Source: Imperva Bad Bots Report 2022
Source: Imperva Bad Bots Report 2022

How ‘Grinch bots’ are corrupting your stock

Will Green is news editor of Supply Management
17 August 2022

Scalper robots are a scourge on online retail, but with the most recent target being life-sustaining supplies of baby and infant formula, is it time to tighten the law?

It sounds like the plot of the next James Bond movie. A sinister group of hackers create a software algorithm that scours online marketplaces and buys up valuable scarce commodities such as gold or oil to create stockpiles, before selling them on at vastly inflated prices, leaving destabilised markets and crashing economies in their wake. A little far-fetched? Perhaps, but not a million miles away from reality.

Anyone who attempted to buy a games console such as the PS5 when it launched in November 2020 will have come up against scalper bots, automated software that constantly monitors online stores and buys up stock as soon as it becomes available. These products then appear on auction sites such as eBay at much higher prices. It doesn’t stop with games consoles. Graphics cards, training shoes, popular Christmas toys and even hot tubs have fallen victim to scalper bots, which lurk shark-like where hyped-up demand meets a new product ‘drop’. Bots are even used to book-up appointment slots for government services such as driving tests and visa applications, and supermarket delivery slots in order to sell them on.

For procurement and supply chain professionals, the risks lie in a number of areas. First and foremost, loyal customers are likely to feel considerably less so if they cannot get hold of a company’s products at retail price but are forced to pay through the nose on eBay. Brand reputations could well be on the line. Secondly, demand planning becomes harder and forecasting much more difficult because scalpers typically hoover up products where supply is high and offload them where demand is strongest, to maximise their gains. And lastly, third-party relationships could be at risk because companies may be reluctant to supply organisations whose websites are flooded with traffic from scalper bots. In turn, firms may not want to stock products that put them in the scalpers’ firing line.

The ethics of scalping essential goods

It’s not just toys and luxury goods that have drawn the scalpers’ eye. The Federal Trade Commission (FTC) has launched an investigation into the ongoing shortage of baby formula in the US and the impact scalpers have had on the crisis. The shortage was triggered by the closure of Abbott Nutrition’s plant in Michigan plus a product recall following a contamination scare in February. As the company controls about 40% of the US baby formula market, scarcity quickly led to panic buying and – surprise, surprise – the attention of scalpers.

FTC chair Lina Khan said staff would “investigate and seek to fully enforce the law against anyone who deceives, exploits, or scams American families trying to buy infant formula”.

“This includes those who use online bots to automatically purchase and then resell formula at exorbitant prices. While reselling these products is not illegal and may serve a useful function, using bots or other automated tools to divert large amounts of supply of life-sustaining products from ordinary retailers and then prey on desperate families may constitute an unfair practice under the FTC Act.”

The extent of the impact of bots in online marketplaces makes for sobering reading. According to Imperva’s 2022 Bad Bot Report, “bad” bots – defined as those that carry out tasks including price and content scraping (scooping up IP and pricing information), denial of inventory (holding products in shopping carts to prevent access by valid customers), and scalping – accounted for an astonishing 27.7% of all global web traffic in 2021, up on 25.6% in 2020. The most common tasks set for the bots were account takeovers, where stolen credentials are tested, plus scraping and scalping.

During the busy holiday shopping season in December 2021, bad bots made up 30% of all web traffic. In October 2020, when new games consoles from Sony and Microsoft launched, Imperva saw a 788% increase in bot traffic to retail websites. According to an analysis for website Tom’s Hardware, scalpers made profits of around $59m on these games consoles in the fourth quarter of 2020. The median price of a PS5 during this time was around $1,021, $522 above the recommended retail price.

Retailers versus scalpers

It’s therefore not difficult to discern the motives of the scalpers, but who exactly are they? To start with, it’s not a new phenomenon. References go back to the 19th Century, when rail tickets were sold in the US on secondary markets. However, it is the use of technology that has given them the power they have today, with their ability to scan multiple pages on different websites, hundreds of times per second.

They first came to public prominence in the resale of event tickets during the 2000s and 2010s, when tickets for concerts, shows and boxing fights would sell out within minutes and then appear on secondary sites for crazy prices. However, this practice came to an end when governments in the US and UK legislated in 2016 and 2018 respectively against the use of automated software to buy tickets.

Rather than giving up, scalpers turned their attention to other products, and the trend towards online sales, accelerated by the pandemic, has played right into their hands. At the same time, the practice has evolved from individuals treating it as a side hustle into groups and forums operating like companies to fulfil their aims. Individuals are joining online ‘cook groups’ to share knowledge and circumvent controls put in place by retailers, according to a report from Deloitte.

One of the companies at the forefront of the battle against the bots is Nike, with limited editions of the company’s shoes selling to ‘sneakerheads’ for hundreds of dollars over the retail price on the resale market. In 2015, Nike introduced its SNKRS raffle system, requiring an authenticated account sign-in to take part, following several product launch cancellations due to the interference of bots. But, just as other attempts by retailers to weed out the bots, such as the introduction of Captcha, SNKRS has been successfully circumvented by scalpers, according to Ron Gordon, communications specialist at the Supply Chain Management Research Center at the University of Arkansas.

“While retailers’ attempts to stop bots have frustrated many who dabbled in botting, it is not clear that they have reduced the number of bot purchases,” Gordon says in a blog. “It is possible that they are only channelling products into the hands of sophisticated botters. It is also uncertain how much more retailers can (or will) escalate the fight. It is hard to fault retailers if they do not go full throttle in fighting the bots since they make money regardless of who purchases a product. Selling to scalpers may even be more lucrative.”

Can bots be a force for good?

It would appear so. In the US, bots are being used as alerts for when baby formula comes back into stock, not for profit, but to get it into the hands of parents who would otherwise spend hours trawling stores.

“Not all bots are bad and there are many examples of good bots that provide beneficial services,” says the Imperva report. “For example, good bots are used to discover and make online services and content available to search engines. This ensures that online businesses and their products can be easily found by prospective customers.”

For procurement, bots can be programmed to take care of basic transactions to free up time for high-value, high-risk items. Jens Roehrich, professor of supply chain innovation at the University of Bath School of Management, tells Supply Management: “Bots are mainly helpful where workflows can be programmed – in other words when we’re talking about standard data input and output.”

However, with good bots making up just 14.6% of web traffic in 2021 – half of the bad bots’ share – it may be that further legislation is the only way to truly tackle the situation. Politicians in the US have proposed the Stopping Grinch Bots Act, in response to scalpers targeting Christmas toys, which would ban the use of automated software on e-commerce sites in a similar way to the legislation covering event tickets. The baton has also been taken up in the UK with the Gaming Hardware (Automated Purchase and Resale) Bill.

MP Douglas Chapman (SNP), who proposed the law, raised the spectre of criminality, telling Parliament: “Questions must be asked about how [scalpers] generate funds to make these large-scale purchases online. What are the profits that are generated from this? What are they used for? It could be that we are moving into the area of potential money laundering, organised crime, tax evasion and fraud.”

Roehrich says: “At the moment it is difficult to judge how the use of bots will develop. With the adoption of smarter bots, legislation will have to follow as smarter bots will open up other avenues… For most organisations, for now, establishing accountability for monitoring and regular daily monitoring activities are vital to counteract issues.”

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