The Wine Spectator published a story today titled "Is California preparing an Internet wine crackdown?" in which I'm quoted. The issue is less over online wine sales than defining the requirements for who needs an alcohol license and who doesn't.
Service provider or unlicensed alcohol business?
The California ABC's "Industry Advisory", issued in June 2009, is titled "Unlicensed third party service providers" (italics added). In the fast-changing world of online marketing, a new class of "marketing agents" has emerged to help drive sales, not just in wine but practically every other consumer-facing product category. But is the "agent" just an agent supporting a licensed business's objectives or is the "agent" really operating an (unlicensed) business supported by the licensee?
Where to draw the line?
The ABC advisory lists fundamental privileges of a licensee including:
- Management decisions
- Pricing decisions
- Controlling the distribution of funds
- "Sale" of alcoholic beverages
- Profiting from the sale of alcoholic beverages
The last two points above require some clarification:
- Selling - The ABC defines "selling" to include any service provider who "solicit orders" or makes an "offer to purchase" to consumers. Presumably this would include taking order details (wines, quantities), shipping addresses, and payment information.
- Profiting -The ABC claims that service providers charging a fee linked to a percentage of the sale usually equates to "profiting" from the sale. I disagree (although Vinfolio terminated one service provider relationship anyway to avoid the ABC interpreting it differently as the story mentions). There are basically three standard pricing models used for pricing marketing services in the online world: flat-rate advertising for listings/banners, pay-per-click, and payment linked to conversions/results (usually expressed as a percentage of the resulting sale value). Does using a common, percentage-based pricing model (for any industry) equate to sharing in the customer's business profits? "No." The very term "profits" means revenue minus costs. To participate in creating profits means having a say on all matters affecting revenues and costs which a true service provider would not be in a position to do. The third party we felt obligated to terminate because of some ambiguity in the advisory violated none of the fundamental privileges listed nor did they "sell" on our behalf. They merely supported Vinfolio, a licensed business, in reaching its objectives.
Bottom line: I suspect most marketing service providers to the wine industry are really that, third party service providers, regardless of their method of charging for services. The most objective test some "marketing agents" may fail is whether they engage in the direct selling function.
