Hard Cash, Soft Bank
Oyo Vey
Softbank, fresh off an investor meeting with some truly hilarious charts, is back in the news. The New York Times has a feature on how start-ups backed by the Japanese investment fund have caused an alarming amount of human misery in a short span of time.
The New York Times reviewed contracts and internal company documents, and interviewed more than 50 workers with SoftBank-funded start-ups like Oyo, the delivery firm Rappi and the real estate brokerage Compass in places such as Chicago, New Delhi, Beijing and Bogotá, Colombia. What emerged was a pattern that repeated across the world: a distinctly modern version of the bait-and-switch.
Let’s talk about Oyo. Its origin story reads like a terrible mashup of WeWork and Airbnb.
Oyo was founded in 2013 as a website to organize and standardize India’s budget hotels. It coaxes small hotels to become Oyo-branded destinations that list exclusively on its site, without its having to own most of the properties.
The company convinces private owners of small hotels to give Oyo partial or full management of their room bookings, with the promise that they will bring in wealthy clientele. In many cases, they pre-pay some of all of these guaranteed bookings up front, so the hotel can use the money to make upgrades and renovations to the property.
The problem is Oyo was unable to deliver on these promises, and proceeded to slash payouts or stop making them entirely.
That month, Oyo told the hotelier it would bring him high-paying corporate travelers if he joined its network and upgraded the property. Under the arrangement, Oyo guaranteed him monthly payments of 700,000 rupees, or around $10,000, for three years, according to a contract viewed by The Times.
Mr. Solankey, now 63, agreed.
But within a year, the payments evaporated. Instead of business customers, unmarried couples looking for private rooms turned up. And Oyo discounted the rooms so much online that Mr. Solankey could not offer them to guests at a higher price.
They not only lied to the guy, they stopped paying him and turned his B&B into a fuck motel. Disruptive! There have been mass protests in India, and one local police department even arrested the founder on fraud charges, but the sheer amount of cash at Oyo’s disposal seems likely to make it nearly untouchable.
Softbank has continued to pour money into Oyo despite all of these problems. The company purchased the Hooters Casino in Vegas and re-branded it. The founder - who started the company when he was nineteen years old - has received big loans from Softbank to buy more of his own stock to inflate the private valuation.
The business model with all of these Softbank-juiced companies is to buy your way into a monopoly. The Times estimates Oyo has around 1.2 million rooms across three countries, which is a lot compared to a traditional hotel chain, but not anywhere near a monopoly.
As with most of these start-ups, a guy (it’s always a guy) who fancies himself quite clever makes an app, comes up with a way to make other people do the work and take the risk for him, carves himself out a cut of the proceeds, and walks away with millions or billions in Founder Bucks. He’s never around to clean up the mess or deal with the many lives he’s ruined after it all falls apart.
DoorCash
Defying all the negative press around gig economy unicorns, another SoftBank company announced a big fundraise recently. Food delivery company DoorDash says they are going to raise another $100 million, at a nearly 13 billion dollar valuation. Why are they so successful? Bloomberg posits it’s because they’ve focused on tackling the suburbs, rather than fighting competitors in the big cities.
DoorDash is in 4,000 towns, compared with 500 cities for UberEats. “DoorDash came out of nowhere,” said Hetal Pandya, an analyst at Edison Trends.
While nice for them, that’s not what I want to talk about. Over the summer, DoorDash and it’s CEO were embroiled in controversy when it came out that they were stealing the tips intended for their delivery people. It came out in a July article about the awful life of a gig worker in the New York Times:
As DoorDash grew to become the biggest on-demand food delivery app in the country, it began doing something unconventional with customers’ tips: It used them mostly to subsidize its payments to delivery workers.
That’s…not what tipping means. Customers were not told they were tipping DoorDash and not the person who was delivering their food. Not great! The company promised to change their tipping model and then went silent for over a month, before finally announcing they were going to give tips to workers. They managed to do it in the shittiest, most Silicon Valley way possible:
We thought we were doing the right thing for Dashers by making them whole if a customer left no tip, but the feedback we’ve received recently made clear that some of our customers who were leaving tips felt like their tips didn’t matter. We realized that we couldn’t continue to do right by Dashers if some customers felt we weren’t also doing right by them. To ensure that all of our users have a great experience on DoorDash, we needed to strike a better balance.
This gets at the heart of the problem with the gig economy. DoorDash is admitting in their statement that their base pay is not a reasonable wage, and that they’d been using tips to…make their workers whole, whatever that means. No one can reasonably argue that a tip is intended to be taken by the company, but they are trying their best to convince us it’s legit.
The two reasons gig companies are able grow so quickly is they provide convenience and low cost. They create convenience by having enough money to offer incentives to get a lot of workers on their platform, so lots of people have access to their services. They keep costs down by using venture capital money to subsidize unprofitable operations. This model isn’t sustainable, however, because they are losing money on every delivery, car ride, or desk rental, and eventually their investors show up to a pitch meeting and ask when they’re going to make money. Then the scramble begins, to find money somewhere in the machinery, to make their business look better on paper. The most obvious people to take that money from? Gig workers.
For what it’s worth, it’s not just the gig start-ups doing this. Amazon Flex had to hurriedly change their policy this summer when they were caught stealing driver tips.
These companies have billions of dollars at their disposal, hire top developers and designers, pay marketing firms handsomely, and still can’t come up with a business model to pay their actual workers a living wage. It’s a remarkable, globe-spanning scam, and sadly we’ve all become complicit, because the apps really do make life better, if you don’t depend on them for income.
Counterfeit Marketplace
The Washington Post has a new story out about the proliferation of counterfeit merchandise on Amazon’s marketplace. This is not a new problem, and the company has done very little to address it over the last few years. Arguably, it did the opposite!
When Amazon stepped up efforts to curb its counterfeit problem two years ago, complaints from shoppers fell, one of the former Amazon executives said. But so did the rate at which the company expected its product selection to grow, the person said. So in early 2018, Amazon began aggressively adding merchants, regardless of whether they were authorized by brands to sell their products, the former executive said.
You may notice a theme across these stories - a company’s PR department issues assurances that they are working to combat a problem, but once it starts to inhibit sales growth, the company forgets all about it.
People think of Amazon as a website that sells products. The reality is that Amazon is a marketplace that fulfills sales for millions of independent sellers. This helps Amazon avoid the costs of manufacturing things, and gives it a guaranteed profit on every sale. Amazon does sell some of its own products, but these are typically items it has identified as highly profitable by abusing its internal sales data to force out competitors. Is this illegal? We may be about to find out whether the government thinks so.
Amazon’s hands-off approach to verifying the authenticity of items has a lot of real world consequences. While I’m the last person who’d feel bad for #brands, the reality is that it’s normal people - consumers - who suffer most.
Raul Noriega paid Amazon more than $1,000, a roughly 23 percent discount off the list price of $1,300, for a Tag Heuer Formula 1 watch in June, figuring he was getting a bargain.
[…]
So Noriega reported it to South African police, which confiscated the watch as contraband. Even though authorities provided Noriega with a letter explaining the seizure, Amazon refused to initially refund his purchase. The company gave Noriega his money back after being asked about the matter by The Post.
People purchase things on Amazon with the reasonable expectation that they are buying a real thing, and that Amazon will be on their side if they are not. Anecdotally, I’ve fallen victim to a fake Amazon seller. I purchased what Amazon told me was an authentic HP printer cartridge on the site, only to find out that it was an off-brand product. This was fine for a couple years, until HP rolled a software update and would not let me print, or even scan, until I bought a real HP version. Since a new cartridge cost as much as a brand new printer, I was out of luck. Certainly, Amazon would not have helped me get my money back two years later.
I am sure Amazon wishes it had zero counterfeit items on its website. It’s not a good look for one of the most valuable companies in the world! However, as we learned last year in a fantastic piece about another seedy underbelly of the marketplace, it can’t get rid of it because it does twice the sales as its retail counterpart.
This year [2018], Marketplace sales were almost double those of Amazon retail itself, according to Marketplace Pulse, making the seller platform alone the largest e-commerce business in the US.
The cutthroat nature of the Amazon marketplace, and its lax oversight, means that bad actors can eliminate competition, which can lead to the spread of people selling fake or fraudulent products on the platform. Like Oyo, the Amazon marketplace is literally make or break for many independent sellers, and is rife with abuse.
Tech companies may be forced to reckon with their decision to favor exponential growth over proper governance in the last decade, but in large part that reckoning is in the hands of government bureaucrats and politicians, and I admit I’m skeptical they will risk damaging a sector that has increasingly become central to our economy.
Short Cons
Krebs on Security - “Hospitals that have been hit by a data breach or ransomware attack can expect to see an increase in the death rate among heart patients in the following months or years because of cybersecurity remediation efforts”
ARS Technica - “The investigation finally uncovered the source of the leaked data in late October. That's when the investigation determined that an employee had downloaded customer support data and sold it to a "currently unknown third-party malicious actor."”
Thoughts and prayers to scammerdarkly@gmail.com.