer Protection were enough to make it completely safe for consumers, why does Chestnut have to go on Oprah and explain the issue?  Well, of course, he wouldn’t.

If a crime happens in your neighborhood, most people want to know about it immediately so that they can take specific steps to protect themselves in the future.  It is no different in your online neighborhood.  Ignoring the problem of online fraud and shooting any messenger that points out that a problem exists is not going to help solve the problem.

In the long-run, Oprah’s coverage of online fraud is a very good thing for eBay, e-commerce, online merchants and consumers!  Let me say that again… Disclosure, coverage, and discussion of the online fraud problem will help and inspire the industry to identify solutions that will be critical to the success of this industry in the long run.

The minute an effective, comprehensive solution to online frauds is adopted, consumers will buy merchandise on the internet like never before.  The minute we stop blowing smoke and we start solving the problem will be the minute e-commerce starts to tap into the ~100 million internet surfers who we can’t currently count as customers.

Consumers want us to make it completely safe for them to buy online.  We owe it to folks to do just that. Don’t shoot the messenger!  Understand the problem.  Discuss and debate it.  Then solve it!

Proposed solution to e-commerce-related fraud:
A trusted, objective, regulated third party needs to investigate the backgrounds, history and financial stability of online merchants and then, if the third party is willing to endorse the merchant, the trust & safety company needs to put its money where its mouth is by fully protecting consumers for any deviation from the promised terms of sale.  Obviously, that is what buySAFE does.

Related blog posts:
"buySAFE Invited By French Government to Help Stop Online Sales of Counterfeit Luxury Goods" by Travis Brown
"Stop Worrying! How to Solve the eCommerce Trust Problem. (A must read if you sell or buy online!)" by Jeff Grass
"What’s Wrong With eBay? It’s Simple Economics" by Steve Woda
"What is a ‘Market for Lemons’?" by Steve Woda
"What’s Wrong With eBay? It’s Simple Economics" by PowerSeller King

buySAFE on The Today Show!

The past few days have been quite exciting here at buySAFE.  Last week, buySAFE was featured on The Today Show.  The "Designer Duds: Fake or Real?" segment, reported by Today’s consumer affairs reporter Janice Lieberman, discussed the growing e-commerce problem of counterfeit luxury goods.  As expected, buySAFE was showcased as a terrific solution to the counterfeit goods problem.

Counterfeit/fake/stolen goods are obviously becoming a major issue for e-commerce, but in my opinion, this problem is actually a symptom of a much larger, more important, fundamental problem… Online, buyers have a very difficult time discriminating good sellers/product from bad sellers/product.  The REAL problem is that the Web suffers from major information asymmetry issues.  That is why bad guys are successful at defrauding consumers. 

Please think about my diagnosis for a moment… If consumers could tell the difference from the good guys and the bad guys, would shoppers ever unknowingly buy a counterfeit item?  Of course not!  Fraud happens because of information asymmetry.

I think you will find the "Designer Duds: Fake or Real?" news segment very interesting.  However, as you watch this clip, please understand that the counterfeit/fake/stolen goods fraud problem is due to a more fundamental e-commerce problem… Buyers can’t reliably tell the difference between the good guys and the bad guys!  In economic terms, this is called information asymmetry, and it is causing legitimate, professional merchants millions of dollars each and every day.

Kudos to Jeff Grass, buySAFE’s CEO, for a job well done!

Related blog posts and e-commerce articles:
"Designer Duds: Fake or Real?" by Janice Lieberman on The Today Show and iVillage.com
"buySAFE Invited By the French Government to Help Stop Online Sales of Counterfeit Luxury Goods" by Travis Brown on the buySAFE blog
"eBay Bonding Service buySAFE Featured on Today Show" by Ina Steiner on AuctionBytes.com
"buySAFE Appearance on 3/20/2007 Today Show" on AuctionBytes.tv