Are Some Tech Start-Ups Scams?

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By Jacob Maslow

young employees at a start up
Team of young entrepreneurs looking at a laptop computer in a tech startup office

One of the biggest drivers of investor interest in any technology start-up company is user adoption. User adoption can be measured in many ways. At the most basic, it can be measured in the amount of unique visitors going to a certain domain name or website. At its most complicated, user adoption can
be measured by how many people actually download, install, and use a mobile app.

As you can probably tell, there’s a wide range of metrics available on the table. Since there is no one fixed standard, a lot of fraud can kick in. Make no mistake about it, regardless of how seemingly bulletproof a particular user adoption matrix or measurement seems, it can always be faked.

Take the case of Alexa helps businesses figure out the relative strengths of competitors or other businesses in the same industry online. users would download Alexa’s software, and when they visit a website, their software sends reports back to Alexa to gauge user interaction and usage patterns. Since Alexa scores are based on who download this software and how they use this software, Alexa scores are open to dispute. You can persuasively argue that Alexa’s user base is not as statistically representative of your target audience or a particular target audience.

It’s also susceptible to being manipulated. It’s not unimaginable for an enterprising scammer to install hundreds of thousands of instances of Alexa and use one computer or a bank of computers to employ many different proxies to visit certain sites. If you are going to look at Alexa’s score of those websites, you’d think that all this huge army of people have been visiting them. In reality, it’s only one person running one or several computers.

I hope you see the very troubling picture emerging from all this. Since market valuations and investor interest are often driven or pushed by user adoption rates, investors have to be very careful regarding how this metrics of success can be manipulated. Always insist on at least two or three different
metrics of traffic or app download and usage reports. Be aware of any moves made by the companies you are thinking of investing in to artificially inflate their usage statistics.

There are many tricky ways companies can boost overall user adoption numbers. Some are straight fraudulent. This involves bots and software. Others use actual human beings but are still fraudulent. How? They use contests. They run promotions with people that will install an app but who have no intention of using the app. In fact, most of these people aren’t even in the target audience. Be aware of how start-ups can play around with adoption statistics. Your level of awareness can mean the difference between you investing in a winner, and you wasting your money.

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