A new study, "Social Media and Luxury Goods Counterfeit," reveals that about a fifth of all items tagged as luxury goods on Instagram are fakes. The trend illustrates how the social media platform is contributing to the explosion of the Internet's counterfeit economy, which uses a system of online tools to ship illegal goods worldwide.
The study's researchers examined about 150,000 posts tagged with luxury good brand names, such as #LouisVuitton or #Chanel, and found that 20 percent of the posts featured fake merchandise from accounts based mostly in China, Russia and Malaysia. After identifying about 20,000 counterfeit-goods accounts, researchers observed that these accounts had posted more than 140,000 images and gained about 700,00 followers within a three-day span, said Andrea Stroppa, a World Economic Forum security researcher and writer for the report.
Social media -- specifically Instagram -- represents an important link in the complex chain of the counterfeit economy, which takes a $29 billion bite out of the luxury-goods sector each year, according to the study.
Most of these unlawful posts on Instagram feature a picture of a counterfeit item, such as a Chanel bag, Yeezy sneakers or Christian Louboutin heels, along with contact information so potential buyers can get in touch with the sellers via an IM chat app or email. The post is then tagged with a couple of dozen luxury-brand hashtags, as Stroppa's study observed.
On Instagram, buyers browsing for either real or fake goods can easily locate and contact buyers via email or encrypted messaging apps such as WhatsApp or WeChat. As the study explains, counterfeiters then use third-party online payment sites such as PayPal to exchange money for the fake goods.
"Instagram is becoming very popular, and luxury companies are investing in it seriously," Stroppa said. "So, if real companies are getting results in terms of visibility, and probably profits, illegal companies just follow the trend."
Indeed, companies are flocking to Instagram with their ad money. Instagram's global ad revenue is projected to reach $3 billion by 2017, accounting for more than 10 percent of the total ad revenue of its mammoth parent company, Facebook, according to a recent study. People respond better -- 11 times better -- to mentions of a product by a celebrity or other "influencer" on social media rather than a traditional banner ad. And celebrities are cashing in on the influencer market by hawking for different products in their Instagram feeds. Most recently, reality-TV star Scott Disick flubbed a promotional post for a detox tea powder by copying and pasting the brand's posting instructions directly into his Instagram caption.
It's within this promo-friendly environment that the illegal counterfeit market flourishes. Instagram says its one reason they have made shutting down counterfeit accounts a priority. "We have a strong incentive to aggressively remove counterfeit content and block the individuals responsible from out platform," said an Instagram spokesperson. She said that the company has devoted more resources to fighting counterfeit accounts over the last year.
But shutting down accounts selling counterfeit goods can seem like a futile task, given how quickly they crop up again. One reason for the agility of these counterfeit companies is the proliferation of spambots, which automate account creation and postings to saturate Instagram with their images. Stroppa warns about the sophistication of these bots, which he says are advanced software systems that can manage thousands of accounts at once while avoiding Instagram's detection tactics.
Stroppa stresses that companies, tech platforms and governments all need to work together to curb the multifaceted system enabling the international counterfeit market. But a new U.S. law has upped the value of merchandise that can be shipped tax-and-duty-free to the country, meaning that counterfeiters can ship packages of fakes directly to buyers without extra taxes. Such laws, some argue, are just helping counterfeiters even more.
Among those who supported the bill were several e-payment companies including PayPal, which said the bill is "an important step in reducing barriers for small businesses participating in cross-border trade."
PayPal has a history of ignoring reimbursement requests by customers who have purchased counterfeit goods unknowingly, but said they "scrutinize each site brought to our attention and engage with rights owners on a regular basis."
But for Stroppa, who financed his study himself after reading "Illicit" by Moisés Naim about the global counterfeit market, the problem is more important than poor customer experience. “We can't forget that counterfeit activities provide financial resources to terrorism, the mafia and so on. ... We aren't just talking about fake bags,” he said.