Black Markets and The Future of Innovation
Thursday, May 28, 2009
The phrase “black market” carries with it an ethical conundrum: goods and services that are likely stolen, controlled, illegal or immoral, yet still attainable via the right connections for the right dollars. Operating outside of regulation and taxation, black markets are, to some, considered pure economies capable of extracting the highest prices for those things in greatest demand. Things such as drugs, weaponry, prostitution, or copyrighted materials or designs. While regulators and the makers of luxury goodies understandably might want to concentrate on shutting down these markets, innovation leaders would be wise to get close to them and study them rigorously. As pure markets, they reveal a depth of unmet demand, a potential for mainstream commercialization, and a degree of price insensitivity that mainstream CPG companies and retailers sorely need.
History is on the side of this argument. When, in 1946, Bugsy Siegel and Meyer Lansky opened The Flamingo and mobbed Las Vegas by bringing gamblers to the western outpost in mass, they hardly could have imagined (or desired) its rise from desert town to family entertainment Mecca. Gambling was indeed legal in most of Nevada by 1931, but hardly mainstream at the time. What had largely been an underground activity throughout the United States would become increasingly legal and open due to the profound economic pressures of the Great Depression. The “economic” and “jobs” benefits of legalized gambling continue to be the primary platforms upon which public support is built currently.
Today, “What Happens in Las Vegas” is a revered brand strategy that merely winks at the “undercover” essence of the place — one with a roughly $7 billion yearly revenue stream from gaming alone. At last count, 19 states allow the operation of more than 450 commercial casinos, with revenues approaching $32 billion annually. Lotteries are legal in 42 states. A recent lawsuit seeks to make sports betting legal in all 50 states (it is currently legal in only 4, but practiced in casual office betting pools nearly daily, surely).
The same path from black market to mainstream is true for pornography, too — from skin flick reel to Times Square theater to VCR to Internet to iPhone. Forget not how Madonna once sold albums, pre-British accent, with all her glory spread out across Miami Beach and New York City. Or, how Abercrombie & Fitch now sells panties under their Gilly Hicks brand. Mainstream movie complexes show mainstream porno spoofs to mainstream audiences, to increasing success. Trey Parker’s “Orgazmo” took in just over $625,000 worldwide in 1997. In 2008, Kevin Smith’s “Zac and Miri Make a Porno” took in nearly $32 million from US theaters alone. That’s a growth market by any measure, all while Paris Hilton and Britney give away shots of what Sharon Stone had to be paid a lot to do. The once secret “let’s play doctor” moment has turned into widespread “sexting” distribution. It’s ALL out there now.
Other black markets are increasingly operating out in the open: knock-off designer handbags or suspect ED treatment pills are just a click away. Gun shows often do away with much of the “safety net” of gun store background checks. “Independent chauffeurs” (and often uninsured illegal immigrants) offer quick transport into midtown Manhattan at any moment outside of LGA or JFK. Are these the openings of new major markets? On the design front, the efforts of Forever 21 seem to suggest they are. The retailer has been sued by Diane von Furstenberg and Gwen Stefani alike for knocking of their creations. Target has been sued by Pottery Barn for the same reason. This is different from the hustler on the corner, how? Better displays and lighting, mostly.
If black markets signal real demand, and if black markets tend to commercialize and legitimize over time, what new and early ideas might innovation leaders begin studying now? It seems absurd to suggest that the far reaches of the shadow markets might turn into the next big brand, but history — along with Vegas and Abercrombie — suggest they are worth a look.
That sex trafficking or prostitution might one day be mainstreamed and branded is beyond reason, we’d think. Yet, the glittering commercial experiment of Dubai is the world’s number one sex slave market for a reason. All that’s missing is the name brand, not the huge commercial enterprise. Let’s not ignore that Eliot Spitzer did know who to call for especially fine (if ultimately problematic) service. And then there’s the “matching” site called Rentboy that does little to masquerade its offerings, and even hosts branded, fundraising events featuring its most popular escorts.
Or what of the nearly complete reliance of Mendocino County, CA on tax revenue from legalized growing and selling of marijuana? When will “Mendocino Sticky” become the Marlboro of legal weed? Our friends at Coca-Cola surely don’t need one more mention that they commercialized a cocaine drink back in the day. Bayer commercialized and launched both aspirin and heroin from its early German labs in the late 19th century.
Surely organ harvesting is off limits? Right? Wrong. CryoLife, a company focused on “life restoring technologies,” now offers the “CryoValve SG Pulmonary Human Heart Valve.” A branded bit of human. And they have even launched a print advertising campaign to promote it.
Babies for sale? Don’t get me started on celebrity adoptions.
The moral implications of these questions and opportunities are profound, and go much further than the ethical questions of black market economics. We would be wise, though, to remember that gambling and pornography once faced the same enormous moral battles — but the combination of dollars, human desire and technology made those questions fall away, if not find satisfactory philosophical resolve. We “debate” them while the industries thrive as a part of normalized daily life. If innovation leaders study black markets for patterns to be commercialized, they will find their teams will become increasingly responsible not just for economic studies, but for political and moral ones as well. Opening new markets has never been easy; legitimizing and commercializing those already operating in the shadows may be even harder. Brands are already navigating functional, emotional and social issues; get ready for them to navigate the most complex moral questions, too.
Photo credit to Kath Featherstone