Full Disclosure: I work for Hashable, Inc., a start-up based in NYC. Hashable does not compete in the same space as Klout, nor have I interacted with any employee of Klout at any time, but we do share some investors. My views do not reflect those of any other individual or group of individuals and are presented solely as my opinion.
There are a lot of new Internet start-ups out there, and some of them are better than others. Many succeed or fail based on their merits, but a significant percentage do fail despite having high value. Plenty of bad ideas receive funding as well, and many of these take off despite very clear cycles of hype and failure. Klout, a social networking scoring service, is one of these–despite providing a meaningless, contextless metric, the company continues to capture the hearts and minds of the social media elite. However, with a number of parallels to the troubled credit system endemic to the Western world, it will only be a matter of time before users wake up to the lack of utility offered by Klout.
Necessary Evil, or just Evil?
I’ve just had such a fun time these last few weeks, and it’s all because of credit scores!
No, that is not a phrase you’ve ever heard, and there’s a reason for it. Even in the best of times, your credit score is a “necessary evil.” In the worst of times, it’s an impediment separating deserving individuals and high quality of life. It’s supposed to be the first line of defense for lenders and was designed to weed out those applicants who pose too high a risk. Most of the time when you apply for credit, whether it’s through a credit card, a car loan, or a mortgage, the bank immediately runs your credit to see what your history is. Most of the time, your history is represented by three FICO credit scores compiled by three different bureaus. Depending on your score and a smattering of other factors, your request will be approved or denied. Sounds sensible, right?
Sure, as long as a few assumptions are made, like:
- The economy is stable: Obviously, if the economy tanks it will take credit scores with it. As people lose jobs, investments flop, and businesses go bankrupt, they turn to lines of credit they can’t necessarily pay back. The result is lowered credit scores because credit standards are set at the same “best case” levels. Synthetic metrics simply cannot change as quickly as reality.
- The criteria are fair: This one is pretty subjective, but if a “passing” score is only attainable through SuperHuman Feats of Capitalism (or, alternatively, through cheating or “gaming” the system), then your score is useless.
- The score is relevant: There are two parts to this one: First, your score has to be useful, meaning that people with higher scores actually represent a lower risk. Second, the score should be used only where applicable, meaning only in matters of credit. It should not be applied to such situations as RENTING an apartment (shame on you, NYC) or applying for a job. It’s simply not relevant in these situations.
These assumptions are crucial to the functioning of our credit system, and they come under fire frequently. Part of this may be due to the fact that credit scores are relatively new, but the bigger problem is that human behavior, even relating to such a constrained and measurable system as finance, is simply too unpredictable to measure with a single score. Just as psychiatrists will evaluate patients in person as a supplement to automated evaluations, so should lenders evaluate the viability of their applicants to determine more accurately the level of risk. Without this level of added intelligence, FICO scores will continue to annoy and frustrate those who need and deserve to take advantage of our credit-based economy.
We certainly don’t need yet another online tool attempting to emulate such a broken, flawed real-world system, but as luck (and entrepreneurial unoriginality) would have it, many services have cropped up offering to measure a plethora of different internet phenomena and show you just how well you perform against your friends. Seeking to capitalize on the perceived social need to compete on networking sites such as Twitter and Facebook, most of these companies have failed for the exact same reason FICO is criticized: It’s almost impossible to boil down human behavior into a number. However, one start-up has managed to capture the interest of many high-powered Twitter and Facebook users and has gathered a good deal of momentum behind its .
Software Imitating Life
My current Klout score, out of a possible 100
Enter Klout. It’s a Software as a Service, non-opt-in (meaning if you’re on Twitter, you have a Klout score) start up with a ton of design panache that offers a one-score-fits-all system which grades you based on your perceived social networking influence and involvement. The site looks beautiful and works very well, and the algorithm that calculates your score is consistent enough to keep your score relatively steady. You are graded based on how many people you are connected with, how often your content is acted upon, and how active your 1st degree network is. Your score is plastered all over the site and has already been integrated into such illustrious twitter clients as HootSuite and CoTweet. You are rewarded for having “Klout” with “Perks,” tangible deals or discounts that are unlocked based on your score. Truly, it’s an industry darling that is being adopted quickly and without second thoughts due to its entrepreneurial spirit and good product execution.
Except I don’t see anything positive about Klout at all. At its core, Klout is just another FICO score, but for the internet. Your online activity is analyzed and condensed into a metric for others to view and compare and decide whether you are worth interacting with. Again, this is a metric based on thousands of individual human interactions, condensed into one number. And that one number (from 1-100) is essentially meaningless. No, I’m not referring to its many inaccuracies, although you can read about those here, here, here, here, and here. I’m saying that your Klout score, framed ever so beautifully in a font I personally love, measures nothing. Zero things. It’s a waste of space.
Waste of Space
Let’s return to the criteria required for a credit score to be useful:
- Is the economy stable? In the case of Klout, we’re talking about the face of social networking. Is it stable? Does it have a base-line? No. Absolutely not. It’s foolish to even think about the web this way. Any social media service you currently use did not exist 10 years ago. The most popular ones did not exist 5 years ago in their current form. Twitter, the basis of all Klout scores, has only been in the mainstream since 2007. Myspace, which once was the social network, is now defunct after less than 10 years of existence. And this year alone hundreds of fancy new start-ups were founded, each of which is bidding for the top spot as the “next big thing” in social networking. To put this in perspective, this would be like Fannie Mae being founded and collapsing entirely in 10 years. The economy would feel that, without a doubt, and credit scoring would suffer.
- Are the criteria fair? Simply put, no. Klout states pretty clearly that in order to have a high score you have to be a celebrity in the areas you talk about online. So, only the internet elite are rewarded. It is also easily gamed, as stated above.
- Is the score relevant? [part 1]: Is the score useful? No. Those with high scores do not always represent those with expansive internet presences. Those with low scores are not always non-participants, either. I’ve experienced this one first-hand. When I first found out about Klout last winter, my score was a measly 31. I went about my business (and my network did not really grow in size), and it increased to around a 46. My behavior had not changed. Now, several months after that, it’s back down to a 39, again with no change in behavior on my part. There is little correlation between my behavior and my Klout score.
- Is the score relevant? [part 2]: Is the score applied only when applicable? No. And it seems that Klout wants their score applied more broadly, as well.
This last one represents the biggest beef I have with Klout, and is fueled by the fact that there is not a specific use case where using a Klout score makes sense. So while it is being heralded as a beautiful new emerging technology with the potential to disrupt the way in which we interact with others online, it threatens to damage the way employees are hired, community leaders are chosen, and opinions are formed regarding media personalities–and that’s just a few non-monetized applications of the technology. The problem is that the score has no relevant context to accompany it other than its own definition. It is, in effect, useless. Unlike FICO, which was created to fill a perceived need, Klout was created to imitate an institution which most people agree is flawed and possibly crumbling. So why do we continue to beat the drum for this entirely useless endeavor?
Plenty of people have made the false argument that “Klout is irrelevant,” but it’s not–it’s latched on and it’s not going anywhere until someone can make it clear that this is the wrong approach. The argument I’m making is that the web should curate the positive aspects of offline history, not emulate it just because it’s there. Credit and credit scoring have multiple systemic flaws which impact those who use it in very real ways. Why would Klout want to introduce these flaws that did not exist on the web previously? In my mind it is irresponsible, derivative behavior that should not continue. My only hope is that more people recognize, as I have, that Klout scores do not add value to the social web and abandon the service before it invades other corners of our virtual lives.
And to top it all off, they spelled the damn word wrong.