Why was a scam company able to raise $76 Million Series B?

Sure, but at the scale the ringtone business grew (and burned through users), they eventually ran out of suckers to scam. A lot of them would fold shortly thereafter, or move on to a different market (usually a completely different country), or consolidate with another company overseas and tap the suckerbase there.

This model is basically a modern, bigger-scale version of the old snake oil sales model. Set up a shop in town, sell a bunch of bad merch, get run out of town, find a new town. Rinse and repeat.

Eventually, though, your model catches up to you. Either you're closing up shop in old markets and opening new ones that aren't as big or lucrative, or you're keeping a toehold in the old markets -- but the costs of doing so grow faster than your revenues. Or you flee Market A for Market B, only to have a competitor or two leap into Market B the next month.

Where's the "every month while you're a member" in that text?

"JOIN TODAY" does not imply subscription with recurring charges, just like "sign up" or "create an account" doesn't.

"there's a box you have to click indicating that you accept the terms" - perhaps that gets you off the hook legally, but not ethically.

- Any company of any size in America has been sued in a consumer class action -- many reputable companies scores or even hundreds of times. Some lawyers make their living that way. Most of these suits involve highly subjective elements such as whether there was enough disclosure in the right place of the right type to avoid consumers being misled. (Inevitably, in any mass-market consumer business, some consumers will be misled -- not necessarily the sharpest tools in the drawer.)

- Don't ever believe the version of the facts portrayed in a plaintiffs' complaint (in any suit). Ours is an adversarial system, meaning that, as in politics, you can count on each side to overstate its version of reality about 10X or 100X so that it looks like they're inhabiting alternate universes.

JMHO.

I see your long answer, and, being a bit familiar with companies like Intelligent Beauty, I raise you a long list of questions. I don't expect you to answer them, but in my mind they can help separate "value-enhancing offer" for customers vs. "revenue-enhancing trick" for the company.

1.) How long does the average customer stay in the monthly program before cancelling?

2.) What percentage of customers opt-out on initial sign-up?

3.) On average, what % of the monthly subscription charged to the customer is ultimately spent on merchandise vs. becomes breakage?

4.) If you changed the text next to the check box to say, "You will be charged $39.95/month," do you think opt-in rates would change? If consumers aren't being misled, you should see little-to-no change in opt-in rates.

5) If I call to cancel after N months, do you refund the unused balance? Do I have to use it as a "store credit?" Do you offer me 100 cents on the dollar or some fraction thereof? Are consumers given incentives not to cancel or to convert the remaining unused balance into merchandise before cancelling?

6) Does the unused balance expire? If so, after how long?

7) Do you email customers to let them know they need to log in every month, or is it their responsibility to remember?

8) What portion of the company's revenues (and, more importantly, gross margin dollars) is in product sales vs. unused subscription dollars as breakage?

9) Why must consumers call customer service to cancel vs. doing it online? Is it difficult or time-consuming to reach customer service?

If this subscription is a value-add for customers, one would expect:

- A high portion of the charged dollars converting into merchandise sales vs. becoming breakage. Consumers rarely find it enjoyable to be charged $39.95 and not to get anything for it (even Columbia House sent you the CDs at the same time they collect the money; you get the money first, and I have to remember to come to you to get the shoes).

- A reasonable % of customers opting-out at initial purchase. If 99% opt in, your disclosure is ineffective, as it beggars belief that people are dying to pay $39.95 a month. Or, if you change the language of the text box as I suggest above, no observed difference in opt-in rates.

- A low churn rate in the % of consumers who call to cancel once subscribed.

- A consumer-friendly policy that allows subscribers who cancel to receive 100% on the dollar for the unused balance either in cash or store credit, at their option.

- The majority of the revenues and gross margin dollars come from shoe sales, not subscription fees.

- Easy, online cancellation. Shouldn't it be as easy to get out of the program as to get into it? If not, why not?

[Edit: formatting, again]