zcommodore

VERBOTEN: DO NOT POST A COMMENT ON THIS BLOG. Prosper considers logging in to this site to be a security risk and it is required that you log in to post a comment.  DO NOT TAKE THAT CHANCE!

One of my father's favorite lines is, "The best job in the world would be to be self-employed with no customers."  Of course, this is impossible but the point is that dealing with people is a pain and makes every job worse than ideal.

Customers seem to be Prosper's problem.  They can't get enough and the ones they have complain too much.  Most borrowers can't get a loan so they complain.  Too many lenders are losing money from borrowers who stopped paying their loans so they complain.  If it weren't for those pesky customers, Prosper would be doing fine.

Back when Prosper first started, they made the fateful decision to create a forum for their users to communicate and connect and form a community.  Personally, I've never dealt with a company that had a forum for their customers so for me anyway, it was a revolutionary idea.

Even though most estimates say Prosper's forums were used by only ~10% of all Prosper users, they were very successful as far as I can tell.  Almost too successful.  A real community of users formed with many of the early adopters of Prosper's ideals forming friendships that carried over into real life. Lenders and group leaders tended to hang out more on the forums giving free advice to the borrowers and other newbies that showed up but a few borrowers hung out as well.

Unfortunately, over time negativity started cropping up and over time things began to spiral out of control.  Eventually, Prosper decided that those forums were no longer in their best interest so they eliminated them entirely and replaced them with a fully moderated forum that was almost universally disliked by the participants of the former forum.  Effectively, Prosper attempted to destroy the community that they themselves had created.

So far, Prosper has been unsuccessful in their efforts to destroy that community since there was already an alternate forum that many of the members of the community have withdrawn to.  Now Prosper seems to want to go to war against the community, their own customers, and the most passionate ones at that.

The most recent salvo by Prosper was the deletion of all members profiles that contained the word "prospers.org" in it.  I never bothered to try to find out why Prosper did this but a number of people did.  Their excuse was that this alternate forum is a "security risk" since they collect usernames, e-mail addresses and passwords that "might" be the same as the ones used on Prosper itself.

Prospers.org did encourage people to use the same username, however, Prosper distributes usernames to numerous 3rd-party sites via large data downloads that are available to any user who is signed up and wants it.  Usernames are often reused by people on numerous sites across the internet, not just Prosper and Prospers.org.  This argument is just silly in my opinion.

If Prosper was really concerned about security, they could have easily contacted Ferrix, the owner of Prospers.org and told him of their concerns.  But no, Prosper chose to use the sledge hammer approach instead and deleted their user's profiles and threatened those users with suspension if they ever did it again.  That doesn't sound like a way to "win friends and influence people".  If anything, it succeeded in causing numerous people who were on the fence with regard to continuing participating on Prosper to simply begin the withdrawal process.

I guess Prosper is succeeding in one thing.  If they continue these draconian measures, they will eliminate their problem, customers.  Unfortunately, then they will be out of business but that's a separate problem.

Warning: DO NOT READ THIS BLOG. This blog is hosted by Prospers.org, a verboten site according to Prosper.com.

One of the amazing things about Prosper's action in sending out e-mails about "advertising" Prospers.org is that it was sent to hundreds of members who never intended to "advertise" for Prospers.org in the first place. Prospers.org had a policy that the users there have the same nickname as the one used on Prosper.com. It was only enforced on those who wanted to use the "verified lenders forums" for lenders with a minimum of $500 in loans. To be verified, a lender was required to place a note on his/her Prosper profile stating "my username on Prospers.org is xxx". Often, after getting access to the lenders forum, this line would stay on the profile since many people never edit their profiles otherwise.

Now, with this crazy move by Prosper, many lenders got the e-mail who were no longer even participating at Prospers.org yet they got a threatening message suggesting they might get suspended if they "advertise" on their profile.

There were a handful, maybe a few dozen lenders who had placed a live link to Prospers.org on their profile partly as a protest and a way of informing people that there was an unmoderated forum. As I said earlier though, most of the mentions of Prospers.org were innocuous. Keep in mind, also, that Prospers.org is completely free of any advertising and is supported only by voluntary donations. In fact, ferrix, the owner, has never asked for donations. He only put up a donation page because it was requested by the users of his site.

Prosper used to encourage people to interact and even was supportive of Prospers.org at one time. It appears that is no longer the case. The CTO and co-founder, John Witchel, used to have a blog there just like mine. However, he deleted it a number of weeks ago. There is anecdotal evidence that it may have been Witchel who sent out the e-mails with the warning like the one I posted yesterday. I looked at the extended header information on the e-mail and saw that it originated on a computer named "witchel". I've looked at some other "official" communications from Prosper and none of the others I looked at came from that computer.

Prosper has had quite a bit of publicity in the last few weeks. The number of listings took a sizeable jump due to new borrowers and I've seen a lot more bidding activity the last couple of weeks as well. In it's recent habit of cutting off it's nose to spite it's face, Prosper decided to do something stupid just when things started to improve. I'm going to be watching to see how much of a negative affect this has.

Last evening, for the first time in over a week, I spent some time reading on Prospers.org what other users were saying. The reaction from many was that they had been "on the fence" regarding further bidding but now had decided to withdraw all funds. I've documented how Prosper's growth rate has flattened. Now, just when they start growing again, they drive away more of their customers. Why?

Out of the blue yesterday, I got the following e-mail:

Warning: Policy Violation

This email is in response to a confirmed policy violation on your member page.

Content published purely for advertising or promotional purposes will be promptly removed, and your account will be suspended. Repeated occurrences may result in termination of your registration with Prosper. This content has been removed.

Continued violation of Prosper's policies will result in suspension or termination of your Prosper account. Please abide by Prosper's policies.

For additional information, see our publishing policy.

Sincerely,
Prosper

I looked at my profile on Prosper and found that Prosper had completely deleted everything I had written on my Prosper profile.

So, what had I written that was so bad Prosper felt it necessary that it be deleted? Well, here is the entire content of what I had on my profile:

I am an active participant at prospers.org, an active, unmoderated community of Prosper members. Come join us and participate in a real Prosper community.

My Prosper blog

Notice to those contacting me: I am a Seventh-day Adventist and do not respond to messages I receive from sunset on Friday to sunset on Saturday until after the Sabbath hours are over. I will respond as soon as possible after Sabbath.

Now, I kind-of doubt they had a problem with my simple statement relating to my religious observation so I guess the problem must have been one of the other two points. The second point has been there off and on for months and I'm confident that they have known about it for quite some time since I know for a fact that Prosper employees read my blog. So that leaves the first point about Pro$pers.org.

Fortunately for me, even though I haven't read a single post on Prospers.org at all this past week I checked in to IRC briefly Thursday evening and found out about cubbiesnextyr's suspension from Prosper for having a group focused on members of Prospers.org. Apparently, the folks at Prosper have decided to declare war on Prospers.org and chose to delete every mention of that site on Prosper.

Exactly why Prosper has such a big problem with the peanut gallery known as Prospers.org, I will never understand. It is made up of some of Prosper's biggest fans and former fans including at least one of it's top-ten lenders and several in the top 100. Unfortunately, the number of former fans seems to be growing, mostly due to Prosper's draconian actions against the members of that site, this being the most recent.

I guess, to me, this is just one more reason to wonder if there are serious issues with Prosper's survival. It seems that members of that site have touched a sensitive spot with Prosper and Prosper has decided to go to war with them.

Frankly, I don't see Prosper winning this battle. They are driving away even the fence-sitters who participate there, not just the ones who complain the most. Does Prosper not have better things to work on than worrying about a few people who post on an unofficial forum site?

The other day, I said I had stopped lending until I saw more evidence that Prosper is growing.  I probably should have said I wanted to see improvement in the RATE Prosper is growing since there is no question that the number of users of Prosper is growing every month.

Here are a few graphs that I check regularly to see how Prosper is doing (click the link to see the graph):

Bidding activity: I have been watching this bidding activity graph for some time. For the first time in a long time last week there was a day that had more than $1 million in bids. That is a positive sign.

Membership Growth: It is obvious from this graph that new people are signing up at Prosper all the time. However, notice the discrepancy between the total number of people signed up and the numbers of "active" borrowers and lenders. Still, the numbers are going up so that is good.

Funded Listings: The second graph on this page is similar to the one I posted on my previous post. The biggest difference is that the graph is based on when listings were first posted, not when the loans originated as my graph shows. Once again, you can see that Prosper is originating loans every month but the number of loans originated seems to have gone flat.

Funded Listings 2: Here's another look at the total number of loans funded. This graph is similar to mine in that it is based on when loans, not listings, originated. Notice the end of the graph where it shows a projection of how many loans might be funded by the end of the current month based on activity so far. You can see that, once again, it appears the total amount of dollars in loans funded looks to be flat compared with previous months.

As you can see from the various graphs available on these 3rd party websites, Prosper is growing.  My concern is that Prosper is not growing fast enough to satisfy the sources of the venture capital Prosper is using to conduct business and their funds will dry up such that Prosper has to cease operations.  I have no idea what kind-of time-frame the venture capitalists are looking for in order to make a profit but it seems that if there is not enough evidence Prosper is moving towards profitability, they may not wish to put in enough more funds in the hope that they will get there eventually.  I'm sure everyone has read about the "credit crunch" in the mortgage markets.  That could be what happens here if Prosper can't show a path to profitability.

One more unrelated note: thanks to ericscc.com and lendingstats.com for the service you provide.  I check those sites regularly and believe anyone with an interest in Prosper, particularly lenders, should do so as well.

Since I found the site, I've generally been very bullish on Prosper.  The last few months, I always tried to find a silver lining to negative information.  I always kept hoping that the next change or the next month would show better improvement.  As you can see with the following graph, I've been disappointed the last several months.

The above graph shows the total dollars in loans originated by Prosper each month based on information I've collected from their performance page.  As you can see, Prosper has basically been flat since January of this year.  The peak in March-May happened right around the time of a huge spike in publicity that coincided with Prosper's one-year anniversary in February.

I keep hoping to see an increase in total loans originated but I keep getting disappointed.  In October, at a Prosper Meet & Greet in Hawaii, the CEO, Chris Larsen indicated Prosper needed to grow the total amount in funded loans ~4-5X if Prosper was to achieve profitability.  I don't know exactly what their plan is for that but I don't see it happening.

For the time being, I've decided to put my lending on hiatus until I see improvement in this area.  I know that doesn't really help Prosper grow but at the same time, I'm not sure about Prosper's long-term survival if they can't start growing soon.  Ultimately, my 1-3 $50 loans per month probably won't make much difference to Prosper's bottom line so I doubt they'll lose a lot of sleep over it.

Frankly, given the reaction I've read on prospers.org to some of the changes Prosper has made, particularly the removal of their old forums and full moderation of their new ones, I suspect I'm not the only lender who has stopped lending.  I get the feeling that Prosper thinks it can keep on getting new lenders to replace the disgruntled ones but I'm not seeing it in total loans funded.  Even if they are attracting "new blood" it's not enough for them to grow and they need growth to eventually become profitable.

Luckily for Prosper, so far, the competition has not been very attractive from what I've seen.  Zopa.com came out last week but only offering CD's at 5.1% didn't go over too well with the lenders that I saw.  LendingClub.com's interface just doesn't appeal to me and I've read of a number of lenders pulling out of that as well, despite Lendingclub's referral program.  Prosper is well-positioned to keep their lead in this market if they can just find a way to grow to profitability.  Short of that, I don't see much future in P2P lending.

Right now, the only positive I see that could really help Prosper would be a secondary market.  I understand Prosper is going through the regulatory hoops necessary for that to happen.  If Prosper can add some liquidity to it's market that could certainly help it's bottom line.  They could attract lenders who don't want to be "stuck" for 3 years and they could skim off fees for each sale of a loan.  Both of those things could significantly help.

In the mean time, until I see improvement, I'm on hold.