Friday, July 5, 2019

Anatomy of an Internet Startup - Recyclebank

When you start an internet company, you hemorrhage cash trying to build a critical mass.  But eventually, you have to start making money.   That's when it gets difficult.

I was at a party the other day and a neighbor told me about this points system that Waste Management is using to encourage recycling.   They told me to google it, and I did, and realized it wasn't Waste Management doing it, but an independent company called "Recyclebank" which partners with some municipal garbage collectors and contractors to encourage recycling.

By signing up you get points.  By reading articles and making "pledges" to recycle you get points.  By putting your recycling bin out every week you get points.  And over time, you can redeem these points for gift cards and other "rewards" - or at least you could at one time early on in the game.  Supposedly if you refer friends you get a $5 Target gift card if they qualify or 20 points if they do not.

This, of course, made me skeptical.   Giving away money is not a sound business plan, and you don't need to "encourage" people to recycle all that much.  We put out the "bin" every week, even though we were not aware of the program.  So how do they make money at this?  The answer is, they probably aren't.

I did some more digging online - checking review sites and the BBB.   They claim to be BBB accredited but one BBB site said they were not.  The complaints centered on lost points.   You need to accumulate thousands of them to get a gift card of $20 or so, which seems like a lot of work.  You get 300 points for signing up and a few points for various activities, so it seems like you'd never really win at this game, and if you did, the winnings are pretty slim.   It is like coupon-clipping - a fruitless enterprise.

Some municipalities change contractors and the new contractor doesn't work with "Recyclebank" and thus they cancel accounts and wipe out points.  They send out an e-mail giving you 30 days to cash in your points, but the number one complaint is that people don't get this e-mail, only a later "reminder" telling them their points are now void.  And some people patiently saved up 5,000 or even 17,000 points, too.

Pretty convenient for Recyclebank that these folks didn't get the earlier e-mail, eh?  Others complained they tried to redeem their "points" and never got the gift cards - and when they contacted Recyclebank, they got nothing but silence.   It was also interesting how Recyclebank has groomed these complaint pages with responses - and how their Wikipedia page seems to be taken word-for-word from their website - more grooming going on.

But it is hard to "complain" about losing "points" that were free in the first place, ain't it?  It also illustrates the futility of "points" systems, whether they are airline miles, gift cards, or whatever.  Anything other than cold hard cash is bogus, period.    You get drawn into these games and you end up being distracted from the main idea.   They throw pennies at us, hoping we spend dollars.

Anyway, my neighbor told me they got several gift cards from this scheme, which they gave as gifts to friends.  So I thought I would try it out.

As one of  their Glassdoor reviewers put it, the company started out with this concept, which was losing money, so now they have to morph into something else.  When I signed up for this, I was "awarded" 300 points right away, so I thought I would check out what the "rewards" were.   I found out that gift cards were no longer being offered as rewards.

The "rewards" that were being offered were worth, well, less than free.   Most were coupons, such as $10 off on a $30 purchase from Bed, Bath and Beyond.   I get these in the mail every week and Mark hoards them (for some reason - we never shop there!) so they are hardly a "reward" when I have an envelope with 30 of them in it (I recently put my foot down and threw away all but the most recent three, but even then, we never shop there anymore.   All they sell is impulse-purchase junk, and anything you really need you can find online for less, and a better selection).

The other "rewards" were really sticky tar-babies - magazine subscriptions.   You type in your "code" and get a free year of Impossible Home magazine.   The catch being they want a credit card number so they can charge you for automatic subscription renewal after the year is up.   And of course, the magazine is about 80% advertisements, so you are effectively paying to be advertised to when you subscribe to any magazine these days.   Some real "reward" - a negative option nightmare and the opportunity to be marketed to.

The third group of "rewards" were discounts for an online store called "twine" which turns out to be - surprise, surprise - owned by Recyclebank.   So they are basically using the site as a means of directing traffic to their own online store, where your "points" give you dollars off on a mythical "suggested retail price" and thus are false savings.   Just to recap what I have said in the last decade of this blog, spending money is not saving money.   Any enterprise which results in you getting our your wallet is not one that is "saving" you anything.   You cannot spend your way to wealth, period.

So, is Recyclebank a scam?  Well, no, it is just another marketing tool.   If you want to spend money there thinking you are saving money, that is your problem for being a raging true believer.   On the other hand, it is interesting to see how these internet startups work.   Early on in the program, they gave away the store (literally) by handing out gift cards like candy - my neighbor cleaned up on that.  But as they matured and started running out of venture capital, they cut back on that nonsense pretty early on, and today, it is a "meh" proposition.

It is like Moviepass, which started out by giving away unlimited number of movie tickets for a pittance a month.   People asked, "how is this a sustainable business model?" and the answer was, it wasn't.  They gave away free tickets to generate buzz and generate members, hoping that some would stick around once the promotional period was over.   Well, it's over, and its not clear anything was accomplished other than a few people got to see an awful lot of movies for not very much money, and some investors basically set a pile of money on fire.

Quite frankly, though, I am not sure I would have signed up for Moviepass even at the low, low prices.  Going to the movies is not fun anymore.  Most movies are based on some comic book character I never heard of before, and even though I am losing my hearing at an alarming rate, the sound track of these explosion movies is cranked so high it is painful.    Then there is going to be some idiot with his service ferret, another one with his cell phone on the whole time, a gaggle of teenagers talking through the movie and throwing popcorn and daring me to do something about it, and a bored manager, hardly a teen himself, not giving a shit about anything, including the spilled cokes on the floor.  And that's just assuming that some idiot doesn't decide to exercise his 2nd amendment rights by shooting up the place.   I would pay not to have to see those movies or go to a movie theater these days.

But I digress....

The pattern, though, is clear.  You start up an internet site, like and give away the dog food for below cost.  You blow half your budget on one superblow superbowl ad, write yourself a fat paycheck, do an IPO, write yourself another fat paycheck, and the skip town when it all goes horribly wrong.

Based on this pattern, I suspect that Recyclebank is stuck somewhere in the middle.  They don't have the cash left to offer generous rewards anymore, and perhaps now that they have two million members, they don't need to.  But the rewards today, like I said, have almost a negative value to the consumer -  the companies offering these coupons might actually pay them to distribute them.  The magazine subscription companies no doubt offer a kickback as well, particularly if the consumer is stuck in negative-option auto-renew.

I suspect they also generate some income from the "partnerships" with waste companies and also corporations looking to sanitize their image.  It is almost comical that Ziploc, which makes plastic bags, would be considered a "green" company, but that his how this green stuff works these days - you can buy your way in.  No doubt, coal companies are next.

No word on whether they plan on going public, yet.  They are a "Class B" enviro-corporation right now, which is privately held.   If they want to make real cash, they need to list on the NASDAQ and sell out - that's how the game is played!   But to do that, you have to make a big splash, show a few quarters of profitability - or at least declining losses - and get some financial journalists to write nice things about you.   Maybe we'll see this in the future - we'll see.

In the meantime, I am not sure I need a subscription to Impossible Home magazine, or a coupon good for $10 off on stuff I have no intention of buying.