Monthly Archives: May 2006

The Black Hat Tax on consumer Internet businesses

I am a big fan of James Currier. James was the CEO and founder of Tickle (formerly eMode) — one of the top social networking companies (and now a part of so when James says something, I listen.

A couple of months back we were grabbing a smoothie and I was going on and on about consumer internet, how it is so great and easy, yadda yadda … when james chimed in with something very interesting and profound … and something I have not been able to shake since:

Most consumer Internet sites today have an inherent tax of about 25% on them due to scamming, phishing, hacking, and government requests. That 25% is based on time and mind-share. And the 25% is only going to get worse. This is troubling.

I’m calling it the Black Hat Tax. And we’re certainly facing it at Rapleaf.

Since james and I spoke I spent some time talking to a bunch of consumer internet sites — from start-ups to establish companies. these companies, especially those in the dating or social networks space, are increasingly spending their time thwarting bad guys.

A great example is PayPal. The book PayPal Wars details an intense battle the engineering team and even the CEO fought against fraud. This was one of the consuming issues of the company.

Now PayPal is a financial institution, so you would expect lots of fraud. But dating?

After surveying most of the dating sites, I have found that one of their top three issues is fraud. A frequent scam is to contact an unsuspecting middle-age man from a profile of a good looking woman saying “my husband is beating me here in Moscow, please send $2000 so I can buy a plane ticket and escape.” The unsuspecting chap sends the money only to never hear from the person again. Apparently there are scam factories in the Philippines and other places that have thousands of people, paid on 50% commission, working to scam unsuspecting dupes in this way. And one success a month is $1000/mo which compares well to many countries where the avg salary might only be $200/mo.

And this is in addition to people actually hacking into your site. That is a whole other cat-and-mouse game.

James thinks the Black Hat Tax is 25% for most consumer Internet companies right now (with some approaching 40%). I think that is a fair assessment. That means that 25% of your engineering time and 25% of your management team is about preventing fraud. That is a really onerous tax. And James believes this is even getting worse.

Another strain on time is government requests. I talked to an IT person at a social network that was consumed for three days with a government request for information on someone promoting pedophilia. Not only did this person have to get a bunch of information to the federal authorities, but then he had to ensure that the information was backed-up and cannot be erased for at least three years. not to mention that the work was disgusting as the person had to sift through some horrible pictures.

The nefarious characters are getting more sophisticated too. And while thousands of sites are working feverishly to implement best security practices, the bad guys only need to find one hole.

So while my originally point (that launching a consumer internet company is really easy) is still correct, maintaining that site over time is becoming increasingly difficult. More and more mind-share from the engineering team and the executives are going to thwart the bad guys than to actually improve the offering.

This is a really big problem. Really big. The Black Hat Tax is costing consumer Internet companies Billions and billions of dollars. And it is a much higher percentage tax than off-line brick-and-mortar shops invest in security and anti-fraud matters.

Book: Night

by Elie Wiesel

amazingly enough, i have never read this book. but wow … i am glad i read it (actually listened to it) now. we must never forgot.

there is not much i can say about this book that hasn’t already been written. even though this book was written over 50 years ago, it is still being reviewed here and here and here and here (these four reviews were posted today).

summation: read this book. we must never forgot.

book: The Hacker Ethic

Full_image_9The Hacker Ethic and the Spirit of the New Economy
by Pekka Himanen, Linus Torvalds and Manuel Castells (read by Oliver Wyman)

I liked this book. the authors contrast the hacker ethic with the protestant ethic. and while i don’t discount the protestant ethic like the authors do (i actually quite like the protestant ethic), i am a big believer in the hacker ethic. instead of working to live, hackers create and build things for the greater community.

i continue to be blown away with great hackers like Jimmy Wales and thousands of others who band together to create great projects.

one a personal note: this week was my first one back in an office. i have been working from home for 3.5 years … i truly love working from home … but an office is more conducive to getting something done greater than one person can accomplish. while setting up the Rapleaf office (we’ve been cleaning, moving things, setting up desks, etc), i listened to this book.

summation: a great book to read … especially if you are a hacker yourself.

Book: Science Friction

080507708101_aa240_sclzzzzzzz_Science Friction : Where the Known Meets the Unknown
by Michael Shermer

this was another really dissappointing book … I heard about the book on NPR (they interviewed the author) and it sounded fascinating. but readign the book … it seemed to have been written more for a high school audience. the content made sense and the author makes some good points … but it is nothing illumunating.

summation: this is the frirst book i didn’t finish in a long time. skip this book.

Book: Charlemagne

by Richard Winston

what a wonderful book. and great that it is available in Audible.

if you are like me and are fascinated with history’s greatest leaders, this book is worthwhile. It gives you a real snapshot to what went on around 800 AD. It is a rather long book (took me many runs, drives, and chores to get through it … but it is worth it). And it is a good companion to A World Lit Only by Fire.

I highly recommend this read (especially the Audible version)

Book: Get Back in the Box

0060758694Get Back in the Box : Innovation from the Inside Out
by Douglas Rushkoff

Keith Rabois strongly suggested that I read this book. A few months ago, Keith suggested that I read The Search (which I loved). So when Keith said to read this book, i ran out and bought it.

But Get Back in the Box was not very enlightening for me. While i strongly agree with the message of the book, I found little insights that were non-obvious.

summation: you might want to skip this book and just read the summary.

losing weight will be easier in the future

Astro_picBodymedia recently launched the Bodybugg which monitors how many calories you’ve burned everyday (it kind of a pedometer and heart-rate monitor on steroids). Accompanied with the hardware is web-based system that allows you to log your food so you have a good idea of your calorie intake. And as the bodybugg web site says:

weight loss is simple. you just need to burn more calories than you take in. it’s that easy.

Astro Teller and the BodyMedia gang are on to something. This system will truly get people to better understand their calories going in verses what they are burning.

Now this system will only be used by early adopters now … now … but I expect that this will have great appeal as the systems become even more user friendly. Certainly this is a lot more practical than Atkins.

As society invents more and more ways to get obese, it will also invent greater and greater ways to beat obesity and stay trim. So eat another Big Mac — that’s only three hours extra on the treadmill …