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Apr 16

‘Like Selling Crack to Children’: A Peek Inside the Silicon Valley Grift Machine

Corey “sells the method.” He got the idea from a book called The Laptop Millionaire, which describes “a guy’s journey from being basically homeless to making money online. One of the things he talks about is making ‘information products.’” Hence Fiverr Success: $4,000 a Month, 8 Hours of Work a Week by Corey Ferreira was born, selling “hundreds” of copies.

“Fiverr is like the new eBay,” Corey said. “I remember when eBay started. I was kinda young. I was already making money then. Everybody was talking about how to make money on eBay. I remember somebody telling me, ‘During a gold rush, you should sell shovels.’ That’s kinda what I do with Fiverr,” he said.

I found Corey through his website, makefiverrmoney.com, which was a marketing vehicle for his e-book. Many buyers were full-time Fiverrers in places like the Philippines or India, where $5 went a lot further, he said. The e-book cost $17. For $50 more, Corey would throw in 100 gig ideas, 30 prerecorded video lessons, an audiobook, and an audio recording of a “webinar.” Betting on the empathic bond of our common forename, I emailed Corey to request a Skype chat. He agreed. Then I persuaded him to reveal his secrets for free.

The book marked a transition for Corey, as he spent less time doing labor-intensive web design and more time searching for the cold fusion of internet marketing: “passive income.” This was shorthand for a variety of techniques whereby one could generate wealth while sitting around doing nothing. “It comes to a point where trading your time for money — it’s limiting, you know?” Corey said. Oh, I knew.

I felt Corey had let me in on some oracular wisdom. Don’t dig for gold: Sell shovels to all the suckers who think they’ll get rich digging for gold. Selling shovels wasn’t the only way to make money in tech, but it was … the Silicon Valley way.

For a business incompetent such as myself, this concept of selling a method, rather than a straightforward product or service, was revelatory. I understood this lesson as an extension of that old saying about teaching a man to fish instead of just giving him a fish. Now the idea was: You made him pay for fishing lessons, offering student loans if necessary, and failed to mention that you had already depleted the pool. This was a smart business! In a late capitalist society with dwindling opportunities for cash-poor workers and few checks on entrepreneurial conduct, what could be better to sell than false hope? So many hungered for it.

My afternoon email arrived with a warm invitation to get in on the big grift.

Hello Mr. Pein,

My name is Aron. Lately I thought of an idea for a startup: An application where ordinary people would be able to take photos of news events, sports events, fashion events etc … Since you have already been in an organization that does similar things, I would be thrilled if you could I would love to hear from you as soon as you can …

Aron Cohen

It was a strange note. I was cautious. But I was also curious. I did some quick research on Aron. His LinkedIn résumé claimed he had worked for Israeli Army intelligence unit 8200, which is that country’s version of the National Security Agency — a sophisticated, secretive, and ambitious electronic surveillance organization that happens to produce a lot of tech entrepreneurs.

Aron looked young, but he was older than I am. His photo showed him avoiding eye contact with the camera and wearing a straight-brimmed fedora, a fashion accessory associated with a certain type of charmless chauvinist techie. Aron also expressed an enthusiasm for bitcoin. I decided to hold none of this against him. He had already shown impeccable taste in potential co-founders. I wrote back.

Hi Aron,

Thanks for contacting me and for the kind offer. Since you have done some research you must know that this is a very challenging area … What is your relevant experience? And what is your startup capital?

Corey

Aron was quick to respond. He said he had previously co-founded “a company for value added services for the mobile industry,” whatever that meant, only to fall in with “a bad person” who suckered him into some fraud. After the sob story, he got back to business.

What is the budget that you think that is appropriate for this lean start-up, bearing in mind that the professional force will be rewarded mostly with options/stocks in the company?

Aha! Here was a sign that Aron had some real experience running a tech company: He didn’t want to pay his workers. I clicked on another website I found registered to Aron, this one Bulgarian. It filled my screen with noisy, flashing pop-up ads. BECOME A SELF-MADE MILLIONAIRE, one ad said. THIS IS YOUR PERSONAL INVITATION TO EARN YOU TO [sic] $1,620.90 DAILY WITH VERIFIABLE AND UNDENIABLE PROOF! They had my attention.

The site boasted several videotaped testimonials, which all started playing at once. These newly minted millionaires were so excited they were talking over one another. “Hello … I’m a self-made millionaire.” “I am a self-made millionaire.” “I’ve been using AlgoPrime for, I think, seven months now and I’m a freaking self-made millionaire …” As the din of testimonials subsided, one voice continued speaking. It belonged to a man who claimed to be the inventor of this online moneymaking miracle. He said he had built a powerful trading program for some hedge-fund billionaires, who promptly fired him. In revenge for this treachery, he was taking his secret and giving it away … But I would never find out what happened next, because I accidentally closed the window on my computer.

The ghost in the machine was looking out for me that day, because my web browser immediately served up another, very similar pitch. This one, too, opened with a series of video testimonials. “Last year I was broke, and lost my house. By 2014, I became a millionaire,” one person said. But how? The pitch continued with faceless narration from a polished, reassuring male voice.

“Congratulations, you are about to become a millionaire, too,” he said. “All you need to do is click your mouse a few times.” The appeal was indisputable. I was already spending a lot of time clicking. I might as well get paid for it. “You can join our secret Millionaires Society today, for free. Yes, free. One hundred percent free. No catch … Look around you, there’s no Buy Now button anywhere.”

I looked around the screen. So far, this guy was telling the truth.

We’re not wannabe internet gurus trying to rip off honest guys like you in order to make a quick buck. Who am I? My name is Brad Marshall, and, yes, I’m a millionaire, too.

Brad also wanted me to understand that he was different.
“I’m not your average jerk millionaire,” he promised. He was relatable.

“Apart from being a multi-millionaire, I’m a member of a small, secret club called the Millionaires Society,” he went on.

There was a surreal quality to this semi-voluntary online advertising experience. How had I come to this place? What time was it? Was Brad a real person? Or a Fiverr actor? He swore up and down that he hadn’t hijacked my web browser in order to dupe me into some kind of scam. His secret society’s system was “one hundred percent legal and ethical,” he said. “Our software works. We have nothing to hide.” He kept repeating that: “We have nothing to hide.” Then why was it a secret society? The pitch moved so relentlessly it was impossible to hold on to such thoughts.

Nobody out there knows about this secret society, or the system we use. That’s why it’s so easy and works every single time. You are the first outsider to be let in on the secret.

Brad proceeded to deliver a fast-paced demonstration of the Millionaires Society software. “I followed a few simple steps, put two hundred fifty dollars into an account … Now look at what happens. Within minutes, we went from two fifty to five thousand three sixty-five — in just the time I’ve been talking to you,” he said. “It’s that easy.” I wasn’t sure what had happened, but Brad sounded convincing —and he had spreadsheets. “Now, let me be honest with you: Somebody who really cares about you invited you to this membership club,” Brad said. How thoughtful! Perhaps it was Aron.

Now that we had established an emotional bond, Brad got to the point. “Remember when I told you that you could join for free? Well, I lied. It’ll cost you 50,000 dollars,” he said. Oh.

Now, don’t panic … We’re giving you access to an automated system that can make you millions for years to come … You don’t need to know anything about trading … The software takes care of every thing for you.

That meager $50,000 investment would quickly pay off, Brad assured. Before I knew it, I would quickly be matching his earnings of $300,000 per month. The Millionaires Society software was so powerful that “traders from some of the biggest banks in the USA” had once sought to buy it for their own exclusive use. But  Brad had turned them down. “This is just too powerful to let it slip into the hands of the wrong people,” he said. I couldn’t agree more. Rich people simply could not be trusted with money.

I felt I had gotten closer to solving the mystery of how Aron lost his fortune. I typed “Is the Millionaires Society a scam?” into Google and clicked the search button. A few happy customers said no. But many more told me yes, the Millionaires Society was a scam — and that I should try their secret moneymaking system instead. I rebuffed Aron somewhat sternly and he slunk away for good. Whether or not his partnership offer was made in earnest, he’d clearly been involved with at least one online scam. I was not inclined to pity him. Any scam that depended on the greed of its victims also made them accomplices. Aron’s transparent greed revealed his culpability. If, however, as I suspected, his business proposal was merely another ruse — albeit a more elaborate and sophisticated one than the Millionaires Society — then there was actually something compelling about it. For if a chintzy fraudster like Aron could win and lose a small fortune with only an internet connection and an arsenal of psychological tricks, there was no limit to what a powerful corporation might be able to do, given enough budget, ambition, and manipulative technique.

With that thought still rattling in my mind, I went out to a techie happy hour, where I met Cyrus and Joe, two guys a few years out of college who worked together in the lower ranks of a tech marketing company in the Financial District. They weren’t exactly plugged in to the glamorous side of the business. Their job was “lead generation” — which, as they explained it, meant building lists of email addresses for other companies to spam with bad deals, such as offers of student loans for worthless for-profit universities.

“My bosses are so bitter,” Joe said. “My vice-president said, ‘If you understand the drug industry, you understand the tech industry.’ It’s a hustle. You’ve got to figure out how to convince people they want what you’ve got.”

Cyrus corrected Joe’s memory: “He said, ‘Internet marketing is like selling crack to children.’”

“That’s right,” Joe said, nodding.

Pushing drugs sounded even more profitable than selling shovels.

My new friends were not merely repeating their bosses’ contemptuous catchphrase — they were describing an explicit strategy tech companies used to attract and retain customers. Their job was about more than just identifying potential customers to inundate with offers. It also involved combining sophisticated psychological manipulation techniques with the massive scale and semiautomated targeting enabled by computerization.

I got a deeper look at these methods when I dropped by the annual Startup Conference at the historic downtown Fox Theater in Redwood City. Inside the auditorium, Stanford grad and start-up founder Nir Eyal captivated a crowd of several hundred with a distillation of his book Hooked: How to Build Habit-Forming Products, which promised to give marketers the key to the unconscious mind.

“It all comes from the work of B.F. Skinner,” Eyal said.
Skinner, best known for his operant conditioning experiments on animals, denied the existence of free will and human dignity, once writing, “The real question is not whether machines think but whether men do.” Skinner’s monstrous theories inspired Anthony Burgess to write the horrifying scenes of psychological torture in A Clockwork Orange. Here, however, Skinner was a hero. With creative applications of the latest research in neuroscience and behavior as well as evolutionary psychology, start-up marketers could make users respond as predictably as lab rats. “What we now know is that the nucleus accumbens does not stimulate pleasure per se,” Eyal said, referring to a particular region of the brain. The key, he went on, was to trigger “the stress of desire” and then to capitalize upon “the anticipation of the reward.” This tension “is endemic to all sorts of habit-forming technologies,” he said — especially Facebook. Zuckerberg’s titanic offspring had already made news for running a secret scientific experiment that manipulated users’ emotions through the selective editing of material that appeared on their “News Feeds,” and would soon face congressional hearings for its role in spreading foreign propaganda in the 2016 elections. But the Startup Conference crowd had no inclination to dwell upon the nightmarish possibilities of these methods. Their concerns were pedestrian and practical.

Eyal presented several categories of virtual tchotchkes companies might offer in exchange for people’s money or attention. One category he called “rewards of the tribe,” which he described as “things that feel good, have an element of variability, and come from other people” — like Likes. Another category: “rewards of the hunt,” which involved “the search for resources” such as food. “In our modern society, we buy these things with money,” Eyal said. The addictive power of slot machines offered one example of how marketers could manipulate people’s animal instincts. Video-game companies like Zynga had taken those Pavlovian processes to a new level, bringing players to the peak of excitement and then hitting them up for cash, which is sort of like a mystery movie that pauses itself mid-plot-twist and demands that you insert a coin.

I wasn’t qualified to judge the neuroscientific basis of Eyal’s pitch, but pop-sci of this sort sent my bullshit detector whooping like a Klaxon. Whether or not his theories worked, it was disturbing to hear such an eagerness to exploit human behavioral tics for the sake of profit. Was this how Silicon Valley intended to make the world a better place? Was there anyone they wouldn’t empower with these manipulative tools, for the right price?

“There’s one more thing I’d like to discuss: the morality of manipulation,” Eyal went on. “I know what that nervous laughter is about … I know some of you were thinking, ‘Is this kosher?’ If you had that response, bravo.” Eyal conceded that digital gadgets may be “the cigarettes of this century,” but said he was optimistic that these addictive products could be used for “good” and to “help people live healthier, happier, more productive” lives.

Eyal wrapped up with a slide of Mahatma Gandhi, although El Chapo might’ve been a better choice. “I encourage you to build the change you wish to see in the world,” he concluded, then basked in applause.

As impoverished and self-serving as it was, Eyal’s lecture was the first and perhaps only time I heard the word “morality” emerge from the mouth of a Silicon Valley stage speaker. Most people in the industry were convinced that their work was moral because it increased consumer choice and therefore freedom. New technologies were evidence of progress and therefore innately good. And any criticism of the industry’s practices or motives therefore threatened freedom and progress. Nowhere were these attitudes plainer than in the industry’s propaganda apparatus known as the tech press.

I’d seen the obsequious behavior of the tech press at the Startup Conference. A panel of experienced reporters and editors dutifully took the stage and told a roomful of founders and investors how to better promote their start-ups. It should have occurred to them that giving such advice was not the job of a journalist. It was the job of a publicist. Out in the hall during a break, I met one of the panelists, a former Wall Street Journal reporter who’d gone on to edit CNET, a large and well-established tech site owned by CBS Interactive. In the course of our conversation, I made a critical remark about Facebook’s manipulation of users’ News Feeds. He responded with the company line, a fine example of the sort of circular reasoning that eliminated the need for moral judgment. “Facebook is a reflection of what you see on the internet,” he said, “so if you don’t like what you see on Facebook, it’s your own damn fault.” I knew that his argument was bogus — Facebook’s story-selection algorithms came with the biases of the engineers who designed them built in. But in the mind of this high-level tech journalist, there was no reason to doubt Facebook’s assertion of political neutrality, or question how the unexamined race, class, and gender biases of its designers might have influenced the decisions they made as programmers, and thus the daily media intake of billions of users.

At times, examples were made of those who departed from the script. This rarely took nudging by the industry — like overzealous hall monitors, the tech press policed their own. I met tech reporters who regarded sharp critics such as Evgeny Morozov as “cheap” and “nasty,” practically spitting his name. Anything but cheerleading was grounds for suspicion. Every moderately skeptical tech reporter I met had a private stockpile of anecdotes about company press reps threatening his or her editors — sometimes subtly, other times brazenly — with retaliation after receiving even slightly critical coverage. The publicists would often demand the assignment of reporters known to be more pliable. Or else they’d threaten to blacklist the publication. This kind of thing did happen in other areas of journalism. The difference was that in the tech press, it was not seen as a scandalous breach of ethics, but rather accepted as the way of the world. Since I’d written a number of censorious articles about the industry over the years, I feared people in Silicon Valley might not want to talk to me. But I was only flattering myself, for I had never drawn blood. Besides, very few techies were avid readers. A surprising number barely followed the news about the companies that employed them.

But when a powerful person in the Valley seriously resented his own press coverage, the offending writers would be made to pay. Never was this made clearer than with Hulk Hogan’s successful privacy lawsuit against Gawker Media in the spring of 2016, infamously bankrolled in secret by the billionaire VC Peter Thiel, who regarded Gawker as a “terrorist” organization. Although the East Coast press saw Thiel’s subterfuge for what it was — an attack on free speech — Valley players and even some in the tech press rallied behind Thiel, believing, as his fellow billionaire VC Vinod Khosla put it, that disfavored “journalists need to be taught lessons.” It worked. After Gawker filed for bankruptcy, a larger corporate media property, Fusion, bought its assets and immediately shut down the flagship site, Gawker.com, for fear of further legal harassment.

The tech press has come to occupy a strange place, for its function is more than symbiotic — it is integral to the industry. As all forms of media and commerce are gradually digitized, every manner of company aspires to become, in one sense or another, a tech company. And in Silicon Valley’s current iteration as an internet-focused start-up creation machine, these companies are fueled by the same basic resource: “eyeballs.” The fate and fortune of tech as an industry now relies on the vagaries of the human attention span. Advertising is everything.

When a tech company captures an audience, it gets more than the opportunity to sell products and ideas. It also harvests the discretely quantified and collated bits of individual user data that people hand over, wittingly and unwittingly, as they stare at their computer and smartphone screens. As valuable as this information is for what it reveals about individual consumer habits and preferences, it’s even more precious in the aggregate, as so-called big data, which can be used to predict political shifts, market trends, and even the public mood. Who knows, wins, as the old military adage goes — and this is equally true in the world of business. Watch the video, click the link, fill out the form — this is the labor that tech companies turn into profits. The people who carry out this labor consider themselves customers, but they are also uncompensated workers. The process whereby eyeballs get turned into money is mysterious, but not totally opaque — just discouragingly complicated and boring.

I spent two dismal days popping in and out of sessions at the Ad:Tech conference trying to get a better handle on this process. The conference, at the Moscone Center in downtown San Francisco, was a sprawling affair attended by thousands of smiling sharks from all corners of the advertising industry. In the expo hall, vendors peddling unregulated dietary supplements competed with dodgy exhibitors promising to “buy and deliver” web traffic. Without rampant, unchecked fraud, I came to realize, the entire digital media business would collapse.

Fraud was the hot topic that year because digital ad buyers were starting to wise up. More than two decades after the arrival of the commercialized web, a trade group finally funded a proper scientific study on the problem of online ad fraud. The study found, among other things, that marketers were losing $6.3 billion a year to various forms of fraud, much of it staged by organized criminal networks. In outline, such scams allow fraudsters to siphon the fat from corporate ad budgets by employing bots that pose as genuine consumers to click on ads. The crooks are able to grab a piece of the money advertisers are paying out because online publishers — that is, people who run websites on which the ads appear — receive a cut of the money paid to online ad sellers by the companies that buy ads. The crooks are even able to redirect ad revenue from legitimate publishers to their own fraudulent sites through a process known as “injection,” or to generate bogus clicks by hijacking users’ browsers with automated hacking tools. Several experts at the conference told me the study lowballed its multi-billion-dollar estimate of industrywide fraud losses, and that the real figure was multiples higher.

In other words, online advertising — the basis for the attention economy that fueled all speculative investment in digital media, from giants like Google on down to low-rent email marketers — was a racket.

The mechanics of the fraud are complex and technical, but it boils down to this: Companies that place online ads think they are paying based on how many potential customers will see their messages, but the ads are ineffective in actually reaching consumers. Companies in fact frequently pay for ads that are “seen” only by automated computer programs known as bots, or by low-wage workers toiling in offshore “click farms.” The bots and click-serfs drive up costs for advertisers by faking “impressions” on their online campaigns — meaning that any time an ad is recorded as being seen or clicked on, Google, Facebook, or whoever sold the ad charges the client.

While everyone at the conference was eager to talk about fraud, few were willing to discuss its implications. That’s because the profits from fraud widely benefit both of Ad:Tech’s namesake industries. If online ad fraud is as prevalent as I heard at Ad:Tech, it follows that the overall revenues of the dominant ad-based internet companies — chiefly Google and Facebook — are significantly inflated by bogus transactions. And that’s a big deal for the stock markets as a whole. A few percentage points could be the difference between a profitable quarter and a confidence-destroying slowdown in growth. There is no suggestion that either Google or Facebook is actively engaged in bot fraud or other deceptive practices, and both companies do a certain amount to police illicit use of their platforms. However, it is not in the interests of the tech companies or their investors or their business partners to aggressively police unlawful and deceptive advertising practices, which were not limited to bot fraud but also manifested as online scams like the Millionaires Society and even more nefarious enterprises. The discovery in 2017 of mind-warping child-abuse videos with millions of recorded views — real or not — on YouTube Kids seemed to be a low point. Google promised to address the problem. However, the pandemic spread of gross-out bargain-basement web ads demonstrates how dependent online media businesses are on dodgy gray- and black-market operators. “If you clean all of the bots off your platform, your click-through rates are going to drop,” says Michael Tiffany, chief executive of the White Ops security agency, which led the ad agencies’ fraud study. What this meant was simple: “Your numbers will go down.”

And if there’s anything corporate culture cannot tolerate, it’s numbers that go down.

Photo: Metropolitan

“It’s all about getting the chart that goes up,” a disaffected social-media marketing expert told me over drinks. “There’s a whole industry devoted to making charts that go up.” To illustrate his point, he pointed me to The Guardian newspaper’s now-defunct “partner zones” program, which afforded large institutional advertisers the opportunity to pay massive sums to the newspaper in exchange for the right to post promotional “news” stories on its website — a form of “sponsored content,” in the industry’s parlance. To create the all-important “chart that goes up,” the clients would then pay Facebook to generate traffic to their advertorials. Ostensibly this traffic came through “organically” promoted links targeting genuine potential customers who are so enchanted by the serendipitous appearance of an online advertorial that speaks to their personal desires that they make a conscious choice to click, read, like, and share — or so the story goes. However, the expert, who was a friend of mine, had noticed that a suspiciously high percentage of the paid traffic came from far-flung, low-wage countries such as Bhutan. So the new model supporting digital media was for floundering corporations to pay to place stories about how awesome they were, which publishers would then promote by buying phantom readers. “Then the advertisers can go to the boss and say, ‘Look, we got an article in the Guardian,’” my friend the marketing cynic said. Those phony measures of success supplied fodder for still more charts that went up — these ones for internal consumption, and used to justify the marketing-department budget to higher-ups.

But wasn’t it obvious that nobody was really reading all that crap online? “There’s nobody more gullible than a marketer chasing a trend,” he said. And no one cared about the truth so long as the charts kept going up.

*Adapted from Live Work Work Work Die: A Journey Into the Savage Heart of Silicon Valley (Metropolitan Books), available April 24.

Permanent link to this article: http://homebiz2bizreview.net/internet-marketing/like-selling-crack-to-children-a-peek-inside-the-silicon-valley-grift-machine/

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