Robinhood Had One Job To Do
By: Jay Michaelson
Tags: News, Business, Money, Economy, Startup

This past Monday morning, as the world braced for the reopening of stock exchanges in the wake of Friday’s partial meltdown, the highly popular mobile investing startup Robinhood went offline.

The official statement from the company said that the outage was caused by “instability in a part of our infrastructure that allows our systems to communicate with each other,” which, rather than calming the panic and frustration felt by users who were missing out on the largest daily point gain in the Dow Jones Industrial Average’s history, only made things worse, and led to speculation and calls for class-action suits against the company for the failure of its app.

The “infrastructure” issue was resolved late Tuesday night, and the app was back up and running on Wednesday, but the damage was done: The more than 10 million active users of the app had missed out on the opportunity to make trades during the greatest period of volatility since 2009.

The spectacular implosion of a startup valued at over $7 Billion raises all kinds of questions about its underlying commitment to its more than 10 million customers.

Apps fail, software breaks, servers go offline. These things happen routinely in the modern internet-enabled world we live in. So it’s not that the app went down that should concern Robinhood, or its users. It’s the fact that, so far, the company itself has shown no evidence of fixing the problem, or providing a workaround solution (which, according to this article, could potentially put it in hot water with FINRA). The issue, I would submit is less technical and more personal.

Robinhood uses AWS — Amazon Web Services — to run virtually every aspect of its platform. AWS itself never went down, so that can’t be the part of the “infrastructure” that was inoperative. Amazon, as we all know, has countless built in redundancies and server farms to create virtually uninterruptible up-time for its servers. Given the numerous companies, organizations and even national defense partners that utilize AWS and its framework to store and run their websites, AWS is unlikely to be the culprit here.

More likely, the problem resides in the makeup of Robinhood as a business itself. It is notoriously lean, even for a tech startup, employing less than 1,000 people, even six years into its existence. Its whole raison d’etre was to disrupt the stuffy old elitist investing business, that required investors to pay for the expertise and licenses of brokers, traders, and financial experts to actually trade their stocks for them (of note, two of the oldest and stuffiest of the investing firms, Schwab and Fidelity, also had online trading problems, but recovered in a matter of hours, rather than days). Robinhood promised to free retail investors from the shackles of the old investment brokerage model and put power back into their hands. Even the name of the company speaks to how it has modeled itself, as the “Robin Hood” of the finance world — putting the power of trading in the hands of everyone, not just the wealthy, to paraphrase their motto.

But, for all that empowerment, the reality, as the past week of denial, and confusion from the leadership at Robinhood revealed to us, remains sadly different. Robinhood succeeded spectacularly in its objective to cut out the middleman and empower the average retail trader directly. But it did so at the cost of any sort of fallback measure if its vaunted technological capability failed. If anything, Robinhood failed because it viewed redundancy of any kind as anathema. Its whole stated purpose is to “democratize the financial markets” but now it finds itself on the hot seat because it provided all the access and ease of operation, with none of the corresponding security or redundancy of systems that traditional houses, in adapting to its disruptive emergency, had to put in place.

In the end, Robinhood failed, and is continuing to fail, not at the job of democratizing the market, or rendering access to stock exchanges open to the masses. It is failing at taking care of its customers, pure and simple. It is failing at providing basic customer service, and we shouldn’t expect to see it significantly improve on that ability to provide service, even if it fixes its “infrastructure” issue and gets its app back online. The reason we shouldn’t expect to see customer service significantly improve is because, at its core, Robinhood has always been too small, too lean, and too do-it-yourself to provide any valid backup plans. The whole idea of a backup plan intimates that you believe your technology might fail at some point. And Robinhood, along with so many of the other mobile-first, DIY-centric startups that have sprung to life in the past decade, cannot admit that sometimes, it takes a team of people to overcome the limits of an overdependence on technology.