Blogging about

Money Programme

Get the facts behind the big business and finance stories from around the world – and down your street, in The Money Programme.

‘Making it Big on eBay’ illustrates how eBay is now being used by thousands of people, either to earn their living or to augment their earnings from elsewhere. It appears that they use eBay because it provides them with three opportunities:

• a new route to market for an existing business
• an opportunity to create a business that wouldn’t have been possible before
• a host organisation on which to piggyback

A friend collects and trades military memorabilia, specialising in medals from the two World Wars. He – and his long suffering wife – spent many weekends with their thermos flasks in chilly village halls attending collectors’ fairs, both to search for and sell items.

eBay has provided them with a new route to market. They now spend their weekends in the comfort of their own home, but have still managed to increase the turnover of their small business. Part of this growth is trading with people from outside the UK who they never would have met via the collectors’ fairs.

"You’ll be surprised how many people you know are eBay entrepreneurs"

Meanwhile, a friend of a friend (if you ask around, you’ll be surprised how many people you know are eBay entrepreneurs) gets to spend her weekends doing what she does best: shopping. She spends her time at discount stores such as TK Maxx and Primark, buying heavily reduced items.

Buyers are infected by the ‘auction fever’ of eBay and pay higher prices for these items than they would if they bought them in the stores. The thrill of the auction is providing a new business opportunity for her.

However, it’s the third of the approaches that I find most intriguing – creating a business by piggybacking on the internet giant. Many companies provide services to other eBay users, for example some specialise in packaging products for those selling on the auction site. Others examples include the US chain iSold It, and its UK equivalent Auctioning4u, that offer to sell items on eBay for people who do not have the time or inclination to do it themselves.

Such businesses provide goods and services that only exist due to the presence of eBay. This has been described as the ‘piggyback economy’ and has been likened to remora fish, that survive by clinging on to the back of larger fish and turtles, or to the small birds that live by grooming larger mammals.

The piggyback economy has been estimated to be worth tens of millions of pounds, and isn't confined to eBay or internet businesses. In the offline world, Mike Ear (I understand you have to say it out loud) is a small business that buys, delivers and assembles Ikea furniture. It targets those of us who can’t face a trip to one of their stores or trying to make sense of their assembly instructions.

Like the examples from the animal world, the piggyback relationships are symbiotic rather than parasitical. In the case of Mike Ear, customers benefit as they get a more convenient and personal service than they can from the host company, Ikea. The piggyback company, Mike Ear, has low overheads and benefits from the brand of the host company. The host company, Ikea, benefits from increased sales.

The phenomenon of large organisations supporting a range of smaller organisations is not new. Large manufacturing firms were traditionally surrounded by small organisations supplying components or services.

"Failing to provide personal service allows a niche in the market for the smaller fish to fill"

What’s unique about the current piggybackers is that there’s often no need for geographic proximity with the host organisation. Also, more interestingly, they tend to be found operating between the host and the end customer, rather than as suppliers to the host. This suggests that despite the many benefits of large organisations, they’re failing to provide the personal service that consumers want, allowing a niche in the market for the smaller fish to fill.

Further reading

• Making It Big on eBay – The Money Programme follows a group of British sellers bidding for success
• What makes an entrepreneur? – Take a test to discover if you’ve got what it takes
• Money and Management Forum – How have you made money on eBay?
• Small Business Service
• HM Revenue & Customs
• The eBay Business Handbook: How Anyone can Build a Business and Make Money on eBay.co.uk by Robert Pugh, published by Harriman House Publishing
• The Ebay Entrepreneur: The Definitive Guide for Starting Your Own E-Bay Trading Assistant Business by Christopher Matthew Spence, published by Kaplan Business

About the author

Elizabeth Daniel is Professor of Information Management at the Open University Business School where she undertakes research and teaching in the fields of e-business and information systems. Elizabeth also undertakes consultancy work for a number of blue chip and leading public sector organisations.

Subscribe to Elizabeth Daniel's posts

 

Blogging about

Money Programme

Get the facts behind the big business and finance stories from around the world – and down your street, in The Money Programme.

The Great Phone Call Con looks at the problems of phone-line fraud and unsolicited telephone marketing. This made me wonder, why has there been an explosion of this sort of fraud, and why do they seem to find it so easy to fool us? The answers to both questions may lie in the nature of human psychology.

Why the massive surge in telephone fraud?

Fraud requires a supply of victims, weak safeguards and motivated crooks. Changes in technology have increased access to potential victims. It’s relatively cheap and easy to set up machines to communicate with people. It’s also possible to obscure the trail back to the fraudster. The widespread use of electronic money exchange (online banking, credit card use, etc) also makes it easier – by making it easy for us to part with our cash. Safeguards are poor; law enforcement has struggled to keep up with these new forms of fraud.

However, I don’t think the availability of new means of fraud, alone, is sufficient to explain why there is so much fraud going on. An important aspect of the recent surge in telephone and internet crime seems to be the seemingly endless supply of fraudsters.

Successful fraud requires both a set of skills and a willingness to deliberately target and deceive others. The most successful fraudsters have a capacity to look us in the eye, to engage our trust and then betray it without a qualm. This capacity is actually quite rare and often associated with personality disorder (or perhaps politicians?!).

Typically, those committing fraud use psychological strategies to distance themselves from any sense of guilt. Criminologists refer to this as ‘neutralisation’. A common form of neutralisation is to view the victim as in some way to blame – “He had it coming; I couldn’t have taken him in if he wasn’t so greedy”. Another is to depersonalise or belittle the victim – for example the recently prosecuted perpetrators of a series of frauds on Ebay, referred to their 3,000 victims as ‘the idiots’. However, for most people, such attitudes are difficult to maintain in the face of personal contact with an intended victim.

By contrast, telephone or internet fraud guarantees a psychological distance between fraudster and victim. The technology already provides a significant amount of depersonalisation: a ready-made neutralisation strategy. Thus, people who would find the emotional costs of face-to-face fraud too high are much more able and willing to engage in remote fraud.

Why are we so easy to fool?

When we fall victim to fraud, or the more legal but related forms of advertising and marketing manipulation, we often assist in our own deception. Effective fraudsters don’t try to fill out all the gaps in a story. Like professional magicians, they know that manipulating us to reach a conclusion for ourselves is more powerful than making a direct statement. We’ll fill in the gaps in story for ourselves given the right motivation; and they know that greed and fear are both powerful motivators that they can easily manipulate.

If we believe someone can enrich us, or we think they can prevent something we dread, we want to believe them and will often explain away any holes in their story for ourselves.

Once we have become victims of deception, another factor comes into play. Fraud is often under-reported. For most of us, self-esteem is important; and we, often quite unconsciously, look for ways to protect it. For this reason, we tend to pay more attention to information that builds our own self-esteem than information that threatens it. So, many of us are quite reluctant to accept that we are victims and are even more reluctant to tell others.

Intelligence and education are not a protection here. Indeed, there is some evidence that highly educated people are easier to fool, because they don’t expect to be fooled.

There are important parallels between the traits that make many of us easily deceived by fraud and those that make traders in financial markets easily deceived by market movements. In my own research on the behaviour of traders in investment banks, I found these well educated, intelligent and highly trained professionals to be often prone to illusions about the extent to which they were in control and able to make unbiased financial judgements.

Fear, greed and the need to maintain self-esteem may make many of us more easily trapped by a telephone scam, but they also account for some major mishaps in financial markets.

Protecting yourself from fraud

So if the world is full of fraud and human psychology disposes us to be dupes, how can we protect ourselves? There is no foolproof solution, but some simple rules may help: 

• If it seems too good to be true, it probably is.
• If a person, or organisation, starts to play on your fears it may be that person or organisation that you should fear.
• If you are fooled, it does not mean you are an idiot. You are in good company. Do take the time to report the scam.

Further reading

• The psychology of decision making – the same thinking processes that help you cope with everyday life prejudice your judgements in other areas
• The Psychology of Fraud by Grace Duffield and Peter Grabosky, pubilshed by the Australian Institute of Criminology
• Introduction: Traders, markets and social science by M P Fenton-O'Creevy, N Nicholson, E Soane and P William, published by Oxford University Press
• Trio jailed for £300,000 fraud on eBay 'idiots' by Audrey Gillan and Bobbie Johnson in The Guardian (29 October 05)
• 'The Psychology of Deception' by R Hyman in Annual Review of Psychology
• The American Confidence Man by R Hyman and Charles C Thomas

About the author

Mark Fenton-O'Creevy is Professor of Organisational Behaviour at the OU Business School. His research includes investigations into the performance of traders in financial markets, and the problems that occur when management practices are transferred from one country to another.

He is also a National Teaching Fellow, and Principal of the Centre for Practice-Based Professional Learning.

Subscribe to Mark Fenton-O'Creevy's posts