Yeshiva Internet Business “Best of the Worst”
Katherine Meyer of the Wall Street Journal discusses the worst business ideas of the dot-com era.
Take CyberRebate.com, which thought it could make money by giving stuff away for free. The online retailer, founded in 1998, sold an assortment of goods at heavily marked up prices (some items going for up to 10 times their retail values), but promised customers a hefty rebate that often amounted to 100% of the purchase price.
For example, CyberRebate charged about $1,100 for a 13-inch RCA television that normally retailed for a few hundred dollars. Buyers could get a full refund of the purchase price as long as they jumped through some hoops — rebate forms had to be submitted by a deadline, and checks came 10 to 14 weeks later. CyberRebate banked on the idea that some percentage of buyers would forget to fill out the rebate form, or fail to do so in time, leaving the company to pocket the money.
But selling items at such wildly inflated prices just about guaranteed customers would go out of their way to get their rebates, quickly sinking CyberRebate into heavy debt. The company, founded by law school student Joel Granik, filed for Chapter 11 bankruptcy protection in May 2001, listing liabilities of $83.4 million. Much of that debt was owed to consumers who were promised rebates but hadn’t received them.
Both Mr. Granik and his business partner, Joseph Lichter, settled with the Federal Trade Commission for $40,000 in August 2004 and were barred from running a rebate-based business. Some rebate claimants eventually received partial reimbursement of about nine cents for every dollar, according to a statement on CyberRebate’s Web site.
Not discussed by Meyer — and after some searching around, seemingly never discussed on the Web — is that this business was run by a bunch of Orthodox Jewish guys, mainly from one yeshiva: Yeshiva B’nei Torah of Far Rockaway, New York. The yeshiva is often described as distinctive because of its high-strung, but not too-high-strung, nature. In the world of differentiated dress codes meaning everything for each group of 20 Jews, I often heard the yeshiva characterized by the dress of its rabbi, Pesach Israel Chait, who — adherents noted with glee — wore a blue blazer and khaki pants.
There’s almost no discussion — or evidence, really — on the Internet of the Orthodox Jewish nature of those running the company (just a couple [1, 2] comments from screwed customers and the resume of Shlomo Troodler), and absolutely no resultant conversation of whether their beliefs or the attitudes at their yeshiva helped foster such a horrific business plan (maybe they just felt they were so much smarter than everyone else?), how the business plan cohered with any basic notions of broader or Jewish morality, or how the ethics in play there allowed them to keep taking in millions of dollars in revenue after it was clear that things just weren’t working out.
May 3rd, 2006 at 8:47 pm
That’s Rabbi ISRAEL Chait.
May 4th, 2006 at 1:16 am
The plan was completely in keeping with yeshiva velt morality…they were screwing goyim and nonreligious jews, not frum yiddin…in the five towns these guys are still treated as princes for the sechel of taking that much money from the goyim, and are choshover baleh batim…and therein lies the true scandal
May 4th, 2006 at 6:55 am
Yeah, R’ Pesach Chait (a.k.a. “Pacey”) is the son of Rosh Yeshiva R’ Israel Chait.
May 4th, 2006 at 8:22 am
Interesting post but devolves into an over-reaching attack on Yeshiva B’nei Torah. How do I know? Because I am a long time student at said Yeshiva and I also worked at Cyberrebate . . .
Without going into an analysis of the prime players and “basic notions of broader or Jewish morality” I will say simply that, in real life, things don’t always go as planned, people don’t think things through all the way, and students do not always reflect on their Rabbis.
Cyberrebate was a bunch of young guys getting caught up in the Internet frenzy of the late ’90’s. Jews, Orthodox or not, are human beings and they get caught up in things just like everyone else. There were a lot of crazy ideas that made it onto the Internet and since then the market has winnowed out the majority of them.
Hindsight is twenty-twenty and looking from the outside it is too easy to see where the owners “should� have stopped, or what they “should� have done. The reality isn’t that easy, and it was very messy. By the time they brought in more experienced guns and were trying to branch out in to more sustainable business plans it was too late. Mistakes were made. The company went into bankruptcy. No conspiracies or evil plans to defraud the unsuspecting or gullible millions. Sorry.
Further, as to my Rosh Yeshiva (Rabbi Israel Chait), I have become used to hearing attacks on him – whether because of how he dresses or because of what he teaches. I am thankful that you limited yourself to merely questioning if the “beliefs or the attitudes at (his) yeshiva helped foster such a horrific business plan� etc.
It didn’t.
Cyberrebate left a lot of angry, hurt, and financially wrecked individuals (some of whom were actually making a secondary business of buying things on Cyberrebate, reselling them on eBay, and still collecting the rebate). But to impugn the associates and Rebbeim of the people who started and ran the company is an improper outlet for the anger and frustration.
May 4th, 2006 at 10:24 am
Steven,
What in the world are you talking about? It’s a business article in a busniess newspaper. What does their background have to do with the business failing. Or more to the point, why do you assume there is more of a correlation with this business’s failure and the lifestyles of its founders than with most businesses’ failures or successes and their founders? And yet, we read dozens of articles in papers every day about businesses without hearing about their owners’ personal life.
If you’re looking for some sort of trend with yeshiva-student-run businesses (or maybe with Yeshiva B’nei Torah-student-run businesses) do you doubt alumni from there have created successful businesses? I’m sure they have.
May 4th, 2006 at 10:28 am
Analyzer & Second - Thanks; corrected.
JWG - I don’t attack the yeshiva in any regard, so I reject out-of-hand the claim that it’s an “over-reaching attack.” Y’know, the “we didn’t know what we were doing” excuse can only work to a point: and I think we’re definitely past that point once you realize that the basic premise of the business plan — of people not claiming the rebates — simply isn’t working, and you start figuring out how to screw people out of the rebates they’ve legitimately applied for.
Until I’d read this WSJ story, I hadn’t known that unpaid rebates stood at $83 million. That’s an immense amount of money. It’d be one thing if that number were perhaps a few million — which is still a lot of money — built up over the first few months of that business, at which time they realized that they wouldn’t be able to pay the money back, and shut it down. But the basic premise clearly wasn’t working, the strategy clearly became one of ignoring rebate claims, and the business went on to take in tons of orders after it was clear that they wouldn’t be able to pay people back what they were owed. Taking in many millions of dollars for orders that you know you won’t be able to fulfill is precisely an “evil plan.” And it’s arguable that the very premise of the business itself — which worked off of severely overcharging customers (a major wrong in and of itself, and with pretty clear halachic implications), with the intent of deceiving them into thinking that they’d get their money back (an even bigger wrong, which is saying a lot) — is an “evil plan.”
You don’t get off the hook by saying that your business plan was built off of people being stupid or incompetent enough to lose tons of money in your program, and that it just didn’t work out. That is a major wrong in and of itself, and if the business plan had worked it would still be subject to claims of severely immoral conduct. That when the business plan proved not to work they still found a way to screw people out of tens of millions of dollars is an immorality that goes even further.
Any way you chalk it up, this was a horrible, horrible thing to do to many thousands of people. How many months’ rent did people lose? How many meals did people lose? How much potential college tuition did people lose? Roughly $83 million worth, that’s how much.
Take a look at those other dot-com failures, and all the stories of big dot-com failures: How many of them explicitly operated off of the assumed stupidity of the consumer base? How many of them explicitly operated to screw people out of money, one way or another? CyberRebate stands alone. You don’t get off by saying CyberRebate’s conduct was part of the general dot-com boom; it wasn’t, because CyberRebate stood alone in its approach and immorality.
This is immoral conduct so profound that it demands an examination of the immoral philosophy that allowed it to take place, and your excuse-making is sickening and absurd. You helped screw people out of $83 million.
May 4th, 2006 at 10:40 am
Shlomo - I think I dealt with your question in my response to JWG. Sure, to the WSJ this is just a story of a business failure, but to the rest of us — especially those discussing Judaism — it’s a question of a particular and gross moral failure.
May 4th, 2006 at 11:15 am
JWG,
Are you willing to admit that you cheated many a frum Jew? When cyberrebate first started, I bought one or two things (no more than 100-200% markup), and received my rebate. I then got very suspicious, and stopped. Some other people didn’t, many losing hundreds if not thousands of dollars, due to your business plan which was clearly based on a ponzi scheme. Now that people know that this involved frum Jews, are you ready to be taken to a beis din?
May 4th, 2006 at 11:27 am
Wow - that was interesting.
Steven, you really get worked up about stuff you weren’t around to experience, yet you seem to KNOW what happened better than those of us who were there.
On top of that you outright make stuff up - there was never, I repeat NEVER, any intention of not paying rebates. I know first hand that we allowed rebates in almost every situation and would even automatically give rebates if the customer requested it (i.e. they claimed they did send it in even if we didn’t’ have a record of it being received etc). CyberRebate was able to charge such crazy prices because they had a good reputation for returning the money as promised. That was the reason so many people were willing to pay exorbitant prices for the merchandise.
I am not going into the timeline of what happened, but I will repeat that there was no conspiracy for evil, no desire to screw the hapless (whether Jewish or not, religious or not, intelligent or not). It was an idea that grew too quickly, got out of hand, and collapsed before any remedy could be put into effect.
You want to project evilness into incompetence, that is your prerogative.
You want to hold the owners of the company responsible and create some moral issue around what they did. That is fine, but get the facts and the intentions right before doing so. Otherwise you are creating straw men to throw punches at.
You mention that CyberRebate was the only company that lost millions of dollars – but the very article you quote from shows how millions of dollars were lost in each of those companies. Is it more moral to cause one company to lose millions of dollars than making thousands of people lose varying amounts of money? What about the investors in that company – aren’t they thousands of people who made investments (in stocks, in the investment banks, etc) and “How many months’ rent did people lose? How many meals did people lose? How much potential college tuition did people lose?�
I don’t know if this will change your mind, but before you start painting Yeshiva’s in general, and YBT in particular, with the brush of immorality and evil you might want to spend some time and find out what really happened. Your claim of immorality is pretty strong, coming from someone who doesn’t know the facts.
May 4th, 2006 at 12:31 pm
JWG - Of course I can’t speak to CyberRebate from first-hand knowledge: I wasn’t one of the executives screwing thousands of people out of millions of dollars. All I know comes from the dozens of conversations I’ve had with former employees, their friends, and customers; and clearly, my impressions are not at all distant from what’s patently obvious in the public record, such as in the WSJ.
Your post here, and the one above, displays an immense moral myopia on your part.
When you take in orders knowing full well that you won’t be able to pay the rebates you’re promising, that is rather explicitly maintaining an “intention of not paying rebates.” But moreso, you fail to get your mind around the fact that a business plan explicitly built to profit off of the ignorance, laziness or ineptitude of consumers to get what they’re owed is an immoral enterprise. It’s a business plan whose very intent was to screw people out of money; as it happened, the original plan didn’t work so well, so it found a new way to screw people out of money by taking in $83 million in orders that it simply didn’t have the cash to provide a rebate for. As a side point that’s equally relevant, but in no sense needed to state that CyberRebate’s conduct was essentially immorral, there are countless stories available from customers who did not get their rebates after they felt they’d completed the process successfully, and after they were given repeated denials by increasingly-higher rungs of the customer service ladder.
There’s no “incompetence” excuse available for people whose business plan is, in its very essence, immoral. There’s further no “incompetence” excuse available to those who take in millions of dollars in revenues attached to promises of rebates they know full well they won’t be able to fulfill.
It’s great evidence of your lack of moral reckoning that you seek once again to attach the immorality of CyberRebate to the general business atmosphere of the dot-com era. Neither iSmell nor CueCat was founded with the intention of screwing people, nor was any major dot-com bust. They were bad business plans, according to everything we know in retrospect, but everyone from the original innovators to the investors to the purchasers were entirely aware of what the business was when they bought in. The many millions of venture capital that disappeared in the dot-com bust did not do so because of a scam, because information was withheld, or because the business owners gamed the system to screw the customers. Investors in dot-com companies knew the risks; the consumers who lost a total of $83 million in unpaid rebates from CyberRebate did not.
CyberRebate is entirely unique among the major dot-com busts for having been designed to screw people, and further for finding a secondary way to screw people when the original plan didn’t work out.
May 4th, 2006 at 12:53 pm
Steven, I’ll let you stay up there on your high horse. I have my own issues with CyberRebate (I left before it went out of business) - based on knowing intimately how the company was run and where it was going etc. But I reject your assertion (which has no basis) that there was evil and premeditated thoughts of screwing consumers, not fulfilling rebates, and not fulfilling orders. Nothing I can say will ever convince you that there was no intention to screw everyone on the part of CyberRebate. Its easier for you to think that, and no amount of discussion or facts will change your mind. Others can make up their minds on their own, and I hope they can at least consider that there might be another side to the story.
On a side note: if this blog is set out to discuss morality and so on, I find it scary that things are stated in such black and white terms and with out facts. You present a rant on what is bugging you, not a thought out discussion of morality. What about Lashon Hara, or Motzei Shem Rah? This is a complex situation, highly emotional for the people who lost money (and for you), and you blithely take this and that story and throw in your own (rash) analysis, and out comes . . . this. This is morally reprehensible. This is shoddy. This is a sad commentary on how Jews love to tattle on each other (which brings up the issue of Moser) and think how much holier than thou each of us is.
May 4th, 2006 at 1:09 pm
JWG - It’s quite hilarious to see your moral ineptitude march forward. As I said above, a business plan built on working off of people’s ignorance, laziness, and incompetence, in order to get them to fail to complete a rebate program is screwing people out of their money, from the start. That is evil, that is premeditated, and that is what you and the rest of the fellows at CyberRebate did. And it deserves some serious moral inquiry into the nature of Orthodox belief, and especially Orthodox belief at YBT. Of course you didn’t intend to “screw everyone” — just those whose ignorance, laziness and incompetence led them to be unable to complete the rebate program, which the business plan gambled would be more than enough to turn a handsome profit.
As to the secondary sin of taking in money for rebates it knew it couldn’t fulfill, in what world is such an act not premeditated? If I know I can’t fulfill the promise of the rebate when I take in the money, and then I repeat the act many thousands of times for many millions of dollars, I have planned to take their money. There’s no rule in business that says you can’t stop selling products immediately, or close things down for a week or more to reevaluate, rethink and redesign. But CyberRebate marched on, to the tune of $83 million.
And of course you find it scary that your immoral conduct and that of your associates at CyberRebate is discussed in such black-and-white terms. You’d like to go on with the illusion that CyberRebate somehow didn’t screw thousands of people out of millions of dollars. But the public record is quite clear on this, and as such the discussion is not “without facts.”
Lashon Hara, Motzi Shem Rah, and Mesirah are real halachic issues, with real halachic discussions behind them. But they don’t apply in this case. Raising the question of severe immoral conduct by a group of Orthodox Jews as it pertains to Jewish morality and the morality of the specific yeshiva’s students who engaged in that conduct is an entirely relevant discussion, and one not restricted by those regulations.
In the business of Jewish journalism in which I engage, the discussion of Jews’ conduct and the moral basis for their actions is a constant theme, and the resort to citations of Lashon Hara, Motzi Shem Ra, and Mesirah, is almost exclusively the venue of those who’ve done wrong; it’s their final way out of a serious consideration of what they’ve done, whether it’s the abusive clergy or those taking money from people. But it doesn’t fly.
May 4th, 2006 at 1:39 pm
calm down guys: you’re both wrong:
1) there is nothing illegal nor unethical about depending upon the laziness or stupidity of consumers…i.e: there is nothing wrong with me selling a coke from a hot dog stand for $1.50 even though a store 50 feet away is selling same coke for $1 ( see the howard jonas biography)
especially pertaining to rebates…many businesses issue rebates assuming consumers will not return them…buy a computer sometime…what is unethical and illegal is not processing returns
2) although speaking from no personal experience, i can still guarantee you that many crooked practices occurred at cyberrebates…and all dot coms…and all businesses…wherever there is opportunity to act illegally with little repercussions, most people will act illegally…this is doubly true for materialistic kids, yeshivish or not…
May 4th, 2006 at 1:43 pm
norm - Take an introductory business or economics class.
May 4th, 2006 at 1:57 pm
“But I reject your assertion (which has no basis) that there was evil and premeditated thoughts of screwing consumers, not fulfilling rebates, and not fulfilling orders.”
Perhaps, but it was reckless at the very least.
“norm - Take an introductory business or economics class. ”
I have, and then some. What he is saying is correct. What exactly would he learn in these classes?
May 4th, 2006 at 2:06 pm
Poncho - There’s no reasonable comparison between selling Cokes for $1.50 where it’s more convenient (on the sidewalk) than where it’s less convenients and thus cheaper, and the effort to prey on ignorance, laziness, and ineptitude of customers that went on at CyberRebate.
Further, there’s an immense moral and business-ethics difference between offering a rebate on a given product sold for the standard price during a sale — which is what he’s referring to — and the broad-based tactics employed by CyberRebate. Indeed, even within the very narrow applicability of halacha of business ethics, it seems likely that CyberRebate still plainly violated halacha regarding mark-up.
May 4th, 2006 at 2:10 pm
Arriving here via a post at The Consumerist, I am impressed with the ethics Steven is presenting, and agree that the rationalizations of JWG and norm are the product of an undeveloped moral understanding.
It is wrong to build a business model that relies on the laziness of customers. There can be various degrees of this wrong, of course, but the unifying theme is the exploitation of another’s weakness.
It is true that people are lazy; but in the context of a humanity that must be vigilant over its actions to achieve peace and safety, is this laziness not a weakness? Laziness is a factor of temperament that can cause suffering to the possessor and others. The ethical response to laziness is guidance and inculcation of responsibility, not the sighting of a profit opportunity.
I have no background with Judaism. I must note that if the moral considerations posed by Steven are a characteristic of the faith, then I am impressed with the demands it places on character.
May 4th, 2006 at 3:02 pm
It is interesting what happens when the greed kicks in– on both the side of the company and its customers. Cyberrebate’s business model depended largely on people’s desires to get “more” out of a transaction– ie, more money than could reasonably be expected. Further, Cyberrebate counted (although, in what proportion remains unclear and, most likely, unknowable) on at least a percentage of its customers to not claim the rebates and, thus, avoid the responsibility of actually paying it.
Like all good pyramid schemes, things go great at the beginning. Yet, once the number of entry-level “players” begin to rapidly multiply, the monies paid to the “top” decrease due to the increased demand of pay-out to the lower levels.
Not being Jewish, I have no opinion as to the halachic mandates re mark-ups; however, I certainly feel that karma attaches itself to money– and the pursuit of it. Should one’s mind set be one of avarice and greed, it follows that the products of such will be tainted.
May 4th, 2006 at 3:15 pm
to andrew (and stephen):
thank you for injecting jesus into discussion…(i know stephen: u didn’t, though u seem to have internalized christian b.s. somewhere over course of your life)
re. morality of preying upon laziness of customers: wake up and get a job in real world!!! that’s all business is about…and it’s legal, and ethical too, albeit not ideal
what would be illegal and unethical would be deceiving said lazy customers, and indulging in other fraudulent practices
May 4th, 2006 at 3:18 pm
Norm - both good points. Poncho, I agree with you 100%. Ong and Steven - see what Norm and Poncho said about laziness and building a business on peoples laziness/ineptitude/ignorance. That is what most service industries are based on. I can’t cook, so I go buy it at a restaurant. I’m too lazy to go into the store accross the street, so I buy the coke at the stand (for a significant mark up).
So - if you want something without it costing you anything, but you have to lay out a large amount of money at first as long as you will get it back, is that such a bad deal? And about the people who don’t return their rebates - yes, that would be profit. But then restaurants don’t just sell exact amounts of food that people want - they don’t customize the sizes - and they charge more and thereby make profit on food that is not consumed. Is that preying on peoples laziness, ineptitude and ingorance?
May 4th, 2006 at 3:39 pm
It was a ponzi scheme - pure and simple. Double your money in 90 days unless you’re at the end and left holding the bag. The real crime here is that the boys got off without jail time, when hard working liquor store stickup artists get to break rocks.
May 4th, 2006 at 3:56 pm
I’m mostly disturbed by the singling out of Orthodox Jews for wrath in this post. Every company significantly marks up its products. And these Jews weren’t the first Orthodox Jews to do it either - take a field trip down to the Diamond District one day.
But that’s beside my main point. If they knew they couldn’t pay the rebates, I agree that’s horrible and shady. But basing their business model on profitting “off of the ignorance, laziness or ineptitude of consumers” is hardly immoral. EVERY single company offering a rebate, whether they intend to pay it or not, is doing just that. Stop being such a self-hating Jew and singling out MOTs for playing by the same rules as everyone else.
May 4th, 2006 at 4:13 pm
thanks for the assist, JWG and Poncho.
stephen–just to clarify, i disagree with you here on this minor point, but in general, agree with you, and enjoy and appreciate this blog very much…
May 4th, 2006 at 4:19 pm
JWG - You must be joking. There’s no reasonable comparison of the service industry with CyberRebate. Restaurants exist to serve people who want food they can’t or won’t make, but CyberRebate was there to profit off of consumers who thought they’d get a rebate when they bought a product but who, for a variety of reasons, would not eventually get one. And then CyberRebate compounded this great moral error by accepting millions of dollars in purchases that it knew it could not provide a rebate for.
Restaurants don’t leave unknowing consumers on the hook for $83 million in unexpected losses; you did.
Treved - When Orthodox Jews are the bad actors, we have to ask why — especially when there’s no regret for scamming people out of $83 million, which is apparently the case for JWG. As to generic mark-up in various industries for various reasons, I think you’d be hard-pressed to find an example as gross as CyberRebate.
May 4th, 2006 at 4:24 pm
There is a difference between what might be an acceptable business practice and what is allowable for an observant Jew. “Justice, justice you shall seek” should be a guiding principle. Remember it is taught not to put a stumbling block in front of the blind, nor to leave an pit uncovered. It was required to build a rail on a rooftop lest someone might accidentlally fall off of it. How someone could sit in Yeshiva and study Talmud (an opportunity I have not had) and fail to infer the lesson that it is incumbent on a Jew to take special precautions to watch out for the welfare of others (not to mention the duty to be a Light onto the nations - i.e demonstrate a moral code that goes above and beyond what is “legally” allowable) is what many of the non-Orthodox find reprehensible about Orthodoxy.
If I was a teacher of the individuals involved with this business, I would think I would need to stop teaching until I could understand why I had not gotten the essential message through to these men.
May 4th, 2006 at 4:25 pm
I just want to clarify. I am not saying that cyber rebate was ethical. The reason CR was unethical has nothing to do with taking advantage of laziness, but rather because, from the start, this whole idea is just one big pyramid scheme.
May 4th, 2006 at 4:34 pm
The moral issues raised here are interesting to me, as is the character of the discussion about it. Steven’s point about the mark-up being, in itself, a bad thing to do have some weight with me, only because of the severity of the thing. Gas stations in the South get in big trouble with the law if they spike their prices over a certain amount upon news of a coming hurricane, even if there are other open stations in town not gouging.
JWG - If they didn’t intend, going into the thing, to not issue rebates to a significant fraction of their customers, from where, exactly, were they expecting income? Do you expect us to believe that no one asked them, at any time, what they’re going to do to sustain their business if everyone actually did request their rebate?
May 4th, 2006 at 4:34 pm
Poncho - It’s most explicitly not a pyramid scheme. Where’s the pyramid?
Marvin - While your sentiments do express an overall spirit of conduct that is emphasized by contemporary liberal Jewish thinkers, the specifics of the broader Jewish tradition that has led to contemporary Orthodoxy is generally in disagreement.
To explain quickly: the Jewish tradition chooses for the most part to interpret the verses you cite as only applicable in very narrow sets of circumstances as indicated through the transmission of the Oral Law.
A detailed explanation of the moral and Jewish legal considerations that can lead to similar conduct being excused within an Orthodox Jewish context is here.
May 4th, 2006 at 4:38 pm
This discussion is long overdue. I was a customer that sucessfully bought items in the begining. Add to that a 5% extra rebate from E-bates .com and you even made money on the deal. When I found out who was in charge of the operation I knew I should get money out. But alas I found out too late. Dont forget that about a month before they went bankrupt there was a major mailing campaign. I knew one of the higher ups personally when I was in High School. I like the guy but I would never trust him with money. In my opionion it has nothing to do with Rav Chaits Yeshiva and everything to do with the people running the operation and there own morals. One more point. I recall that some Rabbonim at YU were asked about it and they said it was Rivvis to buy b/c basically you were loaning money and getting something back. Worst of all my Star Trek Watch broke 3 days after I got it.
May 4th, 2006 at 4:42 pm
>business model on profitting “off of the ignorance, laziness or ineptitude
>of consumers�
You must be kidding.
This is a “ponzi scheme - pure and simple”. The people at the beginning get money that encourages more victims and eventually the bubble bursts and the people at the end are left with nothing (or close to it). That how it works.
These schemes are illegal, unethical and immoral. There is nothing at all legitimate about them. They are not buisnesses, they are schemes.
The ignorance, laziness or ineptitude here is that of those bloggers who can not comprehend what this was and rationalize this as some sort of legitimate enterprise. It was not, it is not and never will be.
...
Ponzi schemes are a type of illegal pyramid scheme named for Charles Ponzi, who duped thousands of New England residents into investing in a postage stamp speculation scheme back in the 1920s. Ponzi thought he could take advantage of differences between U.S. and foreign currencies used to buy and sell international mail coupons. Ponzi told investors that he could provide a 40% return in just 90 days compared with 5% for bank savings accounts. Ponzi was deluged with funds from investors, taking in $1 million during one three-hour period—and this was 1921! Though a few early investors were paid off to make the scheme look legitimate, an investigation found that Ponzi had only purchased about $30 worth of the international mail coupons.
Decades later, the Ponzi scheme continues to work on the “rob-Peter-to-pay-Paul” principle, as money from new investors is used to pay off earlier investors until the whole scheme collapses. For more information, please read pyramid schemes in our Fast Answers databank.
May 4th, 2006 at 4:46 pm
“Poncho - It’s most explicitly not a pyramid scheme. Where’s the pyramid?”
Correct, i mispoke. It is a ponzi scheme.
May 4th, 2006 at 8:16 pm
norm: What’s with throwing around “jesus?” This is a site that discusses issues of religious ethics from a Jewish perspective.
And I’m an agnostic/atheist, btw. I find it amusing that you assume anyone with a more refined sense of moral obligation then yourself must be Christian; in my experience, no religion is synonymous with morality across a random sample of believers, especially not that one, at least in America.
Look at how these words sum up a flawed moral reasoning: “morality of preying upon laziness of customers: wake up and get a job in real world!!! that’s all business is about…and it’s legal, and ethical too, albeit not ideal”
Since something is “the way it is,” and legal (under the laws written by corrupt businessmen), it is ethical in your view, “although perhaps not ideal.” Interesting. Is this ethical philosophy straight out of a Tom Peters book?
May 4th, 2006 at 10:07 pm
I find it very distubing that an entire conversation could take place with many participants ostensibly talking from within the viewpoint of Orthodox Judaism, and yet clearly state “there is nothing illegal nor unethical about depending upon the laziness or stupidity of consumers.”
For those of you who are not familiar with the dictates of Halacha (Jewish law), there is a concept known as Ona’ah. Jewish law forbids selling an item for more than a sixth more than its normal street value, specifically because it forbids “depending upon the laziness or stupidity of consumers.” Jewish law –which incorporates the requirements of Jewish business ethics — rejects the secular legal concept of “caveat emptor” and places the burden of ensuring that the transaction is fair on both parties. If either one knowlingly takes advantage of the other’s stupidity or laziness, the transaction is invalid.
The only exception would be where the buyer (and/or seller if it’s an opposite case of underpaying) clearly spells out to the seller the real market value of the item, and the seller nontheless agrees to pay a higher price. Even there, there were also traditionally curbs in place to protect against price gouging.
I am not aware of the details of the Cyber Rebate issue and how this may or may not have applied to their case. But Steven was definitely correct from a Halachic standpoint in his view that intentionally taking advantage of a consumer is forbidden by (Orthodox) Judaism.
I’m sure Steven can find a link that fully explains the concept.
May 5th, 2006 at 8:47 am
Glad to see the conversation is becoming a bit more rational.
First, it wasn’t a Ponzi scheme. Those who want to believe it was, I won’t be able to convince you. To those who understand business you may be able to see some of the idea.
Steven, I was not the originator nor was I that high up in the company (close enough to see what was going on, but not in control or at the planning level), but I know it wasn’t a Ponzi scheme. Steven, I am not CyberRebate and I did not screw people out of any money - lets not make this a personal fight.
From what I know, the business plan was, in part, based on the fact that a certain percentage of rebates are just not returned (it was not significant amount nor was it ever expected to be a significant amount, and, as I said before, we were very particular about making sure we did everything we could to fulfill the rebates while I was there). This model was not working and, as I said before, the company was trying to implement other revenue streams (i.e. advertising, data-mining, and other ecommerce ideas).
As Poncho said, it was reckless - which most entrepreneurs (Orthodox or not, Jewish or not) have to be to a certain degree. Sometimes people take chances and the result is incredible, and sometimes the result is disastrous . . . but that is another discussion.
Sdrek makes an interesting point (or the YU Rabbi did). Steven - what is your view on that it may have been Rivvis for Jews to buy from the site?
Jewishwhistleblower - don’t you think the government, who did investigate the situation, would have realized if CyberRebate was truly a Ponzi scheme? If it was, and Ponzi schemes are illegal, wouldn’t they have prosecuted it as such?
Differentapproach - I am not an expert on Halacha and business, but I never understood one thing you mention - that of “normal street value.” I don’t even understand it when it is discussed outside of Halacha. Usually, to my limited understanding, the value of something is determined by what someone will pay for it (in a capitalist, free market economy). If one person is willing to pay more for some item, say an apartment in Manhattan, than others are willing to pay for it, is he/she paying more than street value, or is that in and of itself street value? If what he/she is willing to pay for it is, in and of itself, the street value, then how can anyone ever say you are selling something for more than the street value (one sixth or twice or any number)? I do not mean this facetiously - I find this to be a sticking point in many a discussion.
May 5th, 2006 at 8:50 am
Clarification - when I say “a certain percentage of rebates are just not returned” I meant by the customer - a certain percentage of rebates are just not submitted.
May 5th, 2006 at 9:50 am
re. different approaches:
“I find it very distubing that an entire conversation could take place with many participants ostensibly talking from within the viewpoint of Orthodox Judaism, and yet clearly state “there is nothing illegal nor unethical about depending upon the laziness or stupidity of consumers.â€?
-
obviously it depends on whether you believe that Judaism is the last work on ethical conduct or not. And even if it is, as JWG says, the definition/application of Onah is not cut and dry.
I would argue that prohibitions against Onah are as relevant as prohibitions against Onanism….hey why don’t we discuss the halachic prohibitions against competition: always a fun topic to examine when trying to differentiate among kosher restaurants ‘not competing’ in close proximity to each other.
Halacha is nice but realistically must be subservient to “dinah demalchuta dinah”, especially in America, a nation of rational and somewhat ethics reflecting laws. Otherwise, we’d all be running to beit dins every day to pay off some charlatan rabbi.
May 5th, 2006 at 9:58 am
andrew:
I bring up jesus to comment on this exerpt of your posting (see below):
“It is true that people are lazy; but in the context of a humanity that must be vigilant over its actions to achieve peace and safety, is this laziness not a weakness? Laziness is a factor of temperament that can cause suffering to the possessor and others. The ethical response to laziness is guidance and inculcation of responsibility, not the sighting of a profit opportunity.
I have no background with Judaism. I must note that if the moral considerations posed by Steven are a characteristic of the faith, then I am impressed with the demands it places on character. ”
-you have obviously swallowed some so called Christian values somewhere on your road to atheism/agnosticism…or maybe it’s just small-town ethics, the Morality of Mayberry.
Hard to provide guidance and inculcation of responsibility when running any business bigger than Floyd’s Barber shop, or Aunt Bee’s Bakery.
May 5th, 2006 at 11:35 am
If Troodler is in some sort of official capacity at NCSY as his resume states, I wonder what the OU has to say ? How kosher is Cyberrebate.com ?
May 5th, 2006 at 11:58 am
JWG - You’ve shown yourself a charlatan absolutely incapable of grasping real-world notions of morality, culminating in the extreme absurdities of your latest post, which I don’t think require much of a response. I may or may not post one at a later point.
May 5th, 2006 at 2:32 pm
“you have obviously swallowed some so called Christian values somewhere on your road to atheism/agnosticism”
So, in your worldview, any ethic that states weakness is not a thing to be exploited for profit must be based in Christianity? How ignorant.
“or maybe it’s just small-town ethics, the Morality of Mayberry. Hard to provide guidance and inculcation of responsibility when running any business bigger than Floyd’s Barber shop, or Aunt Bee’s Bakery.”
I had no idea that the value of an ethical system was determined by its ease of use, nor that the degraded morality of the modern business class was the sole result of the size of their endeavors. Thanks for clearing that up.
May 5th, 2006 at 3:24 pm
“You’ve shown yourself a charlatan absolutely incapable of grasping real-world notions of morality, ”
while this may be true, to be fair, steven, you end up coming off as a naive kid with no real-world grasp of the business world. Some (not all, though) of what you consider to be immoral business practices wouldnt even register for most business people, even ones considered to be ethical.
May 5th, 2006 at 3:24 pm
andrew:
re:
“So, in your worldview, any ethic that states weakness is not a thing to be exploited for profit must be based in Christianity? How ignorant.”
-No, any simplistic, feel-good understanding of ethics is redolent of simplistic worldview of Christianity. (And by the way, could you retire your usage of the word ‘worldview’? it’s a bit lazy)
re.:
“I had no idea that the value of an ethical system was determined by its ease of use, nor that the degraded morality of the modern business class was the sole result of the size of their endeavors. Thanks for clearing that up.”
-No, there are different calculations needed to determine ethical actions (i.e. depending on ease of providing guidance to consumer) (And by the way, could you retire your usage of obfuscatory, meaningless terms like “the value of an ethical system’? it’s a bit lazy)
thanks and good shabbos
May 5th, 2006 at 4:23 pm
Despite any misdeeds or wrondoing that might have occurred at CyberRebate, either in its initial business planning or in that plan’s eventual execution, it is no more a reflection on the Yeshiva where its founders studied than your broadside attacks on Rabbis should reflect poorly on your parents and teachers.
If you want to believe in communal responsibility and punishing the innocent for the crimes of others, then please stand up and accept responsibility for yourself. As this is not a concept within Orthodox Judaism, you are misrepresenting to the world your morality as that of normative Judaism.
What is part of normative Judaism is that your initial post represents a Chillul HaShem, and your attack on innocent Rabbis entails “Macchish Magideha” there is no forgiveness in this world to those who commit the first sin, and the second may qualify you as a Kofer BaTorah. These are very severe accusations, but your claim to higher morality, higher than that required by Halacha, in accusing these Rabbis, brings them onto you.
May 5th, 2006 at 5:01 pm
Poncho - I can’t speak of my relative expertise to yours; suffice it to say, I feel confident enough in my experience of and within the business world to competently communicate what I have in the above.
I disagree that the immoral business practices I’m discussing “wouldn’t even register.” The examples that JWG has tried to provide in this thread of other businesses using the same behavior are absolutely incomparable to the business model taken by CyberRebate. Through his several examples, there’s yet to be provided a real-world comparison of a business conducted in the same fashion as CyberRebate — or one that similarly preys on customers’ ignorance, laziness or ineptitude; and I imagine that if such a business were found, it would be considered a relative pariah.
The standard uses of rebates is nothing near what CyberRebate did, and neither is any other upstanding, common business practice.
May 6th, 2006 at 8:40 pm
I haven’t read the examples the jwg gave, so I cant comment on them. What do you feel is the underlying principal that makes cyber rebates practices unethical (assuming it was a viable business plan). Because it sounds like you’re branding things ethical and unethical based on gut alone.
The most common underlying principal in all unethical business acts is some form of deception. This is not the case with cyber rebate. Everyone knows up front what they are paying, and they know they wont get the rebate if they don’t pay. Many respectable companies, in fact, engage in deception with the use of small print forcing people to jump through hoops to get rebates, which cause many not to collect their rebate. This was clearly not the case with cyber rebate where the people didn’t seem to have much trouble sending in their rebate.
A second common theme in unethical behavior is taking advantage (preying) of those who less sophisticated especially when they are in a tough situation. All credit card companies engage in such acts by allowing people to buy things on credit, who don’t understand the ramifications of 20% interest rates and how they put you in a hole of debt that is impossible to climb out of. Private student loans is another good example. There is also no evidence of this with cyber rebate.
Another example of an unethical principal (considered by some, not all) is extremely high risk that rarely ever pays off. Good examples of this are very low rated bonds that rarely ever pay off. In cyber rebate there is very little risk (we are going under the assumption that it is a viable business plan) and the money is guaranteed as long as they send in the rebate.
Last, if you think taking advantage of peoples laziness by marking up prices with the hopes that they wont redeem their rebates is an unethical practice then the whole business of rebates is unethical. Yes, I know you will say that PC Richards only marks up 5% while cyber rebate marks it up 500%, but this is nothing more than the function of risk v. reward because in the PC Richard example you only get a 15% rebate while in cyber you get an 100% rebate. And even if you don’t agree with this, you still have to admit that taking advantage of laziness with only a 5% markup is v. 500% markup is the SAME EXACT MARKETING PRINCIPAL it is only a question of degree (which I have never heard being called unethical, before you).
And you have to remember that you are couching cyber rebate’s practices in very negative terms (“taking advantage�) when in reality there is an incredible upside for the consumer in this whole transaction with minimal work. Your acting like the consumer always loses.
So bottom line, what are you saying is the underlying principal behind cyber rebates practices?
May 6th, 2006 at 10:32 pm
hey steven i.,
good stuff all around.
A) I’m looking for some clarification on this point:
“or how the ethics in play THERE (emphasis added) allowed them to keep taking in millions of dollars in revenue after it was clear that things just weren’t working out.”
What do you mean with the “there”? At cyberrebate, or at Yeshivah Bnei Torah?
If the latter, what do you mean “in play”? The ethics that the Yeshiva (meaning the Rosh Yeshiva? the rebbeim, in general?) encourages? That which it practices (reflected how)?
B) My point is - and you’re obviously aware as well - that it is a tricky thing to suppose (let alone prove) that a person’s behavior has been aided, inspired, encouraged, or tolerated by a specific yeshiva or rebbe, etc.
I’m not saying you’ve made any accusation; it seems to me that you’re just asking questions - legitimate questions.
C) But, in fairness (and I have no reason to believe that you don’t or didn’t intend to do this) I think you should try, to whatever degree possible, to figure out what YBT’s stance is on the matter. Has R’ Chait, et al. addressed the issue in any serious way? Are the principals involved still members in good standing at the yeshiva? etc. And - it does need to be asked and argued - what conclusions are justified if your findings show that the response seems to be less than adequate?
D) It should be acknowledged, and - again - I’m not saying you’ve denied it, that it is at least possible that the Yeshiva did not either intentionally or even recklessly encourage lax moral behavior.
There is a valuable discussion in the very first passage of Shemot Rabbah addressing the question of how great tzaddikim - Avraham, Yitzhak, David, etc. - could have such mediocre or even evil offspring. The midrash concludes that the tzaddikim in question should have reprimanded their children more consistently. But it is not suggested that they actually instilled their offspring with corrupt moral standards.
E) One issue I’d be interested in fleshing out a bit more is the original intention of the cyberrebate enterprise. I think it is at least possible that the original business plan was not in itself immoral, or any more immoral than every other rebate offer. It is conceivable (or, at least, one could have thought it conceivable) that a CR-type business could be built around customer inertia.
[I know that I personally subscribe to AOL for $14.99/mo. for no really good reason. I just now (after 3 months) cancelled a CreditGuard feature of my Citibank credit card which was costing me $10 on every statement; I enrolled in a free trial because I wanted to receive the credit report that came with enrollment].
Consider: If CR were selling a radio for $60 that was worth, say, $50-60 - and the average buyer is someone who genuinely needs the radio, it is not crazy to assume that a percentage of these buyers wil simply fail to send in the form.
Now, I will admit, I cannot think of an innocent explanation for the practice of selling items for 10 times their actual worth. [Even on the extremely generous assumption that the company intended to pay back every rebate and was hoping to simply stay afloat while it found new revenue streams (again, a VERY generous assumption), it seems to me morally reprehensible to assume all of that debt with full knowledge that the very likely outcome would be total default]. But from the little I’ve read here, it sounds like this was a practice that emerged later. So yeah, unless there is other exculpatory evidence or I am missing something, it would seem that the later practice was outright fraud or very close to it. But I’m not certain that this necessarily means that the original plan was intended to defraud consumers.
ok, those are my thoughts. take care,
kraut
May 7th, 2006 at 8:11 am
“No, any simplistic, feel-good understanding of ethics is redolent of simplistic worldview of Christianity.”
The only point of ethics I’ve asserted is the refusal to take advantage of another’s weakness for profit. How does this define my ethical views as frivolous or “feel-good?,” exactly?
“And by the way, could you retire your usage of the word ‘worldview’? it’s a bit lazy”
Well, I’ve only used it once so far, but I suppose I can just type out the phrase “totality of one’s perceptions and expectations of the world” or “a philosophy that attempts to define the world” if that makes for easier reading.
“No, there are different calculations needed to determine ethical actions (i.e. depending on ease of providing guidance to consumer)”
Once again, you assert that the basis of ethics is ease, although you don’t seem to like it when I point this out. People seem to hate having some of their unethical principles labeled as such, especially if they are given to the common misunderstanding that unethical=bad or evil. Rather than accepting that conventional practice reflects some compromised principles, they rush to base their principles around conventional practices, allowing them to answer the question “How is this behavior morally consistent?” with a dismissive “That’s how it’s done in this situation.”
“And by the way, could you retire your usage of obfuscatory, meaningless terms like “the value of an ethical system’? it’s a bit lazy”
How is this a meaningless term? Ethical systems have a subjective value (degree of good regard) to each person. This is a comparative value; I can say that I value the ethics of person X higher than those of person Y. This difference in valuation is caused by those principles of each person’s ethics which I regard well; more characteristics, the higher my “value of an ethical system.”
Earlier, I used this phrase sarcastically to reflect on your positive regard for a particular ethical principle, namely, that good ethics are a reflection of business practice. The sarcasm was intended to indicate my distaste for that principle. I’m sorry you had a difficult time understanding this, but that hardly makes it “meaningless” or “obfuscatory.” Perhaps next time you have a difficult time understanding something, you could resort first to a dictionary or an intelligent friend before immediately dismissing it. Your current technique, well, it’s a bit lazy.
May 7th, 2006 at 9:06 am
Kraut wrote:
“Now, I will admit, I cannot think of an innocent explanation for the practice of selling items for 10 times their actual worth.�
I don’t know if its innocent, but this practice is merely the mirror image of what credit card companies do:
Credit card companies loan consumer money with the hope that the consumer fails to initially pay it back- resulting in high interest rates. The consumer ends up paying several times the initial cost.
With CR, the consumer loans CR money (the markup over initial price) with CR hoping that the consumer fails to collect his loan, much like above, resulting in the consumer paying several times retail value.
The only difference is that in the credit card case the company is taking advantage of the consumer’s stupidly/ignorance or financial hardships, while in CR they are taking advantage of people’s laziness (much like all rebate deals, only to a greater degree).
The mitigating factor in both cases is that there is a great upside for the consumer, and long as he acts reasonably.
May 7th, 2006 at 9:21 am
Poncho - I guess you may have missed the fact that many credit card companies do get slammed for aggressively marketing their products with high interest rates to relatively unsuspecting customers in a variety of ways. Providian got hit big by the government a number of years ago, and when credit card companies develop plans to market to college students like one to provide benefits or cash back for keeping a balance going, they get slammed very hard for the predatory practice until they withdraw the plan.
As to rebates at P.C. Richard, I don’t know what goes on there. But I do know that the average rebate for an individual product from major retailers like Best Buy doesn’t come in response to a mark-up, but as part of a sale offer. If P.C. Richard does indeed mark-up its products before it offers rebates, I imagine the only reason it’s not getting slammed for it is because it’s a relatively small chain.
The ethics of rebates in general — given what we continue to learn about customers’ response to them — is constantly being debated, and many companies have responded to public pressure and made their rebate programs far more lucid, open, and simple in recent years as a response to the charge that their difficult rebate programs were unfair to customers. And, again, those are rebates that are simply offered as incentives in a “sale” situation/mentality — not so that customers can get around mark-ups.
The offer for occasional and varied rebates for individual products from a range of major manufacturers and retailers is a practice that everyone’s still learning about and debating. One of the things that we have learned — and that has caused some concern among ethicists — is that some customers, for whatever reasons, don’t end up submitting a qualifying rebate application. That this has caused concern when the rebates are merely part of a sale offer should lead one to rather easily conclude that CyberRebate’s wholesale approach was entirely unethical.
CyberRebate’s practices are differentiated from those of, say, Best Buy, in that their profit was predicated upon that group of customers who, for whatever reason, do not end up submitting a qualifying rebate application. That’d be one thing if, as with Best Buy, it was merely part of a sale program at market rates — a debate that perhaps might go a different way. But I don’t have to bother to engage that debate, because CyberRebate worked with mark-ups in which customers often spent hundreds more dollars than they would have had they purchased the product elsewhere. CyberRebate knew that a certain quantity of customers in the average rebate program would fail to submit a qualifying rebate application, and decided to profit off of that group in the extreme — by getting them to pony up as much as some many hundreds of dollars more than they usually would have for a given product. They took the suckers who until then just hadn’t been able to save as much as everyone else and turned them into extreme suckers who were now losing hundreds of dollars a pop.
May 7th, 2006 at 9:58 am
“Providian got hit big by the government a number of years ago, and when credit card companies develop plans to market to college students like one to provide benefits or cash back for keeping a balance going, they get slammed very hard for the predatory practice until they withdraw the plan.”
You gave me an example that fell neatly into a common unethical business principal that I mentioned above- Predatory practices.
What I am asking you is what is the underlying unethical business principal. It sounds like youre saying its taking advantage of lazy customers. However, anytime I try to apply that principal to an established practice, your answer is something like “but cyber rebate is taking advantage of laziness to a greater degree- in fact its their whole business practice, and people lose hundreds or thousands�. With or without markups, companies with rebate policies (which most have) are still taking advantage of the consumers laziness and the consumer still loses out on the rebate. I don’t really see “degree� as a genuine distinction. If you’re not saying that “taking advantage of lazy customers� is the underlying unethical principal, tell me what it is (broadly, not just in the cr case) so I can try to find you a more suitable example.
Also, see my above comment re credit cards. Citi and Chase’s (credit card division) entire operations are simply hoping that people fail to pay back on time so they can charge them ridiculously high interest rates. To me this would seem worse than CR.
May 7th, 2006 at 10:50 am
SOrry for writing so much but I also want to break down the CR business model into its nuts and bolts, so we don’t lose the forest for the trees:
I want to buy a tv that normally costs $500. CR charges $1000 and will give me a $1000 rebate.
What are the economics behind this transaction and what is actually going on here? I am loaning CR $1000 and my ROI (return on investment) is $1500. A 50% return. There are only 2 major risks to this investment 1) default by the bond issuer and 2) failure of customer performance to collect the rebate.
Now, we will assume that this was a viable business plan so risk #1 isn’t so high. Risk 2, is actually very very low simply because you control the outcome, where normally, the risk in securities payout is much higher because they are tied to performance of a third party beyond your control (such as a homeowner paying off a mortgage). And lets not forget the entire tranch of securities that will only receive payment if there is in fact default and the initial shareholders lose money.
When the risk is so low and the return so high, to say that such a fixed return investment is unethical seems strange. This appears to be a better deal than the whole fixed income securities market.
May 7th, 2006 at 12:43 pm
Poncho - You can keep pointing to the customers who stood to profit from the deal, but that’s not and never was the point. Those customers went against the grain of the business plan, and their existence is what proved it unworkable. CyberRebate was in no means meant to serve this community: there wasn’t even a plan in place to invest monies received during the 10-14 week period CyberRebate held them. They are an irrelevance to the moral consideration of the business, because they were the unintended consequence of the business plan.
The effort was from the beginning and remained (in part, owing to the Ponzi-esque conclusion) to the end an attempt to get that “sucker” part of the population that would fail to adequately apply for a rebate to provide immense profits on their purchases by overcharging them in the extreme.
Rebate policies in place in standard business practices are still a relative novelty, so their ethical appropriateness is still very much in the air. Nevertheless, what I tried to explain in my last comment was that the rebate policies in place in mainstream business are profoundly different from those offered by CyberRebate in a number of very important ways:
1) Standard rebates do not have such steep consequences for the ignorant/lazy/inept. At worst, these rebates usually mean that those who don’t successfully apply for a rebate cannot partake in the same savings as other customers. To work over these customers to such a degree as CyberRebate aimed to is to prey on the unsuspecting/incompetent.
2) Standard rebates are usually offered as part of a widely-impacting marketing strategy that, much like any other sale, endeavors to bring in those customers seeking rebates to a store with the expectation that they will purchase enough regularly-priced items to make the marketing gambit worth it. The extra profits from unsuccessful rebates are a relatively unintended consequence. As such, the worst that can be said for this approach’s impact on the unsuccessful rebaters is that they are not getting the same benefits of the sale as the rest of their customers are.
3) Standard rebates strategies have changed significantly since CyberRebate was around, to make the processes simpler and easier for all customers to take part in the savings. This is a tacit acknowledgement that previous rebates practices were unfair. Yes, this is in part unfair to place at CyberRebate’s feet since it didn’t last long enough to participate in these changes. However, standard rebate practice at the time was still finding its legs, and none of these rebate practices were aimed at profiting unusually from those who wouldn’t successfully file applications; that was a bug for them, not a feature.
4) Even given standard rebate practices at the time, CyberRebate’s were unusually difficult to navigate, from the extremely unusual 10-14 week wait to the apparent difficulty (anecdotal, coming from customers’ reports) in filing a successful application. Indeed, at the time I heard from friends of executives highly familiar with business practices at CyberRebate who were both smart and anal-retentive enough to successfully navigate every other company’s rebate plans but found themselves repeatedly turned down by CyberRebate customer-service representatives. How much more so this preyed on the unfamiliar and less-competent consumers must be significant.
You suggest that whether or not mark-ups are in play should not make a difference. But of course it should: it’s the difference between making a customer suffer for an unsuccessful application and simply not giving him as many savings as those who did successfully apply.
May 7th, 2006 at 1:12 pm
So what is the underlying unethical principal????????
This is far less preditory than regular credit cards, and there is no deception involved. One thing you seem to harp on is that business was entirely based on taking advantage of the sucker, or someone elses loss. This is also no different than credit card companies (all of them) whose entire profits are from suckers falling deep into interest they will never be able to pay back. I can give you many examples of other businesses and practices are entirely based on other peoples suffering, losses and stupid decisions (which is why i keep asking you for the underying principal).
I dont see any way you can find CR unethical, but find credit card companies ethical.
Im not sure what your business experience is, but you appear to be very unfamiliar with capital markets and our lending industry- which operate and prey on individuals in a far more sinister manner than cyber rebate did.
May 7th, 2006 at 2:18 pm
Poncho - Preying on unsuspecting/inept customers.
Your assertions about the credit card industry don’t wash, for a variety of reasons. Most prominently is that debt revenues have only recently become so common in the credit card industry, as pretty much anyone is suddenly able to get a credit card. Previously, revenue was reliant almost entirely on other streams. Credit card companies were and are still relying on those other revenue streams for expanding business to a broader range of consumers. As they’ve done so, they’ve raised concern over how aware consumers are of their interest rates when they begin borrowing — something that wasn’t nearly so much of an issue five or ten years ago. Along with that has come an increasing series of regulations and protests over practices that appear to lure consumers into acquiring debt. Some products and promotions have been plainly unethical, and have caused much complaint — which has often led to changes in practices.
Indeed, entirely absent from your discussion is that those high interest rates are in place primarily to prevent less-worthy consumers from running up debts that they can’t pay off, through the threat of tough consequences. It is only recently that these companies and the economy have had to cope with the notion that people might willingly run up these debts when so many better options are usually available. Also absent is any consideration of whether, why and how such interest rates as originally conceived may have made sense, both from a profit perspective and a business-ethics perspective.
Credit card companies were, are and would be immensely profitable without high interest rates (assuming people would still pay their monthly bills); their other revenue streams are quite heavy. It’s not the business or the business model that’s created an ethical crisis, but changing consumer trends (with occasional practices by the corporations that have sought to exploit those trends that have been condemned and often changed).
Given the actual scope of credit card companies’ revenue streams that you don’t seem to be aware of, it’d seem you’re truly the one “very unfamiliar with capital markets and our lending industry,” the overwhelming quantity of which is not predatory.
May 7th, 2006 at 2:58 pm
“Preying on unsuspecting/inept customers.”????!!!!
Excuse me Steven, but everyone working in the home repair trades is “taking advantage” of the ineptitude of their customers. I sometimes help out a friend who is a home improvement contractor specializing in underground sprinkler systems. Every plumber, carpenter, electrician or other repair person working in an affluent area is making a living off the fact that rich folks apparently don’t know how to do anything other than make money. They can’t turn their sprinkler systems on in the spring or start up their in-ground swimming pool filtration system when the weather gets warm. They can’t hang a mirror and they’d probably cut their arm off if you left them alone with a Sawzall. The ones who know a bit about home repair could do it, but they think they have more important things to do with their time. I suppose you could say that they are lazy instead of inept.
But you, SIW, seem to have also a problem with people earning a profit taking advantage of the sloth of others. Back in the 70s, a couple of clever Jewish hippies noticed that many people were too lazy to learn how to properly handroll a cigarette, in this case, a joint. They just couldn’t get the thing rolled up w/ the amount of paper in a standard cigarette paper so they’d glue two papers together, and the extra width gave them enough paper to fiddle width so they could fashion some sort of paper tube. The clever Jewish hippies figured that if people were too lazy to learn how to roll a joint properly, they might be too lazy to glue two papers together as well so they contacted a cigarette paper mfg in Europe and contracted for the production of cigarette papers that were double wide and they trademarked the name EZ Widers, a play on the popular movie title. EZ Widers were a huge market success, gaining a large fraction of the cigarette paper market and forcing the traditional companies like ZigZag and Rizla to offer doublewide papers as well. Eventually, the original EZ Wider partners sold out to the Rizla company for $10 million.
One might even say that the Maytag and Whirlpool companies were founded on the laziness of American women. How unethical to make money letting women save time and labor.
May 7th, 2006 at 3:02 pm
Bozoer - Don’t be an idiot.
May 7th, 2006 at 3:21 pm
Steven, you were the one who said it was unethical to exploit the ineptitude of customers. I’d say that someone who lives in a half million dollar home that doesn’t understand how to close one valve, open another, and plug in a clock/controller is pretty inept. Charging them $65 for 20 minutes of advancing a controller and walking around making sure things are working indeed borders on exploitative.
Of course, one could make the argument that any trademan or professional is making a living by exploiting the ineptitude of others. Charging $200/hr to fill out a standard legal form hardly sounds like an ethical business practice but nobody accuses Harvard Law School of inculcating bad ethics. Ain l’davar sof, but you were the one who brought up ineptitude.
I’m certainly no fan of frummie business practices which generally suck, at best (like my brother’s former boss, the machinery dealer [Note: Not Lou Stern, he’s a mensh - big bro has worked for more than one] who asked me, who was a tech in a paint r&d lab at the time, how to paint a used machine to look new), but in this case I think you are stretching things a bit.
CyberRebate may have been not the most noble of business plans, but they were upfront about their business plan and policies and their customers knew what they were getting into.
May 7th, 2006 at 7:40 pm
Thank you for that short primer on credit cards, (much of which is incorrect).
Even if everything you said were true, you still have credit card companies currently making a major segment of their profit off throwing unsuspecting consumers into a lifetime of debt they will never climb out of. I’m glad academics and politicians are currently discussing this…..as they do for almost every business practice.
But most of all, you STILL failed to mention what exactly is the underlying unethical behavior of cyber rebate. Are you saying that there are no broad principals we can take out of the CR case and apply to other cases?
Even in all the examples you have brought of unethical behavior there are major themes that are simply lacking in the CR case.
1) There are NO predatory practices. CR didn’t purposely target those less sophisticated, less educated and more susceptible to defaulting. The consumer also had ALL the info upfront. They all understood the high price they were paying, and they understood they must send in the rebate form in order to collect. This is nothing like cases where the consumer doesn’t understand the consequences of high interest rates. Which leads me to 2.
2) There was no deception involved.
The way I see it No deception+ no predatory practices+ chance for large profits (once again, we are assuming that it was a viable business plan) = Legitimate business practices.
Obviously, neither of us will convince each other of our respective positions, but either way, this is very very far from being a CLEAR UNETHICAL practice. You still haven’t told me which ethical principals CR has violated so I cant tell if your view is completely legitimate or whether it comes from having very high moral standards of business ethics, lack of experience in business settings or being emotionally connected to this case because of the religion angle.
Based on some of your statements on the economics of transactions and business in general I find it hard to believe that you have any significant real world experience in business, finance, banking, consulting etc. other than perhaps in an academic setting.
May 7th, 2006 at 9:06 pm
With all due respect, Steven, and I mean that because I respect your writing and agree with you about half the time, I have to echo Pancho’s comments about your business experience. He referred to rather high levels of business. My guess is that you’ve never tried to operate a small business as well, unless you consider freelance writing operating a business, which I suppose is arguable. However, in the real world I can think of many common business practices that strike me as much more unethical than CR’s business model. Reconnect fees for utilities exploit the poor and working poor. So do overdraft charges at banks. Many banks now charge non-customers a $3-$10 fee for cashing checks drawn on that bank - which frankly strikes me as legally equivalent to extortion, charging money to get what’s rightfully yours. I’m sure that there are scores of yeshiva educated folks who have investments in utilities and banking companies.
Also, I’m shocked, shocked, that you would be so shocked, shocked. Anyone paying 10X the retail price for something has to be trying to get something for nothing and is hardly naive. Of course, that is exactly what the customers of CR were trying to do, get something for nothing, or maybe even make a small profit as other posters have noted. I’m all for good business ethics, but if there ever was a case of caveat emptor, this was one. Plenty of Barnum here to go around. This way to the egress.
Steve, you have a great blog and write well, but I think you’re whipping a dead hobby horse.
However, the $85 million figure is kinda suspicious Ponzi wise, I’ll agree. However, as your original post indicated, this was part of the dot com madness. The truth is that the net is a very powerful advertising tool and you can easily get overwhelmed by the response to an attractive idea. Even before the internet existed, order fulfillment has been a challenge to even honest companies.
Like I said, frummie (as opposed to Jewish) business practices suck. CR is hardly the worst example.
Der Rebbe’s vort: How much wisdom is there in calling a clown an idiot?
NP: Son Volt: Trace
May 8th, 2006 at 9:37 am
Poncho - kudos to you for saying what needs to be said here:
A) the reality of business plans and how they relate to customers and
B) the reality that CR was not predatory and not deceptive.
Steven, I don’t understand why you are so stuck on CR (oh yeah, I am “a charlatan absolutely incapable of grasping real-world notions of morality” so I guess I just don’t get these things, do I?). Poncho is giving you examples of areas in business, accepted practices, which follow similar ideas and models of CR (not exactly the same, but close enough for analytic purposes).
The credit card companies may have originally made money on each transaction (which they still do) but they make the majority of their money from being a lender (and this is part of their business plans). There were some issues a few years ago relating to Branded cards (mostly pre-paid debit cards) where the business model was that either people did not use the entire amount on the card and/or didn’t use the card at all (I believe this is called slippage) – not to mention the income from holding the money (I believe this is called interest) – as well as the Branding itself. The problem with the cards was not that this was the business model, but that there was fine print explaining that cards not used before a certain time would be discounted, or that there were unexplained fees charged (i.e. that the slippage would be artificially created). Once those issues were addressed, the model still stands. And this is a significant reason for Branded cards being so popular and a growing industry – it is a viable income stream. I.e. once the issues of deception and predation were removed, the idea of profiting off of “forgetfulness and laziness� was not considered immoral or problematic.
I get the sense we are dealing with feelings and “morality� that would excoriate moneylenders because they “prey� on others, without any thought to the essential benefits the moneylenders create in the market place. This is a common fault with people who have hazy ideas of how markets work and an easily offended sense of justice.