Saturday 27 August 2011

Countering the Counterfeits

"Countering the Counterfeits" was published in Luxury Briefing in August 2011.


Countering the Counterfeits
by Alexander Gallé

Having written on a few occasions about the frictions between luxury brands and online companies like eBay and Google over the issue of counterfeiting, I was a little disappointed by the absence of real "digital thinkers" in the debate on the subject held at the FT's Business of Luxury conference in Lausanne, which brought together various parties in the luxury sector to discuss what should be done.

As I see it, there are two ways of discussing the threats and opportunities of the digital revolution.

The first way is to put forward what we think should happen, and argue that "people must do" this or "the government must do" that, in order to get there. Let's call this the "prescriptive view", since it argues what must happen, rather than what will happen. Of course, the chances of it all happening the way we would like are very slim: things rarely happen the way we wish them to, especially if our wishes are framed by a set of dynamics that no longer correspond to the way the world actually works.

The second way is to look objectively at the properties of the different elements in action:

- the properties of networked information

- the properties of digital technology

- the properties of people

- the properties of luxury brands

We then look at the most likely chain of events in order to adapt our strategy. This is the "descriptive view", which this article, ideological views set aside, will aim to adopt.

The descriptive view starts with an analysis of the different properties of networked information itself.

The debate in Lausanne was triggered by a speech, made by Gian Giacomo Ferraris, CEO of Versace, outlining the actions Versace had taken against Google to "cut out links" that take users to websites selling counterfeit goods. 

This approach, I believe, is based on an outdated and false description of what networked information is and of how it behaves, which dates back to a metaphor that was quite popular in the 90s. Back then, we often heard the metaphor of an "information superhighway", a highway on which information runs like automobiles, which served its purpose to some extent: it explained the concept to people who were used to thinking about physical, mechanical things like pipes, electricity cables and motorways. But the problem with such metaphors is that they set one's mind up for a set of relationships that may not exist. If action is then taken to counter a perceived relationship, it will be ineffective and, in the worst case scenario, trigger off unintended consequences.

Networked information doesn't flow in neat superhighways that you can just cut off and redirect. To wrap our heads around the futility of "cutting out links", let's try looking at it as a liquid. Rather than "cutting out" segments of the information superhighway that take users to counterfeit sites, we now see Versace's actions as something more like plugging holes in a leaking bucket.

However, even this metaphor lets us down: information being liquid, the tools that are used to search for information are themselves also liquid, since they are themselves made of code i.e. information. So, trying to plug one hole in the hopes that information will stop leaking is only a momentary fix: it is just as easy to replicate the hole as it is to replicate the information going through it.

We saw this a couple of years ago, when a Swiss bank tried to force the Wikileaks website to close down through the court: within a few days of closing down the site, hundreds of mirror sites were online, hosted in different countries around the world, each containing the same information as the original Wikileaks site. Opening a court case in each separate country was simply unfeasible, and would have been equally futile.

Search engines come two-a-penny nowadays. As we have seen in the music and film industry, people looking for pirated music and videos simply do not use Google. They use one of the thousand sites that search through information storage centres like Megaupload, Megashares, Rapidshare, Wupload, Hotfile, 4Shared, Netload, Mediafire, etc. If they don't want to use the web, they'll use something like eMule or Atlas or any of the other hundred Napster-inspired peer-to-peer applications that allow them to search for files that aren't hosted on the web but on other network users' own computers.

Furthermore, the "cutting out links" approach assumes that the technology used to manufacture and distribute counterfeits today will itself not evolve. This is, of course, the opposite of what is actually happening: the key feature of digital technology is that it enables what Buckminster Fuller called "ephemeralisation": doing more and more with less and less, until eventually you can do everything with nothing. 

The descriptive view continues... Let's look at the properties of people and ask ourselves why counterfeiters are so commercially successful. The answer is simple, when you look people in the eye: counterfeiters are successful because people want counterfeit goods. Or, rather, people want luxury goods at normal goods' prices. 

Is there anything unusual about this? Not really. It's the same force that has been driving all markets since market economics began, leading everyone to continuously sell better goods at lower prices. Moral judgment set aside, it's important to see the forces we are dealing with as they are, not how we would like them to be.

Is there any use advocating that "governments must do more to educate people that buying counterfeits is bad"? Aside from the question of whether governments are any good at educating people, the task itself is like working against gravity. Any economist would argue that the greatest benefits are reaped by those who manage to move mountains at the touch of a finger by letting gravity do most of the work for them instead, thereby producing something people want at the price they're prepared to pay for it. With a bit of thinking outside the box, however, the opportunities for bona fide goods manufacturers are there to be taken. It may mean the redefinition of some brands we currently think of as "luxury", but it'll also mean the birth of many new and better luxury brands.

Change is a necessary precondition of evolution, and evolution is a defining characteristic of the luxury sector. 

I wrote earlier that digital technology enables "ephemeralisation". The definition is worth repeating, not just in the context of counterfeiting, but in the context of what it means to be a luxury brand. Ephemeralisation: doing more and more with less and less, until eventually you can do everything with nothing. With this in mind, let's ask ourselves what it is the luxury sector currently produces. If all that differentiates your product from a cheap counterfeit is the legality of your label, can you really claim that what you are producing is still "luxury goods"?

Let's look at some luxury goods that are not counterfeited. McLaren, for example, produce something so technologically advanced that you just can't fake it. You could probably copy the overall shape of the latest McLaren and stick a 3-litre Alfa Romeo engine inside, but what would be the point? The experience of driving it would be nothing like the original. Bringing leading-edge technology into the product means that a luxury brand can now leverage its philosophy of excellence, to produce something even more unique and special that people will be prepared to pay a premium for. Apple, to give another example, seem to be doing this very well...

Rather than using the law to force digital technology companies to sever their limbs and perform at a lower level than their full potential, luxury brands should embrace them, using their technological power to leverage their own unique qualities, taking luxury to a new level of jaw-dropping amazement and delight, and rediscovering what making a real luxury product was all about to begin with.

Feel free to download this article in PDF format from the Gallé website: