Alibabas IPO and Other Mysteries

Why are investors so giddy about a counterfeiter's paradise?

By Sarah D. Scalet

November 19, 2007 — CSO — Earlier this month, the Chinese auction site Alibaba.com went public, and the business world cheered.

Bloomberg News reported on a frenzy for the stock, which almost tripled on its first day of trading, giving it a market value of $25.7 billion. Alibaba Enchants Investors, sang a headline in Forbes.com. The International Business Tribune called the day a magical opening. The offering was favorably compared with Googles record-setting IPO in the United States in 2004, and Alibaba was credited with a lift in the stock price of Yahoo, which owns a 40 percent stake in the company. For investors hungry to put money in China, Alibaba looked like a good slot machine.

For those in the anti-counterfeiting world, though, the news brought to mind thieves, not magic. For years, investigators who try to keep counterfeit merchandise out of the supply chain have considered Alibaba.com one of their worst enemies. Thats because in addition to being Chinas biggest e-commerce company, Alibaba.com has a reputation as a place where counterfeit goods are bought and soldin quantity.

We reported years ago on problems with stolen and counterfeit goods appearing on eBay. (See Auction Blocks.) Observers say the problems are compounded at Alibaba, a B2B marketplace where instead of selling a half-dozen items, sellers might offer to supply up to 80,000 pieces per month or sell a sample of at least 20 piecessometimes with a guarantee that the goods will make it through Customs inspection.

Need a source for alkaline batteries whose quality is strong enough to compete with Duracell or Energizerand whose packages look suspiciously similar? Look no further than here or here. Want to buy genuine hand bags that are billed as having not difference with original bags or those that are of authentic quality? Thats here and here too. Sorting the good listings from the bad in this crowded market is a brand owners nightmare.

The sites sub-par reputation is nothing new. Back in February 2005, the International AntiCounterfeiting Coalition, a Washington, D.C.-based trade group devoted to devoted combating counterfeiting and piracy, described the site as the place to go to find suppliers and wholesale sources of counterfeit computer software, knock-off luxury goods and apparel, or clones of patented pharmaceuticals. In a report (PDF) submitted to the U.S. Trade Representative, the coalition concluded:

"Counterfeiters from all over the world converge on the alibaba.com site. Alibaba.com touts itself as The Worlds Largest Base of Suppliers, and, as a result, is serving the counterfeiting world. In view of the activities of alibaba.com, Chinese authorities should shut down this site and prosecute anyone involved with manufacture, distribution, offering for sale and sale of counterfeit goods."

We all know thats not going to happen.

Despite the efforts of groups like the software industry and RIAA (or perhaps even because of it), the brand owners are losing the public relations battle against counterfeiting and piracy. Its just too easy for consumers looking for good deals to distance themselves from any criminal wrongdoing. Not long ago, visiting relatives of mine who wouldnt dream of shoplifting bought a counterfeit handbag, perfume and jacket theyd purchased from an unmarked store they were led to by a street vendor in New York City. They thought it was a hoot and were only mildly interested in the products' provenance.

In fact, not only do most people care little about copyrights and intellectual property, anti- anti-counterfeiting sentiment seems to be particularly strong. People adopt a Robin Hood sort of spirit about it, with the attitude that greedy, big businesses deserve to be one-upped for charging so much. After I did an interview about organized retail crime with John Talamo, who heads up investigations for Limited Brands, I got an earful. Are companies such as Limited, the music, video and software industry encouraging crime with inflated prices of their products and passing the buck to society for the consequences? one reader asked (in a letter we posted).

Considering this, I guess its no surprise that Alibaba.com is a hot item. Maybe it even balances the portfolio of investors who also have stock in brands that are counterfeited. If the brand owners win the battle against counterfeiting, investors profit; if they lose, now investors can profit too. In the end, everyone becomes more ambivalent about counterfeiting, because how you feel about it seems to depend largely on whether its causing you to lose moneyor might just let you make some.

Reach Sarah Scalet at sscalet@cxo.com.