Auroville 26 - On grey zones and markets
by Srajan Ebaen

While phone sex is perfectly safe compared to the AIDS threat of casual encounters, it’s also far more imaginary. The operator can be virtually anything the purchaser desires, with the effectiveness of the role play contingent on the remote setup, which disables verification of any kind and lets fantasies run rampant. Your minute’s up, sir—would you care to continue?

Some Internet-based audio transactions are similarly imaginary and, depending on whom you ask, should not continue one New York minute longer. The "establishment" you’re dealing with could be one lone guy in front of a PC, still dressed in jammies at 2 o’clock in the afternoon. Since you’re not paying for a turn-on but hard merchandise (pun intended), the dress code is beside the point. However, what very much becomes the point is actual receipt of the product you paid for, in as-advertised condition.

Though seemingly obvious since implied in the very act, "condition advertised" means that the product can, in fact, be delivered in the first place. Secondly, it includes an implied assurance that the seller is authorized to trade in this commodity. If he isn’t, it can disable factory and warranty support for the future owner. Occasionally, Internet retailers will advertise products that they can’t procure, or for which they plainly aren’t authorized.

Doesn’t this seem like a complete waste of time—making an empty promise one can’t fulfill? One possible strategy aims at undermining a particular manufacturer’s business. Publicize a hair-brained low price on a desirable product, one you can’t deliver because as an unauthorized dealer, the manufacturer won’t sell to you. Said product’s market value has just plummeted. A customer encountering the in-the-flesh product at a competing retail outlet will use this price as a bargaining lever. If you’ve advertised it low enough, you’ve assured that your competitor can’t afford to close the deal, and you stand a better chance of clinching your own. "Ya know, Mister dealer, this really is a very good amplifier, but I’ve seen it on the web for $2000 less. There’s simply no way I’m gonna pay your price. Now, if you matched the advertised price…." To which the irate dealer thinks gloomily to himself "That’s a frigging 8% above what I paid for the damn thing. Are you nucking futz?" Isn’t free market competition grand?

Selling unauthorized product is done by obtaining it through someone who is authorized. This someone willingly conspires to reroute certain inventories in what industry parlance calls "sideways." In turn, the manufacturer loses control over his distribution network. Earnest promises made to his authorized dealers when they signed their dealer agreements are broken without his doing anything. Still, such "defrauded" parties are liable to put the burden of fixing these contractual breaches on the maker. They might threaten to dump the line at barely a profit just to get rid of it quickly. And while it seems as though the manufacturer should, in fact, be accountable for who sells his wares, clever machinations in today’s cyber jungle create plenty of loopholes. The manufacturer simply cannot realistically be expected to close them off successfully unless he hires private investigators specialized in Internet fraud. This has happened, but it’s expensive.

A further variation on this scheme involves acquiring products from an unscrupulous dealer in the country of origin. This bypasses the authorized distributor and trades grey-market product. The challenge? The maker is completely ignorant that his trusted home-turf dealer has established a private offshore pipeline that completely undermines both his own efforts and those of his chosen foreign representative. His representative is fuming and threatening to sever the relationship. He might in fact be forced to purchase such illegal merchandise himself to obtain the serial numbers and help the manufacturer identify the person to whom the product was first sold. Needless to say, such slippery operators frequently target on-line portals like audiogoN to place their ads and move their goods. By default, this puts the hosting website into a position whereby aggrieved manufacturers expect them to cancel these ads on the charge that they’re advertising illegal product, or product that these sellers cannot rightfully procure.

One could side with these websites, and posit that they’re merely in the business of providing hard-drive access to allow on-loggers to place and read classified adverts. One could side with the manufacturers, and posit that posting fraudulent ads is aiding and abetting and thus constitutes criminal behavior. But if one didn’t know, and couldn’t ascertain, the fraudulent nature of an ad when first accepted, what then?

This grey zone is clearly a function of the relative novelty of e-tailing and the various layers and themes it entails. From interviewing different manufacturers, I’ve learned that such sites can be responsive to pulling "bad ads" when contacted by the manufacturer. In some cases, I was told that these portals make 100% compliance contingent on prior ad support. This could be construed as a Mafia-type payoff: "You pays us, we makes sure your business run without interference. You don’t, you’re on your bloody own." Which, regardless, tends to be the case. While such sites claim to enforce certain policies, in practice it’s nearly impossible to crack down on resourceful impostors. At the end of the day, the sites cannot be expected to verify the accuracy or legitimacy of any ad that doesn’t outright hawk hot or illegal merchandise.

The burden of diligent net policing thus falls on the makers of the goods sold via such portals. They must spend hours each day to bring to the hosting parties’ attention whatever fraudulent adverts crop up. Because these sites’ primary customers are their advertiser/users, they can rightfully insist on damn good reasons to find their ads refused or deleted. One way for manufacturers to trace their products and prove their case? Serial numbers. One way for fraudulent sellers to slip through the cracks? Resist disclosure of serial numbers. And since that might look questionable, creative countermeasures might word an ad with "… and if we give out serial numbers, the manufacturers and their deep-pocket dealers will harass our customers, so we ask that you wait until actual delivery to ascertain this item."

You notice how both manufacturer and chosen dealer are thereby implicitly accused of price gouging and unfair profits, when most who’re even modestly in the know recognize that in order to make a small fortune in audio, you better start out with a really fat one.

It seems that both manufacturers and used/resale audio sites could cooperate nicely by making it mandatory that on-line sellers automatically include serial numbers in their classified ads. This would accomplish a few things. It’d allow a manufacturer to verify misconduct when it occurs. It’d empower the site to justify refused or cancelled ads with substantiation. It’d enable buyers of used goods to verify the year of manufacture with the original maker, and to ascertain whether the product had a track record of excessive repairs; still enjoyed warranty coverage, or—by not being grey market—had full manufacturer support to begin with. Without such collaboration, e-commerce sites can unwittingly undermine the long term viability of small and even larger firms, by interfering with their ability to have their products sold through outlets of their choice, and for the kind of profit they deem necessary to support their continued operation.

I’m not saying that e-commerce is fraudulent per se, nor that consumers shouldn’t be able to obtain wares via the Internet. I am simply saying that manufacturers should be entitled to decide how to sell their wares—through brick’n’mortar dealers, virtual portals, or direct. If a manufacturer opted for the old-fashioned route, those who are deliberately violating this choice, and those who support them in these endeavors, are, in a way, guilty of criminal conduct even though no law currently exists that would enforce such trespasses.

It’s all well and good to bemoan freedom of choice and trade, but if your livelihood were under threat from some anonymous operators hiding behind handles and aliases, you’d sing a different tune in a hurry, believe me. A part-time, home-based "dealer" who can operate on 10% profit margins, on product he’s not authorized to sell but manages to procure by deception and ingenuity, has zero investment in the deal, gives nothing to support the long term health of the industry he profits from, and could care less if his actions significantly impact or undermine another’s livelihood.

Members of the press are constantly accused of championing manufacturers, manufacturers of unfair profiteering, dealers of making more money than they deserve. A certain segment of vocal audiophiles paint such pictures to suggest that they somehow have to battle the system, wage war on the establishment, and carve out advantages by hook or crook to get their due, or perhaps only get even with the evil empire.

From where I’m sitting, many hard working equipment makers are struggling to stay afloat, make ends meet, pay their employees, and earn fair compensation for their investment of time, money, energy, and hard work. They cannot understand the rancor that compels such statements and actions. And, rightly so, they point out that the "evil empire" of makers, retailers, and press just acquired a fourth cardinal pole, the Internet portals. Just as the older three continue to endure the constant barrage of accusations—many ill founded, some half true, others blatantly on the money—so must this newest force now embrace closer inspection and questioning.

From trolls and shills to grey marketeers, Internet conduct-ivity is still in its infancy. For every 99 ethical participants, the lone bad seed currently creates out-of-proportion waves because the Internet is real time and international. One voice can potentially be heard by millions, and nobody has yet figured out how to make it much harder to abuse the Internet’s privileges.

Until the day that certain sites concentrate exclusively on wares that were explicitly meant to be sold in that fashion, they owe it to the current mix to also protect those who do not want to be part of this system, or who voice real grievances and provide documentation thereof. To make the pulling of ads that promote grey market wares or products that cannot be sold contingent upon ad support does not seem like the right way. And while serial number disclosure won’t cure all ills or prevent crafty persons intent on defeating safeguards from developing new scams, it would empower manufacturers to control their distribution in exact the way they see fit.

As much as certain consumers may decry it, a manufacturer is fully entitled to make that choice, just as you are entitled to implement certain policies and procedures in your own business, and to go after those who deliberately defy and break them with all the resources at your disposal. The trouble is that at this early stage of the game, legislature in Internet matters is still pretty much nonexistent. This limits equitable "settlements" to the good will and cooperation of the parties that make up the bigger picture. Since the audio press is merely a mouthpiece, our contribution to this picture can only be discourse and dialogue about these issues, in the hope that those endowed with the requisite technology and know-how can devise smart ways in which all of us can peacefully coexist and prosper. Make it so. But whom do we bloody address with this cheerful charge?

Visit Srajan at his site www.6moons.com

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