What the article is getting at, is that the service makes promises based on the assumption that later subscribers will show up to provide enough data to satisfy the SLA they give to the early subscribers, before those early subscribers attempt to "call them on it" (by i.e. actually attempting to use the less-common data sets in production.) If the later subscribers don't come, the service will eventually be found useless for the early subscribers, and so they've paid in for nothing.

Thus, like in a (complete-knowledge) Ponzi scheme, the early subscribers have an incentive to get later subscribers to sign up for the service, so that it can be more useful for them.

But, unlike in a Ponzi scheme, the later subscribers don't have to wait for subscribers even later than them, before they can benefit. The later you subscribe, the more immediate value the system has to you.

You're doing a good job of retconning the article but here's what it actually says about Ponzi:

"There are ad tech companies that promise ad buyers they will find fake data. Those vendors will usually eradicate that data at a cost-per-thousand, as a data fee. Similar to what happened with viewability and ad fraud. I’m sure there are companies looking to solve this problem, but you’ve got to wonder: Why would I want to pay more to validate the data that I already paid for? If this happened in the financial industry, then people would’ve been locked up for it — it’s like Bernie Madoff’s Ponzi scheme. Companies that detect fraud would not need a reason to exist if the market didn’t pay for the fraud to take place."

The bit they explictly compare to Ponzi/Madoff is having to pay an extra fee to detect fakes in data you bought because the "market" is paying for the fraud to take place.

This is almost, but not quite, entirely unlike a Ponzi scheme.

Also, this is terrible journalism. It's almost impossible to tell which statements constitute the "confession" and which constitute editorial comment.

It's more like "trying to kickstart the network effect".

It's kind of like how dating services buy and sell portfolios of user accounts so that they can pre-seed their services with apparent potential matches, thus attracting real users who will (hopefully) become the real userbase.

Not an unknown business structure. E.g.:

I hold a party and charge an entrance fee.

The early arrivals are in an empty room. If nobody comes after them, they won't have much fun. If you arrive after a critical mass of people is already present, though, the value of the party is instant.

I guess the difference here is that people know how parties work in this respect; this business may not have been so clear.

This is why paid parties usually have a higher price for later arrivals.

I believe that's called "an investment" -- you put resources in, hoping to get them back again plus more. The possibility of losing your principle is called "risk".

It's about as much of a Ponzi scheme as, say, a day at the track.

If you paid for a service, but got an investment, that's not exactly on the up-and-up. If that money is then used to try to work towards what they've sold you as currently available, that's not exactly a Ponzi scheme, but it does share quite a few similarities.

IMO, equating it to betting at the track isn't very accurate. Most people that bet at the track know they are taking on risk of no return, and what they gain for that is increased payout. Where's the knowledge here that you might not get what you paid for? What's the benefit of taking on this risk? Is it still betting if you buy something at a store and the shopkeeper turns around and puts the money into a slot machine before you've been given what you paid for and before know what's going on?

The author's words were that the sale of fake data was "like a Ponzi scheme" in the sense that it is a crime.

The author makes no mention of any factual similarities.

The author is suggesting there are legal similarities: both are criminal fraud. He suggests that those committing fraud on investors are "locked up" and insinuates those committing fraud on advertisers are not.

The author were "[i]f this happened in the financial industry..."

If what happened? Sales of ad data? No. Fraud.

The author is not suggesting that deceiving purchasers of location data is factually similar to deceiving purchasers of investments.

The author is suggesting they are both fraud, i.e. legally similar. Both are intentional deception by a seller on which a purchaser relies. Fraud.

The difference the author sees is that those who commit fraud on investors are incarcerated and those who commit fraud on advertisers are not.

Maybe the author was just trying to cite a well-known, real world example of fraud (intentional deception by seller upon which buyer relies) where the perpetrator was incarcerated. In that case, the example he picked makes sense.

My problem is that the article is titled "Confessions of a location data exec: ‘It’s a Ponzi scheme’," so the question of whether it's a Ponzi scheme or not is at least relevant.

As for the analogy, it's possible this exec is just that bad at language, sure. "My darling, you are like a fine Stradivarius violin... it is possible to make you useless by lighting you on fire."

Oh, I missed the title. Maybe I am wrong then. But then what good are titles anyway? HN routinely changes them from their originals. Reminds me of patents. One cannot derive anything useful from the title alone.

I think Ponzi scheme is used here to just mean fraud