The fraud ratchet

I want to write a bit about businesses that make their money through fraud, inspired by Jon Bell’s post The Graph That Changed Me. In it, he talks about RealNetworks. RealNetworks was one of the first companies that provided streaming media infrastructure. They created proprietary streaming audio and video prodocols. They offered a free version of their client, and tried to make money by selling licenses for premium versions of the client and their streaming server. More importantly, they were pioneers in bundling unwanted software with their client downloads in exchange for cash.

As Bell’s post points out, the money they made this way was a substantial part of Real’s business. While people at Real hated the shady business, they were in, their jobs were also dependent on it. Bell’s manager showed him a graph with a big dip in the middle and then explained the implications:

“That’s what happens when we do the right thing”, he said while pointing at the drop, “and that’s how much money we lose. We tried it just to see how bad it was for our bottom line. And this is what the data tells us.”

The ratchet effect is one of my favorite metaphors, and it applies perfectly to companies that make fraud part of their business model. Bell’s manager went on to inadvertently explain how the ratchet effect prevented RealNetworks from abandoning their shady practices. What’s particularly depressing is that RealNetworks was in many ways an innovator and influencer in teaching the rest of the industry how to exploit people’s need to download your software to earn money through fraud. This fraud-based business model is alive and well today.

Scott Hanselman wrote last week about Download.com’s “download wrapper,” a piece of malware that they attempt to foist on every unsuspecting user who uses the site for its intended purpose. Similarly, there’s the Dark Patterns site, which catalogs the practices Bell and Hanselman wrote about, along with many others. As much as the “app store” model of distributing software depresses me, it remains an infinitely superior alternative to “free” distribution funded through deceptive business practices.

The main thing I’d suggest is that if you work for (or run) a company that engages in these practices, it’s already too late. The ratchet effect all but insures that once a company goes down this road, it is nearly impossible to reverse course. If this sort of thing bothers you (and it should), you might want to seek other work.

I’d also recommend not using software from any company who engages in these practices. Awareness of these practices makes it likely that you can make your way through the minefield when you install the software, but you’re being subsidized by the portion of the user base that is being defrauded. You can also assume that companies that engage in these practices will eventually sell out completely and just install malware on your computer without asking you.

We should be exposing and shaming companies that engage in these practices to the extent that we can stand to. Sites that review software should always take care to mention when the installers attempt to foist unwanted crap upon the user, and mark them down accordingly. This business model isn’t going away, but those of us who are familiar with it should not be enablers.

5 thoughts on “The fraud ratchet

  1. I like the “download, unzip, move to Applications folder” install model. Why do we even need installers these days?

  2. Thanks for the article. I had not heard of the rachet effect before. I like it.

    It makes perfect sense why so many politicians pass so many stupid laws, they just hope they are laws that click the rachet a few times toward their goal and the country can’t go backwards from.

  3. I’d also recommend not using software from any company who engages in these practices.

    Oracle is still doing this with Java. I don’t really picture people leaving Java or other Oracle owned software over it though.

  4. It’s worth noting that Windows hardware vendors are bad about this too, pre-installing various unwanted software packages on your computer in exchange for compensation, and from what I’ve heard the Android phone world is similar (I believe it, remembering back to all the Sprint-specific crap apps that were pre-installed on the last Treo I had before moving to iPhone).

    As for the Ask.com crap that comes with Java for Windows, I’m hoping that’s a leftover long term contract from the Sun days, and that it will end soon.

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