Phorm Türkiye

What did it do?

Phorm was an advertising technology company that partnered with internet service providers to show subscribers targeted ads based on the sites they visited. In Turkey it began commercial operations in July 2012 through a deal with TTNET, the country's largest broadband provider, offering the service under the name Gezinti.com. Turkey was the showcase for the company's strategy of expanding into emerging markets.

Why did it shut down?

Phorm's model relied on inspecting users' internet traffic at the provider level, and it met a privacy backlash in every market it entered. In Turkey, the telecoms regulator BTK decided to open an investigation into TTNET on the grounds that it had violated users' right to the privacy of their personal data by informing them inadequately, and to remove subscribers from the Gezinti.com service (Bianet, 2012). Webrazzi saw the January 2015 decision to scale down as a sign that the company had failed to meet its high expectations in Turkey; operational problems were burning through cash fast. In the end the company could not find new capital to keep going and ceased trading in April 2016 (The Register, 2016).

The story

Phorm was a technology company that used internet service providers' traffic to show users ads based on their browsing habits. The method relied on a deep packet inspection system installed in the provider's network. As a result, the company became a target for privacy campaigners in every market it entered. As The Register recalled, BT's testing of the system in the UK without users' consent was debated for years. After halting its operations in South Korea and the UK, Phorm turned its sights on emerging markets.

Turkey was the showcase for that strategy. In July 2012 the company signed a deal with TTNET, which had around 6 million broadband lines, and raised $10.8 million in investment for its entry into Turkey. In September 2012 it announced that it had reached around 4 million users in Turkey and aimed to turn a profit in 2013 on its Turkish revenue. According to the company, even Brazil would soon trail behind Turkey.

The backlash was swift. The service was offered to TTNET subscribers under the name Gezinti.com. As reported by Bianet, on 14 December 2012 the Information and Communication Technologies Authority (BTK) decided to open an investigation into TTNET on the grounds that, by failing to give users necessary and sufficient explanation, it had violated their right to the privacy of their personal data, and to remove all subscribers from the Gezinti.com service. The Alternative Informatics Association welcomed the decision but found it insufficient, and called for Phorm's system to be examined as well.

The expected growth never came. In January 2015, in a filing to the London Stock Exchange, Phorm announced that as part of a wide-ranging cost-cutting programme it had restructured its Turkey office and would now manage operations there remotely. According to Webrazzi, the Turkish tech news site, this showed that the company had failed to meet its expectations in Turkey; cash was draining fast and the need for new investment remained.

The final curtain fell a year later. On 14 April 2016 Phorm announced that it had been unable to secure the capital or debt needed to continue and had ceased trading. According to The Register, the company had lost $40.5 million in the 2014/15 financial year. With that, the Turkish adventure of a company that had seen Turkey as the key to its growth came to a complete end.

Lessons for founders

• In a business model built on user data, explicit consent is not a detail; it is the product itself.
• Growth that depends on a single large distribution partner can stop overnight with one regulatory decision.
• Moving a model that met a backlash in one market to another market does not solve the problem; it only postpones it.

Sources

1. Controversial ad-targeting start-up Phorm closes its Turkey office (Webrazzi, 2015-01-19)
2. Ad slinger Phorm ceases trading (The Register, 2016-04-14)
3. BTK Opens Investigation into TTNET (Bianet, 2012-12-17)
4. Turkish Launch for Ad Targeter Phorm (MrWeb, 2012-07-09)

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