Time to Sunset the Silly-Con Valley Hype Cycle For Good

A Harvard Business Review article entitled "Why Marketers Are Returning to Traditional Advertising" heralded that "traditional advertising.... is alive and well and headed for growth for the first time in a decade. Seven factors [are] driving this trend, including the ability of traditional ads to break through digital clutter, the decline in third-party cookies, and more." I have said that the pendulum has swung too far to the digital side, for the last 10 years. We are seeing signs that the pendulum is starting to swing back the other way now. This is good news for advertising, and a return to basic sanity and rational behavior too.

The Silicon Valley hype cycle over the last 20 years had gotten entirely out of control. Growth at all costs. Everyone's love for digital metrics and big numbers meant everything was turned into a giant f**king video game. Obviously higher valuations, like higher scores are better. Valuations are based on hyped numbers, especially the projected ones. All of the numbers could be made up out of thin air, and most were. As long as there was the slightest shred of "reason to believe" a company in the hype cycle could "fake it until they made it" or at the very least "fake it until they sold to the next unsuspecting sucker" and, thus, "get away it." We've seen cons for decades, of course, from Enron to Madoff to Theranos and the sub-prime financial crisis of 2008, the con that everyone was in on. In that example, the federal government just printed more money and bailed them all out because they were "too big to fail" which was the coverup for "everyone was in on it, and we can't put everyone in jail." That may not happen again, because the Silicon Valley cons are not financial institutions, the supposed pillars of our modern economy.

Never has the con been SO pervasive and so in the open; never have we seen implosions so fast either. Real companies with real substance instead of hot air, don't evaporate in a week. The evidence, and bodies, are piling up fast. Last week, "Online payments service Fast announced that it is closing its doors, a sudden, stunning end to a seemingly fast-growing ecommerce venture" [1]. Fast had raised $120 million and rapidly achieved "unicorn" status, a valuation over $1 billion. "Gopuff, the instant-delivery company valued at $15 billion last fall, is preparing to lay off hundreds of employees, [as] part of an effort to reduce annual head count costs by at least $40 million" [2]. "Better.com CEO Vishal Garg announced the mortgage company is laying off 900 employees on a Zoom call just before the holidays (Dec 2021)" [7]. "Bolt, a Checkout Startup Worth $11 Billion, Lost Customers as Revenue Stalled" [3]. "Rapid-fire fundraising [took its] private valuation to $11 billion in January up from $6 billion in October, the previous year. Questions have arisen about the veracity of its past statements about merchants that were using its services. Revenue was $28 million (How does that support an $11 billion valuation?) and the number of customers had been hovering in the low 300s since 2020 and declined in the beginning of this year." Another, Silicon Valley darling, Shippo raised $50 million [4], doubling its valuation to $1 billion, just 3 months after they raised $45 million at a $495 million valuation. Did anything actually change in the three months that would justify doubling its valuation to $1 billion? The rapid-fire fund-raising, the hockey stick growth charts, etc. are all from the same Silicon Valley hype cycle playbook. Blitz-scaling as they call it.

Reality is setting in, though. Ozy Media imploded in the span of a week [5], last October, when it came to light they had "inflated its readership numbers, YouTube views, and misrepresented itself to potential investors." Ozy was an example "of dubious business practices and inaccurate marketing claims, as exposed in a series of reports by the New York Times." But they were far from the only one. Outcome Health, another digital media startup, settled with the Department of Justice for $70 million [6]. "Outcome, which sold advertising to pharmaceutical companies on a network of TV screens in doctors offices, admitted to defrauding advertisers by selling inventory that it did not have, the Justice Department said in a statement." But they essentially got away with a $70 million slap on the wrist, for their fraud scheme which enabled them to $500 million at a $5 billion valuation, in 2017 [7]. Phunware was one of the 100 mobile exchanges caught defrauding Uber by fabricating and falsifying reporting, when no ads were even run. Phunware got caught because they got greedy and sued Uber for non-payment of a bogus Phunware invoice. The lawsuit exposed an internal email "sent on Oct. 31, 2016, a Phunware employees wrote: “Guys it’s… time to spin some more BS to Uber to keep the lights on. It was discovered that Phunware had placed Uber’s ads on pornographic websites, in direct violation of its contract and advertising standards. Even worse, Phunware attempted to cover this up as well by falsifying reports, which made it appear as if the ads were placed on legitimate, non-pornographic sites instead."

Digital media companies and advertising tech companies, both private and public, should get their houses in order, quickly. What do I mean by "getting the house in order?" Wind down the fraud schemes. I've been watching for the last 10 years; but no one was willing to believe there was fraud, or do anything about it, when everyone was happily being digitally transformed. All that meant is shifting dollars from offline to digital; and they needed more and more "digital stuff" to spend their money on. Their digital transformation depended heavily on the fraud schemes and bot traffic. Just like "all the banks were in on it" in 2008, all the "digital media and ad tech companies are in on it" in 2022. But you still have a chance to make it right before 2008 happens to ad tech. Advertisers are opening their eyes; procurement, compliance, and legal departments are soon to follow.

I realize it's not your job to solve fraud. I realize that fraud has made a lot of money for your company and that revenue is what pays your salaries. I realize you are trying to keep your job and not get fired for speaking up. I realize that "it ain't your call" to terminate annual contracts with fraud verification vendors because they don't work. But fraud is fraud, and it'll all catch up with you sometime. And you won't conveniently have a Russian national like Aleksy Zhukov to throw under the bus to avoid jail-time yourself. Speak up, make moves, and take action now, before it's too late. Time to sunset the Silicon Valley hype cycle once and for all.