News

The lessons of Web Booth

Fraud allegations and a lawsuit against the defunct kiosk developer represent a wake-up call for the industry. The next step is deciding what actions need to take place.

May 27, 2002

The time to do dumb stuff is when you are young. Lack of maturity and common sense are pretty solid excuses for committing idiotic acts, and nothing says lacking maturity and common sense better than being a teenager.

When I was 13, I grew my hair long for the first time, even attempted to grow a mustache. It was part of the maturing process, trying to reach beyond a confusing and clumsy adolescence for the adulthood I was certain was around the corner.

A great example of immaturity at work came one fall afternoon when I took my bicycle for a high-speed ride down the steep hill at the end of my street. My bicycle was mechanically incapable of the tricks I asked it to perform, and my body was athletically unfit for the task.

The end result: a broken hand and a left arm full of gravel rash.

Lying in a clump of wounded pride and bloody fingers along a patch of gravel in Louisville, Ky., I had the opportunity to grow as an individual, accept that I had done something stupid and deal with it. I didn't respond to the accident with a budding sense of discipline and self-awareness. I simply blamed it on my lousy bike and moped around the house for a couple weeks. The bike, which somehow had emerged unscathed, gathered dust for a few years, then became irrelevant when I obtained my driver's license.

KIOSKmarketplace.com editor John Harrell

Rather than getting older and wiser, I obviously spent most of the time floundering in cluelessness. My wife sometimes wonders if I've ever moved beyond that moment.

The kiosk industry is facing a similar moment. The trick is how well it responds to the challenges that will follow.

Scheme machine

The recent lawsuit filed against kiosk developer Web Booth Inc. and its partners for fraud and misrepresentation in the deployment of kiosks at McDonald's restaurants in the U.S. kicks off the kiosk industry's latest round of growing pains.

As KIOSKmarketplace outlined in a May 24 story (See story: Anatomy of a kiosk suit), the suit alleges that John Perry, a key principal in Web Booth and kiosk maintenance firm Waterstones, engaged in a Ponzi scheme that attracted investors with promises of deploying Internet access kiosks in McDonald's.

When investors buy into a Ponzi scheme, their only hope is to recruit more investors to recoup their costs. When the investor pool empties, the revenue dries up as well. Usually those at the top do fantastic, while those at the bottom lose their money.

When Web Booth, through Waterstones, failed to sell advertising for its kiosks, the company had to fund promised regular payments to investors with revenue generated through new investors. Thus a Ponzi scheme was born. With the investor pool drying up, Perry disappeared last December after withdrawing all of Web Booth's funds. That led 179 investors who invested $8.2 million in the project to file suit.

The allegations are significant and severe. If true, then the industry's reputation will take a hit and hard work will be needed to restore confidence.

The Call

So how does the kiosk industry react? Should it be proactive and face the problem head on? Should it pretend that Web Booth never happened and hope it doesn't happen again?

I've always been one to preach the merits of being proactive. Web Booth happened. It will happen again. It could be happening right now and nobody realizes it yet. Hoping it will never happen again will not work nearly as effectively as taking preventative steps.

Perhaps the kiosk industry needs something along the lines of an ombudsman, a kiosk watchdog devoted to maintaining industry standards. Perhaps the responsibility lies with the companies considering kiosk projects to do their due diligence. McDonald's, after all, could have done a two-minute Internet search and discovered that securities officials in Wisconsin and Pennsylvania had cited Web Booth in 1999 for unregistered activities. If they'd seen that red flag early on, the company could have avoided litigation while sparing the kiosk industry its current embarrassment.

Or perhaps the answer lies with someone in the kiosk industry. What are your thoughts on the Web Booth case and what the industry can do to protect itself? KIOSKmarketplace is interested in hearing from its readers on the Web Booth case and how the kiosk sector should respond. Send me an e-mail by clicking on the link in the "Have an opinion?" box above. Sometime in the coming weeks, I will post some of the replies and hopefully a dialogue can be established.

After all, everyone is going to get some gravel rash at least once. How you respond to it is what's important.