Instacart says it mistakenly withheld tips from some of its workers

It also overcharged some customers.

Instacart’s tumultuous relationship with the workforce that picks and delivers groceries to the company’s customers just took another hit.

The $ 4 billion grocery-delivery startup admitted in a blog post on Friday that it had mistakenly withheld tips from some of its workforce, and failed to waive service fees in some instances when its customers requested to.

Instacart blamed the errors on a technical “bug, related to product updates made at the end of 2017,” co-founder and CEO Apoorva Mehta said in the post.

“We sincerely apologize for this and we are committed to doing better going forward,” he said.

The company said it would pay out the tips to affected workers, refund customers who had waived a service fee that was still charged and provide both constituencies with itemized lists of the affected orders. The company said the glitch “impacted less than 1 percent of Instacart orders during this time period.”

I’ve asked Mehta for an explanation of how they discovered the bug, as well as the total value of withheld tips and wrongly charged service fees. I’ll update this post if I hear back.

The news comes about a year after Instacart workers were in an uproar over changes that made it much harder for them to receive tips. The company implemented a service fee in late 2016 that it said it would disburse to its workforce in an attempt to even out pay between its lowest and highest earners.

It initially removed the tipping option as part of this change, before relenting and adding it back. But when it did, it made the tipping feature much harder to find. It has since made it more prominent and has made changes to how it describes the service fee after settling a class-action lawsuit for more than $ 4 million.

But over the last few months, workers occasionally complained of missing tips on internet forums where Instacart workers congregate. Some also spoke of Instacart customers who said they waived the “service fee” — which Instacart allows — only to find that they it had still been charged to their order. It turns out this was the case.

Instacart, founded in 2012, has increasingly become the No. 1 ally of grocery store chains in their battle with retail giants like Walmart and Amazon. Following Amazon’s purchase of Whole Foods, the startup signed new delivery pacts with giant grocery holding companies Albertsons and Kroger and expanded deals with Costco and CVS.

Whole Foods was an investor in Instacart and its largest customer.

Instacart employs a mix of full-time and contract workers who pick grocery orders off the shelves inside the stores of partnering grocers and deliver those goods to customer doors. But frequent changes to this workforce’s pay structure has sown distrust among swaths of Instacart workers.

Today’s revelation may not help.


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Snapchat’s redesign was meant for your friends, and celebrities aren’t your friends, says CEO Evan Spiegel

Kylie Jenner doesn’t like the Snapchat redesign — but Snap didn’t change things for her.

Kylie Jenner isn’t happy with Snapchat’s redesign. That probably means it’s working.

Jenner, a member of the insanely popular Kardashian family, tweeted to her 24.5 million followers on Wednesday afternoon that she was no longer opening Snapchat. Bloomberg says Jenner’s tweet, which was “Liked” more than 327,000 times, cost Snap $ 1.3 billion in market value.

It looks like a terrible, unintended consequence of Snapchat’s latest redesign, which started rolling out this month in the U.S. and has very few fans.

But Jenner’s response to the redesign might not be a side effect at all. In fact, based on comments from Snap CEO Evan Spiegel last week, it sounds like the redesign is working exactly as planned.

Here’s what Spiegel said at the Goldman Sachs Technology Conference last week in San Francisco, explaining how Snapchat is using algorithms and separate sections of the app to create a division between content from your friends and content from publishers and celebrities.

“Even some of the complaints we’re seeing reinforce the philosophy. So for example, one of the complaints we got was, ‘Wow, I used to feel like this celebrity was my friend and now they don’t feel like my friend anymore.’ And we’re like, ‘Exactly. They’re not your friend!’ … So for us, even some of the frustrations we’re seeing really validate those changes.”

Jenner doesn’t explicitly say in her tweet why she’s no longer opening the Snapchat app, though we assume it’s because she doesn’t like the redesign. But like the rest of the Kardashian clan, Jenner is a businesswoman who has used the app with tremendous success to help sell her line of beauty products. It’s entirely possible she says she doesn’t like opening the app because she’s seeing that fewer people are seeing her posts. Maybelline, another beauty brand on Snapchat, posted on Thursday that its Snapchat views had “dropped dramatically” since the redesign. (It then deleted the tweet.)

Jenner followed up her first tweet criticizing Snapchat with one expressing her love for it, though that one got a lot fewer “Likes.”

The point is, Snapchat is making a big bet that users want to hear more from their friends than from celebrities like Jenner or brands like Maybelline. Or at the very least, they want to separate most of those interactions into two different parts of the app. It’s not a crazy idea. Facebook just changed its News Feed algorithm to achieve the same goal. And Instagram realized a few years back that it needed to try and find ways to help users see more from friends and less from brands.

Is it good for Snapchat if Jenner abandons the platform? Of course not. It’s possible her massive following will go with her, and, at the very least, a stock hit is the last thing Snap needs after reporting its first positive quarter ever just a few weeks ago.

But there must be a reason these tech companies keep coming back to prioritizing friend-to-friend interactions. It’s possible that seeing less from Jenner now is better for Snap in the long run. We probably won’t know for months if Snap’s gamble pays off. But it’s worth remembering that while Jenner’s frustration clearly surprised a lot of investors, it probably didn’t surprise Evan Spiegel.


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Sequoia and founder Drew Houston are unusually big winners in the Dropbox payday

Sequoia’s Bryan Schreier.

Sequoia bought into the company when it was cheap. Here’s what that means today.

Dropbox’s CEO and its first big institutional investor have amassed an unusually large percentage of the company.

Dropbox, which unveiled its IPO documents on Friday, raised money relatively slowly on its way to its last valuation of $ 10 billion. What that means is that Drew Houston, one of the company’s founders, and Sequoia Capital, which cut Houston his first venture capital check, now stand to make a disproportionately largely amount of money off their file-sharing and cloud-storage project.

Houston owns 25 percent of the outstanding shares of the company, and his co-founder, Arash Ferdowsi, owns about another 10 percent.

And unlike at companies that raise more than a half-dozen rounds of outside financing before going public, Dropbox only partook in four major venture capital rounds. Fewer total rounds meant fewer new investors to dilute Houston’s and Ferdowsi’s shares.

Sequoia, which led the seed and Series A rounds for the company, currently controls 23 percent of the stock. Sequoia is represented on Dropbox’s board by Bryan Schreier.

Those were the two rounds when an investor could buy shares on cheap — after that, Dropbox’s valuation jumped from $ 25 million in 2008 to $ 4 billion just three years later in 2011, according to PitchBook.

To keep that high ownership rate in the company, Sequoia likely aggressively doubled down on its big success during those later financing rounds led by investors like Index and BlackRock.

Yet it was much more expensive to buy into an established success. Neither of those funds own more than five percent of the company today.

Rani Molla contributed reporting.


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Dropbox needs to be seen like Atlassian, not Box, to avoid a downround IPO

Drew Houston, founder and CEO of Dropbox

The company disclosed key financial information in its S-1 filing.

Is Dropbox poised to be valued on public markets less than it’s valued on private ones? Depends on your point of comparison.

Dropbox on Friday disclosed reams of financial information in its S-1 filing as it prepares at long last to go public. The big question over the next few weeks — in advance of the company share price being set by bankers — is whether the company will meet its $ 10 billion valuation set during its last round of private financing in 2014.

The smaller question: Which company can we compare it to? Should we think about Dropbox in the way we think about Box, the publicly traded cloud-storage company? Or is it more like Atlassian, the successful workplace collaboration company that offers a more friendly point of comparison for Dropbox investors?

Dropbox said Friday that it booked $ 1.1 billion in revenue last year. If the best point of public-market comparison is Atlassian, which has a revenue multiple of about 15, then Dropbox could be valued at over $ 16 billion on public markets. If the point of comparison is Box, then Dropbox is staring at a downround IPO that would value the company at under $ 7 billion.

Dropbox, founded by Drew Houston in 2007, will be one of 2018’s marquee IPOs along with Spotify — both of which are expected to appear on public markets in the early spring. Several other high-flying Silicon Valley companies — from Uber to Airbnb — are no doubt watching closely how Dropbox performs as they mull when to time their own public offerings.

Dropbox’s IPO will be a windfall for a series of early investors; because the company took relatively small amount of outside capital, a few shareholders own unusually large percentages in the company. Houston, the CEO, owns about 25 percent of the company, according to the documents, and Sequoia Capital owns about another 25 percent.

Dropbox will also be the first IPO for Y Combinator, the accelerator program that has become a hallmark of Silicon Valley promise.

The company said it had over 500 million registered users, but only 11 million of them are paying. Average revenue per paying user was $ 112 in 2017, just a 1 percent increase over 2016. That’s a statistic that the company acknowledges it needs to improve.

“Our business depends on our ability to retain and upgrade paying users, and any decline in renewals or upgrades could adversely affect our future results of operations,” the company said in the filing when referring to one of its “risk factors.”

Still, the company lost $ 112 million last year — though that figure has been improving year over year. The company also impressively posted $ 305 million in free cash flow in 2017 — far better than Box, which had only a positive free cash flow of $ 6.3 million in its latest quarterly filing at the end of 2017.

Exact pricing on the shares will arrive in the upcoming weeks from Goldman Sachs and JPMorgan Chase, who are leading this IPO.


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House of Highlights is turning Instagram into must-watch TV for young sports fans

23-year-old Omar Raja has built an Instagram powerhouse.

Like a lot of 23-year-olds, Omar Raja started an Instagram account in college because most of his friends were on Instagram.

Unlike a lot of 23-year-olds, Raja’s Instagram account was a lot more than selfies and food porn. He amassed 8.2 million followers, including NBA superstars LeBron James, Steph Curry and Russell Westbrook, used the account to land his first job and helped start viral internet memes, like the “Running Man Challenge” and the “Drive-By Dunk Challenge.”

On Thanksgiving last year, James and NFL superstar Odell Beckham Jr. wished each other “Happy Thanksgiving” in the comments section of one of Raja’s videos.

“That’s usually a conversation you see over text, and it’s happening in front of like eight million people,” Raja said during an interview this week in San Francisco. “And you’re like, how is this happening?”

It’s happening because Raja is the creator of House of Highlights, the insanely popular Instagram account that publishes sports highlights with Raja’s witty commentary. The account has become a kind of digital version of SportsCenter, a place for folks to catch up on the day’s top sports moments from the games they didn’t have time (or interest) to see live.

The account got so big while Raja was still in college at the University of Central Florida that Bleacher Report, the sports site owned by Turner, acquired the account (and its creator) before Raja even graduated.

In the two years since that deal, House of Highlights has grown from 1.1 million followers to more than eight million — all with Raja posting the vast majority of the videos. Over the past 30 days, House of Highlights has done more video views on Instagram (662 million) than the official ESPN (206 million) and SportsCenter (316 million) accounts combined, according to social media analytics company CrowdTangle. House of Highlights’ interaction rate — the percentage of people who see a post that also interact with it — was higher than that of mega stars Kim Kardashian and Cristiano Ronaldo in that same time period.

Adding to the appeal is the fact that NBA stars like James and Curry, whose dunks and jumpers are frequently featured on the account, are also followers.

“I think players see that and are like, ‘Oh my God, LeBron liked my post,’” Raja said. “It’s different from when you watch SportsCenter. You don’t know who’s watching with you.”

Recode interviewed Raja and Doug Bernstein, House of Highlights’ GM and the exec who found and acquired the account two years ago, to learn how you build a sports brand on Instagram. Here’s an edited transcript of our interview.


You started this account in college. How did that happen?

Omar Raja: I was a die-hard Miami Heat fan. I had posters all over my wall. And then when LeBron ended up leaving, [I was] kind of heartbroken and depressed. It’s like going through a breakup and you’re starting to go back through old photos and videos. There were some videos that I used to share with friends, and I didn’t know where to find [them]. I would go crazy on the Google searches with advanced search and I would never be able to find those moments. So I said, all right, I’m going to start doing them myself.

Why did you start on Instagram instead of Facebook or YouTube or Twitter?

Raja: I was in a car going to a mall and I was actually on Twitter at the time, but all the other four people in the car were on Instagram. I was really late to the party. I was like, “Okay, now I’m going to make an Instagram account.” So that was around that same time [LeBron left]. It was kind of an addicting feeling, and it kind of felt like pure entertainment. Now I call it “young people’s television.” We go there to see what’s happening, to be entertained.

So you started posting NBA highlights. Sports rights are usually heavily protected. Did you have permission to post the stuff you were posting?

Raja: I was clueless to all that stuff. It’s kind of like the Wild, Wild West in a way. Someone asked someone at the NBA about it at one of their events. “Why don’t you guys pull [down] the YouTube stuff?” They said, “Well, highlights are marketing.” I think even now you see on Twitter, there are a lot of people that run NBA highlights and the NBA never really gives them any issues. So I kind of felt like, hey, this is really just helping promote their brand, and if an issue comes of it, an issue comes of it.

GET OUT OF HIS WAY.

A post shared by House of Highlights (@houseofhighlights) on

At what point did you realize you were onto something special?

Raja: I think once you hit like 500,000 followers. That’s the moment where you’re like, “Holy shit.” And then also like when celebrities follow, right? So the first big one was Snoop Dogg. I ran out of my room. I called my dad. “Dad, do you know who Snoop Dogg is?” He’s like, “Of course.” I was like, “He just followed House of Highlights!” So that one was cool. So Snoop Dogg follows and celebrities start following, and they don’t just follow. They “Like” and engage with this stuff.

So you’re still in college at this point. How did you end up selling to Bleacher Report?

Doug Bernstein: Bleacher Report has always kind of been the up-and-comer to ESPN. I think we’ve made incredible progress to kind of catch ESPN, especially in the digital space. But I had reached the point where we had been at it for maybe six or seven years, where I was starting to get nervous and anxious. Who was the startup that would come up to us? Who was the one that could replace us? We had a great millennial audience, but who was dominating with 12- to 24-[year-olds]? That’s where House of Highlights came in.

Raja: When I first got the email I screen-shotted it and sent it to my friends to brag. I was a Bleacher Report fan.

How did Bleacher Report respond to your idea to buy some college kid’s Instagram account?

Bernstein: There were definitely a fair amount of people internally that were very confused by it. I think the finance team rightfully asked some questions and just kind of didn’t understand why we would buy, you know — essentially it was a brand. Then they saw the vision and the value that House of Highlights was going to provide, and we were able to work it through.

What convinced you House of Highlights was any different from other highlight accounts?

Bernstein: The things that stood out to me first were, one, his voice. I thought it was one of the funniest voices. The captions, I thought, were just really, really genuinely funny. The second thing was the content selection. It’s really hard to find content that’s always going to resonate. I kept saying, where is this user generated content coming from? I couldn’t figure it out.

So in addition to NBA highlights you were also posting funny sports clips from fans and followers?

Raja: So there was a big dependence on UGC. It’s easy to say now like, “Oh yeah, it’s a cool video of someone doing something outside in their backyard or in front of the house.” But when you think about like what UGC looks like, it’s obviously unpolished, raw. A lot of our stuff is filmed on iPhones and that’s the way we would prefer it. Back like three, four years ago, no one was running UGC in the same way that I do. I had opened up my DMs [private messages] and I would look every single day, still do, and people would just know that, hey, if I do something cool in my backyard, if I have a funny moment where I record something, to send it to House of Highlights.

You still get a lot of stuff just sent to you?

Raja: I probably get like 500 DMs a day. [I watch] every single one. Now, like 50 of them are weird selfies. It takes a few hours to kind of just go through it all.

So running an Instagram account is a full-time job?

Raja: I post in movie theaters, lunches, dinners. If I’m going to be in a movie theater at eight o’clock, then it’s tough. I’ve literally cut up clips in a movie before. So I [usually] have the computer where I’m actively cutting [clips]. Then there’s a TV where you can watch like four games on one TV, and I have another TV [for more games]. So it’s like six games at once. I haven’t had a day off in four years.

Bernstein: As soon as he picked up the phone [during the acquisition talks] he was like, “Just so you know, if a trade or free agency thing happens, I’m going to have to hang up on you.” Then two minutes into the call, he was like, “Hold on, something just broke, I’ll call you back.” I immediately was like, “Oh, this is the guy.” Anybody that’s so dedicated to that work that everything else would be put on pause — immediately when that happened I was like, this is something really cool.

Right now the account is pretty NBA-dominated. Do you plan to do other sports?

Raja: So we’re going to do March Madness [college basketball]. We did college football. We did the World Series and most of the MLB playoffs.

Bernstein: I think a big thing is the Champions League [global soccer]. Turner is getting rights to Champions League. That’s something that we’re really excited to get access to.

You’ve been credited with starting some pretty good internet memes, too. Like the Drive-By Dunk Challenge. How’d that happen?

Bernstein: I’ve been in this space for a really, really long time and I had never seen anything that has the same ability that House of Highlights does to take these moments and then turn them into movements. It has the ability to influence behavior. It shapes what people are doing in the real world and creates these narratives.

Raja: The Running Man Challenge, those guys ended up on “Ellen” and everything and I said to myself, “Okay, like there’s no way I started this.” So I DM’d the guy, I was like, “Hey, was I the first person that posted and kind of started [this]?” He’s like, “Yeah, you kind of changed everything.” Then we had the Drive-By Dunk Challenge. That one was cool because I texted Doug, “This is the next big thing.” We posted it, it went super viral. That one was crazy. I got hundreds of DMs.

Even De’Aaron Fox is doing the #DriveByDunkChallenge (via @swipathefox)

A post shared by House of Highlights (@houseofhighlights) on

Does the account bring in any money?

Bernstein: There are three types of ways in which we monetize the account. One is a distribution of a company’s assets. [We] run their commercial. The second way is [sponsorships]. Then the third is branded content. So that’s where we went out and worked together with the brand to create original assets.

What happens next? You just launched a YouTube page. Will you start Twitter and Facebook pages too?

Bernstein: Being celebratory and being inclusive are two of the things that are really, really important for us. One of the nice things about Instagram is the comment section tends to be a little friendlier. There’s a real ability to build a community.

Raja: Instagram is where the young people are at. That’s what [people] my age are on. The reason we started on YouTube rather than Twitter or Facebook was because … that’s the only other place where young people are at.


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