6 Companies That Rigged The Game (And Changed the World)
Living in the age of countless corporate scandals and skyrocketing CEO salaries, it's no coincidence that we've become a cynical bunch when it comes to corporate America. We've almost come to expect companies to screw everybody over so that their top executives can spend their time buying solid cocaine statues of Gordon Gekko and betting on hooker boxing matches hosted on yachts in international waters.
However, sometimes when you see the scheming that goes on behind the scenes, you do have to kind of admire it. Not approve of it, mind you -- just appreciate the kind of balls it takes to ...
Convince the World That a Common Substance Is Rare
So, why do you think diamonds are valuable?
Most people will probably tell you the same reasons: they're very strong and visually striking, but most importantly, they're rare.
"We only have enough for the first several millions of you."
There's only one problem with that: that last one isn't true. To explain why you think diamonds are scarce, let's rewind about a hundred years.
That's one diamond mine. That thing to the left is a town.
For much of human history, diamonds were valuable because they could only be found in a select few places in the world. In the 19th century, however, that actually changed as people started to find massive deposits, most notably in Africa. Those deposits were large enough that the rarity of diamonds was quickly becoming a thing of the past.
"Sir, if you continue dropping these on the ground, I'll have to give you a ticket for littering."
Faced with stockpiles that were on the verge of being significantly devalued, the owners of those deposits had three options:
A) Compete against each other and watch the value of their diamonds plummet as the law of supply and demand drove prices down;
B) Forget the diamond market and just use their land to invest in Six Flags Over Zimbabwe;
C) Band together to form an evil multinational monopoly that would inflate prices and earn them billions upon billions of dollars.
We know. Stupid morals.
Go figure, they chose the third option, forming the cartel we know as De Beers. To maintain the perception that diamonds were rare, De Beers not only significantly limited how many diamonds they mined each year, but also literally started buying up all the other diamonds and just stockpiling them (along with their own excess supply). Combined with a decades-long advertising campaign, they created a perception out of thin air that diamonds were rare and valuable, and that you had to drop thousands of dollars on one to prove you loved your spouse.
So, if all that's true, how in the hell do they get away with it? Shouldn't it be illegal?
And if so, what time does the riot start?
Actually, it totally is. The monopoly De Beers holds is so blatantly illegal by U.S. antitrust laws that they've been banned from selling in the U.S. (they're forced to sell to intermediaries on the international market). Until they pleaded guilty to price fixing charges in 2004, their executives wouldn't even set foot on American soil because they feared they'd be arrested on sight.
While there are indications that the cartel might finally be slowly losing its grip on the market, it's been a pretty damn impressive run.
Fix an Auction Via Secret Code
Let's say you're on eBay, shopping for some Pokemon cards, but somehow you know all of the other bidders -- like they're people you play against all the time. Rather than get into a bidding war that would leave one of you spending $1,000 on a foil collectible Charizard, it would make more sense for all of you to get on the phone and negotiate out who needs what. If they let you win the Charizard, they can have the prism foil Squirtle. You designate who is going to "win" each auction, and everybody else submits artificially low bids to keep up the charade.
What, you thought we were kidding?
Everyone gets what they want, but you all wind up paying the seller way less than you would have under a real, competitive auction. And while it makes sense, in the business world it is illegal as shit. When large companies do this, they have to get clever, which brings us to one of the biggest auctions of all time: when the FCC decided to auction off spectrum resources to major phone companies in 1994. These bits of the spectrum have to be reserved by particular companies to keep different signals from interfering with each other, and all of this is enforced by the FCC. Prior to 1994, the FCC simply gave those rights away for free. Then, realizing that they were missing a prime opportunity to make money, they decided to start auctioning them off by region.
So, the companies all submitted their bids for the various regions, all of which were made public.
But some experts noticed an odd trend with a few of the major companies involved. Not only were these companies winning markets for much less than anticipated, but also they did so while submitting oddly specific bids. For example, instead of simply bidding $313,000 for a market, they'd bid $313,378. So why tack on $378 to the end of a bid?
"Sold, to the guys who gave us coke money."
According to analysts, it was code. Remember when we said the bids were made public? Those three digits at the end of the bid were area codes of markets that they wanted other companies to stop bidding on. In other words, the major telecoms were divvying up markets by telling each other, "We'll stop bidding on this one if you stop bidding on that one." The result? According to the aforementioned study, the companies involved "won more than 40 percent of the spectrum for sale and paid significantly less for their overall winnings."
It appears that the telecom industry had just made out like bandits, and they did it in broad daylight.
It wasn't the first time, either.
Invent a Disease, Then Cure It
When Listerine first hit the market in 1879 as a surgical antiseptic, its creators weren't entirely satisfied. While there was certainly money in the surgical antiseptic market, there wasn't the "use your profits to buy a small island in the Pacific and staff it with monkeys dressed like little maitre d's because fuck you" kind of money they were looking for. So, in an attempt to expand their business, they sought out new ways to sell their product.
But how do you rebrand a surgical antiseptic? Well, if you're Listerine, you just start making up random illnesses your product cures and hope people believe you. After all, the stuff does kill germs -- they're not exactly lying. They scoured medical textbooks, found the words "chronic halitosis" (which was at the time nothing more than an obscure medical term for a condition that didn't really exist) and decided that their product would be the be-all end-all cure to it. See, your breath doesn't just smell bad, you have a medical problem.
Hope you have health insurance, asshole.
Naturally, when you tell people that they're sick and you hold the only known cure, they're probably going to listen to your pitch. People who lived their entire lives without mouthwash suddenly felt the need to cure their newly discovered ailment, and within a few years Listerine's sales increased to around 70 times what they were before.
Oh, and did we mention that they're still doing it today?
Listerine tried to ride the "make up random applications for your product" train for as long as they could, marketing their product as a cure for dandruff, and later trying to market their own brand of cigarettes. None of those ideas ever really caught on, but the mouthwash business seems to be working out just fine for them.
It was a good try, though.
Escape Patents by Going Really Far Away
In many ways, it's no surprise that Hollywood is the unquestioned worldwide epicenter of modern-day filmmaking. With quick access to all types of physical terrain, an abundance of space to build studios and great weather year-round, it serves as a perfect shooting location. There is, however, an additional, less publicized reason why directors began to flock there in the early 20th century: they were all running from the law.
Crazy, loose-cannon law who didn't do things by the book.
At the time, Thomas Edison (a noted asshole) and his New Jersey-based company had a stranglehold on the entire cinema industry. With patents on the entire spectrum of available filmmaking equipment, he made it next to impossible for small filmmakers to function.
"I have not failed. I've just found 10,000 ways to be an asshole."
Unfortunately for Edison, a small band of filmmakers just decided not to comply with the patents. Oh, and not only that: To make it a pain in the ass for Edison to catch them, they decided to move just about geographically as far in the U.S. as they could get from New Jersey: Hollywood, California.
As we all know, "Hollywood" is German for "HAHAHA, SUCK IT, EDISON!"
Seeing as this was the early 1900s and there was no way to get on an airliner, watch a shitty Adam Sandler movie or two and arrive across the country in six hours, Edison couldn't exactly just head over and confiscate their equipment. The distance was just too far for Edison and his infamous team of thugs to travel without sacrificing a huge amount of time and expense.
Unable to physically enforce his intellectual property, Edison decided to sue the filmmakers. Unfortunately for him, California's legal system wasn't exactly keen on enforcing those patents. Despite Edison attempting to sue Carl Laemmle, the founder of Universal Pictures, a whopping 289 times, Laemmle walked away unscathed.
He was buried while still extending his middle finger.
Edison was eventually slapped with antitrust lawsuits a few years later and watched his company fall into shambles as the bandits in Hollywood who defied him went on to create companies such as Warner Brothers, 20th Century Fox, Paramount and MGM.
They've grown slightly fonder of intellectual property rights since.
Cash in on Consumers' Hatred of Your Product
Let's say your name is Bob Smith, and one day you find out that the company you work for has registered the domain name BobSmithSucks.com. We're guessing you'd be more than a little hurt. But companies do this all the time.
Here's why. Open up another tab in your browser and try to go to Verizonsucks.com. You'll find nothing there. Odd, considering a company the size of Verizon has more than a few angry customers. Verizonblows, same thing. If you do a domain lookup, you will find that both of those insulting domains are owned by ... Verizon.
When Verizon was formed in the late '90s as a result of a merger between Bell Atlantic and GTE and the company came up with the name, the first step was of course to register Verizon.com. But they also thought to grab Verizonsucks.com and others like it. Back in 2000, 2600 Magazine noticed this and, out of curiosity, registered the domain "VerizonReallySucks.com." They immediately got a letter from Verizon's attorney's insisting that they turn over the domain, arguing that since it contained the company's name, it was a trademark violation.
It turned out Verizon didn't have a legal leg to stand on, but registration of critical domains has now become standard operating procedure ... to keep you from getting them. Any common domain that could host consumer complaints about a company is grabbed by that company before the angry customers can.
When WikiLeaks was threatening to publicize internal documents from Bank of America, the company bought hundreds of domains for all of the company brass. That's why CEO Brian Moynihan now works for a company that owns BrianMoynihanSucks.com (and BrianMoynihanBlows.com, etc.).
"No one at work likes me."
But that just squelches some criticism. If you want to be really smart about it, you make it so that you can actually profit from it. For instance, you've seen ads around the Internet for acai berries, the latest weight loss supplement. They usually have this lady's face on them:
You probably think it's a scam, and if so, the first step is to go to Google and search for "acai berry scam." You'll find that one of the first results is in fact an MSNBC news story pointing out that there is no magical berry that will replace diet and exercise. But that news story is sandwiched by links that are in fact sites that sell acai berries ... all with headlines clearly intended to trap people looking to call bullshit on the product.
You'll find that any kind of negative search for a weight loss program or supplement will give you the same. You've heard ads everywhere for the P90X workout program. If you Google the phrase "P90X doesn't work," the first page of results is full of sites selling P90X, while filling their text with that negative phrase in order to soak up skeptical Google searches.
In fact, there are companies that, for a fee, will bury criticism of your company by pushing negative websites to the third or fourth page of search results. There is a term for the practice: reverse SEO.
Of course, capitalizing on consumer hatred extends beyond the online world, and examples tend to be hilarious. Have you ever seen a hipster wearing this shirt?
Yeah! Fuck you, George Lucas, for ruining the original trilogy with your tampering! Oh, one thing: That shirt was sold in the Lucasfilm store, and George gets a cut every time you buy one. Here he is wearing one on the set of Indiana Jones IV:
Likewise, if you remember the late '80s, you remember famous NFL linebacker and asshole Brian Bosworth. After being drafted by the Seahawks in 1987, he didn't waste any time drawing up a storm of controversy before his first ever NFL game against the Denver Broncos. "The Boz" spent the week before the game trash-talking and hinting that he was going to injure local golden boy John Elway. The result was that Bosworth was greeted by a stadium full of irate fans verbally abusing the rookie for three straight hours and wearing T-shirts bearing anti-Bosworth slogans.
Who sold those anti-Boz shirts? You can guess: it was Brian Bosworth's own clothing company.
That's right, Broncos fans. You were outmaneuvered by a man who collects head injuries like Pogs.
Find Something Your Rival Needs and Buy It All
Not that these tactics are always done by the big corporations in the name of squeezing out competition. Sometimes it's the little guy who figures out how to game the system.
For instance, what kind of soap do you have next to your bathroom sink? Statistically, it's probably not a bar of soap, but one of those little pumps of liquid. It's neater and more convenient, and soap companies sell billions of dollars' worth of them every year now.
You know, the ones we all have in our bathrooms.
But back in the 1970s, liquid hand soap was sold by one guy: Robert Taylor, and his small company Minnetonka. It was his invention, and he knew he was on to something big. Test audiences loved the product and, despite barely having enough resources to do so, Minnetonka decided to go all in and make a push to take the product nationwide.
There was only one problem: Nothing he was selling could be patented. The concept of liquid soap wasn't new, and simple pumps had been around since the dawn of civilization. As a result, Taylor knew several huge soap manufacturers were ready to happily steal his idea the very moment it looked like it could succeed on a large scale. Armed with superior resources and the ability to quickly R&D an imitation product, the industry giants were ready to crush tiny Minnetonka.
"Yeah, if you could hurry this up, we have other dreams to destroy."
Taylor, however, was ready for this. Before any other company had the chance, Taylor decided to go shopping one day and bought a few plastic pumps. And by a few we mean FUCKING ALL OF THEM. There were only two companies nationwide manufacturing those little pumps, and Taylor ponied up $12 million -- more than the total net worth of his company at the time -- and ordered 100 million of them, effectively buying every single pump these two companies would be able to manufacture for the next year or two. We don't know exactly how Taylor broke the news to his competitors, but we imagine him standing atop a hundred-foot pile of plastic pumps in the shape of a middle finger while yelling, "I'M KING OF THE PUMPS, YOU MOTHERFUCKERS!"
"Tell you what -- you fuckers can have this one on the house."
Anyway, without the part required to dispense the soap, there was nothing the major companies could do but sit and watch Taylor slowly own the entire market. His product would become known as SoftSoap, and a bunch of you reading this have a bottle of it next to at least one of your sinks. Two years after his little stunt, Colgate-Palmolive would be forced to just buy SoftSoap from Taylor ... for $61 million.
For more on insane business tactics, check out 6 Companies That Make Money Solving Problems (They Made Up) and 6 Secret Monopolies You Didn't Know Run the World.