
Paying for Popularity Can Be Fraud - Ice_cream_suit
https://www.bloomberg.com/opinion/articles/2018-11-19/paying-for-popularity-can-be-fraud
======
owens99
This is the trick for popular restaurants/take-out food in NYC: Buy a really
small shop so only 3-5 people can fit inside and the rest have to form a line
outside. Then take orders and serve people really slowly so the line builds.
Pick up the phone even if it doesn’t ring and pretend you are taking orders,
etc. Pretty much a textbook strategy. Food must still be good, but the
anticipation from a long line makes it taste better and attracts a lot more
customers.

~~~
intothemild
I used to run club nights in the 2000s, where I'd take over a night at a club
and do some kind of event, I'd ticket the door, so people would pay like $5 to
come in.

Clubs always have a front and a backdoor..... I'd get 20-50 of my friends to
line up, the security guy would know who's who... The line would move slowly,
the person who went in, would go to the bar grab a small drink, and then exit
out the back and re-join the line. The best part is, we would only have to do
this for 20-30mins at max.

The queue would grow organically, and the security guard would start letting
my friends in at a faster pace, and then slow it down once everyones in..
where we would all have a few more drinks.

With zero marketing I could fill a club by just making the line look big..
Here's the big kicker, the traditional marketing in the day (posters around
town + getting people to hand out flyers at other clubs in the morning) cost
MORE than just giving a couple free drinks to your friends who waited in line.

~~~
bartread
I know this works - it's the same reason restaurants fill window tables first
- but I've never really understood why this motivates people: a huge queue is,
without fail, a _massive_ turn-off for me.

I suppose popularity is interpreted as a signal of quality/excitement but, to
me at any rate, it's usually a signal of boredom and frustration.

It works better with restaurants: I mean I want to see there's _somebody_ in
there eating the food but if it looks too busy, I'm out.

~~~
athenot
I understand the feeling and mostly share it. But if you are wise about that,
would I be mistaken in assuming you are also wise with your spending? Perhaps
wiser than what the restaurant owners desire.

Therefore it's probably in their best (financial) interest to select for those
who will look for popularity and happily blow away money on high-margin items
on the menu.

~~~
ljf
I used to notice this in shops too, as a teenager. We had a sort alternative
mini shopping zone, like a slightly upscale indoor market. As soon as me and a
couple of guys went into any empty stall, within a couple of minutes other
people would crowd in too. We'd then pick somewhere else and watch the same
thing happen. Always amused us.

------
humanetech
Tangential to the article, but on-topic to the title:

I saw the Dutch documentary #followme [0] the other day, about the
_incredible_ fakeness of Instagram, where for a couple of dollars you can buy
1,000's of Likes / Followers. And everyone - up to the kids in high school -
is doing just that, to buy popularity (the metrics have actually become the
determining factor for real-life popularity for many people).

Apparently one of the big shots in this shady industry is a Dutch guy (multi-
millionaire now), who manages tens of popularity-boosting websites directly or
indirectly (and not only for Instagram). He caters to celebrities as well, who
sometimes buy millions of followers. For these high-profile actions they
arrange special events, according to the docu, like publishing 'fakish' news
articles to established news sites (Forbes was mentioned) to coincide with the
artificial boost in popularity.

This can be considered fraud too, as 'popular' users benefit from influencer
marketing deals (free clothing, travel, tickets, money, etc.) and there is a
continuous cat and mouse game between illegit popularity boosters and
marketeers. Professional investigative companies jumping on this train to
filter out the bad apples, etc.

[0]
[https://www.instagram.com/tv/BqcnFY8gEgH/](https://www.instagram.com/tv/BqcnFY8gEgH/)

~~~
theNJR
3-4 years ago this would have been a huge opportunity for an emerging brand.
Back then high level execs knew followers mattered but were not themselves on
platforms like IG.

Now, everyone is aware of this. When doing influencer deals you get their
story open rates and swipes. Everyone knows to look at the ratio of comments +
likes to followers.

Kids who do this for their personal IG, certainly, get called out. A guy I
used to work with bought around 10,000 followers and boosts all his posts to
500-700 Likes.

It's so ... obvious. Like bad plastic surgery.

Humans are funny.

~~~
rightbyte
"Everyone knows to look at the ratio of comments + likes to followers"

If likes can be fake then so can comments, right?

~~~
rapnie
This was actually in the documentary too. There is a Russian site or app
called Commenter, where you can buy positive on-topic comments. Also common
practice to do this to e.g. boost some products in SMB webshops, etc.

------
lesss365
Somewhat related, it seemed like Netflix (and many others) was carrying out a
similar strategy to inflate their number of subscribers to show investors, by
allowing users to sign up for endless free trials through creating new email
addresses. Only recently did they announce their banning of this come January,
in an earnings call, IIRC, which I'm assuming is due to investors catching on
and potentially being more skeptical following the recent drops in the NASDAQ.

Not to say that they don't offer a solid service of value, just that it seemed
like they enabled this as a means of inflating their numbers for investors.

Random side note, people used to be able to do this with Seamless to get their
sign up discount with any order, using a combination of creating a new email
address, adding the new email address to a single PayPal account, generating a
new Google Voice number associated with the new email address, and providing a
random name. It appears they've picked up on it and have taken measures to
prevent people from doing this. Might've previously allowed it for inflation
reasons, but likely stopped due to their gain in momentum and it being too
costly to allow with little to gain

------
TangoTrotFox
This is also why I think the idea of combating fake reviews is not really
viable. I sell a widget for $20 with real costs of $8. I expect positive
reviews will increase my ranking as well as purchase rate the order of let's
say $5million+. I give my widget to 10,000 people on the condition that they
agree to write a positive review for it. I just spent $80,000 (and then some
change to get in contact with those 10,000 however) to make $5 million+. And
those reviews are "real".

The whole point is that as we enter into an ever more connected world
popularity of views start to mean less and less because "popularity" can be so
easily faked. Imagine once there are bots that can compellingly market
products (or ideas/politicians/etc) in language to the standard of a Tweet,
which isn't exactly a high bar. Suddenly now you could have literally millions
of "people" advocating for something that perhaps only a handful actually want
or believe in. It's also perhaps presumptuous to imply that this technological
milestone has not already been reached.

Even draconian ideas like trying to remove anonymity would likely do little to
nothing since, as in the reviews example, people can simply be incentivized to
play ball for what amounts to peanuts compared to the stakes for those doing
the incentivizing.

~~~
athenot
This is the most positive thing I've read in a while. Perhaps we'll reach a
point where it becomes ingrained in society that popularity in numbers
actually means nothing. Quantities of shallow praises become worthless once
the praises are indeed exactly equal to zero.

Then maybe our tribal instincts will kick back in and we as a society will
return to seeking few but high quality praises, from people we trust and with
whom we are connected on a human level—ie. deeper, multi-faceted connections.

~~~
Asooka
There's a fool born every minute, so I doubt such knowledge will become common
organically. Better yet, have a class on basic tropes used to manipulate your
decisions aimed at teens taught at some of the free online universities (e.g.
Khan Academy). I don't want to suggest rolling it into an actual high school
class, because I don't think official regulated school classes are agile
enough to handle the rapid change of the online landscape.

------
SonicSoul
Heh I live near the Supreme store in nyc and every weekend without fail people
start to queue up around the corner in the morning. Everything about this
brand (down to its Logo which was “appropriated” from Barbara Kruger “I shop
therefore I am”) is about appropriating other designs. So they’re essentially
selling hype at huge markup via tiny store and line round the whole block. I
see people stand in this line all day in the winter! Although some of them are
enterprising individuals who re-sell these items at 500% profit

~~~
neom
Supreme is one of the original new york streetwear lines, it's practically an
institution. I used to work in that exact building for years and I couldn't
disagree with you more. I think there is something really cool about the kids
lining up to get a drop, if you go chat with them for a while, they know every
supreme, who inspired it, and given the massive lines are usually always
collaborations - why the collab is special. Given Supreme has been operating
in the city for 25 years and not much has changed outside of the collabs they
do, I don't think you're correct about them being "about appropriating other
design". Even the Barbara Kruger comment is a huge stretch, inspiration and
appropriation are not the same things.

~~~
dawhizkid
The fact Supreme is 50% owned by the Carlyle Group, a massive private equity
firm, is kind of a joke no? It's the total antithesis of what street/skate
culture stands for.

~~~
neom
Certainly Supreme is not a small company and their standard lines have huge
huge distribution and are not particularly unique. The OP was referencing the
lines outside of the Supreme store on Lafayette, this is _the_ supreme store
regardless of the fact that there are _many_ supreme stores, the original
supreme store in Manhattan releases limited one time short run series of
Supreme only available at this store. This is pretty much the standard
streetwear MO, regardless of how small or large, even folks like ader error
who I believe are held by the founders yet have global distribution still drop
original and limited in this manner, if I want one of their drops I have to
pay someone in Korea to line for me or wait for it to arrive on the secondary
market for some insane markup.

------
throwawaylolx
Sounds like most ICOs: the founders can buy their own supply at no cost,
making all cryptocurrencies that ICO'd (Ethereum, EOS, etc.) inherently
insecure and centralized.

This is why blockchains that distributed their supply via PoW work: you cannot
buy your supply without proving you put in the work. The founder cannot fake
hash power, so the distribution is "fair."

Despite everyone trying to "improve Bitcoin," I can count on one hand coins
that didn't have a significantly worse distribution than Bitcoin, which makes
them dead-on-arrival. This applies to coins such as Cardano and Nano as well
whose distribution was insecure, making them inherently unsafe.

~~~
TeMPOraL
True. And because I haven't seen any proof that cryptocurrencies based on
something else than PoW can work, I believe _they all need to be burned to the
ground_. PoW cryptocurrencies are an environmental hazard.

~~~
throwawaylolx
That doesn't necessarily follow from what I said: my comment was strictly
about the distribution of incentives. A PoS-based cryptocurrency can bootstrap
a fair distribution through airdrops over PoW-distributed cryptocurrencies,
sidestepping both the shortcomings of ICO distribution and the environmental
impact of PoW coins.

------
gammateam
The article offers one example buried within its rant about private equities
and crypto offerings

I thought that was funny

Basically all they had to do was disclose to investors that they were buying
downloads. This can be done in a variety of ways such as mentioning a contract
with the firm or service providers, and that is enough information for
potential investors to look up the company.

~~~
istinetz
Yes, but the whole point of buying eyeballs is to deceive investors. If you
tell potential investors, "I have 14 million unique monthly users, but I pay
for 13 million of them", they're just gonna stare at you blankly and not
invest.

~~~
gammateam
Thats why you dont word it like that

But you can do it compliantly, like some of the examples in the article did

------
delbel
I though this was basically the main business plan on flippa, like an open
secret. And I have even heard that some books on "new york times best seller
list" are just books moving between warehouses to generate invoices.

~~~
weinzierl
> And I have even heard that some books on "new york times best seller list"
> are just books moving between warehouses to generate invoices.

This probably doesn‘t help. The _“The New York Times Best Sellers“_ is a
curated list. High sales don’t guarantee a placing on the list.

This is not even a secret: When William Blatty sued the New York Times because
_The Exorcist_ had only been on the list, he lost the case. The defense was
that “the list did not purport to be an objective compilation of information
but instead was an editorial product.“ [1]

[1]
[https://m.huffpost.com/us/entry/us_11409822?guccounter=1](https://m.huffpost.com/us/entry/us_11409822?guccounter=1)

~~~
yesenadam
> _The Exorcist_ had only been on the list

Think you meant "had not been". p.s. Enlightening article, thanks.

~~~
weinzierl
I thought he sued because he was on the list only for a very short time when
sales numbers justified a longer time. This is wrong and I should have written
"had not been". Thanks for the hint.

------
mirimir
You don't even need a "buddy". Because, if you know what you're doing, you can
_be_ the buddy. Or thousands of them. Whatever it takes.

------
DanielBMarkham
I don't understand where the "fraud" line is. I suspect many more don't
either.

It's common knowledge that to get a good network startup going, you need to
sock-puppet the hell out of it. It's common knowledge that Amazon is full of
scam reviews. It's common knowledge that many Twitter followers are fake, or
bots. It's common knowledge that Instagram pics are photoshopped-up.

So when you see a picture of an attractive person on Instagram using some
product, go to your Twitter to see a famous person recommend it, then click
over to Amazon to read raving reviews, is that fraud? Because that's how the
web works. It's the same exact game, you just don't give the money directly to
your buddy.

~~~
TeMPOraL
I think I have the opposite view from you. I see how this is not _technically_
fraud, but I don't understand _why isn 't it_. It should be. All the companies
that engage in such practices can go to hell; I do my best to never do
business with any that I know does that.

It's sad that lying to people and exploiting them is not only accepted, but
considered a legitimate standard practice.

~~~
DanielBMarkham
My view is that I don't understand. It looks like you do. Yay!

I will try to explain to you why I don't understand. Maybe you can help.

Computers are an extension of our brains. What I _think_ is happening is that
people doing a whole bunch of immoral things online: lying, sock-puppeting,
and so forth. But there's a not direct person-to-person link where money
trades hands and the other person gets screwed. Instead it's much more subtle
than that.

When you add it all up, yes, we agree, a lot of this looks like fraud to me.
But maybe it's fraud in the moral sense and not fraud in the criminal sense?
If I tell my Uncle Amit that his new suit looks good on him, even though it
doesn't, then goes out and buys a dozen, is that fraud? What if 100 people he
doesn't know participate in the same kind of lie only using a lot of different
tech?

My point is that simple lying is not a crime. So it can't _all_ be a crime.
And now I'm back to trying to figure out where the line is.

ADD: As I typed this, I noticed that my FB notification went off in one of my
browser tabs. I click over -- and FB is notifying me of something it already
notified me of. But got me to click! I'm seeing a lot of social sites doing
this double-notification stuff. I understand about distributed databases, that
there might be a reason for it. But after a while, this starts to look like a
whiny, pathetic attempt just to get me back looking at more Facebook.

Is that fraud? How about when Facebook both shows more of my stuff and more of
the people I interact with to me -- while we're all online together, hoping
that we'll start interacting directly -- and staying on FB?

There's an enormous amount of this online. FB is only used here as an example.
How about when you hellban people and they think they're typing comments into
a forum but they're really not? You're directly taking their time and energy
away from them by lying.

I hate all of this. I'm just not sure it should be a crime.

~~~
TeMPOraL
> _But maybe it 's fraud in the moral sense and not fraud in the criminal
> sense?_

Yes, that's what I meant. It's not fraud in criminal sense, but it's
definitely immoral - and I often find myself wondering, why some of those
practices aren't considered legal!fraud?

> _But there 's a not direct person-to-person link where money trades hands
> and the other person gets screwed. Instead it's much more subtle than that._

Sometimes there is. I complain a lot about dishonest ads and telemarketers,
because in those cases there's a direct link - a telemarketer manipulates a
poor person into buying stuff that they don't need, and that doesn't perform
as well as advertised. That person is then left with mostly useless
paperweight, less money for their real needs, and a sense of shame that makes
it hard to admit they were duped. Yes, I know of such cases first-hand. There
are degrees to this, and ultimately, it usually doesn't result in life-
threatening problems, but then again me punching you and taking your lunch
money also doesn't cause you more harm than hurt feelings and going hungry for
the day.

Step above that are faked and bribed reviews. Again, one can say it's just
noise, but then just imagine a person who needs an appliance, and can't afford
to make a bad purchase. All this noise suddenly makes it very likely that
whatever they buy will be crap, and they'll get an utterly suboptimal deal.
I've been in that situation in the past, and though these days I can afford to
pay premium and buy a branded product just to avoid dealing with this
bullshit, most people I know can't, and thus shopping is often a lottery of
regrets.

> _My point is that simple lying is not a crime. So it can 't all be a crime.
> And now I'm back to trying to figure out where the line is._

Same as I do. It's a hard problem; doubly so if you include enforcability and
cost/benefit into calculation.

\--

Come to think of it, maybe I'm just too sensitive about people's feelings?
Maybe I mistakenly want to hold our modern civilization to much higher
standards than warranted? Maybe it's still really a jungle, a dog-eat-dog
world, and hoping for a society of friendly cooperation is too much?

~~~
DanielBMarkham
Why don't you curse at people when you see them in the street? It's not
illegal. Why are we nice to people at all?

I keep getting back to morals. We don't do a lot of things because we want to
be good people, not because it's illegal.

I still don't know where the line is, but I've been convinced for some time
that we need a common set of morals to hold ourselves and businesses to
online. If nothing else, "The computer should never lie to me" is a good
starting point. That is, whatever I perceive the computer to be telling me had
better reflect what the programmers know. Anything else is bullshit. (And
perhaps illegal)

~~~
TeMPOraL
> _Why don 't you curse at people when you see them in the street? It's not
> illegal. Why are we nice to people at all?_

Right? But why do we expect ourselves to be nice, and other people to be nice,
in direct interpersonal relationship, but we allow - hell, glorify - being
malicious in business setting?

> _" The computer should never lie to me" is a good starting point. That is,
> whatever I perceive the computer to be telling me had better reflect what
> the programmers know. Anything else is bullshit. (And perhaps illegal)_

I very much like this idea.

------
imgabe
I'm with it until "I sell 5 percent of the company to investors for $100
million and spend it on yachts."

Aren't investors going to notice that during the bankruptcy proceedings, the
$100 million is nowhere represented among any assets of the company and the
founder suddenly has 10 yachts? That wouldn't raise any red flags? Wouldn't
you have to produce some sort of accounting records showing where the money
was spent on salaries, office space, Facebook ads, etc?

I know there's a ridiculous amount of money sloshing around Silicon Valley,
but I still find it hard to believe that $100 million is going to disappear
and nobody is going to bother asking about where it went.

~~~
4ndr3vv
s/yachts/salaries

They're not _actually_ advocating buying company yachts. But a CEO salary?
Sure. You can buy your yachts with that.

~~~
imgabe
Sure, but nobody is going to be suspicious that you paid yourself $10
million/year while the company was losing money?

~~~
fenwick67
How much was Bezos making while Amazon was in the red? Or Jack Dorsey?

~~~
imgabe
Amazon and Twitter eventually went public and made their investors umpteen
billions of dollars, so I'm sure they don't care now.

If they had gone bankrupt instead, and Amazon was nothing but a static HTML
page while Bezos was building his own marina I imagine someone would have been
asking some questions.

------
kristianc
When this was floated on Twitter the other day, a number of prominent VCs
chimed in to say that due diligence would see this coming a mile away.

~~~
CPLX
VC's always say that. I'm sure some do more than superficial due diligence,
sometimes, but honestly I don't really believe them, at least not in the early
stages. For companies at those stages I wouldn't be surprised if more than
cursory DD had a negative ROI anyways.

~~~
FilterSweep
Yep just look at Clinkle and (in particular) Theranos

------
lordnacho
Fairly well know in old school business:

You buy a crappy house somewhere, and you sell it to a friend for a lot more.
He might reciprocate, too.

You take your increased prices to the bank as evidence that you have more
equity, which you use to back a loan.

You buy another crappy building.

~~~
JumpCrisscross
> _You buy a crappy house somewhere, and you sell it to a friend for a lot
> more_

This is an inefficient way to inflate asset values. What you’d actually do is
put your garbage house in a special purpose vehicle (SPV), sell 5% of the SPV
to your friend at a stupid price, get the SPV appraised based on that
transaction, have the SPV take out a non-recourse secured loan based on that
appraisal value, pay your friend back (plus something for him) and then jingle
mail away.

The key is leveraging the cash your friend has to put in. That’s the scarce
resource.

 _Disclaimer: I am not a lawyer. This is not legal advice nor advice of any
kind. Please don’t do this._

~~~
whatshisface
It's surprising that the banks can be fooled by that, once you explained it it
seemed so obvious.

------
Jerry2
> _I pay my buddy $10 million to buy a million e-widgets from me._

> _My buddy pays me $10 million for a million e-widgets._

How does this part work? Is this real money changing bank accounts or just
promissory notes/credit?

~~~
goatsi
Generally the e-widgets will be on app stores or somewhere like Amazon so real
money will have to move. On a smaller scale companies will often use Paypal to
send people the full cost of the item after a positive review is posted.

------
gowld
It's a shame about the burger thing. If they'd found someone a bit savvy, they
could have parlayed their fame into far more money than the cost of the
tourist hordes, and been well places to either retire or re-set the business.

------
pasxizeis
Curious though: if I give a lot of money to a friend, don't I have to somehow
report this to the IRS or something? And when he goes on to buy this stuff,
doesn't he have to report somehow where all this money came from?

~~~
jeremyjh
Businesses only pay taxes on net earnings, not on gross revenues. As long as
you both do not show a profit you won't have tax liability.

~~~
SmellyGeekBoy
Businesses still need to report all revenue, even if they're only taxed on the
profit.

------
jimbo999
it is almost like people are too greedy to realize the con /s

~~~
jl2718
Or they do realize the con, but they don’t care because pure speculation works
anyway.

------
cyberjunkie
Pretty much most of marketing and nearly all of advertising then.

------
amelius
Growth hacks can be fraud. No surprise there.

------
el_benhameen
Tangential, but I love when non-fiction writers have a strong writing style. I
was about three sentences in when I thought “boy, this sounds like Matt
Levine”, and so it was.

~~~
hkmurakami
Even the titles have a distinct Matt Levine flavor to them.

------
tehsauce
Isn't paying for popularity the basis of advertising?

~~~
_Nat_
They mean that it's fraud to mislead people by gaming their assumptions about
performance indicators.

Specifically, they're saying that paying for one kind of popularity (e.g.,
sales of widgets or good reviews on Amazon.com) is fraud when that popularity
is meant to trick people into believing that it implies a subtly different
kind of popularity (e.g., sales of widgets from independent third parties or
good reviews on Amazon.com from unbiased reviewers).

------
foamclutching
Number 7 though... :)))

"I sell 5 percent of the company to investors for $100 million and spend it on
yachts."

