The Phia scandal is a big deal. Why anyone building in AI shopping should care.

Good evening.

First, a round of applause for American Express VP Aziza Johnson for winning The Aisle’s first subscriber giveaway: three tickets to Jay-Z’s historic show at Yankee Stadium last Friday night. I also attended the concert, and was the guy in the Knicks hat in Section 227B reliving late-night college dance parties all over again. It was glorious.

If any of you want to return the goodwill, I have a local Argentinian friend here in New Jersey who is a passionate soccer fan and is looking for a ticket to the World Cup final that won’t cost him $8,000. I know there’s a brand among you with a spare seat and a good heart. Let me know. I’m sure he’d gladly market the heck out of whatever you want.

Elsewhere, it looks like ChatGPT might need to adjust its ad frequency parameters a bit.

Finally, news broke late last night that Stripe and a PE firm entered a joint bid to buy PayPal for more than $53 billion. That was a 28% premium over the market cap at the time but tens of billions less than what it was worth less than two years ago.

Either way, it’s a fun one to consider as it relates to AI-enabled commerce. Both companies have been trying to position themselves as central players in an agentic commerce future, with varying levels of success.

PayPal’s massive global consumer base still has value and Venmo continues to feel totally underutilized. Before PayPal’s CEO change earlier this year, some at the company were talking about transforming Venmo into an AI-powered app where more direct commerce or shopping happens. A lot is up in the air now. I’ll be poking around.

Now on to the good stuff…

By now, I assume many of you have read about the scandal at Phia, an AI-powered shopping startup that had gotten a decent amount of press attention in the tech and venture world since it launched last year.

Until last week, that attention came in part because of its venture funding (north of $40 million) and big-name celebrity and entrepreneur backers; in part because of some solid early traction; and, yes, in part because one of its co-founders is Phoebe Gates, daughter of Bill and Melinda.

The company launched last year as an AI shopping browser extension and app, that shows online shoppers where they could find a similar product to the one they were looking at, for a better price—whether new or used. When Phia announced its $35 million Series A investment in January led by Notable Capital, joining existing investors Kleiner Perkins and Khosla Ventures, it teased a future that “will include real-time LLM agents that will personalize each user’s shopping experience.”

Now the short version of the scandal: Last week, Bloomberg reported that the startup was doing two things that are no-nos in the affiliate marketing world—and potentially even illegal.

First, Phia allegedly claimed credit for online purchases even when another publisher had already earned the referral. According to the findings, Phia failed to “stand down” after detecting the signal that an existing affiliate referral was present. Instead, it allegedly triggered its own affiliate link at checkout, overriding the original publisher’s referral and positioning Phia to collect the commission. Many affiliate networks require browser extensions and similar services to stand down in those circumstances.

Similar allegations are at the center of litigation involving Honey, the PayPal-owned coupon extension, which PayPal has disputed.

Phia was also accused of automatically triggering affiliate links without any action from the user or shopper. In tests, the software allegedly opened an invisible background tab and registered an affiliate referral even though the shopper had not clicked a Phia link. That practice is commonly described as a forced click or cookie stuffing.

Phia didn’t deny the accusations but insinuated that it wasn’t intentional.

“Within the last 24 hours, we were made aware that in a recent release our codebase was causing misattributions from a subset of users,” the spokesperson told Bloomberg. “As soon as we were notified, our team worked overnight to identify, mitigate, and has since resolved the issue.”

I had a lot more questions but the founders didn't return my messages, and the venture capitalists aren't talking either. That's typically not a great sign.

But I spoke to Ben Edelman, a lawyer, consultant and researcher who is an expert in this space and has investigated these practices of Phia’s and wrote about them here. I also spoke to Michael McNerney, the publisher of the Martech Record, a trade publication that deeply covers the affiliate marketing world.

And I spoke to Kate Sanner, the co-founder and CEO of Beni, a competitor in the space that launched a few years before Phia.

This is why they all think the Phia situation deserves your attention, whether you work at a brand, retailer, or startup building technologies at the intersection of commerce and AI.