Archive for June, 2007


Nirvana Via the iPhone

Today’s the day. For everyone who patiently and not so patiently waited, the iPhone has arrived. Those dedicated individuals who waited in line are eager to get their hands on Steve Jobs’ next American revolution. They’ve dreamed of widescreens, Apple’s famous interface design, and combination voice/data plans. Today’s the day the dream comes true. Below is a shot from my phone camera of the front of the line at the SLC Apple store (please forgive the quality, bad angle):

Line for iPhones

I don’t have personal plans to pick up one myself. They do seem cool based on the reviews, but I’m not sure they are $600 cool. The frenzy around the iPhone raises a bigger question for me: do you think it’s possible to become too technology focused? The iPhone is the hip, cool thing for today, but haven’t we created an environment that demands something even hipper and cooler the next time?

I know we’ve moved way pass an agrarian-based society, but I do wonder if we’ll regret the skills we’ve lost along the way, and our appreciation for things that take time. Yes, technology has improved the quality of life. We can now do so much more faster and with greater efficiency, but will we ever reach a point, when for all our technology, we start going backwards? Do we need a better balance between the technology and, for lack of a better word, the physical part of our lives?



Getting danah All Wrong

I’ve finally figured out why the mainstream media struggles to stay relevant—they’ve forgotten how to read. The response to danah boyd’s recent post on Facebook and MySpace class differences has been interesting to watch. Beyond the issue of having any discussion about class in America (that’s for another post), danah’s post and essay roughly outline her findings—a fact some reports failed to recognize. She in no way tries to position either her post or the essay as “academic” in nature. It’s still a work in progress, and danah very clearly states this distinction:

For the academics reading this, I want to highlight that this is not an academic article. It is not trying to be. It is based on my observations in the field, but I’m not trying to situate or theorize what is going on. I’ve chosen terms meant to convey impressions, but I know that they are not precise uses of these terms. Hopefully, one day, I can get the words together to actually write an academic article about this topic, but I felt as though this is too important of an issue to sit on while I find the words. So I wrote it knowing that it would piss many off. The academic side of me feels extremely guilty about this; the activist side of me finds it too critical to go unacknowledged. (link)

The BBC, however, seems to have skipped this part, and jumped straight to its own conclusion:

A six-month research project has revealed a sharp division along class lines among the American teenagers flocking to the social network sites. (link)

danah’s work isn’t at a point where she provides numbers, and yet the BBC feels comfortable describing the situation as a “sharp division.” However, traditional news sources weren’t the only ones who misinterpreted the post and essay. Mashable initially titled its post on the topic as “Case Study Report Indicates Class Division Between MySpace and Facebook.” (link to Google cached page) Mashable editors have since revised the headline to read “Essay Theorizes Class Division Between MySpace & Facebook.” (link)

We live in a fast-paced society where an almost constant barrage of information can leave us a bit numb. So we give in to the temptation to read the headline and maybe the first paragraph. Then, we move on to the next. It’s easy to do. I’m guilty of it on occasion myself. But personally, whether you agree with her or not (and those who do not have been particularly vitriolic and stooped to personal attacks), danah’s writing deserves a full read before commenting. This courtesy applies to anyone who takes the time to publish their ideas—especially if you feel moved to add your two cents.

Creating conversations is my favorite part of this new world. But how long can the conversation continue if we fail to actually “hear” what is being said? How valid is your position, either positive or negative, if you haven’t made the effort to fully understand how your ideas relate to the original argument? I think we’ve forgotten that it’s a responsibility to participate in the community. Going forward, if we have any hope of maintaining our integrity and improving on the status quo we can’t be lazy.

We have to read more than just the headlines. We have to go to the source. And we have to ask the hard questions, and challenge the results, but not at the cost of making the challenge personal rather than topical. So, for those who’s comments are aimed at danah as a person, may I politely suggest a closer reading of her work. You might actually find add something to add to the conversation other than attacks on how she spells her name and accusations of racism.



Lifelong Entertainment

Growing up, I loved watching cartoons on Saturday morning. My absolute favorites were the Looney Tunes. They always made me laugh. Now that I’m older, I’m struck by how many small things went over my head. Bugs Bunny as the Barber of Seville is one example of the timeless quality that Chuck Jones put into all of his cartoons.

I compare the Looney Tunes to what passes for comedy and humor on television and in the movies. The latter usually come up short in comparison. “There’s only one test of a great children’s book, or a great children’s film, and that is this: If it can be read or viewed with pleasure by adults, then it has the chance to be a great children’s film, or a great children’s book,” said Chuck. (link)

I know there’s value in creating entertainment specific to children or adults. But I think we undervalue entertainment that appeals to both children and adults. The books that have stuck with me are, in many cases, the books that appealed to me as a child. I still love the Laura Ingalls Wilder books and the Anne of Green Gables series.

It takes a special talent to craft a book, a cartoon, or another medium and have it appeal over the life of its audience. It takes a particularly bold individual to even attempt to appeal to both the child and the adult. And the boldest won’t need special effects to succeed.



The Illusion of Safety

Open Source Water
By: Niels Heidenreich, AttributionShare Alike

You know a product has made an impact when cities start banning it. Gavin Newsom, San Francisco’s mayor, has banned city departments from buying bottled water. (SF Exec. Order) Like most everyone in the Western world:

San Franciscans have responded to marketing campaigns to purchase bottled water and record amounts of bottled water have been purchased by San Francisco consumers and local government at the expense of the environment.

Bottled water represents one of the boldest ideas I’ve ever seen, but not necessarily in a good way. Marketers have turned water into a branded commodity. We’ve gone from trusting and drinking the water that comes out of the tap to teasing our palettes with the exotic waters of Fiji. Some restaurants even employ water sommeliers.

Although Mayor Newsom’s action represents a growing sentiment, I believe we have a ways to go before bottled water disappears. Pardon the pun, but based on the sales and consumption numbers, we’ve swallowed the bottled water story:

  • Americans drink 26,000,000,000 liters per year (link)
  • U.S. sales of bottled water hit $9.2 billion in 2004 (link)

Making his point about bottled water, George Carlin said, “Ever wonder about those people who spend $2 apiece on those little bottles of Evian water? Try spelling Evian backward.” (link) I’ll admit my guilt. I buy bottled water, more out of convenience than any safety issue. At home, I prefer the tap water from my personal well to bottled water. I do laugh at the reality that “roughly 40% of bottled water begins as tap water; often the only difference is added minerals that have no marked health benefit.” (link) The idea that bottled water is “safer” looks questionable given that:

…more regulations [govern] the quality of tap water than bottled water. In the U.S., water-quality standards set by the Environmental Protection Agency for tap water, for instance, are more stringent than the Food and Drug Administration’s standards for bottled water. (link)

So where does that leave us? Powerful branding.

“Branding is extremely important for water,” says Chiranjeev Kohil, professor of marketing at California State University at Fullerton. “In a lot of categories, you can duplicate products and get an edge on quality or attributes, but that edge can be shaved off very quickly by competitors. In the water category, there is no technological superiority. The only thing that differentiates one water from the next is the brand.” (link)

Marketers Go to the Source

They talk about the purity of the Alps (Evian; if you get a chance, go look at their current site. On the U.S. site, once you get the Flash loaded, a topless woman, coyly positioned in front of the Alps, implies what about the brand?) The untouched snows of Norway are appealing too (Voss). But both Aquifina and Dasani are filtered tap water. So how do they compete? They rely on extensive distribution networks, via Pepsico and Coca-Cola respectively, to compete in the water market.

Each brand has created an image, and depending on your personal preference, you subscribe to that idea. I was surprised the first time a waiter offered me a choice of bottled water after I indicated I only wanted water to drink. I wanted to ask him if they were using bottled water to cook my food. Otherwise, why pay for bottled if the tap water was safe to drink?

The Stamp of Safety

When you tie the question of safety to a product, you seem to get more attention. By implying that what comes out of the tap isn’t safe, marketers don’t have to prove they’re right because we think, “Better safe than sorry.” Safety is used to sell everything from tires to food to clothing. The definition of safety—environmental, physical, psychological—varies, but at its core, and in spite of our cynicism, the marketing of safety is a bold idea that still captures our attention.

We march off to war because we’re told we’ll be safer. We put seat belts in cars to keep us safe while driving. We drink pasteurized milk, because we believe it’s safer that way. Everything from the biggest, life-changing decisions to what we pull out of the fridge can be sold with a safety stamp.

Think about it. How many things do you do during the day that are driven by the idea they make you safer? And how do you determine “safer than what?” How do you value the trade off for additional safety?

When the definition is deserved, when a product, a service, or a belief actually makes you safer, you need to know about. You need to know so you can make a decision about whether it’s worth the trade off for more safety. But how do you make a decision when you aren’t given all the facts?

Without understanding possible side effects, how do you decide to take a drug that may cure the symptoms? (Alli, anyone?) What’s worse the original illness or the cure? How do you select insurance if they don’t tell you about the non-covered services? You may feel safer when you buy the insurance, but if it doesn’t cover the one thing you need, the safety is an illusion.

More Than Bottled Water

This post started out as a review of bottled water. Then, as I thought about why we buy it, I realized that something bigger, something that goes beyond bottled water, drives so many of our decisions—the illusion of safety. Marketers know this fact, and they drive it home every chance they get. Who doesn’t want to be safe?

Truly safe things rarely require advertising. The end result is proof enough. But when millions are spent to communicate safety (e.g., bottled water), ask yourself why. Mass death from drinking tap water hasn’t been in the news. If you believe that bottled water is safer, you might think there’s a conspiracy afoot.

I suggest a small test. Ask the question, “Why do they say bottled water is safer?” If the answer doesn’t make sense, then you ask, “If it’s not safer than tap, why am I drinking it?” Take this test and maybe you’ll make bottled water producers fear for the safety of their jobs.



Meeting Expectations

Where do you fit in your family? Oldest? Youngest? Peace-lovin’ middle? A recent study out of Norway indicates that, once again, there’s a possible connection between your birth order and how you’ll turn out. In this instance, the results had less to do with your actual birth order and more to do with how you’re treated:

A study of more than 240,000 Norwegian men found that older siblings score higher on IQ tests than their younger brothers and sisters. In cases where the first child dies in infancy, however, the second-born child raised as the firstborn assumes the mantle, performing as well as the actual elder child on intelligence exams. (link)

Researchers speculate the results are due to resource allocation:

“When there are more children, he notes, the resources will be more scarce for everyone compared with the firstborn who gets all the attention with no competition.” (link)

This particular article didn’t discuss the impact of expectations. Even more than resources, I believe expectations shape who you become. I knew, as a first born, that my parents had different expectations of me than they did of my younger brother. I also knew at a early age that I didn’t particular care for attention being divided between me and my brother.

My mother tells the story that after she came home from the hospital with my brother, I made my opinion of the situation very clear. Every time she went to feed him, I’d run down the hall screaming at the top of my almost 3-year-old lungs, “Don’t feed him.” Apparently I made the connection that if you feed something, it sticks around for the long term.

Over 20+ years, my brother and I have come to terms and get along quite well, especially when it comes to sharing eye rolls over parental behavior. However, what brought us to terms was recognizing that our parents expected different things from each of us. In essence, our competition was no longer with each other, but rather with the expectations assigned by our parents.

Telling Company Behavior

I see a connection between this behavior and how companies choose to operate. Some companies choose to operate in direct competition with their competitors versus those tho choose to operate based on expectations. Some might argue there is no difference between the two options. I argue that when you operate in direct competition, you’re measuring your standards against an entity you have no control over. When you operate based on expectations, you control all the standards and determine whether you meet them.

Consider these examples:

  • Apple creates the iPod. Microsoft follows with the Zune. (Gizmodo)
  • Google creates AdWords. Yahoo follows with Panama. (Got Ads?)
  • Netflix offers rentals via the mail. Blockbuster offers rentals via the mail. (Thomas Hawk’s Digital Connection)

See a pattern emerging? Companies like Apple, Google, and Netflix create their own expectations and then proceed to match or exceed them. Companies like Microsoft, Yahoo, and Blockbuster are operating in direct competition, never able to match the original expectations set by the other companies.

In these match ups, resources aren’t a real issue. Microsoft, Yahoo, and Blockbuster are all established companies with the money, time, and brainpower to create their own expectations, and thus, their own success. For some reason, they elect not to, and end up playing the role of the younger, not-so-intelligent sibling. Imagine how the world would respond if Microsoft tossed aside Windows as we know it (even Vista) and created a new operating system that exceeded expectations. Oh wait, I think Apple might have already done that with Leopard.

Back to the sibling…my brother and I measure success differently. We’re living our lives based on individual expectations, not on direct competition. And we’re happier for it. Google has replaced Yahoo as the search giant because it created its own expectations. And even though Apple owns a smaller share of the computer market, they do own an overwhelming majority of the digital music market. Instead of saying what’s the other guy doing, and how do we match it, they created a new question, a new category, and then they defined it. Wouldn’t you prefer being the definer rather than the imitator?



Memorization is Not Education

We’re in the middle of summer, but I’ve been thinking about school. I attended public school for 12 years. I received an acceptable education and had both excellent and poor teachers. I suspect I owe my writing skills to a string of above-average English teachers. However, except for my math and science classes (hated geometry, actually like algebra), expectations were set so low that I easily fulfilled assignments and barely remember studying for tests. School was easy, but it was boring.

During the six hours or so of classroom time, I was usually bored for five. The focus was on getting the majority through the subjects, not challenging the minority. For all the current arguments over testing and failing schools, one solution that fails to gain traction is demanding more of students, teachers, and schools. And I’m not talking about higher test scores. Anyone with half a brain can be taught memorization techniques, but do we really want to define memorization as learning?

Over on Escape from Cubicle Nation, Pam Slim brought to light the recent decision in Arizona to kill an international studies program. I’m flabbergasted by the utter ignorance of legislators who defend their decision by suggesting:

…the bill was un-American and part of a slippery slope to a U.N. takeover and the end of U.S. sovereignty.

The bill, sponsored by Rep. Mark Anderson, R-Mesa, would have put three K-12 schools in the northern, central and southern parts of the state, where kids would begin a second language in kindergarten, and set up new international programs at seven high schools. Big business and universities pledged to partner with the schools. (link)

A U.N. takeover? The U.N. can barely run itself let alone take over American schools. But that’s not what Senator Ron Gould believes:

“There’s a lot of us here who are not internationalists. These schools actually have kind of a United Nations flavor to them, and we’re actually into educating Americans into Americanism, not internationalism.” (link)

But here’s my favorite excerpt:

Sen. Karen Johnson, a Mesa Republican and chairwoman of the K-12 Education Committee, never let the proposal out of committee. Johnson instead brought in a professor from Bethany Lutheran College in Mankato, Minn., to educate lawmakers on the dangers of a popular international studies program, the International Baccalaureate. The 37-year-old high school program offers rigorous courses and diploma programs in schools worldwide, including 759 in the United States and 12 in Arizona. Its goals are intercultural understanding, community service and preparation for university work.

“The International Baccalaureate is un-American,” Allen Quist, who served in the Minnesota Legislature in the 1980s and ran for Minnesota governor as a Republican in 1994, said in a phone interview. He said that International Baccalaureate’s links to the United Nations are disturbing and that its sense of right and wrong is ambiguous.

It teaches students to see the American system of government as one of many, not as the only one that protects universal and God-given rights to property, to bear arms and free speech, Quist said. (link)

Correct me if I’m wrong, but isn’t the American system of government one of many that offers protection for individual rights? Yes, you may quibble of the level of protection, but do the British, the French, the Germans, the Italians, hell, most people living in democratic countries, enjoy a certain level of individual rights?

The attitude that adopting anything not birthed in America as un-American is fascinating given the roots of our democracy in Greece. You don’t have to teach one perspective to instill a sense of patriotism for a country. You want a populace that actually understands the role of its nation on the international level.

We are no longer separated by oceans. In less than a day, we can travel to areas so distant that they took months to reach in previous centuries. The Arizona legislators and others who share their views have purposefully turned their heads against the reality facing today’s modern schoolchildren.

Fine. You didn’t like the bill. It smacked too much of internationalism. Great. Figure out an alternative. Be bold. Find a way to show children about the world they live in and will one day run. Don’t settle for the status quo or kid yourselves that your children will succeed if they grow up only learning about America and American history.

The world is a giant puzzle, and America is only one, albeit large, piece of the puzzle. What’s going to happen in 50 years if the business world decides its more convenient to conduct its affairs in Mandarin to adequately meet the needs of over a billion customers in China? Ignoring reality doesn’t make it go away. Consequences, both good and bad follow every action. I hope those elected officials in Arizona are still alive when they find out how wrong they were.



How Not to Appease A Customer

I feel like I’ve been cheating the last few days on my posts, relying on personal events as fodder. But I couldn’t resist given today’s story. I saw firsthand how not to deliver customer service in a situation that could easily lead to a lawsuit.

I met one of my best friends for lunch today. When I arrived she had already ordered a virgin daiquiri (the virgin part will prove important in a sec) for her and some French fries for her daughter. At 19 months, my friend’s daughter enjoys dipping anything in everything. So between sucking on the straw and dipping her fries in the daiquiri, she managed to drink/eat half the glass. My friend finished the other half, and we continued to chat over our food. About half way through, the manager appears.

Manager: “Ladies, did you put the daiquiri in the sippy cup?”

My friend: “No.”

Manager: “Well, we just noticed that your child was close to the drink and we wanted to make sure it didn’t end up in her cup.”

My friend: “Why does it matter? I ordered a virgin drink.”

Manager: “Well, if it was in a frosted glass with a black straw, it was alcoholic.”

My friend: ” She drank half of it. What do you mean there was alcohol in it? I ordered a virgin drink. She drinks and eats everything I do.”

(At this point, the manager winces as it becomes clear they are at fault.)

Manager: “Well, we think you ended up with an alcoholic drink.”

My friend: “How is that possible.”

Manager: “I don’t know.”

Me: “Where’d the mix-up happen? Did the server enter the wrong drink order or did the bartender make a mistake?”

Manager: “I’m not sure. I know you must be upset.” (Notice: no acknowledgment of any individual error will ever be made in this exchange.)

My friend: “I thought I could trust that when I ordered a drink with no alcohol that’s what I would receive.”

Manager: “I am so sorry. I know you must be upset.”

My friend: “Yes. How would you feel if your 19-month-old drank alcohol?”

Manager: “I’d be upset too.”

My friend and I agree we’ll probably laugh about this story in a few years, but she was understandably upset. Our meal was comped and her daughter appeared to suffer no ill effects. A follow-up trip to the doctor confirmed she was fine.

Watching this happen, I was taken aback at the manager’s approach. His initial attitude implied that my friend was knowingly giving her child an alcoholic drink. When it became clear that his staff was at fault, he became mildly apologetic. However, it took my friend stating that she refused to pay for the meal before he made any movement at smoothing over the situation, other than saying he was sorry.

If he’s smart, he’d do more than comp a meal. He’d offer a gift certificate, something, anything to change her perception of the restaurant. Because from now on, every time this restaurant is mentioned, she’ll share the story of how they brought her the wrong drink that she then shared with her daughter.

Now imagine my friend’s response and the story she’d tell if the manager had come to the table and taken the position from the beginning that they made a mistake. Please let us make it up to you. Here’s my card with my direct number. Don’t hesitate to call if you have any questions or if there’s anything I can do for you. Then the mistake becomes secondary in the story compared to the apology.



Gathering Information

I’m a little late getting to my post today because of errand running this morning. My trip included a quick visit to the bank. On my way out, I noticed a sticker on the door with numbers running vertically—4, 5, 6—it took a second for the light turn on. Ah yes, must give bank employees an easy way to establish the height of any bank robbers when they exit.

Part of me thinks it’s an ingenious way to gather information, the other part of me wonders at the certainty that such information will be needed. My quiet community has seen one bank robbery (in 2005) during the last 30 years. The height sticker is found in other branches, so it’s clearly a company-wide practice. However, this bank was neither the one robbed most recently or even 30 years ago. So what drives the need for this information gathering?

Random information gathering, even of potential bank robber height, seems increased of late. The recent post from Steve Rubel on attention overload has left me wondering what drives our pursuit of ever more information. Feeds, web sites, emails, IM’ing, Twittering…the list of information sources seems never-ending and ever-growing. Have we become too inquisitive for our own goods?

This question plays devil’s advocate to my personal nature. It never feels like I can learn or know enough. I must find out everything I can and figure out how to apply it to my circumstances. I’m driven to make information useful. This perspective can create a series of complications in my day. I feel a certain attachment to my electronic information sources. If I’m waiting for a package to be delivered, I like checking the tracking number. I’m a habitual email checker, and I love visiting new sites that usually have little to do with my projects. It eats up a surprising amount of time.

From an early age, I considered information power. Not power in the Mr. Evil “mu-ha-ha-ha, I’ll rule the world”-way, but rather as a generator, a creative spark to keep me moving forward. Lately, I’ve looked for sparks that prompt blog posts and information that helps me create solutions for my clients. But as I try to fit everything in, I do wonder if it’s becoming too much. How much bandwidth do I have left? Do I really need to know about that latest gadget review on Crave? What drives your information-gathering behavior?



Losing the HP Way

I could no longer ignore the squeaking and grinding from my printer. A few months ago, I decided to buy a Hewlett-Packard multi-function model. During checkout, the helpful associate asked whether I wanted an extended 3-year warranty. I said no, my usual response to extended warranties. What he said next surprised me. “Are you sure? Because HP is only building its printers to last two years. So if this one breaks, the warranty will buy you a new printer.” He proceeded to tell me that HP’s ink sales were suffering due to after-market suppliers. Thus the short lifespan of my HP printer as they looked to make up the lost profits from increased hardware sales.

My sales guy probably receives incentives to sale the extended warranty, but what’s happened at HP that the story told about the company is so out of whack with its founders’ principles? The sales associate told a story that seems contrary to “The HP Way” espoused by founders Bill Hewlett and Dave Packard. According to Hewlett, “What we consider the HP Way doesn’t just happen from the top; it’s built into the organization. I tell HP people, ‘You’re really the propagators of the HP Way. You’re where it resides.’” (link)

Personally, I think Bill Hewlett and Dave Packard would throw a fit if they were alive and knew the company they founded was building hardware with expiration dates:

Until his death in 1996, Packard was a fearsome paragon of corporate integrity. He was famous for flying to distant branches to make a show of firing managers who skirted ethical lines. Neither man would hesitate to kill a business if it wasn’t hitting its profits goals. The result: HP grew nearly 20% a year for 50 years without a loss. (link)

The HP story tells a bold tale. It’s the quintessential Silicon Valley success story that started in a garage almost 70 years ago. Now where are they? The last few years include a very public, and very ugly, ousting of their CEO, board members investigated for leaking information to the press, and illegal spying on said board members by ex-board chairman Patricia Dunn to find the leak. (This quote from Patricia Dunn tells me everything I need to know about her: “If I knew then what I know now, I would have done things very differently.” However, she said, “I do not accept personal responsibility for what happened.”)

Sticking to Your Values

Many of HP’s current issues stem from a betrayal of the bold ideas of its founders. There seems to be two main frames of mind about corporate values. One, a company may espouse certain values, but its actions don’t support its words. Two, a company places high priority on its values, becoming as well-known for its stance as its services or products. HP is hardly the only company that faces these choices.

Google has backed itself into a corner with the motto of “don’t be evil.” Everything they do is compared to this motto, and critics often accuse it of failing to measure up. Flickr’s latest kerfluffle over censorship is yet another example of a company failing to meet expectations. At some point, every organization must choose which path to follow: ignore your values or become identified by your values.

HP faces a tough, competitive market. And in the short term, perhaps this strategy of creating product with expiration dates will generate a profit. But what are they losing in the long term? Any recommendation I make for HP printers will include the sales associate’s warning. For me, the HP story is tainted. To remove that taint my printer will need to work without problems and last more than two years. HP’s current story feels particularly disappointing because its founders and early successes were so amazing. Dave Packard comments on the relationship between making money and a company’s existence seem particularly striking given the recent events:

Why are we here? I think many people assume, wrongly, that a company exists solely to make money. Money is an important part of a company’s existence, if the company is any good. But a result is not a cause. We have to go deeper and find the real reason for our being. (link)

During a congressional hearing into HP’s investigation of board leaks, current HP CEO and President Mark Hurd said, “If Bill Hewlett and Dave Packard were alive today, they’d be appalled. They’d be embarrassed.”(link) I agree. My only question is, how many other people at HP feel the same way, and are they doing anything about it? Maybe I’ll find out the next time I buy a new printer.



Can You Afford Your Credit Cards?

How many credit cards do you own? I have four and don’t carry a balance. Credit card companies hate me. I’m a deadbeat—that’s their definition not mine. My favorite excuse for turning down helpful sales associates with their “save 10% when you sign up today?” “Sorry, I’m out of card slots.”

The average American has eight with a total debt of $7,500. These “revolvers” are favorites of credit card companies. So much so that:

People…who carry balances from month to month and pay finance charges regularly, feel they should be the favored customers of the credit card business, which is now the most lucrative segment of banking. They make up the profitable majority of the 144 million Americans who have general-purpose credit cards. To a degree, they subsidize the 40 percent of credit card customers who pay in full each month without incurring any fees or charges. (link)

In 1958, the Bank of America introduced the first general purpose credit card. Prior to that, consumers had access to the Diners’ Club Card. Credit cards can actually be traced back to Europe in the 1890s. (link) Today, we’ve reached a point where card use, even of debit cards, has started to replace the concept of paying with cash. You’ve probably seen the ad below. It’s for Visa debit cards, but it’s so powerful when you consider the message it promotes:

Cash Headed for Extinction?

These companies are advancing the bold idea that cash is no longer necessary—keep all your transactions digital. What happens when you give a faceless entity that much control over your finances? What are the benefits? The drawbacks? I use credit cards out of convenience. When they stop being convenient, or require a significantly higher trade off, I’ll stop using them. That may not be too far in the future:

Invoking clauses tucked into the fine print of their contract agreements, lenders are doubling or tripling interest rates with little warning or explanation. This year, credit card companies are changing the terms of their accounts at a historically high rate…[and in] eight years, the major card companies have increased the fee charged to cardholders for being even an hour late with a payment to $39, from $10 or less. (link)

An Evolving Industry

I was somewhat surprised to learn that serious thought was given to outlawing credit cards given their current pervasiveness. (link) Industry expert Andrew S. Kahr is responsible for many of the innovations that brought credit card companies back from the edge of failure during the 80′s and 90′s and strengthened their hold on the economy.

Before many others in the industry, Kahr discovered that it was possible to analyze vast troves of consumer financial data and reliably predict which customers were least likely to pay off their credit card balances each month. “It didn’t require a lot of investigation to see that the people who paid in full every month were not profitable,” Mr. Kahr said…Mr. Kahr and his colleagues mined the data in relentless pursuit of the most lucrative “revolvers”—consumers who routinely carried high balances, but were unlikely to default. “I don’t believe in customer irrationality,” Mr. Kahr said. “I don’t find psychographics useful. I follow financial behavior.” (link)

Mr. Kahr’s ideas also included lowering the minimum payment percentage from 5% to 2%, a move allowing companies to double the credit limit.

This increased revenue in two ways. First, since it would take longer to pay off balances, each dollar of principal would generate more interest income. Second, the principal itself would be increased because cardholders would be able to take on more debt while maintaining the same monthly payments. (link)

Life’s Service Agreement

Few things in life match the terms associated with credit cards. I think that’s why so many people end up in debt and barely making their minimum payment. What can we compare it to? How many things in life allow you to “buy now” and “pay later?” Do many jobs give you a paycheck 25-28 days before you actually do the work?

The bold idea of credit cards may be reaching a tipping point. Only so many people are in a position to make even minimum payments on a card. Credit card companies are thick on college campuses, creating a generation of credit card debtors who have yet to hold a “real” job. So what happens when credit cards reach a saturation point? What happens when everyone’s wallet runs out of card slots? Is there room for another bold idea that changes the industry, that changes how we manage our money, that actually makes sense for consumers?


View Britt Raybould's profile on LinkedIn



June 2007
« May   Jul »


Get every new post delivered to your Inbox.