I remember evaluating the books for one of those companies back in the day. It was wildly successful at the surface level. But if you dipped below the surface, you noticed that its biggest strategic weakness was "Breakage," i.e., the rate at which people eventually discovered they'd been duped and then cancelled their subscriptions. It turned out that the average subscription lasted 2 to 3 months, and nobody kept a subscription longer than 5 months. This basically meant that the company's entire business model was predicated on scamming new users at a rate quicker than its existing users could break away. While not a Ponzi scheme in the true sense, the model operates on a similar assumption. But the assumption is not sustainable in the long run.
I look at a lot of companies these days -- especially all the companies in the pop-up sale business, the subscription-box business, etc., and wonder how many are following this playbook. And I wonder why VCs keep backing them. Obviously it's a fantastic way to earn tremendous growth up front. And, while the getting lasts, the getting is pretty darned good. But it's sad to think that legitimate startups may get turned down, or underfunded, for the quick buck and easy exit that can be made on this crap.
My phone's a prepaid, so this ran the balance down to the minimum $1.50 in short order, but I didn't know whether perhaps somebody in the family had simply used those minutes - so I recharged it with $50. In three days, it was back at $1.50 and it had done nothing but vibrate in my desk drawer occasionally.
The "premium SMSs" were sent as system SMSs so they wouldn't appear in my Inbox; if I hadn't noticed one or two I wouldn't have seen them at all. I thought they were simply SMS spam, not even knowing that a "service" like premium SMSs even existed. They seemed to include a URL and nothing else - on a phone that only supports Internet on GPRS, which is no longer even available in Budapest.
T-Mobile said that for privacy reasons, they can't divulge the identity of those companies. Of course, T-Mobile gets about half of the cost of each premium SMS, so it's not terribly surprising that they're not highly motivated to stamp out scams. I told them to remove my ability to enjoy the premium SMS service, and they obliged, but that's as far as they would go.
(Nothing against Hungary. Same thing happened to me once in America with 900 numbers; the only thing the phone company would say is that somebody must have plugged a phone into our outside service jack - we turned off 900 numbers then and made sure they were off for every subsequent landline we obtained, but a scam's a scam.)
I have no recourse under Hungarian law, incidentally. Since a subscription was entered from my phone, there's nothing I can do to recover that money. It's no great problem for me, but that's a lot of money to the average Hungarian, who is absolutely powerless against a big foreign company like T-Mobile.
I currently have T-Mobile in the US and haven't had the problem you describe, but based on your story I'll probably be a bit more willing to shop around next time I need to change my contract.
Sometimes they are enabled without your permission. My mom's phone number auto-magically gets subscribed for 'premium SMSs'. She doesn't understand how to send SMS's and cant use the phone interface apart from dialing a few numbers. Yet she often complains of money getting deducted from her pre paid account.
Called the customer care numerous times and every time all we get is - 'We are sorry sir, may there was an error in our system'.
Needless to say these mobile company thieves make millions from these 'errors in the system'.
I never thought that was a shady business model, per se, and whilst it wasn't entirely intuitive how they worked to a 14 year old, I blamed myself for screwing up by joining- not the company.
This site seems to be entirely designed to mislead you into thinking you're just ordering one item, while in fact you are signing up for a membership.
Signing up for the first one (book club) may be a bad business decision on the customers part, but this second style simply seems fraudulent to me.
Not every business is 'sustainable' through repeat customers - funeral homes come to mind. However, if the only way to be sustainable is to break laws, that's where the problem lies.
Sure, but at the scale the ringtone business grew (and burned through users), they eventually ran out of suckers to scam. A lot of them would fold shortly thereafter, or move on to a different market (usually a completely different country), or consolidate with another company overseas and tap the suckerbase there.
This model is basically a modern, bigger-scale version of the old snake oil sales model. Set up a shop in town, sell a bunch of bad merch, get run out of town, find a new town. Rinse and repeat.
Eventually, though, your model catches up to you. Either you're closing up shop in old markets and opening new ones that aren't as big or lucrative, or you're keeping a toehold in the old markets -- but the costs of doing so grow faster than your revenues. Or you flee Market A for Market B, only to have a competitor or two leap into Market B the next month.
Sad thing is, JustFAB seems to be just like these companies. Only it looks good and it is supposed to be a 'legitimate' business.