Jason Kotenko


Never Put All your Eggs in One Digital Basket

Tue, Apr 26 2011

The recent story about how Google is screwing Project Zomboid out of a lot of money, reportedly 80% of the money they collected for pre-ordering of their upcoming game, and the ensuing discussion over at Hacker News has gotten me thinking about the structure of technology businesses.

Many times, technical business owners like those at Project Zomboid are incredibly naive about the nature of monetary transactions and business in general. I'm not placing the blame for what happened directly on their shoulders, no, that blame rests squarely with Google's completely non-existent customer support. However, I am saying that better decisions could have been made to reduce the risk of a catastrophic failure like this.

If you're thinking about staking your entire business upon a third party "psuedo-bank," you may want to reconsider. What do I mean by a pseudo-bank? Any company which holds your money for you indefinitely, under the guise of providing a service. In other words, it's an account on a third party site that is not a bank. This includes PayPal, Google Checkout, Google Adwords, Amazon Affiliate Programs, etc. You cannot implicitly trust these companies. At any point, any one of these companies can freeze your assets in their control and completely screw you over. The lawyer fees will probably be higher than the assets you have there, and by the time you get it back, your startup's runway could have run out completely.

There are several lessons to be learned here:

  • Google, PayPal, et. al., are not nice guys out to help you. They are businesses, which exist to make profits. If you get in the way of that, you will get stomped on.
  • Never put all your assets into one program. If you're taking payments, diversify between PayPal and Google Checkout. Or, if you can, move to something like BrainTree which has a higher barrier to entry, but which will make you think more clearly about the rules and regulations you are agreeing to.
  • Choose companies that have a track record of actually responding to their customers. Google is notorious for this. While in some respects no content creator can walk away from Google Adwords, you can diversify into other services to lower the risk from dealing with such a blind, deaf, and dumb company.
  • Remove your funds at the soonest possible instant. Every second you leave your money in these pseudo-banks, you are putting it at risk. Furthermore, you are losing the income you could gain from investing that money, either back into your business, or to interest bearing accounts such as bank accounts or bonds and the like. Don't give Google or PayPal an interest free loan. You can bet your ass that they are gaining interest on your money while you let it languish in their control. Educate yourself on their policies thoroughly and withdraw your money at the soonest point possible, on a regular basis.
  • Extending from the end of the last point, educate yourself. Is there a TOS? Read it, and read it again, take notes, and write a blog post about it. Find the gotchas in there and make sure you damn well don't violate it. If you do, you're just asking for a freeze of your funds.

In the end, there will always be some risk to dealing with giant companies that are many multiples of your startup's size. Make sure you minimize those risks and lose your idealism about Google. Don't be evil was forgotten a long time ago, my friends. Google is just a for-profit corporation, no more, no less.

Copyright 2011 Jason Kotenko. All Rights Reserved. Contact me