The proliferation of counterfeit products has now gone digital and viral. No longer do people need to comb the streets looking for perfect replicas of Louis Vuitton and Gucci. They just need to open their Instagram app and authentic-looking counterfeit goods are available at the scroll of the thumb.
This isn’t anything new for the social media app, but the issue is now in the spotlight as Instagram announced the launch an in-app checkout feature for retailers. The new feature allows customers to tap, view and purchase products from a brand’s shopping post, providing another revenue stream for the Facebook-owned company on top of advertising.
There are currently more than 20 participating launch partners including Adidas, Burberry, H&M, Nike, Revolve, Dior, Michael Kors and Warby Parker.
Payment methods include Visa, Mastercard, Discover and PayPal, according to Instagram. In the future there will be direct integrations with retailers for purchases or they can use ecommerce platforms like Shopify, Magento or Bigcommerce.
A spokesperson for Instagram told TechCrunch, “We will introduce a selling fee to help to fund programs and products that help make checkout possible, as well as offset transaction-related expenses.”
Research by analytics firm Ghost Data found that the online sale of products and luxury goods has grown to a multi-billion-dollar underground economy particularly eager to expose Instagram’s success and features.
The study which identified 56,769 counterfeit accounts active on Instagram has seen a growth of more than 171% compared to three years ago (20,892 counterfeit accounts).
More than 64 million posts and an average of over 1.6 million Instagram Stories per month saw a growth of more than 341% when compared to three years ago.
“The luxury brands I speak to are frustrated because it’s so easy to find these accounts, but Instagram is not very responsive,” Andrea Stroppa, CEO of Ghost Data told NBC News.
NBC News said the issue is that researchers can’t necessarily tell real from fake by looking at photos of products, some are indistinguishable by photos and videos.
Stroppa told NBC News that he consulted with luxury experts to attempt to distinguish between real products and fake ones. The Ghost Data research focused on the accounts that sent products and not the products themselves.
Ghost Data used logo recognition technology combined with hashtag and keyword searches to score about four million Instagram posts.
Why Instagram is a Target
Daniel Shapiro, Director of Global Strategic Partnerships at brand protection firm Red Points, said Instagram has fast become an underreported but vital hub for counterfeiters. In recent years, counterfeiters have recognized its potential for a number of reasons.
Shapiro said counterfeiting has been an issue that has grown exponentially over the past four years for some of Red Point’s clients, especially those selling cosmetics and sporting goods.
“To start with, the potential reach available on Instagram is colossal,” said Shapiro. “Instagram alone has well over one billion users, and as mobile technology continues to become more accessible, the number of people on social media will only increase.”
Shapiro said Red Points’ research has shown that across a number of different industries, consumers are already very receptive to the idea of purchasing items from social media. Thus, it makes sense that counterfeiters are flocking to social media marketing at such a high rate with such ready access to a large market for their fake goods.
According to Ghost Data, Instagram had up to 95 million bots posing as real accounts last year. Most accounts selling counterfeit goods upload a large quantity of posts every day.
How it Hurts the Consumer
Shapiro said the risks that counterfeits pose to consumers are tremendous.
“Products like cosmetics for example, have been found to contain heavy metals and mercury, extremely poisonous substances like cyanide, arsenic and paint strippers and even animal feces have been discovered,” said Shapiro.
He said consumers are at risk of effects ranging from simple rashes to chemical burns on their skin to damage to their nervous system and internal organs. That’s why it is vital for shoppers to be careful what they buy online.
Instagram isn’t the only social media platform to fall victim to counterfeit goods. Almost all are seeing a surge in counterfeits because so many millions of shoppers are using them.
“Detection of counterfeit goods from our top three football teams on social media sites has doubled each year on the platform since 2015,” said Shapiro. “This is a huge increase and another sign that counterfeiters are increasingly migrating to social media platforms to trick shoppers into buying fake products online.”
Ghost Data’s research found counterfeiting disrupts commerce and harms business reputation. Even when businesses invest time, money and resources to protect brands and trademarks, the counterfeit market continues to bloom rapidly.
According to Ghost Data, in August 2018 a six-year investigation led to the seizure of “enough counterfeit Gucci bags, Hermes belts and Tory Burch purses to fill 22 shipping containers” with charges against 33 people.
In Ghost Data’s 2016 research, about 20% of posts about top fashion brands on social media that were analyzed featured counterfeit and or illicit products.
While it’s assumed these sellers are hidden in faraway “souks,” that is not the case. They operate openly, posting a wide range of ads and images on social media and openly selling their goods worldwide, Ghost Data found.
Today, there is almost a direct line between producers and consumers with no filter or barrier of any kind. The internet is being used as a giant amplifier to attract more customers and finalize orders. An international carrier service will deliver the “original” goods to their front door.
Countries Involved in Counterfeiting
To identify where counterfeiters originate from, Ghost Data looked at surrounding web domains, phone numbers and email hosting services along with languages and character coding and language.
Not surprisingly, the study found that China topped the list of where counterfeiters operate (43% of overall counterfeit activity), followed by Russia (30%) and Indonesia (13%). Far below are Ukraine, Turkey and Malaysia with shares between 4% and 5% each.
Counterfeit Activities on Instagram
Ghost Data found that most counterfeiters publish at least 100 posts each. Thirty-two percent of them published 100 to 500 posts, while over 21% published more than a thousand posts.
These posts show a variety of products, have different goals and feature various marketing techniques. Some are only sold at wholesale prices and their main goal is to sell large quantities of fake products. Videos of how products are being made are also shared by counterfeiters on social media.
Other counterfeiters will mimic a real ecommerce store, taking advantage of the Stories functionality to create an appealing profile. Others will recreate a creative profile replicating profiles of actual brands.
Some counterfeiters manage to gain a large number of followers and offer products that were just released by actual brands. Others will link profiles to a single seller; Ghost Data found about 18 accounts pointing to the same seller.
Counterfeiters will communicate primarily through mobile external applications, used both for security and ease of use. If a user account is closed by Instagram for violation of its terms of service, the counterfeit merchant loses any contact with potential buyers.
Ghost Data found that today communication apps like WhatsApp and WeChat are more reliable and secure, providing more end-to-end encryption and options. Therefore, it is unlikely that an account could be closed due to a violation of their terms of service.
Closing an account requires evidence that either of these apps are being used for counterfeit selling. Even if they are closed, counterfeiters will just open new accounts and activate virtual phone numbers which only costs a few cents.
China and Russia are known as “click farms” and continue to generate millions of fake accounts on social media and mobile apps ready to be sold in bulk to the highest bidder.
Counterfeiters also have external sites to sell their products on top of Instagram and communication apps through their own ecommerce platform.
Ghost Data’s research found 431 counterfeit stores active on Yupoo, a Chinese photo sharing site. Alibaba recently noted its success in removing counterfeit products off its marketplace. Over 7% of all counterfeit accounts have external ecommerce sites with Russian domains, with the exception of local social networks.
Paying and Shipping Options
To lure in shoppers making impulse purchases, counterfeiters make their payment process immediate and secure so they trust the transaction. The top payment system used is WeChat Pay, with 40% of counterfeiters accepting this form of payment, according to Ghost Data.
Other payment systems include PayPal (accepted by 35% of counterfeiters), Venmo (7%) and Cash App and Western Union (5% each), according to the study.
For shipping, an average of eight out of 10 use international shipping services provided by EMS Global Delivery Network (54%) and DHL (33%).
Hashtags Play a Role
Shapiro said that while it depends on the brand and industry, counterfeiters have been using different keywords and hashtags on social media to attract shoppers to their sites.
“The potential damage caused to a brand’s reputation by this deceitful practice makes it critical for them to scan marketplaces and ecommerce sites so that they can effectively identify those keywords and remove the fake hashtags,” said Shapiro.
He said machine learning can also help brands protect their customers by suggesting potential new search terms and stay one step ahead of counterfeiters.
Ghost Data analyzed about 4 million Instagram posts or Stories that included hashtags related to fashion brands, as they’re a common tool of counterfeiters.
Counterfeit accounts will include hashtags and keywords in both their usernames and biography, in the post description and in Stories to attract unsuspecting consumers.
Some examples include: “cheap” “replica” “original” “AAA” “1:1” along with references to specific products and brands.
NBC News reported that “MirrorQuality” and “MirrorBag” were used more than a million times by customers making it easy to access, view and purchase fake luxury brands.
Brands Impacted the Most
Shapiro said counterfeiters of cosmetic goods are increasingly using social media to attract and dupe consumers.
“Last year, a majority (51%) of IP infringement for our cosmetics brands were found on either Facebook or Instagram,” he said.
The brands most mentioned by counterfeiters include Gucci (16%), Louis Vuitton (12%) and Chanel (10%). Not coincidentally, they are also most targeted brands, according to Ghost Data.
“Brand owners cannot remain the only ones taking action to chase online counterfeiters,” a spokesperson for LVMH, the parent company of luxury brands Louis Vuitton, Christian Dior, Marc Jacobs and Fendi told NBC News. “As the level of infringement on Instagram and other channels increases, their efforts should be focused on strengthening to track, block and remove online listings and promotions for counterfeit goods.”
How Social Media is Combatting Counterfeit Goods
Shapiro said all social media platforms have policies against counterfeiting. However, the presence of millions of brands across thousands of product categories make it difficult for platforms to keep up.
“That is why building out internal mechanisms and partnering with infringement detection companies is critical to protect shoppers and keep counterfeiters out,” said Shapiro. “We’re sure as Instagram begins its new shopping platform its systems will mature and become more proactive.”
Facebook CEO, Mark Zuckerberg recently announced that encrypted messaging will be a major part of the future of Facebook, Instagram and WhatsApp, according to NBC News.
Instagram told Fast Company, “We want our community to have great experiences with businesses on Instagram and we take IP rights, including issues around counterfeiting very seriously. We have a strong incentive to aggressively remove counterfeit content and block the individuals responsible from our platform. We have devoted more resources to our global notice-and-takedown program to increase the speed with which we take action on reports from rights owners. We now regularly respond to reports of counterfeit content within one day, and often within a matter of hours.”
Can It Get Worse?
Shapiro said as social media platforms get more active in ecommerce these new selling features will open the floodgate for even more fake goods, as counterfeiters move quickly to capitalize and exploit weaknesses.
“That’s why it’s important for Instagram and others to ensure they protect shoppers against fraudsters as they enter this space,” he said.