Why business can’t afford to be economical with the truth

The tech community has been up in arms recently over the antics of Path and Pinterest, two relatively recent darlings of the tech world.

In the case of Path, who were heavily criticised for uploading consumers’ iPhone contacts to the Path database without warning, the backlash resulted in humble apologies and Apple suggesting they would start to enforce guidelines requiring apps to ask for users’ permission to store their contacts. This was after the admission by many others, including Twitter and Hipster, that Path was far from the only one doing it. The noise around Pinterest automatically changing users’ links, in order to profit off of them through affiliate network Skimlinks, was somewhat less ferocious (Pinterest CEO Ben Silbermann insisted that the use of Skimlinks was just a test and they had ceased using it before the story broke anyway).

These sagas illustrate two interesting points:

• That emerging consumer tech start-ups are heavily beholden to the goodwill of their users and tech influencers, particularly the tech press

• That users are not so much concerned with what these businesses do with their data or how they plan to make money as with whether they are upfront about it

The first point stems from the fact that emerging consumer tech businesses fundamentally need two things; user growth and a revenue model. The former costs a fortune to achieve directly so services like Path and Pinterest rely heavily on two things; “member-get-member” marketing, and the buzz created by influencers and the press that often ignites, then boosts it.  The likes of Path and Twitter store users’ iPhone contacts in order to stimulate growth by notifying you when your contacts join, or prompting you to invite more of them.

And can you blame them? Path has suddenly grown to over two million users (driven in part by a change from a softly-softly private approach, to exactly the sort of aggressive tactics they’ve been found out for). However, in the age of stratospheric numbers such as the nearly one billion users Facebook has amassed as it approaches its IPO, they need to be seen to be continually growing in order to be press and investment-worthy. Uploading contacts from a user’s phone without their consent isn’t acceptable, but as a founder of a consumer technology service myself I can understand the pressures they are under to keep the graph exponential.

Pinterest has the opposite problem. They have been growing ridiculously fast recently, getting to 10 million users faster than any other standalone site ever, according to comScore. They have been lavished with praise by everyone that matters in the tech world; even Mark Zuckerberg signed up. But Pinterest reportedly failed in early attempts to rise funding because they had yet to discover a convincing business model and, despite now raising significant funding, they still haven’t.  I’m not sure I buy Ben Silbermann’s story that Skimlinks was just a brief test; I can however understand the pressure $37 million of venture capital backing puts on you to find a way to make money.

Consumer tech businesses are beholden to users and the press because they rely on them to fuel growth and because only if they approve of the way the service will make money will that business plan succeed. This is why Facebook is handling the launch of mobile ads with kid gloves. Even the behemoth that is Facebook has to tread carefully if it is to continue to add users and revenue, which will determine its share price.

The second point is perhaps the most interesting. It is striking that it was not the storing of iPhone contacts, nor the editing of user links, that irked most who spoke out against Path and Pinterest. What people really protested about was the fact that Path didn’t ask permission to do so; and Pinterest wasn’t up front about how it was making money.

Alexia Tsotsis of TechCrunch accurately pointed out that Path’s behavior annoyed users in particular because they had set their stall out to be a private and trustworthy alternative to giants like Google+ and Facebook. What this suggests is that today’s socially savvy users understand the pressures start-ups are under to grow and make money, they understand that innovative and disruptive companies change industries and in doing so change the way businesses make money, they even largely see the benefits of handing over some data to these innovators in order to improve the service they signed up for. All they really want is to be in control of their data and for the businesses they help grow to keep them in the loop.

This is a fundamental shift in the way marketeers approach selling their products. For years it has been a case of how to find the most positive statement about your product without actually lying (“The World’s Favourite Airline” springs to mind). In other words marketeers had to tell the truth, but to suggest the whole truth would have been regarded as naive.

The pace of transformation is so high that it can be a significant challenge knowing how to communicate all this change to consumers. Marketeers have a new rule to live by: the truth isn’t enough – the whole truth is required.

By: Alex Dormandy