February 8, 2023

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E-commerce Bots Boosting Prices, Causing Shortages, And Taking Advantage Of Crises

When TicketMaster melted down in November under the avalanche of Taylor Swift fans trying to get concert tickets, the company blamed bots. The site was supposed to open up only for 1.5 million Swift fans, but 14 million “people” swarmed the site, according to one report. The implication: 90% of TicketMaster’s site traffic was artificial.

That’s not uncommon, says e-commerce software provider Queue-it CEO Niels Sodemann. And it’s not just found in ticketing.

“It can be … everything from baby formula … work permits … reservations for vaccinations,” Sodemann told me in a recent TechFirst podcast. “These bots … snap them [up], buy them at $400 and resell at $1,000, and basically put $600 in their own pockets.”

The price in that example is specific to PlayStation 5 gaming consoles. And while it’s one thing to not be able to get the gaming console you want at the price it should be available at — or tickets to a Taylor Swift concert — it’s quite another thing to not be able to get baby formula during times when it’s hard to get. (And yes, baby formula may have recovered somewhat from the extreme shortage a year ago, but it’s still hard to get.)

The cost to consumers?

Sodemann says his company’s research indicates it’s as much as $1,200 per household every year. That’s a lot of money: there are almost 130 million households in the U.S.

And that means bots are big business.

“It becomes very clear that it is getting more and more organized,” Sodemann says. “And I think that the largest incorporated company doing this here probably has at least 200 employees … many sitting offshore, meaning in lower salary countries in Asia, and are helping on doing all this here.”

Ticketing is a big vertical for e-commerce cheater bots, but so is sneakers, or running shoes, which have become big collectible items in the past decades.

“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,” Sodemann says. “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.”

In other words, this is not just a few individuals trying to get early access to products to resell. It’s basically an industry.

The challenge: bulk buying takes product out of the market and drives up pricing.

That has impacts on people who need baby formula or other necessities. And Sodemann says he’s seen evidence of this during crisis times: the supply chain challenges, the baby formula shortage, Hurricane Ian in Florida in September, and even the war in Ukraine.

The pandemic only made it worse:

“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,” Sodemann says.

The costs are obvious when a gamer has to overspend by $300 on a PS5. But they’re less obvious when e-commerce retailers need to spend money on anti-bot software, or when products are just unavailable because they have all been snapped up by opportunists.

Scaling bots seems hard, because each shipment needs a credit card and a shipping address. But Sodemann says the organized crews who own sophisticated bots simply use credit cards designed for privacy that have “rolling numbers,” meaning 1,000 credit card numbers can all be paid from a single bank account.

(That’s something for Twitter CEO Elon Musk to think about as he plans to release a Twitter subscription product that is designed to reduce spam by requiring payment and verification.)

All can be delivered to hundreds if not thousands of post office box addresses as well.

While the e-commerce bot activity might be reprehensible, it’s not illegal, says Sodemann.

“It’s becoming a completely different game. And let’s say, not necessarily that it’s illegal, but the moral 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.”

Get a full transcript of our conversation here, or subscribe to TechFirst.