Zynga implosion shows the danger in SF's technophilia


We’ve long been skeptical of the overblown and self-interested claims by tech titans and their political allies that this dot-com boom changes everything and that it could never go bust, like last time. We questioned the wisdom of slashing taxes on Twitter, Zynga, and other tech firms and doubted claims by Mayor Ed Lee and others that their skyrocketing growth would more than make up for our giveaways.

Then today, we learn that Zynga is laying off a fifth of its workforce and its stock is tanking. Hmm, apparently San Francisco’s policy of taxing stock options -- which Mayor Lee repealed, costing the city millions of dollars when Zynga went public last year -- wasn’t the only problem facing this company.

As was clear before the last dot-com bubble popped: companies can’t survive on hype alone, they still have to be able to make money, a rather obvious problem that Zynga, Facebook, Twitter, and lots of other tech companies that have been snapping up San Francisco office space with their venture capitalist stakes still haven’t figured out yet.

Unfortunately, that’s still apparently lost on Mayor Lee, whose new budget proudly notes that 55 percent of the office space leased in the city last year was taken by tech -- as if that couldn't possibly present any risks (hint: Mr. Mayor, ask City Economist Ted Egan about the concept of diversifying our economy). KQED Forum host Michael Krasny last week asked Lee about my stories showing that Airbnb is shirking its $1.8 million Transient Occupany Tax debt to the city (listen here starting at the 13:00 mark), eliciting this comment by our mayor: “They’re not so much dodging it, they’re making arguments, like any business would, about what applies to them and what doesn’t.”

Actually, Mr. Mayor, that’s what Airbnb did last year before the Tax Collector’s Office concluded that it does indeed owe the money. Now, the company isn’t even returning my calls about dodging this tax obligation, let alone making any arguments. Following suit, the Mayor’s Office of Communications still hasn’t return my call with questions about where and how Airbnb might be making these alleged arguments.

But it does appear that Lee’s political mentor, Willie Brown, may be sensing a shift in the political winds when it comes to the tech sector and its regular claims to be changing the world (which, of course, means that we need to give it every possible bit of help and appreciation we can muster).

In his June 2 “Willie’s World” column in the San Francisco Chronicle, Brown had this enigmatic but telling item: “It's interesting to watch the Silicon Valley titans evolve politically.

“Strip away the rhetoric about globalization and innovation, and it turns out they're pretty much like the bosses of every other type of business: They want their tax loopholes. They want to bring in more foreign workers. They want the government to keep its hands off their offshore operations.”

“Republican Sen. Rand Paul or President Obama, they'll host a fundraiser for either one. They've got to play both sides. They cannot afford to be allied with just one party, because the shareholders will suffer if the company goes all in with losers.”

They also seem to have learned that if neither major political party is willing to hold them accoutable to the public interest, they can pretty much continue to snub the public and do what they want.


done in the past, and that is evidence that tech is dangerous?

Tech has created thousands of millionaires in the Bay Area. There is no city anywhere where the average joe can learn a few programming skills and succeed.

And almost any US city would give it's hind feet to have SF's 21st century knowledge-based economy.

So naturally you hate that and gloat at something like this, even if as I suspect, it will make Zynga more successful.

Posted by Guest on Jun. 03, 2013 @ 5:22 pm

So far all the gloating I see comes from yupster techies who invade my Mission neighborhood and make themselves feel more than a little welcome. All I hear at night when you assholes empty out of your little Wix mixers and such is trash talk about my neighborhood. I work at a quinceanera store; you don't know how many times I hear your little comments about quinceanera dresses (BTW, they're not for you assclowns, they're for 15 year old Latinas). You think you can get away with them inflated egos because you think your boat is going to float forever. Right now landlords are doing everything they can to shake off the Latino community because they're salivating at the chance to gouge you for rent money; tomorrow, you people will end up shacking up with moms. Zynga is just the beginning. Oh what, you thought Bubble 2.0 was unpoppable? Every bubble pops, son.

Oh, and as we speak, Mark Zuckerburg and company are fighting the good fight trying to get immigration reform passed. No doubt what they're really after is an East Indian labor force that's just gunning for your job. So keep talking your trash. Keep dissing us while we work late at night. We'll see who inherits the Mission yet. Say hello to ya moms for me, biatch.

Posted by Ed on Jun. 08, 2013 @ 2:55 am

It's the same old song but you never get tired of singing it.

That $1.8 million is but a drop in the city's bucket. What IS IT about AirBnB that gets your goat? You're on a jihad about this. It's totally out of proportion to the alleged "shirking."

Posted by Lucretia Snapples on Jun. 03, 2013 @ 6:50 pm

when he used AirBnB, and now he regrets using them because they have become politically incorrect.

Posted by Guest on Jun. 04, 2013 @ 5:57 am

I got laid off today. Sucks.

Posted by Guest on Jun. 03, 2013 @ 7:03 pm

Sorry to hear that. All the conservatrolls on here love to wax poetic about the dynamic capitalist economy, but your short post serves as a reminder to all of us how volatile and capricious the system is. Doesn't matter if you're a software engineer making 6 digits, or a janitor making minimum wage, the insecurity of the boom-bust economy still sucks.

Your post reminds us of the folly of a public policy that throws money at these coporations without any accountability -to their workers or to the community at large. They take our money, a few lucky people get rich, there are no guarantees of anything in return to the city or even to their workers, and more often than not it just goes down the rat hole. Whether you're liberal or conservative, one has to wonder whether or not this money is better spent on public services that benefit people... including people left to pick up the pieces of their lives after the IPO party is over.

Posted by Greg on Jun. 05, 2013 @ 7:39 am

That's why it's called a risk, and I wouldn't want to live in a world where there weren't risks alongside opportunities.

Posted by Guest on Jun. 05, 2013 @ 7:50 am

Fine by me if you take risks, but don't ask me to subsidize them with my tax dollars. I prefer to use my tax dollars to mitigate the risks for the whole community. Works out better for all of us that way.

Posted by Greg on Jun. 05, 2013 @ 11:36 am

I don't know what you are talking about. If Zynga were being subsidized then they presumably wouldn't be firing workers.

But yes, I think it would have been better if GM had been allowed to fail rather than getting a taxpayer subsidy, if that is what you meant.

Posted by Guest on Jun. 05, 2013 @ 11:47 am

Airbnb don't return your phone calls, perhaps the only deal with real reporters.

Posted by Guest on Jun. 03, 2013 @ 10:03 pm

I and most reporters have had no problem getting calls back from them on sympathetic feature stories, but when you have a tough question for them, they choose not to answer. This is a dangerous road we're headed down, this lack of public accountability by wealthy and powerful interests.

Posted by steven on Jun. 06, 2013 @ 3:34 pm

attacking (and on very dubious grounds) to be co-operative?

In any event, I suspect they are negotiating with the City on some resolution that (from odd things I have heard) may involve collecting tax on some reduced rate basis, or providing the city with information on their hosts.

The city is hardly in a powerful negotiating position here, since AirBnB could clearly relocate to places where SF would have no jurisdiction over them. If I were AirBnB, I'd relocate to a place where NOBODY ever visits as a tourist, and of course to a place where they actually encourage enterprise.

Posted by Guest on Jun. 06, 2013 @ 3:47 pm

$7.9 Billion dollar budget, and of course Stephen is worried about not enough revenue. How about an expose' showing how much waste and fraud is involved in the billions of dollars we pay for social services - just in SF alone? False addresses, underreporting of income - thats just the start. Add in pension spiking, jobs for political allies, and, yes, sweetheart deals to businesses to try to do something positive in mid-market, which has been a hole since world war 2, its more than a revenue problem.

Posted by Richmondman on Jun. 04, 2013 @ 5:43 am

SF spends far more per head than any other US city - even New York?

Not a penny more in taxes until the waste, fraud and corruption is fixed.

Posted by Guest on Jun. 04, 2013 @ 6:01 am

one scintilla of sympathy for the 520 people who lost their jobs yesterday.
I thought the SFBG was all about fighting for the workers, the little guy??

or do those ideals go down the toilet when the SFBG doesn't approve of the company those workers are employed by?

Posted by GuestD on Jun. 04, 2013 @ 6:18 am

They claim to care about certain classes of people but that's merely a smokescreen to hide their class warfare agenda.

They don't actually care about the poor, the homeless, the unemployed, gays or non-whites. They are pawns to used in the great and noble battle they are fighting against success and prosperity.

Posted by Guest on Jun. 04, 2013 @ 6:54 am

I do sympathize with the Zynga staff that has been laid off, but I'm focused on the larger issues this presents to our city. It's sad when overinflated claims and distorting venture capital investments blow up a speculative bubble around one company and it pops. It's tragic when that happens to an entire city as great as San Francisco -- displacing longtime residents, offering false promises to thousands of workers, and relying on corporate welfare offered by a city with more important needs to address -- and then it pops. This article and others like it aren't intended to cheer for the fall, they're intended to warn people of the dangers we face in buying into this huckesterism and refusing to learn the lessons from the last time this happened. 

Posted by steven on Jun. 04, 2013 @ 10:12 am

The reasons that thousands of SF'ers have become millionaires is because they did something that you did not - take a risk on a new enterprise rather than the same ol' 9 to 5 at a steady job.

And it is inevitable that some of them will fail or flounder. That's a good thing. But meanwhile Apple, Google, HP, Yahoo, SalesForce, Oracle continue on creating massive amounts of prosperity for the region.

Take IT out of the Bay Area and you end up with Detroit. And even the poverty-loving SFBG stop short of suggesting that that would be a good thing.

We're an incubator for the world's most dynamic enterprises. Be proud of that, not snide and snipey.

Posted by Guest on Jun. 04, 2013 @ 10:28 am

Just for the record, NOBODY from the city government said that the TOT is the complete responsibility of AirBNB. The tax commissioner said that it was a shared responsibility with the actual hosts, without putting forth a formula or telling AirBNB exactly what they are supposed to pay.

The part about the TOT being AirBNB's tax that they are dodging is a complete fabrication by Steven Jones.

If not, exactly what percentage of the TOT should they pay and what percentage should the hosts pay? How much should they make the check out to?

Of course nobody returns Steven Jones' calls.

Posted by Troll on Jun. 04, 2013 @ 7:07 am

competitors who are doing the exact same thing. For some reason Steven singles out only one of those many entities for criticism.

Why? We all know the answer to that of course - it's really a disguised attempt to discredit a popular and successful mayor, who has led this city out of recession with a pro-jobs administration.

Posted by Guest on Jun. 04, 2013 @ 7:18 am

It's quite simple, as I've repeatedly explained to you paid trolls. Guests should pay, just like they do at hotels. And Airbnb should charge them that 14 percent tax at the time of the financial transaction, just like they do at hotels. The only people who see this as complicated have a financial incentive to over complicate it, or just an ideological objection to taxes and fairness. It's a shameful deception and I'm glad to see Krasny and other media figures beginning to catch on and question Lee about it.

Posted by Steven T. Jones on Jun. 04, 2013 @ 8:03 am

>"Airbnb should charge them that 14 percent tax at the time of the financial transaction, just like they do at hotels."

Yes. And then the HOTELS pay the tax.

How do you know that the AirBNB price doesn't include the 14%? They charge what the host tells them to, just like a hotel. Then the HOTEL/HOST is responsible for paying the tax.

Is there ONE city on planet earth that is actively trying to get AirBNB to pay the TOT tax? One?

But, Steven, continue to have fun with making things up and then wondering why nobody returns your calls.

Posted by Troll on Jun. 04, 2013 @ 8:23 am

Nothing made up here, Troll/Tony, it's all true and transparent and easy to understand, even if you paid shills pretend not to. I have no idea why you would want to put the tax burden on thousands of local Airbnb hosts, except for the simple fact that it wouldn't get paid because that would be an administrative nightmare. Hotels collect and pay the TOT with the same automated ease that Airbnb could. And yes, many are international hotel chains operating in multiple cities, and they can somehow figure it out even though they aren't self-styled cutting edge tech geniuses. This is simple tax dodging, no matter how you/Lee/Conway/Airbnb want to spin it, the kind of thing greedy corporations of all stripes are constantly trying to pull, as Willie Brown correctly identified. The only difference is mayors usually side with the city they are elected to represent rather than the tax cheats. 

Posted by steven on Jun. 04, 2013 @ 9:49 am

For instance, my stockbroker does not pay my income or capital gains tax.

My realtor does not pay my property tax.

My out-of-State purchases do not include sales tax.

My employer may or may not collect (withhold) income tax on my earnings depending on my status but, even where they do, I can control the wthholding

Posted by Guest on Jun. 04, 2013 @ 10:06 am

No, no, Steven figured it out. AirBNB is responsible for paying the tax because Steven thinks that it is easier for them to do so than it would be for the hosts.

Not sure exactly how much they pay but I guess that they should write a check for $1.8 million based on some estimate. Can't imagine why they would protest that.

Seriously, does the Examiner organization ever stop to think about what this 'fairy tale journalism' made up on the go does to their overall credibility?

It should.

Posted by Troll on Jun. 04, 2013 @ 10:23 am

No, as you know, Troll/Tony, it was the Tax Collector's Office that says Airbnb is responsible for this tax. And what you call my $1.8 million "estimate" is actually based on figures provided  by Airbnb, as I transparently reported in case anyone wants to question my math: http://www.sfbg.com/politics/2013/03/22/does-mayor-lee-support-airbnb-do...

Honestly, Troll/Tony, the more you make false accusations to challenge my credibility, the more desperate and self-interested you seem to anyone reading this post. Clearly, I'm onto something with my reporting on Airbnb and the only hope you have to offer unsupported attacks on the messenger and rely on the corruption of our mayor.

Posted by steven on Jun. 04, 2013 @ 11:06 am

is due is just a claim and the expression of an opinion. Until and unless they seek to pursue that thru the courts AND they previal it remains just that - an opinion.

And of course they hold that opinion. What would you rather do - pursue a "debt" from one single entity that happens to be within your jurisdiction? Or pursue hundreds of individuals for the tax? It's a no-brainer but it's still wrong because they are trying to get AirBnB to do their tax collection work for them.

The correct solution here is a negotiated settlement, with perhaps a lower rate of TOT for non-hotel temporary stays since they are fundamentally different from hotels.

And it's still not clear to me whether AirBnB should be acting as a tax collector without being paid to do so. Maybe the city should pay them 1.8 million to collect the tax on their behalf.

The danger here is obvious. AirBnB could simply move elsewhere and then SF would have no rights over them anyway.

Posted by Guest on Jun. 04, 2013 @ 11:17 am

You fact-checked that, as any good journalist would, right?

Posted by Troll on Jun. 04, 2013 @ 11:18 am

So... Tony who? I think you know Steven's holding back, hence the non-denial denial.

Posted by Greg on Jun. 05, 2013 @ 11:58 am

He dropped in a claim that the anonymous "troll" poster was called "Tony", as if Steven had some inside scoop on the real identity of the poster.

Then when he was called out on it and asked to substantiate his suspicion, he went all coy and ducked.

I suspect that "Troll" is as much "Tony" as your real name is "Greg".

Posted by Troll on Jun. 05, 2013 @ 12:15 pm

hotel tax if you prepay for your hotel. Your other examples are not analagous.

Posted by Guest on Jun. 04, 2013 @ 10:32 am

Just look at the TOS for Expedia, Priceline, Orbitz or anyone else. They specifically say that they are NOT responsible for the local taxes.

What they do is have a tax recovery charge based on an estimate supplied by the hotel and they pass that amount along to the hotel who is responsible for paying the tax.

The online services absolutely do NOT pay the TOT tax.

One goofy thing about Steven's fantasy world is that no jurisdiction outside of San Francisco would even consider allowing AirBNB to be responsible for the tax. How would you like to be the Helsinki tax collector and be told that you need to go after AirBNB in San Francisco instead of a local host down the street?

Posted by Troll on Jun. 04, 2013 @ 10:49 am

just happens to be in SF.

But as an internet provider of services, they might be in Bulgaria. Good luck collecting then.

Posted by Guest on Jun. 04, 2013 @ 11:01 am

similar examples of a third-party intermediary facilitating a transaction between a first and second party, but NOT collecting any tax on the result.

There are others too, e.g. Craigslist being used to arrange the sale of a $10,000 vehicle. In theory $850 sales tax should be collected. But it's up to the buyer to pay that.

Getting third parties to provide free tax collection services is an abuse of governmental power. That liability had to ultimately be with the person making the profit i.e. the host.

As such, AirBnB's liability should rightfully be restricted to sales tax on the service and fee they keep from each deal.

Posted by Guest on Jun. 04, 2013 @ 10:49 am

Or perhaps a lower rate, reflecting the fact that hotels provide all kinds of amenities (restaurants, bars, conference rooms, concierge services etc.) which a host does not.

And the fact that the city tax collector says this tax is due and that AirBnB is partially responsible is just their opinion - it hasn't been tested in the courts yet and may not hold up if and when that happens.

Posted by Guest on Jun. 04, 2013 @ 10:13 am

AirBnB cannot reasonably be expected to operate a different system in every city and location.

Posted by Guest on Jun. 04, 2013 @ 9:40 am

You're attacking AirBnB because of the Lee/Conway connection and not because of the facts of the matter.

That is why you're giving a pass to all AirBnB's competitors, and other organizations that may facilitate this type of thing, like Craigslist.

Posted by Guest on Jun. 04, 2013 @ 10:14 am

AirBnB is an agent that collects the rent for the hotel room, just like other agents like Priceline, Travelocity, etc. that include applicable taxes in their charges.

Craigslist is an advertiser, a completely different animal from AirBnB.

Posted by Guest on Jun. 04, 2013 @ 10:29 am

I'm fairly sure I have paid hotel tax directly to the hotel even when I have booked it online) that doesn't mean that a "home share" service should have the same rules apply.

Hotels are large national corporations that are organized to handle this type of thing. They use brokers to collect trade. But AirBnBis a peer-to-peer sharing service and, as such, it is more like craigslist arrange short-term stays (which they do).

The only difference is that AirBnB collect on and pass on the money. They could easily organize their model differently and get the guest to pay the host directly, if a tax could ever legally be levied on them. The host could then collect 14% extra from the host.

But of course this really isn't about the TOT at all, but about taking shots at a company that a successful and popular Mayor has an interest in.

Posted by Guest on Jun. 04, 2013 @ 10:55 am

Steven Jones writes:

"companies can’t survive on hype alone, they still have to be able to make money, a rather obvious problem that Zynga, Facebook, Twitter, and lots of other tech companies that have been snapping up San Francisco office space with their venture capitalist stakes still haven’t figured out yet"

Back on planet earth Facebook earned $1.46 billion in the first quarter of 2013.

We don't know Twitter because it isn't a public company but it is safe to assume that Steven is just writing what he wants to write without any concern that it isn't true.

And then complaining when people don't return his calls.

Posted by Troll on Jun. 04, 2013 @ 7:40 am

Wow, $1.46 billion. Or about $1 per customer that it has to spend money serving. I suppose that's why Facebook's stock is doing so well. Oh wait ... it's not. http://www.forbes.com/sites/nathanvardi/2013/06/04/facebooks-stock-is-ba...

Posted by steven on Jun. 04, 2013 @ 9:56 am

That's how capitalism works.

It's called taking risk to gain a bigger reward.

But over the long-term, stocks go up and corporations grow. It's a good thing.

Posted by Guest on Jun. 04, 2013 @ 10:07 am

Steven I was just pointing out that one of the companies that you claimed was living off of it's VC stake was actually a public company that just reported earnings of $1.46 Billion for the first 3 months of the year. The VC's got paid off already when it went public.

So you try to change the subject to their stock price, which isn't all that bad, you know. Wall Street does value the company at $57 billion.

You always claim to be a "journalist"....perhaps a first step would be to actually care when you get stuff wrong.

I know that making stuff up is more fun, but in that case you would have to give up the "journalist" thing.

Posted by Troll on Jun. 04, 2013 @ 10:36 am

true facts alone could never reasonably or credibly yield the results that he seeks.

So Steven has little choice but to fabricate facts and hope nobody notices.

If he really understood this stuff, he'd be a tech millionaire himself, instead of a third-rate hack journalist at a publication whose readership is now probably under 100.

Posted by Guest on Jun. 04, 2013 @ 10:51 am

No its called capitalism. It shifts resources to where demand is., People sometimes get laid off. It happens and they go work somewhere else. This isn't some horror show, its the allocation of resources elsewhere. Are there social costs? yes of course. I have been laid off before and It sucks but its part of the deal

Posted by Guest-Patrick on Jun. 04, 2013 @ 7:50 am

The presence of hi-tech in SF is actually a pretty good problem to have. Has anyone visited Fresno, Visalia, Manteca or Stockton recently?? It's worth the trip to see the comparison.

As to Mr. Jones' suggestion that the industry might be ready to collapse, it'd be useful to watch the venture capital industry. As long as they're funneling money to our local hi-tech start-ups, the expansion will continue. This will certainly exacerbate our steadily worsening housing affordability problems as well-compensated professionals seek housing in a VERY tight and chronically under-supplied market.

On the other hand, there appears to be a backlash forming to the innovation economy - "they're changing the character of the City" and "they don't pay their fair share" are the standard narratives. As UC Berkeley economist Enrico Moretti's data has shown, this industry is a powerful generator of employment across the board that has benefited SF enormously.

Will the City's progressives keep out the welcome mat or look for ways to penalize the new arrivals?

Posted by Guest on Jun. 04, 2013 @ 7:55 am

Zynga grew people purchased stock in company that made games. Folks companies come and go, employees get laid off. I hope they all find good jobs with other tech firms of even start their own firm.

Central Expressway was home to many companies that went belly up, ghosts of long forgotten names only remember by a passing resume, or by the old timers. But tech marches on, companies take space, tech workers create, companies go public and then we start all over again.

I am not in the tech world, but grew up around it, heard the talk, seen people walk the walk.

Posted by Garrett on Jun. 04, 2013 @ 9:28 am

Just like SFBG has done in the past.

Posted by Guest on Jun. 04, 2013 @ 9:42 am

When IT companies do well, you say that is bad for SF.

But now when one appears to be struggling, that is also "bad"?

That just leaves mediocrity that isn't bad. Oh, wait a minute . . .

Posted by Guest on Jun. 05, 2013 @ 6:08 am

facebook sucks, apple sucks, twitter sucks, google sucks, all their busses suck, zynga sucks, absentee landlords suck, ed lee sucks, scottie weinee sucks, long time resident displacement sucks, evictions suck, breaking up established communities suck, real estate blood suckers suck, lennar corp sucks, modern new bmr condos suck, cops never busting techkie dronies in dolores park when openly boozing, smokin pot, grilling and bbqiin in broad daylight sucks and stinks of racist elitists corporate ball lickin too!

Posted by Guest on Jun. 05, 2013 @ 9:43 am

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