the scammer race
Here's a story:
Once upon a time, you had to make money to run a business. You could probably take out a loan to cover you for the initial capital, but even then, a sensible bank manager would ask you things like 'how are you going to make money' and 'what are you going to spend this loan on'.
That didn't work for everyone, of course: sometimes, you couldn't justify a loan, because your revenue was just too far down the line, or too uncertain, to commit to awkward things like interest and terms. Enter equity financing. Rather than borrowing money, you sell part of your business to someone who thinks that you're probably onto a good thing, and then you've got a bit more time to go out and build a new ship or fabricate some chips or whatever.
Then the wheels started to come off a bit. What if, rather than taking equity financing to build a thing that was definitely going to make money when it was finished, you take equity financing to build a thing that is uncertain to make money when it's finished, but is, like, quite cool anyway, and you'll probably work out a business model at some point down the line. Well, you've probably either lost everything, or built Facebook.
But wait. What if, not only do you have no obvious plan to make money, but you're actively losing money with every user, and losing more money the bigger you get? Well, then you've invented "blitzscaling": if you lose money on every unit, then the downside is you lose a lot of money, but the upside is that any other company trying to compete with you is going to go bankrupt. It's not entirely clear what the end-game is, but "bankrupt all your competitors" is at least a plausible first stage to profitability.
The downside is that you need an awful lot of money to do this. The upside is that Softbank exists, which has – largely thanks to the Kingdom of Saudi Arabia – an awful lot of money, and an apparent predilection for investing exclusively in audacious, money-losing prospects that begin with the proposal "lose a billion dollars".
The concept of blitzscaling has got bad press recently, largely due to the fact that WeWork, one of the archetypal blitzscaled companies – "what if we lost money on every office but made it up in bulk" – tried to go public at a valuation of $50bn, shat itself, and scraped some emergency funding at a valuation of $8bn shortly after. But it's too early to write off the concept in general: Uber, after all, is far from failing, and the company's biggest risks seem to be less related to running out of money, and more about the fact that big obvious winks when you say the word "driver partners" only works for so long.
Which brings us to Airbnb.
Vice had a great report last week. It's a long, detailed look at nearly every scam visitors had suffered using the site. It's a painful read, the sort that makes you extremely uneasy about ever booking from the site again, and so it's obvious why Airbnb felt the need to respond the way it did: with an immediate promise to verify all 7 million listings on its site, using "a combination of community, agent and technological techniques, including: Agent reviews and algorithmic screening of the listing contents, pictures, etc, guest verifications of specific features of a listing, in-person inspections, and virtual walk-throughs."
Airbnb and me have different definitions of "verification", it seems, but the company knows that this is an existential question. The model eBay pioneered – replacing trust in a company with trust in a company's review system – doesn't even really work for eBay any more, where a good rule of thumb is to not buy anything that would ruin you if it never turned up. The site's great for second-hand books and cheap electronics, but the thought of buying, let alone selling, a laptop on it fills me with dread.
When it comes to hotels, there isn't really anything that is so small you can afford to take a risk. The worst case scenario for an eBay purchase is you lose the money you spent on the item. The worst case scenario for an Airbnb rental is that you're homeless in a foreign country. Not even that, really; the worst case scenario is, bluntly, that you're dead.
What we're seeing is one of the under-discussed benefits of blitzscaling in action: outrunning the scammers. If you're a company susceptible to scammers, historically, your only option has been to solve the problem, or eat the losses. But AirBNB could never have got started with either of those policies. The company would have been incapable, as a startup, of introducing verification – real verification, which would have required it to have staffers on the ground in every city it operates – and even eating the losses, without a viable verification procedure.
But what it could do is grow large enough to survive the scammers, before the scammers arrived. After all, novel crime requires innovation, and a new platform has a certain grace period before the scammers work out how best to manipulate its system. Airbnb managed to grow much, much larger in that grace period than it would have been able to do if it had been constrained by boring notions of profitability, and the result is the situation we're in now, where the company is able to promise still greater losses in order to crack down on scammers while holding on to the absolute size of its market.
The big question for me is whether Airbnb does actually have the scale required for this approach to last. Because the company does actually have a very established competitor: the conventional hotel industry. That means that there's the chance of a real downward spiral hitting Airbnb, as the customers with the lowest tolerance for scams abandon the site, leading to a greater proportion of users who assume they're booking a scam but take the chance for the savings, leading to more non-scammy hosts giving up because they can't earn what they think their nice house is worth, until the market for lemons dominates and Airbnb is only an option if you've got a fetish for whitewashed walls and bedbugs.
a new problem
I have a very exploitable mental bug, which is that if you put a number on a thing and tell me it's part of a series, I will immediately begin making plans to acquire everything. This is worst if the number is on the spine of something, because honestly, who can look at a bookcase and see "7, 11, 18, 25" without breaking into hives.
So my discovery of Limited Run Games is a bad thing. The company fills a niche in the games industry that I'm glad exists: taking digital-only titles, and giving them a print run for those players who want to own a physical copy.
I was reminded of it by the news that The Outer Worlds is hitting Switch with a "boxed copy" that contains a download code. It's a trend I hate. Quite aside from the fact that the Switch is a console with just 32GB of internal memory, most of which will likely be taken up by just this game, it also bodes ill for the future of the medium. One day, Nintendo will turn off the Switch eShop, and all those boxed copies will be effectively blank.
So I've started making a conscious effort to pick up physical copies of games I love. Not just new ones; I spent £7 on a Tetris cartridge yesterday. I don't even have a Game Boy right now (though I'm looking forward to the Analogue Pocket), but having watched EA simply reach out and switch off every extant copy of mobile Tetris, I wanted one that couldn't be deleted.
And so I'm very happy that Limited Run Games exists. The company is currently printing the Switch version of D&D-em-up Divinity II, which I'm eagerly awaiting. But the downside is that the release is number 55 in LRG's Switch series. Already, they've brought out another six. All but one of which are already sold out. I've managed to resist the lure to collect for now. But how much longer can I last?
At least they're more useful than Amiibo.