The Perfect Crime

When the news first broke about the Ashley Madison data intrusion, I’ll admit that my reaction wasn’t very mature: I regarded it as an amusing example of schadenfreude and watched all of the stories about people threating lawsuits because their lives had been “ruined” with the sort of glee we reserve for other people’s misfortunes. It’s not that I had or have anything against these people – I’m not a prude, and I’m not about to start trying to tell other people how to live their lives – it’s just that the level of naiveté involved was hilarious. All of us have a certain amount of personal information online, and are accepting a corresponding amount of personal risk, but very few people are ever going to share information that could destroy their entire lives with an organization whose business model is based on helping customers betray someone else. A new analysis of the leaked information suggests that the joke may be on the Ashley Madison users in more ways than one, however…

You can pick up Annalee Newitz’s excellent article direct from the Gizmodo website if you’d like to see the actual numbers, but if this report is accurate then less than .03% of the A/M accounts were actually being used by female clients in the first place. The company’s own user data already indicated that male users outnumbered female users by nearly six to one, but the Gizmodo report shows that males outnumber females on the company’s internal chat function by 4,579 to one, while approximately 13,585 men use the company’s message function for every female who does. And those figures don’t even include male users who registered as female when they signed up for the site, which is apparently very common. There is also good evidence that thousands, or possibly tens of thousands, of the nominally female accounts on the site were created in-house by Ashley Madison personnel in order to attract male customers…

If those numbers and accusations seem familiar, it’s probably because we’ve been seeing similar charges leveled at conventional dating sites for almost as long as this category of web businesses has existed. For all of the company’s efforts to market itself as a specialized service for adulterers, it appears to be nothing more than a very expensive dating site. And while criminal prosecution for leaving all of these clients’ personal information vulnerable to data theft seems unlikely, what struck me was that the company’s primary defense against accusations of fraud – and demands for refunds – has just evaporated along with the supposed confidentiality of the users…

Prior to the data breech, the odds of any given Ashley Madison user taking the company to court – or pressing any criminal charges, for that matter – was negligible, not because of the constant disclaimers all over the site, but because any potential disgruntled users would be exposing themselves as adulterers (or would-be adulterers, at least) the moment they publically admitted to joining the site in the first place. The company didn’t even need to create faked accounts, really, other than for marketing purposes (“Look! See how many attractive women there are on our site!”), because who was going to complain?

Now, we should probably acknowledge that running a profitable dating site is a difficult proposition, and doing so without providing a conduit for illicit affairs – or stalkers, predators, thieves, and other criminals for that matter – is going to be impossible given the nature of Internet connections. Maintaining a balance between people of both genders and a variety of other selection factors (e.g. age, income level, location, interests, physical appearance, and other demographics) wasn’t easy even in the pre-Internet days, when a single year of an old-style dating service (face-to-face introductions) cost around $3,600 a year in today’s money. With no personal contact, and therefore no way to tell who was being honest about their identity and who was lying through his or her teeth, there’s no way the company could have prevented a situation where male users outnumbered females 6 to 1 or even 13,000 to one. It seems unfortunate that they should have chosen to obfuscate, rather than just providing the service and letting the cards fall where they might…

I’m not sure how this one is going to end. Will the company go under? Will any of the litigation being filed against them come to anything? Will people learn from their misfortunes, or possibly from the misfortunes of others, and stop putting information online that could cost them everything they have? It is possible that at least some people out there in cyberspace will take this as a wake-up call; it’s even possible that it might make a few people stop and reflect on whether they really want to go through with cheating on their spouse in the first place. Perhaps in the long run people will be more careful, consider the potential consequences of their actions, treat their customers more honestly and deal with each other more openly, and the Internet in general will become a slightly less awful place…

Just between you and me, though, I would not put money on it…

Taking Flight

In March of last year I brought you the story about a company called Hybrid Air Vehicles, and their attempt to produce a lighter-than-air/lifting body hybrid aircraft, along the same lines as the legendary Aereon 26 which was first flown in 1970. At the time, I noted that the original hybrid designs had failed to generate any interest due mainly to the opposition from people who build heavier-than-air vehicles and the relatively low cost of aviation fuel at the time. When something is unfamiliar in form and function, faces massive political opposition, and does not provide an offsetting advantage, it is difficult for it to make headway in a free market economy. At least two of those things appear to be changing now, however…

There’s a CNN story on-line this week that describes a new offering from Lockheed-Martin in partnership with a company calling itself Hybrid Enterprises: a lighter-than-air lifting-body airship. The article is non-technical in nature, but the LMH1 airship is said to have a payload of twenty tons or so, a range of 1,400 nautical miles, and a top speed of around 60 knots, which would make it about the same size as one of the medium-sized Aereon designs from the 1960s. More importantly, Lockheed-Martin is claiming that the LMH1 will have a payload in the twenty-ton range, which puts it in the same class with the company’s famous C-130 cargo aircraft. Granted that the LMH1 is significantly larger (300+ feet long to 97 feet for the C-130) and only has about 20% of the top speed, it should in theory be significantly cheaper to operate than its conventional equivalent, and require significantly less room to take off or land…

So far the company isn’t reporting any interest from military customers, but that could change if they are successful in selling these aircraft to civilian users. Their current marketing appears to be geared more towards customers who need to transport large amounts of cargo to places that don’t have runways than anything else; they’ve already mentioned the utility this would have for oil exploration teams, who need to move a variety of survey and drilling equipment to places that don’t have roads or harbors, let alone airports. But it’s probably worth noting that military organizations also have a need to place equipment and build installations in places where there are neither roads nor harbors, and the ability to carry more weight at significantly lower cost than using helicopters for the same project has got to have a certain appeal…

Now, when I wrote the original piece I did note that the original company to try building and selling these craft, Aereon, was stymied in part by the inability to generate interest from either military or civilian customers. Why it didn’t occur to me to suggest that they partner with a company that already had established customer relationships on both the military and civilian markets escapes me, but why neither they nor Hybrid Air Vehicles thought of it before is probably a better question anyway. I don’t know if Lockheed-Martin is providing capital, technical support, production facilities, marketing, lobbying, or access to their existing customer base, but any one of those things could make the difference between being a start-up company with an unfamiliar technology and being part of a project involving an established aerospace company and defense contractor…

Lockheed-Martin is claiming that they will have the new aircraft ready to fly in three years, and might be selling them not long after that. It’s still a bit early yet to start speculating on whether the airship will really make a comeback, let alone whether there will be military versions, passenger versions, larger commercial versions that would replace cargo ships, or small versions that might be available for private ownership and general aviation. But if this article is accurate, the game has changed this time – and the production models are already on the way…

The Umpire Strikes Back

A rather unusual follow-up to our post of May 28 of this year appeared online this week; something which may provide a temporary answer to the question of whether anything can be done about fraudulent crowdfunding projects. My last post on this subject mentioned a company that had completed its crowdfunding offering, taken the money, at (at least so far) failed to produce any actual product. Unfortunately, the company insists that it is still working on the project, and will (eventually) make good on its commitments – as soon as it figures out how to do so, presumably. Most crowdfunding projects to date don’t have any specific deadlines by which the funded company has to pay off, since in many cases the company is trying to make a product that has never existed before, so until now the “we’re still working on it!” defense has worked well enough. That may be changing, however…

According to a story on the Gizmag website, the FTC has taken action against the entrepreneur behind a failed board game project that began with an offering on Kickstarter. You can also pick up the details from the Federal Trade Commission site if you’d like, but the basic facts of the case are that the man running the project, Erik Chevalier, got the $123,000 he was asking for to create a Monopoly-style board game and then failed to spend any of it on actually producing the game. Instead, the FTC claims that he spent the money on personal expenses and put some of the residue into an unrelated business project. Even the designer and artist who actually did the work on the prototype were never paid for their work…

For the moment the sanctions against Chevalier are limited to a civil judgement and an injunction against any misrepresentation of anything involving crowdfunding, since it still isn’t clear what criminal charge (if any) would apply to misappropriation of funds from a crowdfunding project. It’s not embezzlement in the usual sense, and I don’t think you could make fraud stick unless you could somehow prove that the defendant never intended to make or sell any products in the first place. It’s possible that this will result in some of the contributors getting at least some of their money back, assuming that Chevalier ever manages to pay off the judgement, but in the long run I think the more important aspect of this story may be the precedent it’s going to set…

Up until this point there really hasn’t been much anyone could do about shady crowdfunding projects. Leaving aside the aforementioned legal gray area, there’s also the issue that it really isn’t possible to pass a law against being an incompetent businessperson. When you invest money in any entrepreneurial project there is always some degree of risk, and that doesn’t change if the investment is spread among hundreds or thousands of participants instead of a single funding source. Every so often an idea just won’t fly – there’s actually an online database of examples, and it’s only a matter of time before Kickstarter and the other major sites start cross-referencing the failures to provide context for their offerings. Although I suppose somebody might start a service to do that, if they can arrange the funding…

How much impact the FTC and/or the Justice Department will be able to have on actual scammers hiding on crowdfunding sites remains to be seen, of course. Some people will gamble money on anything, and there is only so much that our government can do about criminals from outside the US who might be capitalizing on a still-evolving industry. But up until now it has generally seemed as though no one was keeping score, or even paying attention, to people online who might be taking advantage of the naïve, generous and gullible. If this story is any indication, however, things may be about to change…

Sweet

Some years ago in this space I brought you the story about Coca-Cola selling bottles made entirely out of ice on beaches in South America. At the time, I noted that the whole idea was a stunt, and not a very well-chosen one, either. While it is certainly interesting and memorable to have a product package that just melts when you are done with it, the actual ice bottles were problematic both because ice does not make a good, contaminant-free package, and because it’s much too expensive to keep your entire supply of product refrigerated at all times. Even worse, though, was the fact that in many of the countries where they tried this stunt, clean drinking water is hard to come by…

To be fair, the ice bottles were never really intended as anything more than a publicity stunt, and once it was pointed out the company that this was actually much worse for the environment than relatively clean and easily-recyclable glass would be, they abandoned the idea. But this week there’s word of a new type of Coke packaging that looks to be quite a different matter. If the story available off the Fortune website is correct, the new bottles are made from plastic derived from sugar cane…

I’m not enough of a chemist to understand (let alone explain) how you can make plastic out of plant matter, but the business implications of this article are staggering. Coke started experimenting with plant-based plastics back in 2009, and initially released a bottle that was 30% plant-based plastic later that year, but the new version does not use petroleum plastics at all, and the company claims that just over the last six years they have already saved the equivalent of over 36 million gallons of gasoline – and even more importantly, kept 315,000 metric tons of carbon dioxide out of the atmosphere…

It’s not clear from the article, or from the original source on CNN Money’s web page, how well the new packaging will hold up for other kinds of products, or if the process will be commercially viable for companies smaller than Coke. The company is apparently being a bit cagey about the process, but CNN reports that they are using sugar cane from Brazil and waste products left over from sugar cane refining operations in India to make the new plant-based plastic. This may require a global logistics base beyond the reach of some organizations, but any chemical company that can develop a similar process shouldn’t have any problem finding a wealth of customers who will want to order packaging in the new plastics. Assuming, of course, that the new material is actually as economical as Coca-Cola is claiming it is…

Now, one could reasonably ask why companies wouldn’t want to use a more environmentally friendly packaging material, even if it was slightly more expensive than conventional plastic. Surely the knowledge that you are helping to save the planet – and the positive public relations you can realize by doing so – would be worth the smaller profit margin. Unfortunately, this isn’t always the case, especially in industries that do not feature a large profit margin in the first place. When we consider this development from a business standpoint, it is important to remember that not only does Coke already have a massive international infrastructure to make the operation less complicated, and vast amounts of capital (and income) available to cover the expenses, they also have one of the highest profit margins in the world – two or three cents worth of water, sugar and flavoring that one can sell for $1 at McDonald's and $5 at a football game…

I don’t know if this is a game-changer, or something that will flame out and disappear as quickly as the ice bottles did. But if plant-based plastics turn out to be viable in both a financial and a manufacturing sense, then things are about to get interesting – and we’d all probably be well advised to start paying more attention to agribusiness…

I May Not Know Much About Art…

After our last post I was mourning the superseding of our beloved Orbital Banana – in a healthy, “The King is dead, long live the King!” kind of way – when I came across a story about an “art” project that is, in its own way, even more outrageous. It’s not publicly funded in the usual sense, so it doesn’t really compare to the Orbital Banana, but in a very real sense it was crowdsourced – that sense being that the “artist” in question is using images and likenesses belonging to dozens of other people without bothering to pay for any of them…

If you missed it the first time around you can find the Washington Post story about it here. What I think is the really outrageous part of the whole story isn’t so much the theoretical copyright violations – although the author tells us that previous attempts to stop similar projects through the courts have failed – as it is the fact that people are apparently buying enlarged photos of Instagram pictures harvested on line. And even that pales compared to the fact that somebody is apparently willing to pay $90,000 USD apiece for photographs of images available online with just enough alteration to be considered “transformative” rather than stolen…

The legal defense in this case is apparently that if you take a picture and alter it in some way (presumably in some way that makes it artistic, if it wasn’t already) that is constitutes a new work and is therefore not a copyright violation of the original. That might be difficult to argue in this case, since the only changes the “artist” has made is to remove the original captions and then add some apparently random comments of his own. But if the people whose pictures he’s using want him to desist they will need to take legal action of their own, and that’s not going to be easy considering that the artist has just made $90,000 a pop selling large photographic prints of other people’s photos (you could hire a lot of legal talent with only a few of those sales), and also considering that Instagram itself will not help them…

When asked about this project, and its legality, Instagram basically announced that they will help you if someone is displaying pictures stolen from your account on the Instagram site itself, but other than that you’re on your own. It’s difficult to blame the company for that, either, since they are neither a law-enforcement agency nor a court; short of creating a large legal department of their own and then providing legal services to their users there isn’t much the company could do about events that happen outside of its domain, even if it wanted to. But it does mean that anyone whose pictures were stolen who decides to take action is going to have to go it alone against a guy who routinely makes millions of dollars selling “transformed” images for which he does not pay…

Now, I don’t need really to tell you that anything you let loose on the Internet is probably going to be stolen, or at least used without permission, at some point in the future – or that there is no outer limit to how long things might remain kicking around somewhere in cyberspace. For years it has been a truism that you shouldn’t post anything online that you wouldn’t want printed on the front page of every newspaper in the world that is still printing, and I’ve brought you any number of stories about people who suffered various misfortunes because they forgot that. There was even a new case this week, when a Spirit Airlines flight attendant posted a picture of herself standing inside the engine pod of an airplane, resulting in yet another career-threating online incident. But this time none of the people being used did anything wrong beyond not having a very esoteric understanding of how copyright laws work…

I’m not sure where all of this is going to end, either. But as someone who creates content and offers to share it with anyone who comes by to take a look, without even monetizing the site with display ads, I’ll admit that I don’t like where this trend is going – or what it could potentially do to the online community…

The Private Sector Catches Up

Some years ago I wrote in this space about what I felt was the ultimate in Public Sector funding nonsense: an art project, funded by the Canada Council for the Arts (the Canadian equivalent of our National Endowment for the Arts), in which a performance artist received a $55,000 grant for explaining his plans to build a giant inflatable yellow banana and place it in orbit of the Earth, but not actually doing anything. According to the story, upon receiving the grant the artist realized that it would actually take at least ten times more funding to actually complete the project, and elected not to proceed until he was able to raise the additional funds. But, due to the nature of the grant program, he was not required to pay back any of the money; hence my contention that he had received five figures worth of money to do absolutely nothing…

At the time I acknowledge that there have always been private sector fiascos that were just as bad, but in terms of sheer flamboyant lunacy, it’s hard to beat paying someone to create an orbital banana that never happens. This, however, was before the era of crowdfunding, and specifically sites like Kickstarter that allow people to solicit all manner of art projects, public performances and product developments that they have no intention of actually doing. Including, apparently, a company that raised over $1 million USD for the creating of a watch that they will never actually make…

You can pick up the original story off of the New York Observer website, but if you’d rather not wade through it what they’re talking about is a company called Central Standard Time, which issued a Kickstarter project requesting $200,000 in January of 2013. It was to be the thinnest wristwatch ever built, and even though it wasn’t a smartwatch product, the Internet when crazy over the idea, eventually raising over $1 million USD for the project. At the time, the company claimed that they had already designed, prototyped and tested the product, and were ready to begin production, needing just the upfront money to start everything in motion. But as things turned out, the product wasn’t ready, there was no production contract in the works, and the watches turned out to cost about three times what the company originally projected…

Originally, the company had promised to ship its first production run in about three months; this lengthened to six months, then to twelve, and then they stopped announcing dates altogether. Finally, over two years after they were supposed to have product in stores (and rewards to the participants of the Kickstarter) the company announced that they were out of funds and would not be able to continue with the production. Normally this would mean that they had to return the money to their backers, but since the company has never actually declared an end to the project – as of this writing they are still “investigating alternatives” – legal action against them isn’t yet possible. Even if you wanted to sue them, there would still be some question of whether the company has anything you could use to recover your funds…

Now, we should probably note that the majority of crowd-funding sources are entirely legitimate, and a surprising number of them have ended up creating wildly successful products and services. Writing on the Forbes site, Goncalo de Vasconcelos notes that crowdfunded companies start out with a large base of potentially fanatical customers (the people who liked the product or concept enough to bankroll the project in the first place) who will often promote the product or service to everyone they know. Whether or not this makes such projects superior to the ones generated by professional venture capital firms is debatable (de Vasconcelos makes his own argument in the article), but it’s hard to deny that the concept can be extremely powerful when it works. Unfortunately, it can be difficult to tell the difference between a can’t-miss project and an embarrassing boondoggle even for the professionals, let alone for a crowd of Internet supporters – and that doesn’t even consider the possibility of outright malfeasance…

For the record, I have no reason to believe that anyone associated with the Central Standard Time company or its Kickstarter project are anything other than well-meaning, naïve and possibly credulous entrepreneurs. I think we can safely assume, however, that there are crowdfunding projects out there in cyberspace that are being run for nefarious purposes – and if there weren’t any before, there almost certainly are now. From where I’m sitting it looks like the private sector has caught up with our beloved Orbital Banana and is currently breaking away…

Watching Them Watching Us

I stumbled across an article this week – it’s Maureen Dowd’s op-ed piece in the New York Times – talking about how people using the Uber service are rated by the drivers at the same time and in the same ways they rate their drivers. There have already been issues with Uber drivers, who are all independent contractors not employed by the company, not conforming to the same standards of service or safety; there have also been cases of complaints about user ratings that are delivered by mean, spiteful, or simply insane customers that bear no relationship whatsoever to what actually occurred. This kind of thing is to be expected in any customer service position, of course, and it’s one of the primary reasons it is so difficult to maintain staff levels in those positions. But this is the first case I have ever seen where customer service personnel are being allowed to rate their customers – with a similar disregard for accuracy or fairness…

In the article, Ms. Dowd notes that while some of these reviews are based on interactions with the customer – such as people who keep the driver waiting or are rude during the ride – some of them are as simple and petty as people who are not fun, friendly or appealing to drive around, and even worse, there does not appear to be any control in place over these potentially damaging ratings. The author goes on to note that some users recommend paying additional cash tips (ones which will not be reported to the company or the IRS unless the driver wants them to be) and promising to give the driver a 5-out-of-5 rating in return for receiving one as a customer. However, there’s no way to tell how prevalent such methods are, or what effect (if any) they actually have on your desirability as a customer…

Now, we should probably acknowledge that any public-contact job is going to be made more difficult by the tiny percentage of customers who will inevitably end up being horrible people. In the case of Uber drivers, we’ve already had stories about drivers refusing to pick up people with service animals, people who did not appear to be sufficiently clean, or people who smelled bad, and having people throw up during the ride has become so common that the company has had to institute a standard fee for cleaning it up. There haven’t been any confirmed cases of customers using an Uber ride as a washroom or a brothel yet, but it’s not clear whether those things haven’t happened or if those cases just haven’t reached the media. Even the company itself would have no way of knowing about any such incident unless the driver elected to report it…

Given these working conditions, and the fact that Uber drivers have to be able to see a user’s profile before they can offer to pick up that user in the first place, I think we can assume that an ad hoc system of rating customers – and passing notes about which ones to avoid – would probably have come into being by now even if the company hadn’t chosen to provide one. In theory, such a system should help to enforce basic rules of behavior and courtesy for Uber passengers, just as the rating system for drivers should enforce rules about service, safety and upkeep on the vehicles; bad customers will not get offered a ride, and bad drivers will not get taken up on any offers to provide one. What isn’t clear is how often this system will lead to additional abuse – and what the company can be expected to do about the situation…

Imagine someone whose Uber passenger rating gets to be so bad that no one will stop to pick them up, forcing them to use a (generally much more expensive) conventional taxi. Now suppose that a driver does stop to pick them up, but will only agree to provide transportation if given a large cash-only tip – effectively raising the price of the ride. How long would it take before all of the drivers started demanding such tips in return for a 5-out-of-five rider review? Can the riders fight back by threatening to leave a poor driver review in retaliation? Or, more to the point, perhaps, how long is it going to be before all of the ratings are either quid pro quo arrangements or retaliation against the other party, all of which are completely useless to anyone (driver or passenger) trying to use the system?

This issue has always been a problem for sites that offer customer reviews of anything, from Amazon to online service providers, but unless the company has some revolutionary new approach that we haven’t seen yet, the problem has just taken on all new dimensions…

Some Call It Justice

You may have heard the term “schadenfreude” before – it comes up in popular culture every so often, as in the case of the Avenue Q song by that title – but if you’re not familiar with it, the definition is “pleasure at the misfortune of others.” In this increasingly cynical world we’re seeing more and more cases of it, probably best demonstrated by things like the homeowners who had been wrongfully foreclosed on by Bank of America (they didn’t have a mortgage with B of A or anyone else) getting a court order to seize all of the company property from their local branch. Call it karma, cosmic retribution, or evildoers finally getting their comeuppance, these reports have become seen as feel-good happy-ending stories to lighten up our news. And in the case of the debt collection agency that just got nailed for $83 million in punitive damages it’s hard not to agree…

You can find the original story on the New York Daily News site if you want to, but what it comes down to is an outfit called Portfolio Recovery went after a woman in Kansas City for a debt that they knew was not her own – it was owed by somebody with a similar name. The jury in the case ruled that the company knew perfectly well what it was doing, but figured to make an easy buck off the victim, and decided to slap the firm with these amazing damages for violating the Fair Debt and Collection Practices Act. Apparently, the fact that the company knew it was in the wrong and continued to pursue the fraudulent claim for over a year annoyed members of the jury…

Interestingly, the company’s statement about the case (also available on the Daily News site if you want it) calls the amount outrageous and says that Portfolio Recovery is going to appeal the award based on its size – but does not protest that the company did nothing wrong, as you would probably expect. Apparently, the court case established not only that they actually did the things of which they were accused, but also that they knew the collection attempts were fraudulent and continued with them anyway – which would seem to be an even more spectacular failure than the original ill-advised collections effort…

Now, no one is really saying that a year of the plaintiff’s time was actually worth $83 million, or even that the emotional distress caused by the proceedings is worth whatever portion of the award she gets to keep after paying her legal fees. The jury’s point is clearly that unless the company is slapped down good and hard, with an award of damages that is just too massive to ignore, they will probably do the same things again next time. And I’m sure that everyone involved expects the company to appeal the award and try to spend years or decades tying the whole thing up in court, until the plaintiff either gives up or dies. In this case, however, that’s probably a really bad idea…

From a strategic standpoint, what the company needs to do is settle the case as quickly as possible, and with as little fanfare as possible. It’s not unheard of to have settlement agreements that include all parties involved not speaking about the case ever again, and Portfolio Recovery can probably get such an agreement into the deal if they make a large enough offer. Once they settle the case the whole story will drop out of the news cycle, and the company can quickly audit its books to eliminate any similar cases (ones it knows are bogus) and make good-faith efforts to resolve any similar cases before the next lawsuit comes up…

Because every day this story stays in the headlines it will come to the attention of more people, and eventually one of them is going to decide that he or she can win an identical lawsuit, even if they were not wronged by the company. And if that happens, schadenfreude is going to be the least of their problems…

Predators on Parade

Over the years I have written in this space a number of times on the subject of predatory lending, and the occasional feedback I’ve gotten about it usually ranges from confused to skeptical. People in general are reluctant to believe that a financial company would simply ignore state and Federal banking laws in order to offer loans with unscrupulous terms to the desperate; people in the Internet age find it hard to believe that anyone would accept a loan at four or eight (or 20) times credit card interest when they could almost certainly obtain something better online. Unfortunately, neither of these beliefs is necessarily true – as an article on the Detroit Free Press website last week makes all too clear…

According to the story by Susan Tompor, Michigan’s Attorney General has just announced a settlement following legal action against two out-of-state lenders who had been offering short-term loans at rates ranging from 89% to 169% interest, or between 12 and 24 times the State limit for unlicensed lenders of 7%. The story notes that under such a loan a consumer who borrowed $1,000 for a two year period would end up paying over four times what they borrowed. Even worse, however, was a much shorter (six-month) loan program with an effective APR of over 350% - effectively, paying $1.75 for each dollar you borrowed in addition to repaying the full amount…

It’s not always clear why people agree to loan terms like these. In some cases it really is desperation – the need to pay off some expense that can’t be financed any other way, and for which default (or foreclosure) isn’t an option. In other cases it’s a matter of speculation – the belief that the customer can take the money, buy something, sell it quickly for more money, and pay back the original loan before the interest has a chance to add up. You will see this kind of thing happen any time there’s an investment bubble in play – we saw it in 2005-2008 in the Real Estate Bubble, around the turn of the Century with the Dot-Com Crash, even during the Beany Baby craze in the late 1990s. But the sad truth is that many of these loans result from the fact that most people don’t really understand how finance actually works…

Now, we should probably acknowledge that loans of this type do represent a large risk for the lender. Generally unsecured by anything, and frequently take out by people who lack either the assets or the income that would make it worth taking them to court, a disproportionately large number of these loans will end up in default, and the company will never recover any of the money. Consequently, the interest rate on these loans has to be high enough to make up for the increased risk, or no one would ever offer them in the first place. Unfortunately, that’s also where and why the whole topic moves into the grey area…

If the state imposes a hard limit on the interest that can be charged for unsecured loans (in Michigan that limit is currently 7%) then there is also a hard limit on how risky the individual loans can be. If the lender can only make 7% on its money, and more than 7% of its funds are never repaid at all, it will quickly go out of business. Such a policy will prevent people from being charged 169% interest on a loan, but it will also keep someone with an 8% chance of defaulting from getting a loan. Predatory lending appears in the first place because there are people with a (real or perceived) desperate need for funds who can’t qualify for an ordinary loan – and as long as that need exists, there will always be unscrupulous companies who will be willing to risk state and Federal sanctions to make a fast buck…

Unless we can manage to educate the public about how finance works, or at least about how consumer loans do, this situation is probably going to continue. Alternately, I suppose, we could try teaching people about saving money, living on a budget, and not blowing money on get-rich-quick schemes or inappropriate purchases. In either case, however, I would not recommend holding your breath…

The Ethics of Admissions

An interesting case came up earlier this week when over 60 Asian-American groups filed a Federal discrimination complaint against Harvard University, claiming that students of Asian ancestry were required to meet higher admission standards that applicants of other racial backgrounds. According to the complaint, the coalition has evidence that all else being equal Asian-American students needed to score 140 points higher than whites, 270 points higher than Hispanics, and 450 points higher than African-American applicants on the SAT in order to have the same chance of admission to private universities, including Harvard. This is a troubling claim, especially if the evidence pans out, but the situation becomes even murkier when we consider that Harvard’s current admissions policies have resulted in a student body that is over 21% Asian-American, despite the fact that people of Asian ancestry make up less than 6% of the population of the United States…

I don’t intend to discuss the relative merits of Affirmative Action in this space – mostly because that’s really a political issue and not a business topic, but also because I don’t believe that I have anything particularly profound to say on the subject. The case can certainly be made that some consideration is due to any number of minority groups for the discriminatory practices that they have experienced and in many cases continue to experience – but one can also quite reasonably argue that any policy that does harm to any person who has never themselves done anything wrong is not just, and solving injustice by creating additional injustice makes no bloody sense. And the whole situation becomes more complex as the number of groups seeking to gain a competitive advantage for themselves rises…

In this specific case, it does not seem reasonable to require one specific group of applicants to have much higher performance in order to receive the same consideration, especially if you consider the popular image of Asian students as quiet, studious, incredibly hard-working and single-minded to be a damaging stereotype (as some advocates clearly do). But, at the same time, it is difficult to explain why being represented in the student body at nearly 400% of your relative representation in the general population is discriminatory. Certainly, there are other minority groups that do not enjoy anything like this level of disproportional admissions, and one could easily imagine any or all of them filing complaints about the preference that is apparently being given to their Asian-American counterparts…

The University has responded to the allegations by stating that their admissions process is based on a holistic reading of all of the applicant’s scores, grades, activities, abilities, writing skills, academic skills, and so on, including whether or not it believes that a given applicant would be a good fit for their program. This is actually very common among elite schools, and may be the only reasonable way to choose between the literally hundreds of applicants for every position in the incoming class. Unfortunately, this doesn’t address the specific complaint the coalition is making; it also doesn’t answer the conflict at the heart of the matter. Is it more important to have a diverse student body (or work force, for that matter), or to provide a completely level playing field for the students who are competing for admission to that school?

On the one hand, no one wants to have to tell any specific applicant group that they will need scores 140 points higher (let alone 450 points higher) than another specific group to be considered for admission. But by the same token, no one wants to tell members of any specific applicant group that none of them are going to be admitted because the incoming class is now made up almost entirely of people from one or two other groups. This is the specific injustice that the Affirmative Action programs were intended to fight in the first place, but now we seem to have reached a situation where we can’t correct the injustice being done to one applicant group without inflicting an equivalent (or even worse) injustice on another. How can we possibly reconcile the desire to have a diverse student body with the need to offer every applicant an equal chance at admission? Or, for that matter, how can we correct the current inequity without making things even worse?

It’s worth thinking about…

Will They Ever Learn?

For years now I’ve been writing in this space, and occasionally elsewhere, about the importance of front-line (first level or first tier) customer service, and in particular about how failure in this position can render everything else the company does irrelevant. The sad reality is that even if the entire company has excellent customer service personnel, and provides exceptional service in general, to that one customer who we have completely failed, our entire company’s record is zero. None of this is new information, either; ask anyone associated with a service or consumer business, and they’ll all tell you how important good customer service (and good customer relations in general) is to the survival of the company. Right before they go back to treating the customer service personnel like cannon fodder…

Part of the problem is that turnover in any public-contact position is going to be rapid, because of the corrosive effect that working with public has on most people. Even though the majority of all customers are good people, it doesn’t take that many instances of being lied to, stolen from, screamed at, insulted, or otherwise abused to sour anyone’s opinion of the customers they are supposed to be serving. Over time, even very good employees burn out, shut down, or just stop trying – at which point we need to retrain or replace the worst cases and try to motivate whoever is left. It’s hard to convince anyone to invest money in employees whom they know will not last – in much the same sense that it is difficult to side with shifty, short-lived cannon fodder over paying customers who are actually giving us money. But as Don Henley notes, “apathy is worse…”

Consider, for example, the case of cancer patient Lisa Love, who was attempting to fly home from San Diego to Texas on American Airlines. Between her illness and the effects of the treatment, Love was not feeling well and asked an American gate agent to call a wheelchair for her. Said agent failed to do so, telling the passenger that “Oh, you look fine to me” and returning to her regular duties. This resulted in calls to the company that were not returned, emails and tweets that apparently never got to anyone who was prepared to do anything, and eventually calls to a consumer-advocate reporter and the resulting television news story and Internet account that you can view here if you want to…

Now, it’s not hard to imagine how something like this could happen. Think of any major airport on a busy day, and imagine a busy gate agent, trying to get a couple of hundred hot, cranky, generally uncooperative people onto an airliner without delaying the flight or throwing things any further behind schedule, when an apparently healthy passenger asks her to drop everything and summon a wheelchair and attendant. Maybe the agent is trying to cover the work of three people; maybe she’s had dozens of able-bodied people request wheelchairs so they can avoid having to walk a hundred yards extra; maybe she’s being paid peanuts and knows the odds of a raise this side of retirement are virtually nil; maybe it’s just a really crappy day. But however it came about, the company is now being mocked by dozens of scruffy bloggers all around the world for something they really do know was a bad idea…

If you consider the airline industry as a whole over the last thirty years or so, you will note that there is only one U.S. carrier that has consistently made money over that time period – it’s Southwest Airlines, which is known as much for its “Positively Outrageous Customer Service” (as the company calls it) as they are for their cut-rate airfares and slightly skeevy airplanes. I don’t believe this is a coincidence, any more than the success of Nordstrom is. Nor is it a coincidence that Southwest has generally taken better care of its employees than the industry standard. In almost every industry, if you examine the most successful companies, you will find that all of them have the best customer service and the best human resources practices of any firm in that industry. One could almost believe that there was some direct causal relationship…

None of this will come as any surprise to any student of management – or any experienced air traveler, for that matter. One has to wonder if American Airlines is ever going to take this lesson to heart, however…

Was That a Goat?

Over the years I’ve written a lot of posts about Amazon for much the same reason that a sports blogger would write about the New York Yankees – love them or hate them you can’t ignore them, any more than someone in the business community can ignore Amazon. We’ve all spent time pondering Amazon, and watching them as they diversified from an online bookstore to a retailer of other kinds of media to a retailer of practically everything. Now it appears that the company has moved into providing random home and personal services as well, which appears to be taking them into some very strange waters indeed. Who would have imagined, back in the old days, that this modest Internet bookstore would one day grow up to be a place where you can rent a flock of goats?

I got the story off of the Business Insider website, but it looked too fantastical for words, so I went onto the Amazon site and looked for myself. Sure enough, there is an Amazon Home Services page which lists services available through the auspices of the company. Some of these include things that make perfect sense as a value-added adaptation for a retail company, such as service personnel who will come to assemble the outdoor grill you just purchased, or install the wall-mount for your new plasma-screen television. Some are just mundane things, presumably for people who don’t want to deal with Sears, get referrals off of Angie’s List, advertise on Craig’s List, and so on, like gutter cleaning and pressure washing services. And some of them are quite eccentric indeed, such as aerial yoga classes (yoga done while hanging from the ceiling on loops of soft fabric), language lessons (currently in Spanish, French or English, but keep checking back!), musical and vocal performers (hire a band for your next big event!) or hiring a goat grazing service…

As I have mentioned in some previous posts, goats are an extremely efficient and cost-effective way of clearing brush, or unwanted vegetation in general, from almost any terrain. They don’t require gasoline or electricity, don’t make much noise compared to chainsaws and wood chippers, dispose of the cut vegetation (except for the occasional goat dropping, which the Amazon page points out make excellent fertilizer), and can actually work faster than some human brush-clearing services (depending on the terrain and the number of goats, presumably). How much the service will cost depends on how much land you want cleared, whether it is fenced in or whether goatherds will be needed to keep control of the flock, and how many goats you want, but unfortunately I can’t tell you how it compares in price to other methods or contractors…

When I pulled up the Other Services page it was immediately clear that none of these services were available anywhere near my zip code. There weren’t any offers on the Lessons page, either, which is disappointing to anyone who wanted to learn aerial yoga in the Lansing area. Nor did I find anything under the Home Improvement or Lawn and Garden pages before I gave up. As was the case with Angie’s List and Craig’s List, there are no listings for services of any kind anywhere near where I live…

Now, in fairness, we should probably note that Amazon Home Services is a fairly new area for the company, and it may take them a while to get enough contractors listed to cover everywhere. We should also note that East Lansing is kind of a backwater – it’s a nice enough place, but it is somewhat remote when compared to Seattle or Chicago, for example. It’s quite possible that if you live in or around a major city that you would find plenty of offerings in every one of these categories (although I suppose the goats might be a challenge in urban areas). A much more serious point is that every other business referral service out there should probably take notice of the fact that Amazon has now entered their industry, because if they aren’t careful the same thing that happened to all too many local bookstores could also happen to them…

The Trouble With Franchises

Actually, there are a lot of problems with a franchised business model, both from the franchisor’s standpoint and also from that of the franchisee. If you have purchased a franchise from someone then by definition you have given them a large sum of money in exchange for the right to open a branch office of their business and contribute to their bottom line. You may not ever see a dime of that money back; you may in fact go bankrupt even before you make your first franchise fee payment, but the company will still get its money. In some cases this might work out very well, such as the McDonald’s franchises, some of which have been estimated as being worth more than the franchise fee in marketing advantages alone. In other cases it might be a nightmare, as it was for the Krispy Kreme franchise holders who were basically used as a revenue source to enrich the personal fortunes of the CEO and his cronies in the early 2000s…

As bad as that is, things are frequently worse on the franchisor side. As attractive as it is to have people paying you to expand your business, the fact remains that every time you sell a franchise you are putting your company’s honor, reputation, and financial future into the hands of someone who you can’t control, who has no reason to like you or protect your company beyond the need to recover their investment. This can lead to improperly maintained locations that give your company an unwanted reputation for slovenly management and unsanitary conditions, public relations disasters that impact the performance of other franchisees miles or time-zones away, or human resources atrocities so absurd that they get you mocked by scruffy bloggers all over the globe…

I picked up the original story from the local television station in Houston, but in case you missed it, there are reports of a Popeye’s franchise demanding that the shift leader in one of their stores pay back the money that was stolen during an armed robbery because it was her fault the registers had enough money in them to be worth stealing. When the woman in question refused, saying that she’d already been robbed at gunpoint and couldn’t have afforded to replace the money anyway, she was fired. This would have been bad enough, but it turns out that the fired employee is a mother of three children who is currently pregnant with a fourth – and now facing unemployment in addition to her other problems…

Now, I don’t know enough about employment conditions in Houston to comment on whether firing someone because your company was robbed of less than $400 makes any financial sense. Typically, we assume that recruitment/replacement costs for supervisory personnel run between one-third and one-half of the first year’s salary, which in this case would mean somewhere between $5,000 and $10,000 for a supervisor in the $8 to $10 per hour range; possibly much more than that. Unless there are so many employed first-tier managers in the Houston area that a replacement can literally be found sitting in the restaurant itself, this was already an asinine decision on the part of the business. But once the story got out things became even worse for both the franchisee and the company…

There’s only one Popeye’s location within a fifty-mile radius of my office, and I already don’t go there because I would literally have to drive past dozens of other fast-food restaurants to get there. And I know that our local franchise has absolutely nothing to do with Z&H Foods in Houston, except for the fact that both companies purchased a franchise to make and sell fried chicken and biscuits. But even knowing that, I feel rather more negatively toward Popeye’s in general than I did before I read this story, and even more so since the franchisor in this story is refusing to comment and just dumping all responsibility for this fiasco on the local franchisee. Just imagine how much worse that could get if everyone who sees this story, on the air or on the Internet, has the same reaction…

Still want to go into a franchised business model? I can wait while you think it over…

Financial Aid Starts Early

You may have heard the jokes – they go all of the way back to the Murphy Brown television series in the early 1990s – about how competitive preschools are, and how choosing the wrong one could start a fall of dominoes that will prevent your child from getting into the right grade school, middle school, high school, college and graduate school. Exactly how many people actually believe in such a sequence is unclear, but there are still news stories every few years about preschool programs that cost as much in tuition as most public universities, and the massive competition that occurs each year to get into the best. An offshoot of these jokes involves parents taking out student loans on behalf of children who are not yet able to dress themselves, or in the case of less wealthy families, seeking financial aid in order to achieve the same results. Unfortunately, this may be less of a joke than you’d think…

According to a story that ran last week in the New York Times, the problem with preschool is that it isn’t affordable for a very large range of families, especially in the case of single parents who also need after-school daycare. The example given is in Chicago, where even the public school system’s Preschool program runs in excess of $13,000 per year – over a thousand dollars per child per month – and private programs range upwards from there. There are low-income programs like Head Start, for families that qualify, but most people living above the poverty line can’t get their children into those programs, which only leaves student loans, personal loans, and the aforementioned financial aid programs. Programs which, it turns out, also leave large numbers of parents and their children out in the cold…

Now, we should probably acknowledge that the Daycare issue isn’t a new concept. For at least the last twenty years, and possibly more like fifty, many working-class families have had to decide between working a second (or third) job in order to pay for daycare, or just having one parent quit their jobs and stay home with the children. Indeed, if your monthly take-home pay is $1,000, and cost for childcare is going to be $1,120 per month, you probably couldn’t afford to go back to work if you wanted to. A single parent does not have that option in the first place, of course, and once we start considering child support and spousal support issues the whole matter of who actually qualifies for financial aid becomes even more complicated. The real question is what to do about it…

Greater funding for financial aid programs would seem to be one obvious approach, except for the fact that all of the existing financial aid systems are overtaxed, not just the ones available to preschool students – and the fact that funding for public education is already in crisis. As appealing as the idea of pumping additional money into local school districts in an attempt to increase the number of places available in public preschool facilities might be, it does not appear that throwing additional resources into traditional methods is going to help. The question that comes to my mind is whether there might be a private-sector approach that would help…

We have already seen examples of companies offering subsidized preschool programs as a benefit for their employees – offering the services at cost makes them effectively resource-neutral on the balance sheet, while at the same time helping to retain valued employees and raising morale. There can even be an operational efficiency improvement, in that employees who have children in daycare in the same building in which they work do not have to leave the premises and travel across town in order to look in on their children. Public support for such programs could be very cost-effective, since every child placed in private or corporate daycare would be one less individual competing for finite resources in public schools or from financial aid programs. But there might be an even more direct approach to the problem…

As of the last time I checked, there was no specific program available to fund new daycare businesses – but there is no reason that the Federal government couldn’t establish one, either through the Small Business Administration (SBA) directly or through the entrepreneurship programs that all of the Federal agencies are required to support. By doing so, they would be able to relieve pressure on both the financial aid system and the public daycare system, not to mention creating jobs for all of the caregivers who would then be employed by the private-sector daycare centers. You would need additional social services personnel to regulate such businesses, and some additional infrastructure to administrate the SBA programs, but you would also be creating profit-making businesses and gainfully-employed citizens, all of who would (in theory) also contribute to the tax base and put additional funds into the local economy…

I’m not saying any of this would be easy. On the contrary, any such program would require a great deal of resources to start and to run, as well as considerable intestinal fortitude on the part of the public officials that launched it. But at least we could get rid of some of these competitive preschool jokes…

That’s Not an Egg!

Some time ago in this space I speculated that Apple needed to come up with the next Big Thing in personal electronic devices, and noted that while the iPhone has been the mainstay of their business model for several years, there is a limit to how far they can develop the smart phone using the current technology. They needed to come up with a new product that would renew the company’s previous reputation for innovation and cutting edge technology, and I really doubted that the new Apple Watch was going to be that new product. Although, to be fair, I also noted that I didn’t have any better ideas, and pointed out that I could be wrong about the watch…

Now, I don’t suppose it will come as much of a shock to anyone that the product development people at Apple know their customers better than I do; that is their job, after all. I’ve been using Apple equipment ever since my family got its first home computer (an Apple II+) in 1981, but I’m still not one of the fanatic Apple fans who will buy whatever the company produces and then tell everyone in the world that this is the greatest thing ever (even if they don’t know exactly what it does). I own an iPhone, for example, but I’m writing this post on a Windows machine. Based on the news reports we’ve been seeing lately, however, I’m pretty sure that no one in the Apple-using community, or even anyone from the company itself, was expecting that nearly one million people would purchase the Apple Watch during the first six hours of the pre-order period…

You can pick up the original story from the Washington Post website if you don’t believe me, and I can certainly understand why you wouldn’t. The Post is estimating that 957,000 people placed orders, and that at least some of them placed multiple orders, with an average of 1.3 units per order and an average sale amount in excess of $500. Customers who ordered any of the more expensive Apple Watch types went even higher, with an average sale price of over $700. If these numbers are accurate, the gross sales amount on this new product exceeded $481 million in just the first six hours they were available for pre-order…

Now, I still have my doubts about the long-term prospects of the Apple Watch. For one thing, it seems that fewer and fewer people are even wearing watches these days – a lot of my students tell me that when you carry a device around with you that has a time and date function on it, a separate device that just tells you the time seems redundant. There’s also the fact that you need to sync up the Watch to some other Apple device (usually an iPhone) to use most of its functionality, and the fact that most of those functions are already present on the iPhone itself. But what this argument does not consider is what else the development teams may have learned during the process…

One of the most important factors in any R&D project is what you learn by doing it, and while this often gets overlooked when we talk about product development research, all of the same points apply. Sure, the circular hotdog never made it into production because it was the dumbest-looking thing anybody had ever seen, but the company that invented it has been making money on products that make use of the same meat-extrusion technology for at least the last 30 years. Apple’s first attempt at a small electronic device (the ill-fated “Newton” personal digital assistant) cratered hard, but the experience in building compact electronic circuit boards, power systems, displays and housings paid off when it came time to build the first iPod, and then again with the iPhone. And even if the company’s first attempt at wearable computer technology had failed, there’s no telling what they might have learned in the process…

That doesn’t look like it’s going to be a problem in this case (957,000 orders in the first 6 hours?), but I think it’s worth pointing out to anyone else who might be considering public statements questioning the development of the Apple Watch…

Do Not Meddle in the Affairs of Amazon…

I have written in this space before on a number of occasions about the issue of fake online reviews and the potential for abuse, including outright extortion, that they entail. The common factors in nearly all of these cases has been that it is generally quite difficult to combat fake reviews, either positive or negative, because it is difficult to catch the people doing it, and also because even if the offenders can be identified, most small businesses and solo practitioners do not have the money available to pursue legal action. Of course, we should probably note that the majority of the people doing this have the good sense not to call attention to themselves and to stay away from major businesses. After all, if they attempted to post fake reviews on a site belonging to a company with wealth and resources neither of those factors would protect them. A company like Amazon, for example…

According to a story in the SeattleTimes, later picked up by the BBC News page, Amazon is bringing suit against three different companies that had been selling a service that provides positive reviews on Amazon for the client’s products. Initially most of these companies were attempting to claim that nothing they did was wrong, let alone illegal, but I have trouble believing that this will go over in court well, either, given that the companies are called things like “buyamazonreviews.com.” Neither will the fact that the various review providers have been advertising that they can get the customer all of the 5-star reviews they want at the very reasonable price of $18 to $22 per (fake) review…

One of the less certain aspects of the case is whether it will remain a purely civil affair, or if there were also be criminal charges involved. Normally, Amazon will not post reviews from anyone who isn’t a verified purchaser of the product – that is, if they don’t have any record of your buying the product, they won’t let you post a comment about that product. In the lawsuit against “buyamazonreviews.com” Amazon is also claiming that the defendants have been using fake purchases and fake shipments – buying product from their clients through a series of dummy accounts and then receiving “shipments” containing only empty boxes. The allegedly faked reviews are already dodgy, from a legal standpoint, but the companies responsible for them can (and apparently do) claim that they are just finding satisfied customers and getting them to post positive reviews of the product. If Amazon can prove that the same companies are actively circumventing their verification system using faked purchases and fake shipments, it is going to be much harder to convince anyone that this isn’t fraudulent…

By themselves, a large number of five-star reviews aren’t likely to hurt anyone; Amazon will benefit from its share of additional sales, the company selling the products will benefit from the sales, and the review generation firm will make money on the deal. As a method to convince online shoppers that a given product is far more popular than its sales would indicate this strategy is far more problematic. And if the company making the product is able to secure extra sales using this method, but is then able to avoid demands for refunds when the product turns out to be less desirable than the fake reviews made it appear, then they have effectively defrauded the purchaser as well as discrediting the entire Amazon online review system…

Amazon contends that confidence in their review system helps to create confidence in their customers, which in turn makes it much more likely that electronic shoppers will chose to purchase goods from Amazon. If someone is allowed to make a mockery of the Amazon review system, the company claims, these result will be much lower consumer confidence, much lower sales of everything, and a significant cost to the company. If the court concurs this could be a very costly mistake for the review generation firms. If the Washington State Attorney General or the relevant U.S. Attorney’s office take notice and end up prosecuting this as a criminal case, things could get significantly worse than that…

I find it interesting that since this litigation began, two of the four companies named in the suit have shut down their websites and disappeared completely, one is refusing to respond to requests for comment by the media (and may also be in the process of shutting down and going away), and the fourth is trying to claim that they haven’t done anything wrong, including not breaking any laws. But I suppose we will have to wait and see what the jury (or juries) decide on this one…

Best. Billboard. Ever.

Over the years there have been any number of stories, television skits, scenes from movies and so on about advertising media that would be truly interactive with the target market – print ads or electronic media that would carry the smell or texture of food products, ads through which you could touch or feel the product, and so on. There have been a number of attempts to produce such things in real life, although they have largely been on the primitive side – scented inserts in magazines selling fragrances, for example, or billboards promoting bakery companies that emit the smell of freshly-made cinnamon rolls. But the ultimate version of this concept would be an ad in which the target customer could actually sample the product – taste it, ingest it, or the equivalent. The infamous “television chocolate” from Charlie and the Chocolate Factory is one familiar example – a television commercial where it is possible for the viewer to reach into the screen and pull out an (edible) bar of chocolate…

Needless to say, in real life there would probably be several more immediate applications for a device that can send physical matter over television transmissions, and even the fantasy writers have been unable to explain how you could input one chocolate bar into your transmitter and allow thousands or millions of viewers to draw it out of their personal set. So despite the incredible impact this concept would have on potential customers, it has remained in the realm of fantasy, or at best science fiction – until now…

According to a story posted online by the Daily Record (UK) Carlsberg Beer has set up a billboard near their brewery in London that features an actual beer tap. Anyone who want to sample the company’s product can simply walk up and pull themselves a glass of beer from the tap. It’s hard to say for sure, but it looks like they also have security personnel (or possible police officers) keeping an eye on the tap to make sure everyone stays orderly and no one tries just drinking directly from the tap until they pass out. Given that all of this is happening in England it isn’t at all surprising to see that a long and enthusiastic but extremely orderly line has formed to wait for the free drinks…

Now, I don’t imagine I have to explain why this stunt would never work in the US – or any other place with a definite restriction on drinking age. I can also see it being an issue in places where under-age drinking isn’t a major factor but drunken bad behavior (and riots) is. And in much of the world I would actually be less worried about people overdoing it when they drink from the tap than I would be about people showing up with gallon bottles, five-gallon drums or armloads of quart/liter bottles and trying to appropriate as much of the free beer for themselves as possible. But as advertising stunts go it’s amazing, and it makes me wonder if you could apply the same idea to other types of product…

What about a billboard that didn’t just make people walking by see and smell the product, but also made samples available to try? You could have garment ads that allowed people to feel the fabric, or ads for consumer goods that had working features you could actually try out – although I suppose that given the tendency in this country to use sex to sell literally everything, it would only be a matter of time before somebody tried to combine all of these elements and ended up with a billboard ad you couldn’t show on television without being hit by massive fines from the FCC…

Maybe it’s just as well that the concept has been limited to beer so far…

Blunder or Not?

Personally, I’ve never really seen the appeal of Twitter; I have enough trouble getting my thoughts down in 600+ word blog posts; there’s no way I’d be able to get anything I’d want to say into a single tweet. Consequently, I did not see the tweet issued by the Hostess company (presumably the new owners of Hostess) yesterday in honor of Opening Day for Major League Baseball. It’s a picture of a Hostess cupcake – a yellow cake with vanilla frosting version, instead of the better-known chocolate cake product, with red icing in curlicues on top – with the caption “TOUCHDOWN.” Seen from the top down, the red-on-white cupcake really does look remarkably like a baseball, or at least a cake made to look like a baseball. The problem, if problem it was, is that the term “touchdown” applies to a scoring play in American-Rules football, not baseball…

If you also do not twitter, you can see the image and read some of the tweets on the Business Insider page about the stunt. Apparently, when the supposedly “botched” advertising tweet launched, the sort of people who both follow commercial bakeries/snack food producers and comment on their advertising went berserk, sending thousands (or possibly millions) of derisive tweets into cyberspace to mock the company for not knowing football from baseball. The company responded with a second tweet, remarking on how excited they were at the return of “Sportsball,” which rather settled the matter as far as I was concerned: the term “Sportsball” is an Internet term which mocks real-world sports and people who spend more time watching professional athletics than running around in virtual communities online. I think we can conclusively say that the company knew what it was doing; the more subtle issue was whether or not this was a good idea…

It seems clear enough that Hostess is using this artificial “blunder” to draw attention to itself – in this case, from thousands of twitter users and anyone to whom they point out the original tweet. In a larger sense, though, what they are doing is trying to get the audience to look at the cupcakes, remember how good a Hostess cupcake tastes, and perhaps even associate the company and the product with the start of spring, the start of baseball season, or even with an amusing tweet, blunder or online event. Whether you remember the specific tweet and the “TOUCHDOWN” caption or not, the company will be closer to the front of your thoughts the next time you make a purchase decision that involves snack foods – or, at least, that’s the idea…

The problem with advertising of this type is that nobody, including the Industrial and Organizational psychologists who study it, knows exactly how it works. Sometimes called the “Sleeper Effect,” the concept is that some ideas grow in the amount of influence they have over someone’s perceptions instead of fading away as they forget about the source material. In this case, the idea would be that you remember Hostess snack cakes, and how much you like to eat them, while forgetting about a possibly artificial mistake they may have made on Twitter. When it works, it can have an impact all out of proportion to the size, importance or cost of the media that produced it. Most of the time, however, all you get are ads that offend people and don’t make any sense, while fading off of the public consciousness and having no long-term effect at all…

What makes this particular stunt so interesting is that it didn’t cost Hostess anything to do it, which means that if it fails they can always just try something else. Most ads of this type have involved more expensive media, which entails the risk of not making back more sales differential than you spent making the ad in the first place. But if everyone who makes or markets consumer goods figures out that they can use this method to cut through the clutter in current electronic media and get their ad into your mind despite the interfering “noise,” then it seems likely that ads of this type will become the norm, the world will fill up with new and more annoying “noise,” and whoever is making these tweets will have to find some other approach and start over…

Coming Home to Roost

I was reading with great interest the sentencing phase of the trial of the “revenge porn” site operator in San Diego, California – said Internet entrepreneur has now been given 18 years in jail for identity theft and extortion – and reflecting that this represent a change from the usual results of Internet crime. For the most part, people who commit crimes like these online remain free, and frequently remain anonymous, because their activities are concealed online or because their actual physical location places them beyond the reach of US law. In this case, however, not only was the operator living in the US, he was extorting money from people using PayPal…

You can catch the original store from the San Diego Union-Tribune site if you’d like, but the details are pretty basic. The defendant in the case, Kevin Bollaert, started a website where anybody who wanted to could post embarrassing pictures of ex-partners or anyone else they wanted to publically humiliate. Initially he simply refused to acknowledge demands to take the offending pictures down, but eventually he began charging the victims for the privilege of no longer being exposed online, with prices starting at $250 and rising (presumably) based on what the market would bear; e.g., how embarrassing the pictures were and how badly a specific victim wanted them taken down. This eventually amounted to over $30,000 – at least, that’s what was left on the site’s PayPal account when the law finally caught up with him…

What struck me about the case, apart from the absurd victim blaming you see whenever any compromising documents or pictures are released online, was just how divorced from reality the site operator and all of his colleagues and their apologists actually are. Identity theft and extortion to prevent it are actual felonies, not some sophomoric self-amusement, and the punishment for doing them could be decades in jail, not just a strongly-worded reprimand. Just because criminals on the other side of the world are safe from prosecution under US law doesn’t mean that some idiot in San Diego is untouchable, either. And, by the same token, no matter how safe you believe your files, data or identity might be, having any of it stolen is always going to be a hazard – even if it doesn’t involve compromising pictures…

From a business standpoint, I find this case more than a little alarming for at least two reasons. First, there’s the issue of keeping our own personnel from doing something this bone-headed while at work, and unintentionally bankrupting the company. Until recently I would have said that this was a distant concern, but apparently there are people who will assume that a crime isn’t a crime if you commit it online – and there’s no way to be sure that one or more of those people don’t work for us. Just as important, though, is the fact that any compromising information that the company has ever allowed to move over the Internet is also out there, even if it wasn’t compromising of anything in particular when it was recorded or sent. Which means that even if industrial espionage or extortion directed at an entire company using former Internet documents haven’t happened already, they eventually will…

We’re already living in a world where any bad choices or stupid remarks you have ever made can be preserved electronically and come back to haunt you forever. Now, it appears, we are also facing the possibility of having every embarrassing thing anyone in our entire company has ever said or done coming back to bite us at any moment – and the prospect of serial criminals who would apparently commit such outrages for their personal entertainment and relatively tiny amounts of money…

Missing the Point

I was reading an article online this weekend and reflecting that whoever wrote the article – or, at the very least, whoever wrote the headline – appear to have missed the entire point of the interview and the issue it was set up to cover. However, the gentleman being interviewed appears to have caught it on the first go, proving that he has a better grasp of the realities of business than the Fox News business department has ever had…

You can pick up the original story here, if you’d like, but the interview was with the Chairman Emeritus of the Marker’s Mark organization, who had been the CEO for the previous 35 years before handing the job over to his son. If you’re not familiar with the company, the Samuels family has been making bourbon (and related products) in Kentucky since 1780 or so, but the business has only been producing a premium product for the last couple of generations, and has only started offering new variations on the flagship product over the last decade or so. You might reasonably expect, as the Fox News people clearly did, that a multi-generational family company that make distinctly American alcoholic beverages would be upset by news stories claiming that the finest whiskey in the world is actually made in Taiwan…

According to the interview, however, Bill Samuels Jr., the Chairman Emeritus, is delighted by the international spotlight that has been turned on his industry, and is predicting that the attention from around the world will increase sales for all of the company’s products, including the new high-end beverages they have recently introduced. Leaving aside just for the moment how much additional business that such international acceptance will generate for the brand domestically, the fact remains that three quarters of the world’s economy and 94% of its population do not live in the United States. It is highly probable, in fact, that if the company’s product takes on the image of an internationally sought-after luxury product that domestic sales will increase, but even if they do not, it’s a big world filled with a lot of people who seem to like bourbon…

Now, to be fair, we should probably acknowledge that Bill Samuels Jr. has spent almost his entire life – from the day his father convinced him to abandon a career in aerospace and come to work for the family business – thinking about distilled spirits and ways in which to sell more of them. By contrast, the Fox News staffer who wrote the story has probably only considered the industry as a consumer, and may not actually have any business credentials to speak of. And by the same token, I don’t believe that it is a coincidence that the company decided to bring out its new Maker’s 46 and Cask Strength products just as international attention is starting to develop for this product category…

So why am I telling you about this, I hear some of you asking? You don’t necessarily run a premium distilling company, and you’d never believe that Fox News knows more about any industry than a guy who has managed a company in it for 35 years. The point I’m going for here is that anything that moves our company or its products from being a specialty product purchased by a limited subset of consumers in one corner of our industry to being part of an international competition for the best product in the industry, even if we did not win that competition, is a good thing. And assuming (as somebody at Fox apparently did) that news reporters for a major media outlet must somehow know more about an industry than someone whose family has been in that business for over two centuries, and who has devoted his life to the family business, is just another good way to get yourself mocked by scruffy bloggers from all over the Internet…