Phoebe Gates and Sophia Kianni’s shopping startup Phia says it is reviewing every transaction and reversing sales that were incorrectly attributed to the company after new reporting alleged the co-founders knew months earlier about features that could claim commissions for purchases Phia did not drive.
The latest development follows a July investigation into the AI-powered shopping tool’s affiliate practices. Bloomberg reported that Phia’s software could automatically place affiliate tracking during checkout even when a shopper had not intentionally used one of Phia’s offers, potentially allowing the startup to receive credit for a sale generated elsewhere.
Phia said on July 8 that it had been made aware of the misattribution problem “within the last 24 hours” and attributed it to a software issue it had resolved. An Aug. 11 Bloomberg follow-up, however, cited internal Slack messages, people familiar with the matter and historical source code in reporting that Gates and Kianni were aware of automatic cookie-setting features months earlier.
In its latest response, a Phia spokesperson told PEOPLE that any features responsible for misattributions were removed on July 7. The company said it is reviewing every transaction, has begun issuing transaction reversals to brand partners and plans to hire a head of compliance.
Bloomberg Says Internal Messages Point to Earlier Knowledge
View this post on Instagram
According to Bloomberg’s August report, an internal dashboard showed that a feature called “enable coupon auto drop” was switched on beginning Dec. 10 and remained active until July 7, the same day the publication first contacted Phia for comment.
The feature could automatically trigger Phia’s affiliate tracking without a shopper intentionally interacting with one of the company’s coupons or referral links, according to Bloomberg’s reporting and a separate technical analysis by advertising researcher Ben Edelman.
Bloomberg also cited a Dec. 18 Slack exchange involving Gates. According to the report, Gates was concerned that Phia was not generating as much commission as expected from Etsy and asked developers to confirm that automatic cookie drops were operating across websites with coupons.
The outlet reported that after a developer confirmed cookies were being automatically set when Phia’s coupon interface appeared, Gates responded that the company should still be capturing every transaction if the cookie drop was working. Phia told Bloomberg that Gates’ concern centered on a broken coupon pop-up that was preventing users from seeing offers and thereby reducing attributed purchases.
Bloomberg also reported on other features capable of setting affiliate tracking without a shopper intentionally selecting a Phia offer. One, referred to internally as a “passive trigger,” was active from October through July, according to the publication’s review of source code and Slack conversations.
Phia Disputes an Internal Estimate of How Much Sales Credit Was Affected
Bloomberg reported that a Phia data scientist estimated in a July 7 Slack message that the practices accounted for approximately 51% of the merchandise value the company claimed credit for during June.
Phia disputes that figure. A spokesperson said the preliminary analysis used an incorrect methodology that overstated the potential impact. Bloomberg also reported that an internal revenue chart showed Phia’s average daily revenue declining from approximately $80,000 to between $10,000 and $28,000 after the disputed features were disabled in early July.
The company said that decline could not be attributed solely to the cookie-setting features because Phia had also disabled most of its other monetization efforts during that period.
Independent advertising researcher Ben Edelman separately examined Phia’s software. In his technical analysis, Edelman said hands-on testing and code review showed that Phia’s iOS app and Chrome extension contained an “enable_coupon_auto_drop” setting capable of invoking affiliate links without a user’s affirmative action.
Edelman argued that such behavior conflicts with affiliate-network rules requiring users to knowingly interact with an affiliate link or offer before tracking is triggered. He also reported finding instances in which Phia detected that another affiliate had referred a shopper but did not stand down from presenting its own affiliate offer.
Affiliate Transactions Are Already Being Reprocessed
The scrutiny has already produced consequences within Phia’s affiliate network. Business Insider reported that Impact.com is reprocessing unpaid actions credited to Phia between June 20 and July 29.
Impact.com said those transactions are being reassigned to the appropriate publisher or refunded to the advertiser, depending on the circumstances. The company said the June 20-to-July 29 window represents the period when Phia’s activity was under review but associated commissions had not yet been paid.
Phia told Business Insider that its active brand partnerships through Impact.com resumed normal operations beginning July 29. The startup remained temporarily suspended from Impact.com’s marketplace for finding new partnerships and would need to demonstrate a period of compliance before being reinstated. Rakuten Advertising separately told Business Insider that it was investigating the situation.
Phia Says It Will ‘Learn From This’ After Raising $35.5 Million
The controversy arrives only months after Phia announced a major new funding round. On May 29, the company said it had raised $35.5 million from investors led by Notable Capital, Khosla Ventures and Kleiner Perkins, bringing its total reported funding to $43.5 million.
At the time, PEOPLE reported that Phia had grown to more than 1.5 million users and had more than 9,600 retail brand partners. Its investors have included Khloé Kardashian, Paris Hilton, Jessica Alba, Sydney Sweeney, Hailey Bieber and Kris Jenner.
Gates and Kianni have not personally issued public statements addressing Bloomberg’s latest allegations. A representative for Gates referred PEOPLE’s questions to Phia. “We will learn from this and want to ensure our users have the best possible shopping experience,” the company’s spokesperson told PEOPLE.