Tag: ethics

When the middlemen get desperate

As internet startups struggle with huge valuations, the temptation for unfair and unethical business behaviour increases.

 

Sometimes business practices go bad. A good example of this is a survey of restaurant reservation systems by the Marketing4Restaurants website.

A striking allegation in the survey is how some of these services advertise on Google against their own clients, called ‘adwords arbitrage’ by one competitor to the established booking services.

One of the failed promises of the internet was the removal of the middlemen. Many of us thought the web would enable businesses and individuals to communicate directly to the public without the need for intermediaries.

We were wrong, rather than eliminating middleman the internet gave birth to a new breed of bigger global breed with the rise of Google, Facebook and Amazon being the most prominent.

The success of the ticket clipping culture has seen thousands of platform services and online exchanges that do little more than try to lock small businesses and contractors into into their systems for little if any benefit.

However advertising against your own customers as Open Table and Dimmi are alleged to do is another level of bastardry and, at least in Australia, quite possibly illegal.

Even if this behaviour does turn out to be within the letter of the law, a business competing against its own customers is being run by ethically challenged people and is almost certainly doomed in the medium term – what client is going to pay to subsidise its competitors?

As internet startups struggle to justify huge investor valuations we can expect more behaviour like this. Hopefully though most of those businesses, and the investors who fund them, are doomed.

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When governments misuse data

The Australian government’s misuse of data in harassing welfare recipients is something that should worry all citizens

Last year the Australian Federal government had a smart idea. To fix its chronic budget deficit, it would use data matching to claw back an estimated three billion dollars in social security overspending.

Unfortunately for tens of thousands of Australians the reality has turned out to very different with the system mistakenly flagging thousands of former claimants as being debtors.

How the Australian government messed up its welfare debt recovery is a cautionary tale of misusing data.

Data mis-match

At its core, the problem is due to the bureaucrats mismatching information.

Australia’s social security system requires unemployment or sickness benefit claimants file a fortnightly income statement with Centrelink, the agency that administers the system, and their payments are adjusted accordingly.

Most of those on benefits only spend a short time on them. According to the Department of Social Services, two thirds of recipients are off welfare within twelve months of starting.

Flawed numbers

Despite knowing this, the bureaucrats decided to take annual tax returns, average the individual’s income across the year and match the result against the fortnightly payment.

That obviously flawed and dishonest method has meant hundreds of former welfare recipients have been falsely accused of receiving overpayments.

Compounding the problem, the system frequently mis-identifies income because it fails to recognise employers may use different legal names, leading to people having their wages double counted and being accused of not reporting work.

Shock and awe

Under pressure from their political masters, the aggressive tactics of Centrelink and its debt collectors have left many of those accused shocked and distressed.

I can barely breathe when I think about this. My time period to pay is up tomorrow. I asked them for proof before I pay and I have heard horror stories of debt collection agencies, people being asked to pay so much, people being told there will be a black mark on their credit. I am so terrified. It’s so stupid for me to be terrified but I can’t help it. I am a student, I can’t afford anything!

Reading the minister’s response to criticisms, it’s hard not to come to the conclusion that intimidation was a key objective.

The numbers of people involved are staggering. The department of Social Services reported 732,100 Australians received the Newstart unemployment allowance in 2015-16. Should 66% of those have moved off the benefit during the tax year then up to 488,000 people will receive ‘please explain’ notices.

Nearly half a million people being falsely accused of welfare fraud is bad enough, but that is only last year’s figures – due to a  law change by the previous Labor government, there is no limit to how far back Centrelink can go to recover alleged debts.

The System is working

Claiming the Centrelink debacle is a failure of Big Data and IT systems is wrong – the system is working as designed. The false positives are the result of a deliberate decision by agency bosses and their ministers to feed flawed data into the system.

How this will work out for the Australian government as tens of thousands more people receive unreasonable demands remains to be seen. Recent comments from the minister indicate they are hoping their ‘tough on welfare cheats’ line will resonate with the electorate.

Regardless of how well  it turns out for the Australian government, the misuse of data by its agencies is a worrying example of how governments can use the information they collect to harass citizens for short term political advantage.

Beyond welfare

While many Australians can dismiss the travails of Centrelink ‘clients’ as not concerning them, the same data matching techniques have long been used by other agencies – not least the Australian Taxation Office.

With the Federal Treasurer threatening a campaign against corporate tax dodging and the failure of the welfare crackdown to deliver the promised funds, it’s not hard to see small and medium businesses being caught in a similar campaign using inappropriate data.

More importantly, the Australian Public Service’s senior management’s incompetence, lack of ethics and proven inability to manage data systems is something that should deeply concern the nation’s taxpayers.

In a connected age, where masses of information is being collected on all of us, this is something every citizen should be objecting to.

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The rise and fall of a social media influencer

The story of one Tumblr influencer illustrates much that is wrong with the social media industry.

Jess Miller from suburban Melbourne was a social media star. Two years ago at the age of sixteen she was earning $10,000 a week as ‘Pizza’ on Tumblr.

Miller was a classic social media influencer, with 700 thousand young followers she was popular with advertisers then along came the payday of reposting fake diet pill testimonials.

Miller started to make serious money. She’d already been able to make a little cash: fashion companies and some small Etsy stores paid her to post pictures of clothing on her blog, with a nudge to her followers to check out their sales. She’d earned about $4000 in this way.

But then the big one came along. Two 18-year-old American social media entrepreneurs, Zach Lilley and Jeremy Greenfield – fans and friends of Pizza – approached Jess Miller and other top-performing Tumblr bloggers in April 2014 with a proposition for a money-making scheme. It used a decidedly old-school lure: diet pills.

Lilley, Greenfield and their associate Dennis Hegstad ran a website called Exposely, which connected brands to people with strong followings on social media. Lilley and Greenfield used their social media skills to create diet pill ads that masqueraded as Tumblr posts, essentially fake testimonials from women talking about their weight-loss journey. Miller would re-blog these posts, and get a small payment if the user clicked on the link. If the user bought the pills, Miller would get $23 and Exposely would get $26. She watched the money roll in – to her mother’s PayPal account.

 

Eventually the breaches their terms of service, not to mention ethics, became too much for Tumblr’s management and they deleted Miller’s blog along with a group of others in the scheme.

Miller’s story illustrates the manipulation that is a big part of the social media influencer industry with behaviour that’s almost certainly illegal and most definitely unethical. It also illustrates the risks of basing an income or business on service where you can be closed down any time.

For Miller, she seems relieved her time of fame is over. Those building their businesses around these platforms may not be so philosophical.

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Building trust in an age of suspicion

How can businesses regain public confidence in a time of declining trust?

The world’s trust in business, government and innovation is falling reports global PR giant Edelman in its 2015 Trust Barometer.

Surveying 27,000 participants around the world, Edelman follows up with questions to what they call ‘informed publics’; 6,000 college-educated followers of business and news media with a household income in their country’s and age group’s top 25%.

Across the board trust in institutions have fallen with nearly 60% of countries falling into the ‘distruster’ category and the news isn’t good for businesses and governments.

That decline in trust is a striking result given the ‘informed publics’ cohort are their country’s middle class and it shows the stresses being felt in affluent groups.

“There has been a startling decrease in trust across all institutions driven by the unpredictable and unimaginable events of 2014,” the company’s release quotes CEO Richard Edelman. “The spread of Ebola in West Africa; the disappearance of Malaysian Airlines Flight 370, plus two subsequent air disasters; the arrests of top Chinese Government officials; the foreign exchange rate rigging by six global banks; and numerous data breaches, most recently at Sony Pictures by a sovereign nation, have shaken confidence.”

Whether the events of 2014 are responsible for the erosion in trust as Edelman claims is up for debate, the decline of trust in innovation indicates the general atmosphere of mistrust is a much bigger issue.

Trusting innovation

Particularly notable is the Australian result where over half the respondents believe innovation is happening too quickly and that it is being driven by greed. Only some, a piddling 14 percent, see innovation as making the world a better place.

Those results are a concern for a country looking at dealing with a high cost economy. At this stage of Australia’s development it’s necessary for industry and society to be implementing new ways of doing business, not looking back to the past.

One shift that marks a change in society is that online search engines are now more trusted than the media outlets that provide the news, that  the population trusts algorithms more than journalists is something that should concentrate the minds of newspaper and magazine proprietors.

Regaining trust

Towards the end of the survey Edelman suggests ways businesses and governments can regain the trust of their communities through ethical business behaviour, taking responsibility to address issues, along with having transparent and open business practices

Other opportunities for building trust include listening to customer needs and feedback, treating employees well, placing customers ahead of profit and communicating frequently on the state of the business.

Clearly building trust is the task of all staff but it starts with an organisation’s leaders to ensure ethics and openness are rewarded. In that light it’s not surprising that trust is declining given the way unethical financiers and opaque politicians have been the main beneficiaries of the post crisis economy.

While a time of declining trust means our institutions are under great stress, it also means there are great opportunities as well for smart businesses and leaders. The challenge is to show the ethics and openness that the public is calling for.

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A question of ethics

Uber’s missteps remind us that ethics matter in business

At this week’s Australian Gartner Symposium ethics was one of the key issues flagged for CIOs and IT workers; as technology becomes more pervasive and instrusive, managers are going to have to deal with a myriad of questions about what is the moral course of action.

So far the news isn’t good for the tech industry with many businesses failing to deal with the masses of data they are accumulating on users, suppliers and competitors.

A failure of transparency

One case in point is that of online ride service, Uber. One of Uber’s supposed strengths is its accountability and transparancy; the service can track passengers and drivers through their journey which should, in theory, make the trip safer for everybody.

In reality the tracking doesn’t do a great job of protecting riders and drivers, mainly because Uber has Silicon Valley’s Soviet attitude to customer service. That tracking also creates an ethical issue for the company’s management and one that isn’t being dealt with well.

Compounding Uber’s ethical problem is the attitude of its managers, when a Senior Vice President suggests smearing a journalist who writes critical stories then its clear the company has a problem and the question for users has to be ‘can we trust these people with our personal data?’

With Uber we may be seeing the first company where data management and misuse results in senior management, and possibly the founder, falling on their sword.

Journalists’ ethics

Another aspect of the latest Uber story is the question of journalistic ethics; indeed the apologists for Uber counter that because some journalists are corrupt that justifies underhand tactics from companies subject to critical articles.

That argument is deeply flawed with little merit and tells us more about the people making it than any journalist’s ethical compass, however there is a discussion to be had about the behaviour of many reporters.

As someone who regularly receives corporate largess — I attended the Gartner Symposium as a guest of BlackBerry and will be going to an Acer event tomorrow night — this is something I regularly grapple with; my answer (or rationalisation) is that I disclose that largess and let the reader make up their own mind.

However one thing is clear at these events; everything is on the record unless explicitly stated by the other party. This makes Michael Wolff’s criticism of Ben Smith’s original Uber story in Buzz Feed pretty hollow and gives us many pointers on Wolff’s own moral compass as he invites other writers to ‘privileged’ dinners where the default attitude is that everything is off the record.

Playing an insider game

Ultimately we’re seeing an insider game being played, where journalists like Wolff put their own egos above their job of telling their audience what is happening; Jay Rosen highlighted this problem with political coverage but in many respects it’s worse in tech, business and startup journalism.

It’s not surprising when a game is being played by insiders that they take offense at outsiders criticizing them.

Once the customers become outsiders though, the game is drawing to an end. That’s the fate Uber, and much of the tech industry, desperately want to avoid.

Uber in particular has many powerful enemies around the world and clumsy management mis-steps only play into the hands of those who see the company as a threat to their cosy cartels. It would be a shame if Uber’s disruption of the many dysfunctional taxi markets was derailed due to the company’s paranoia and arrogance.

Eventually ethics matter. It’s something that both the insular tech industry and those who write on it should remind themselves.

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Door to door blues

How short term management thinking caught energy suppliers and telecommunications providers short.

The news that energy companies have decided to drop direct door to door selling in the face of prosecution is the latest example of poor thought out performance metrics and managers unsuccessfully trying to shift risks out of their business.

Electricity and gas distributors Energy Australia and AGL embarked on a door-to-door sales campaign to gain more customers. Like most modern corporations, they don’t do this stuff themselves and engaged outsourcing companies who in turn took on commission salespeople to do the ground level selling selling.

It didn’t work well and in face of complaints, both companies had to back away from their campaigns after suffering legal and reputational damage.

The sad thing this has happened before, at the time of telecoms deregulation in the 1990s telcos did the same thing to grow their market share. Door to door sales teams fanned out across the suburbs to sign households up to telephone plans.

In one example, a company hired dozens of backpackers, bussed them to outlying suburbs and sent them out on the streets to sign up as many households as possible.

Initially the campaigns were a success with providers reporting increased signups, greater market share, fat executive bonuses and happy commission earning salespeople.

Then the complaints began.

Customers discovered they’d been lied to, or in some cases falsely signed up, as hungry salespeople did everything they could to get a commission.

At first the telcos thought they could throw the problem over the fence so they blamed the contractors. Eventually the damage became so great the telcos had to back down on their door to door selling as problems multiplied and consumer protection agencies expressed their irritation.

At the heart of the problems with this type of door to door selling is the mismatch of incentives – for managers, contractors and the teams going door to door in the suburbs.

Door to Door Blues

At the coalface are the salesteams trudging around suburbs. In the 1990s telco boom they were largely made up of backpackers whose interests were to sign up as many customers as possible in order to fund the next stage of their travels.

Often, the telco or its contractor would only discover a sign up was the family dog or toddler long after the traveller was sunning themselves at Koh Phi Phi.

Using Indian students as the energy contractors were doing largely fixed some of the worst excesses of the 1990s but it didn’t address all of the problems

Management misalignment

Driving the rush for sign ups are usually poorly designed  management Key Perfomance Indicators – a dumb set of executive benchmarks rewards poor  behaviour and creates unforeseen risks. Particularly when those KPIs are focused on short term metrics.

Very quickly the risks in the short term focus become apparent and managers back off from these programs.

In this case it appears Energy Australia’s managers heeded the early warnings and backed off before the problem became too great, unlike the telcos who let the sales teams run rampant before reigning them.

What’s saddening about Energy Australia’s and AGL’s problems is they were totally forseeable and those who warned of the risks in a door-to-door customers acquisition strategy – and there were almost certainly some in these organisations – were overuled by enthusiastic executives aiming to bust their sales and market share metrics.

Sometimes we are condemned to repeat history repeatedly in business.

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On being evil

Microsoft learn what its like to be the weakest kid on the block while Google consider a future of being evil.

“Don’t be evil” are the opening words of Google’s corporate code.

When it was framed in the late 1990s there was one company in particular everyone in the tech industry thought of when the word ‘evil’ was being used.

At the time Microsoft defined evil in the technology industry. The main reason was their crushing of real or potential competitors like Netscape, Java or the troubled IBM joint venture of OS/2.

Topping everything though was Microsoft’s tactic of fake error messages designed to scare customers away from the competing DR-DOS system in the early 1990s.

So it’s rather delicious that Microsoft seems to be getting a taste of its own medicine twenty years later as Google Maps returns an error message on Windows Phones.

This is particularly galling for Microsoft as Windows Phone is essential for the company’s resurgence and, as Apple have learned, maps are a critical feature for smart phone users.

It’s too early to accuse Google of having become evil as Microsoft did during their period of dominance as Tim Wu discusses in Why Does Everyone Think Google Beat The FTC but the search giant is flexing its muscles on many fronts.

For Microsoft, they are learning what life’s like when you’re not the toughest, meanest kid on the block.

Karma can be a real bitch.

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