How not to handle the first moments of a PR crisis

The Big Story

Peloton's recall mess

Did you buy a Peloton treadmill during the pandemic? So did everybody else. But now we all have to decide what to do.

• The company is recalling 125,000 treadmills, and pausing sales of new ones. The recall applies to both models, the Tread and the Tread+, but each for different reasons.
• The Tread's large screen "can detach and fall," Peloton said, "posing a risk of injury to customers." The Tread+ is more complicated: The CPSC said there have been dozens of injuries related to children and pets, including the death of a child, from being pulled underneath the treadmill.

Peloton didn't handle this process well. When the CPSC first issued its warning on April 17, Peloton immediately responding by saying the message was "inaccurate and misleading," that there were plenty of safeguards already on the product … and that the Tread+ should be kept away from "children, pets, and objects" at all times. Which is tough to do with a 450-pound, 6-foot-long treadmill.

• On Wednesday, Peloton changed course and announced a full voluntary recall. And CEO John Foley has spent the last couple of days apologizing to investors and users. "I want to be clear, Peloton made a mistake in our initial response to the Consumer Product Safety Commission's request that we recall the Tread+," he said. "We should have engaged more productively with them from the outset."
• Now, Foley said, "We are working to build and introduce more safety measures, and to help set new industry standards for all treadmills."

As for what happens next? Peloton is offering full refunds on the Tread+ through November 2022, and working with the CPSC to build what Foley called "a hardware fix" to keep objects from getting underneath.

• It's also updating the Tread+'s software with a new security feature, set to be released in the coming days: a four-digit passcode that will be required every time you get on the treadmill. (Unlocking your treadmill will be like unlocking your phone.)
• The whole thing is going to be costly. "It is more difficult than usual to predict our financial results," CFO Jill Woodworth said. But she estimated the total revenue impact of the recall, from refunds to logistics to the free subscriptions it's offering users, to be $165 million.

The big question going forward will be how much of a PR blow this is for Peloton. Foley and Woodworth acknowledged they have work to do "to get back on the right side of the line," but seemed to think the company will recover fast. Others believe Peloton will have trouble shaking the perception that it simply didn't care about user safety. For every other company, this just serves as a lesson in how not to handle the first moments of a PR crisis.

Epic v. Apple

Apple takes the stand

For the first few days of the Epic v. Apple trial, we mostly heard Epic's side of the story. But as Protocol's Nick Statt reports, Matt Fischer, an App Store VP who has been called as a witness by both sides, yesterday provided a window into Apple's arguments to come.

• Fischer provided the company's first robust rationalization for many of the App Store's more controversial policies, and steadfastly defended it against claims that Apple overlooks fraud. That, in turn, justifies the commission Apple collects and the restrictions it imposes, he said.
• "I might be biased," he added, "but I certainly l think that what we do is incredibly unique, and I certainly have not seen any marketplace that distributes apps or games do what we're doing in terms of providing marketing and editorial support like this to developers."

Everything could hinge on defining the App Store. Is it a value-add, making the platform better and more secure and only taking its fair share? Or is it a massive money-printing machine, built and maintained by Apple to keep its walled garden intact?

• This is why games matter so much. Apple's going to have to keep explaining how it treats the Xbox and Google Stadia teams, and whether it gives special deals to other partners. How Apple justifies keeping out competing game-streaming and subscription apps, like Microsoft's Xbox Game Pass and Google Stadia, is going to be important.
• And the delineation between digital and physical goods remains incredibly confusing. Apple's rules say if you're purchasing real-world goods, the App Store doesn't get a cut, but for digital goods it does. That line is exactly as blurry as you think — and only getting blurrier — and this trial isn't helping.

People Are Talking

Mark Zuckerberg acknowledged his "squarely robotic" public image, and said he wants to change it:

• "Life is too short to be serious all the time."

IBM supports the Endless Frontier Act, Arvind Krishna said:

• "Just like the United States chose to invest in science in the post-WWII era, the Endless Frontier Act offers a once-in-a-generation opportunity to refocus our institutions on innovation."

Having original ideas requires getting outside of the current system, Paul Graham wrote, and that's hard to do:

• "Paradigms don't just define our present thinking. They also vacuum up the trail of crumbs that led to them, making our standards for new ideas impossibly high. The current paradigm seems so perfect to us, its offspring, that we imagine it must have been accepted completely as soon as it was discovered."

TikTok follows China's famous 9-9-6 work culture, which is causing some people to turn down jobs there and others, like this former employee, to leave:

• "Everyone there is utterly miserable, and life is too short. During my first year before the pandemic hit, I can count possibly four or five weekends during the year where I did not work."

The pandemic taught people how digital money works, and PayPal's Dan Schulman said they're not going back:

• "We believe that the shift in consumer digital behavior will remain essentially unchanged in a post-COVID world. Consumers have expanded their digital lives into a seamless online and offline experience."

A MESSAGE FROM INTEL

ICYMI: "In the old way, the developer might have had to create custom code for each piece of silicon. So, we worked hard to create OpenVINO, which lets developers write one time, and then deploy that code across a variety of silicon from Intel."

Learn more

Number of the Day

82%

That's how many of the 22 million public comments received in 2017 over the repeal of net neutrality were actually fake. Four million real, 18 million fake. And many of the fakes were bought and paid for by the broadband industry, which tried to flood the inbox with anti-net neutrality stances.

In Other News

• On Protocol: Netflix is exploring user-generated playlists and podcasts with a new "N-Plus" project, according to a user survey seen by Protocol. It describes N-Plus as a "future online space where you can learn more about the Netflix shows and things related to them."
• On Protocol | Fintech: SEC chair Gary Gensler said conflict is "inherent" in payment for order flow. He said the SEC is taking a close look at the practice.
• Chime won't call itself a "bank" anymore, thanks to a settlement with California's Department of Financial Protection and Innovation. Chime was being investigated for allegedly misleading the public.
• On Protocol | Policy: The FTC found "scant evidence" for repair limits in its right-to-repair report delivered to Congress.
• Amazon drivers were told to turn off their driver safety app to meet targets, Motherboard reported. Dispatchers reportedly often text drivers to tell them to go faster.
• On Protocol | Fintech: Bill.com bought Divvy for $2.5 billion. It's the latest example of the frenzy in the industry for startups focused on spend management and corporate credit cards
• On Protocol: Twitter launched "Tip Jar," and now everyone wants to get paid for their tweets.
• Reminder: Elon's hosting SNL tomorrow, and some cast members don't seem happy about it. Grab the popcorn and set your alarms for 11:30 p.m. ET.

Work in the Future

Your Zoom background won't save you

Zoom backgrounds: good for hiding messy living rooms. Bad for attempting to cover up the fact that you're driving during a meeting. (Which is another thing: Don't Zoom and drive!) Andrew Brenner, an Ohio state senator, used a background image of his home that didn't fool anyone, especially given the fact that he was wearing a seatbelt and at least occasionally watching the road.

Here's a good rule of thumb: If you're not in a position to be on camera … turn off the camera! That goes for whether you're driving, disrobing, going to the dentist or anything else. Just turn off the camera. We're all tired of seeing each other's faces anyway.

A MESSAGE FROM INTEL

ICYMI: "In the old way, the developer might have had to create custom code for each piece of silicon. So, we worked hard to create OpenVINO, which lets developers write one time, and then deploy that code across a variety of silicon from Intel."

Learn more

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