The Controversy at Phia, Phoebe Gates’ Buzzy Startup

**SPEAKER_1** (0:02)
Bloomberg Audio Studios, Podcasts, Radio, News.

**Sarah Holder** (0:08)
When a startup called Phia launched last year, billing itself as an online shopping assistant, it got a lot of attention right away.

**Olivia Solon** (0:16)
They had this whole list of their investors that looked like a sort of festival lineup.

**Sarah Holder** (0:20)
That's Bloomberg technology editor, Olivia Solon.

**Olivia Solon** (0:23)
They raise money from a bunch of celebrities and VCs, so Notable Capital, Kleiner Perkins, Coastal Ventures, but also Sidney Sweeney, Khloe Kardashian and Hailey Bieber.

**Sarah Holder** (0:36)
The founders were buzzy too.

**Olivia Solon** (0:38)
One of its founders is Phoebe Gates, who's the daughter of Microsoft co-founder Bill Gates.
She went to Stanford, as did Sophia Kianni, who's the co-founder. The co-founders are sort of influencers, and they also kind of do a podcast.

**Phoebe Gates** (0:53)
Welcome to The Burnouts, the podcast where we juggle launching startup and surviving our 20s in New York City.

**Sarah Holder** (0:59)
Phia offers an app and a browser extension that promised to help online shoppers find deals on their favorite products. When shoppers use Phia to make a purchase, retailers give the company a cut of the sale.
The startup has raised $43.5 million, and according to estimates from app figures, it's been downloaded over a million times in the past year. But last month, Olivia reported that Phia's success wasn't all that it seemed. She found that it was taking credit for purchases it didn't facilitate, using a tactic called cookie stuffing.

**Olivia Solon** (1:36)
You're only supposed to get the commission if the shopper takes, they make an intentional click on something you've provided and that you had an influence over the sale in some meaningful way.

**Sarah Holder** (1:47)
When Olivia brought her reporting to Phia, the company said that a recent update to their codebase had caused the issue, that they'd been made aware of the problem within the past 24 hours, and that they'd already resolved it. But Olivia kept asking questions, and from her reporting, it appears there's more to the story. I'm Sarah Holder and this is the Big Take from Bloomberg News. Today on the show, the cookie stuffing controversy at Phia, and what the latest Bloomberg reporting suggests about how much its co-founders knew, and when they may have known it.
For all the excitement around Phia, the product it's offering isn't entirely new. It's just the latest player in a vast industry known as affiliate marketing.

**Olivia Solon** (2:40)
At its most basic, this is where retailers give a small commission to publishers or other people who refer shoppers to their websites. So that could be an influencer. It could be like a reviews website. I think a good example would be something like Wirecutter, which does reviews of products and then recommends those products to its readers. And when you click on a link from a Wirecutter review, a special little piece of code will be in the link. And that will mean that if you then end up buying the product on Amazon or Walmart, wherever the product is sold, Amazon or Walmart will pay Wirecutter a small commission. And it's usually a couple of percent through to like 15 percent, depending on the type of product.

**Sarah Holder** (3:22)
Okay. Tell me a little more about how this works, how a company like Phia makes money.

**Olivia Solon** (3:26)
The key thing about affiliate marketing is in order to get the commission, the shopper has to have taken an intentional action with your content. So like you click on the link from Wirecutter, you read the review on Wirecutter, so you went to go and buy the thing. And so Phia is doing the same thing. It has its own little app that has loads of fashion items and stuff, and so you can click on a link from there and you end up being referred to the retailer's website. It also has this thing called a browser extension, which is a little program you add to your browser. And so as you're shopping around the internet, when you put something in your shopping cart, a little Phia pop-up appears and offers you coupon codes and says, do you want to use this discount code? And if you click on one of those discount codes, Phia is entitled to a commission.
Any brand with a website is a part of their marketing strategy. And so Phia was part of a bunch of retailers like Gap, Nordstrom, I think Walmart, a bunch of their programs to receive commissions if they help drive a sale.

**Sarah Holder** (4:28)
So Olivia, what did you find when you started looking into Phia's practices a little more closely?