Op-Ed

Op-Ed
Sony to eBayers: Flip This

Joe Blancato | 31 Oct 2006 16:50
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Our buddies at Evil Avatar are reporting that EB Games is canceling any preorders that appear on eBay in accordance to Sony's wishes. According to the report, Sony and eBay are compiling a list that'll make its way to EB's offices in the near future, effectively closing many "aspiring entrepreneurs'" businesses before they had a chance to prosper.

In the distance, once the sound waves from North Carolina reach you, you'll hear my capitalist heart breaking and my inner internet nerd cackling with sadistic glee.

I remember, way back in 2000, when the first PS2s made their way onto eBay and sold for well over $1,000 in the first week. My best friend managed to get his hands on one the old fashioned way, by standing on line overnight outside a Best Buy. He called me the second he got the machine into his car and locked the doors. The first thing he said to me was "Some old guy offered me $500 for it outside the store."

Back then, I didn't get why people would pay so much for something just to have it before everyone else, and I still don't. But I also don't see a reason not to exploit that. I'm not one to espouse the virtues of the free market, but in the case of luxuries like the PS2, Xbox 360 and now the PS3, they really are worth whatever people will pay for them. The people being "victimized" by eBay flippers aren't dehydrated people being charged for water, they're the guys who don't want to stand out in the cold to get into the club like everyone else.

Boo hoo.

Of course, it's possible that some of the people buying into the eBay thing were outside EB when the PS3 preorders became available, but the flippers were there first, which effectively shrank the supply of PS3s available at their normal, exorbitant retail price. But let's look at a more established version of what's going on here: ticket scalping.

While it's illegal in many states, eBay takes advantage of the lack of a federal law prohibiting scalping to dance through 50 different versions of red tape, expecting users to know how much they can pay over a ticket's face value in their given jurisdiction. While they do have an official policy demanding resellers adhere to local laws, there's very little oversight. Case in point, I paid $400 for four tickets to a Yankees-Red Sox game in the Bronx. The face value of all four tickets was $80. This transaction was against state law, but given the amount of other tickets to the same game on sale, eBay seemed willing to relax its policies for the commission they take from each sale.

But really, everyone benefited from the transaction. My trip to New York was a spur of the moment thing, and without someone who made a business of working a gray-market commodities exchange, I wouldn't have been able to enjoy the game. I'm going to go out on a limb and say most people looking for PS3s on eBay are in a boat similar to mine. I call mine the S.S. Lack of Foresight.

So what's the difference here? eBay is obviously OK with scalping, despite the fact it's illegal. Why work with Sony on killing the PS3-scalping market? And moreover, why does EB games care what people do with their preorders after they get their money? Why does Sony?

Something has to be afoot here, and it sounds expensive. The easy assumption would be that Sony's concerned about the PR fallout from people paying even more for an already expensive machine, but the fact people are willing to actually buy the chance to get a PS3 on release day tells me this type of scalping doesn't deter sales; if anything, the constant news stream reporting people overpaying on the machine just drives up the value in people's minds. No, this type of crackdown on aftermarket retail bears a closer resemblance to Sony's recent aggression toward Hong Kong retailer Lik Sang than it does a gesture of goodwill toward gamers.

If Sony's done much of anything lately, they've been trying to draw their customers deeper into their sphere of influence. Between the Rootkit, creating their proprietary competitor to iTunes, Blu-Ray's draconian DRM measures and the Lik Sang lawsuit, how surprising is it to see them going after preorder flipping, closing off another avenue of commerce that they can't guide and shape they way they choose? It's nothing new in their corporate history: Their strategy has always been to draw people into their brand with one device, which usually only communicates with formats and devices developed by Sony.

The PSP relies on proprietary media, and the majority of its firmware upgrades are attempts to stop hackers from being able to crack the device's operating system in order to install homebrew programs on it. Their handling of their SD cards has them under investigation by the U.S. Department of Justice. Is it much of a stretch for them to want to control all aspects of trade in regard to the PS3, the machine that might bankrupt the company if it doesn't sell exactly right?

The PS3 is what's known as a loss leader. Sony plans on losing money on every PS3 sold and making up that money when a customer purchases peripherals and games. What happens when half of your early adopters, the people whose acceptance leads to mass-market appeal, can't afford to buy as many games as they originally could because they had to blow an extra $1,000 on actually getting the PS3? You're going to lose a lot more money per sale than you originally had planned.

Given that Sony went so far into debt to build the PS3, their debt was downgraded to BBB-plus (three steps above "junk") with a negative outlook, it makes sense that they don't want to have even more red in their corporate ledger. If that means leaning on EB and eBay to get less expensive consoles back in the hands of spend-happy early adopters, so be it.

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