Sometimes a small coding error can turn into a very big deal. Just ask InMobi, until recently a symbol of India's new entrepreneurial spirit. Founded in 2007 by graduates of the Indian Institutes of Technology, the mobile advertising firm grew rapidly and was soon big enough to compete with Google and Facebook for mobile advertising revenue. With a valuation over $1 billion, it held the distinction of being India's first unicorn. It reportedly reaches over 1.5 billion unique mobile devices worldwide.

Just how it reaches those one-and-a-half billion devices is the problem, though. In the United States, it is illegal to collect information about children over the Internet under the Children's Online Privacy Protection Act, or COPPA. InMobil collects information from the apps where it serves ads--including those clearly directed at children. 

And InMobi got in trouble with grownups too. A Federal Trade Commission investigation found that, despite its claims that it only tracked the location of users who had a) opted in and b) set the privacy settings on their phones to allow location tracking, InMobi actually tracked the location of millions of users without their permission. 

InMobi's response? Blame the computers. "During the investigation by the FTC, InMobi discovered that there was a technical error at InMobi's end that led to the process not being correctly implemented in all cases," the company said in a statement earlier today. It was a classic use of "distancing language," a sort of linguistic side-step that allows you to admit guilt without actually saying "we did it." Perhaps the most famous example of distancing language came from Dick Cheney after he accidentally shot his friend Harry Whittington while attempting to shoot a quail. The former VP said, "Ultimately I'm the guy who pulled the trigger that fired the round that hit Harry." Maybe it was the trigger's fault.

The FTC hit InMobi with a fine of $4 million. But it's settled for $950,000 instead--along with a few changes. InMobi must delete all the data it collected on children, plus all the data it collected from adult consumers without their permission. It must, of course, obey COPPA going forward. And it must "institute a comprehensive privacy program that will be independently audited every two years for the next 20 years," according to a statement released by the FTC.

The FTC says it's accepting less than a quarter on every dollar of its fine "based on the company's financial condition." And indeed, InMobi has seen better days. Less than a month ago, the press reported on a rash of executive-level departures, both at the company's very top ranks and among its middle management, as InMobi's once-rosy future started looking uncertain. The company may reach a lot of devices but its market share stopped growing recently and it has struggled both to raise further funding and to become profitable. But new investment offers have come in at a sub-unicorn valuation of $800 million, which gives one of the company's early investors the right to veto them.

Before the FTC investigation, there were rumors that Microsoft might acquire InMobi. Meanwhile, in spite of the company's public woes, CEO Naveen Tiwary insisted to the press that InMobi would not be sold, but would continue independent and have an IPO...someday.

After the investigation and today's fine, the prospect of an IPO seems more distant than ever, and even an acquisition would be a harder sell than it would have been a few months ago.

Moral of the story: If your company uses algorithms--make sure they don't break the law.

Published on: Jun 23, 2016