Opinion

Felix Salmon

Gawker’s rebound

Felix Salmon
Jun 13, 2011 15:47 UTC

It’s been more than six months since sales chief Chris Batty left Gawker Media as Nick Denton decided he was going to tear up the old way of doing thing and try something new. Since then, Denton has relaunched his sites to general dismay, and entered into a bet with Rex Sorgatz, which he will lose if Gawker Media fails to generate 510 million pageviews in September. My take, at the time, was noncommittal but ultimately on Denton’s side; since then, I became more bearish, and then more bullish again. Now I think that Rex ought to be very worried:

traffic.tiff

This is a chart of Gawker Media’s rolling monthly pageviews, and it shows a spectacular jump of well over 100 million impressions since the lows in March. Gawker Media’s traffic is now higher than at any point except the iPhone 4 coup; it will almost certainly start hitting new all-time highs very soon. It’s thisclose to reaching that goal already, in the US.

Altogether, an impressive recovery from a very difficult transition — more impressive, I think, than most observers dreamed possible. As I said in February, it’s always dangerous to bet against Denton.

Financially, Denton claims that the past six months — which, remember, have seen Gawker Media without a permanent sales chief — have been extremely successful, with ad sales up 35% over the same period last year. And maybe as a result of these strong sales and impressive traffic gains, Denton has managed to lure Andrew Gorenstein from Condé Nast to replace Batty.

Denton’s still tweaking the redesign, too: he says that “the next iteration of the design should cement the recovery.” Certainly the old-fashioned blog view format is looking pretty good these days, although it remains to be seen how much of it Denton will borrow for the main website.

It’s even conceivable that Gawker Media might overtake HuffPo at some point, depending on the degree to which AOL decides to train its traffic firehose on its flagship content site. Quantcast puts HuffPo’s global pageviews at 531 million a month, just about 10% ahead of Gawker Media; they’re certainly not growing as fast and in fact have declined noticeably over the past month: they were up at 589 million at the end of May. (Incidentally, Denton’s not the only person hiring from Condé: Arianna can do the same.)

So color me bullish on Gawker Media for the time being: something has clearly clicked and is going right. Anecdotally, I’ve recently found myself visiting Gawker much more than a year or even six months ago; I no longer think that they’re giving up on the joyfully literate. Denton, it seems, might just have done it again.

COMMENT

You are right to be bullish but their traffic is spiking in the same way that Business Insider’s is: a remarkable amount of crap.

Sometimes you’ll get fooled by a placeholder page. You click on a headline from Gawker and instead of being brought to the article, you’ll be brought to a paragraph with an abstract of the article and a link to the full article on lifehacker.

And most of those are just news summaries almost devoid of personality, at least compared to what you’ve come to expect from the Gawker brand.

So congrats, I suppose: Nick Denton has managed to turn a distinct property into a content farm.

Posted by gwaiters | Report as abusive

How much for lifetime health insurance?

Felix Salmon
Jun 13, 2011 14:20 UTC

Caroline Graham’s interview with Bill Gates has lots of interesting nuggets, but this bit in particular, about the amount of money his children will inherit, got me thinking:

He won’t specify what they will get, but the reports that they’ll receive ‘only’ $10 million each can’t be far off, because he concedes, ‘It will be a minuscule portion of my wealth. It will mean they have to find their own way.

‘They will be given an unbelievable education and that will all be paid for. And certainly anything related to health issues we will take care of. But in terms of their income, they will have to pick a job they like and go to work. They are normal kids now. They do chores, they get pocket money.’

He is determined that his family life should be as unaffected as possible by his fortune.

It probably goes without saying that if you want your family to be unaffected by your fortune, you probably shouldn’t bring up your family in a $100 million house and invite your friend Bono to stay the night when he’s playing a local gig. And that if you have $10 million in the bank as you’re just entering the workforce, your investment income is almost certainly going to vastly exceed anything you can earn from picking up a job and going to work. So if Gates wants to force his children to “find their own way,” he’ll either have to give them much less than $10 million, or else encrust that money with so many restrictions on how it can be spent that the absolute amount doesn’t really matter anyway.

Still, the bit which stuck with me was where Gates said that “anything related to health issues we will take care of.” I have no idea where to even begin answering this question — so maybe one of my readers can help. Here goes:

How much would it cost for Bill Gates to buy a lifetime’s worth of gold-plated health insurance for one of his daughters, covering any conceivable medical expense, in full, not only for her life but also for any future spouse and all future children she may have? Assume this is a single-premium deal, where he simply writes a check today and his daughter and her hypothetical future family are covered for the rest of their lives.

While there’s a certain amount of moral hazard here — his daughter could turn out to be some kind of sanatorium addict — let’s assume for the sake of argument that the kid is perfectly healthy and well-adjusted today. If you were a big health insurer, how much would you need to charge before taking on that kind of liability?

It seems to me that this is a product which would be of interest not only to Bill Gates but also to many other high net worth individuals looking to ensure that their kids are medically looked after for as long as they live. Is the problem that it would be too expensive for even a billionaire to buy? Or is it just that no insurance company would ever dare write it?

COMMENT

Good question. A single premium health insurance policy for, say a child who turns 21. The real reason for such a policy would be to protect the fortune the child inherited. There is no need for low co-pay cover, so all that is required is catastrophic health care with a high annual deductible, say $50,000 minimum. It could be more.

We could probably price an annual catastrophic health policy today (it’s not my field) and consider the single premium policy to be little more than an annuity to make the premium payments. It’s not quite that simple since inflation, life expectancy and other factors that come into play over the expected life span need to also be factored in.

It’s a nifty idea but the market is probably not of sufficient size to be attractive to any insurer and the upfront premium is so large, given today’s interest rates, that financially savvy buyers would just as soon bear the risk themselves.

Posted by OregonJon | Report as abusive

Counterparties

Felix Salmon
Jun 13, 2011 06:32 UTC

Willem Buiter weighs in on the ECB Target2 debate, contra Martin Wolf — Citi

NY AG Schneiderman targets Bank of America in a new probe — HuffPo

The Economy and D.C.: Republicans’ Tax-cutting Fantasia — NYT

1Gbps fiber for $70—in America — Ars Technica

Bitcoin digital currency market has its first bank run — Daily Tech

The Onion scooped the Washington Post by one day — Onion, WaPo

3-Way Street: bikes, pedestrians, cars, taxis, trucks, all behaving very badly at 28th & Park — Vimeo

Will Self questions the rituals of our digital life — Tumblr

Clinton says she’s not pursuing World Bank job — Reuters

Richard Dreyfuss reads the iTunes EULA — CNet

Man finds $17,000 in cash on sidewalk, gives it back — Reuters

Cop pulls over a female cyclist for wearing a skirt while biking — Streetsblog

NYP reckons that Weiner can’t afford to quit his job ‘cos his wife only makes $154k — NYP

Werner Herzog has recorded an audio version of Go The F**k To Sleep especially for this NYPL event — NYPL

COMMENT

Felix, I highly recommend Michael Lind’s annihilating 1700-word takedown of Niall Ferguson:

http://www.salon.com/news/politics/war_r oom/2011/05/24/lind_niall_fergsuon

Posted by dedalus | Report as abusive

Why Fischer’s IMF candidacy is a non-starter

Felix Salmon
Jun 13, 2011 06:11 UTC

Stan Fischer’s quixotic decision to throw his hat into the ring as a candidate for managing director of the IMF has been lauded by Mohamed El-Erian, who reckons that “he would likely prevail in an open, transparent and merit-based selection process.” Insofar as this is true, it’s a bit depressing.

I’m no great partisan for Christine Lagarde, whose main qualification for the job is that she’s French. But she’s smart, she’s tough, she’s an able politician — as the latest endorsements of her candidacy attest — and she has the ear of the European heads of state who are going to be forced to make some very tough decisions during her inevitable tenure at the Fund.

The job of IMF managing director is a particularly tough one. Everybody else at the Fund can kid themselves that they’re working for the managing director — the boss. But the managing director himself works for a fractious and highly opinionated board of directors which can be counted on to micromanage and second-guess every important decision. As such, the main skill needed in a managing director is to be able to manage those delicate relationships with great finesse, while at the same time projecting enough power and authority that any interference is kept to a minimum in the first place. It also helps to be respected by key heads of state, who ultimately direct the board.

This is where Fischer’s interview with the WSJ is revealing, and not in a particularly flattering way. Remember, here, that Fischer was number two at the IMF during the Asian financial crisis:

“There are serious economic issues” that need to be addressed, Mr. Fischer said, and IMF staffers often offer conflicting advice. “Without having that [economic] training, it’s very hard to know who’s right and who’s wrong,” he said…

Since the global financial crisis of 2008, the IMF has eased up on some of the requirements it once imposed on countries that accept emergency loans. Mr. Fischer said he approved of those changes and had tried to do something similar when he was at the IMF a decade ago but couldn’t win sufficient support from the IMF’s board.

This is the view of someone who sees the biggest issues facing the IMF managing director to be technocratic, rather than political. I have no doubt that Fischer is better at adjudicating economic questions than Lagarde — this is the man, remember, who co-authored a hugely respected economics textbook (now in its 11th edition) with none other than Rudi Dornbusch. But Fischer by his own admission is bad at winning support from the board. Either that, or in fact he was perfectly happy with the IMF’s economic orthodoxies in 1998-9. Which is quite likely, given that he quite literally wrote the book when it comes to economic orthodoxy. I remember those days reasonably well, and I certainly didn’t get any impression from Fischer at the time that he had any issues at all with the policies he was espousing.

One other thing is worth remembering about Fischer’s role as first deputy managing director: the job is always held by an American, and he got the job by dint of his US citizenship. It’s therefore a little rich for him to turn around and start complaining that he’s up against the very same set of conventions which allowed him that job in the first place.

It’s also worth remembering, while we’re on the subject of failed economic orthodoxies of the recent past, that Fischer spent three years, from 2002 to 2005, at Citigroup, working very closely with Bob Rubin. Indeed, he’s the only person I can think of who actually formally reported to Rubin, whose reputation has been comprehensively demolished by the financial crisis. As the co-author of an incredibly lucrative economics textbook, Fischer didn’t need the money; it’s fair to say that he saw no particular problem with taking the contacts he built up over a long public-sector career and turning them into profits for Citi shareholders, just so long as he got paid millions of dollars for doing so.

My feeling about Fischer is that he would be a managing director not dissimilar to the French technocrats who ran the shop during the 80s and 90s, Jacques de Larosière and Michel Camdessus. He’s not an agent of change; he’s a throwback to the past. And although he claims to be “full of vigor” at the age of 67, he’s probably a one-term MD at best, in an institution which has had altogether too much turnover in that role since Camdessus stepped down in 2000.

Of course it is high time that a non-European became managing director of the IMF. But Fischer is not the kind of break with tradition that the Fund needs — by non-European nobody means American, and Fischer would have a very hard time trying to present himself as an African, even if he was born in what is now Zambia.

So when Lagarde inevitably gets the job, let’s not shed too many tears that Fischer didn’t get it instead. In some kind of technocratic utopia, he’d be perfect. But in the messy real world, with his age and his US citizenship and his Citigroup years and his actions during the Asian financial crisis all counting against him, his candidacy is a non-starter. I’d be surprised if anyone at all, bar Israel, ended up voting for him.

COMMENT

Foppe, you probably don’t care because like your post on GS you are too stupid to understand what you are talking about and presumably are cutting and pasting from some other idiot.

Taiwan did not go to the IMF and was barely affected by the asian crisis. Maybe you are confusing them with Thailand? Both begin with T right? Singapore also did not need to go to the IMF because both these countries unlike Korea and Thailand and Indonesia were not doing a carry trade. Dumbass.

hariknaidu, I assume you’d prefer someone from Syria or Libya? Would be a nice follow-on compliment after their presidency of the UN Human Rights Council

Posted by Danny_Black | Report as abusive

The big Groupon question

Felix Salmon
Jun 11, 2011 03:59 UTC

Mark and Joseph over at Observational Epidemiology have come to the end (I think) of a fantastic series of posts about Groupon which get to the heart of the question I was trying to ask here: does Groupon actually work, in practice, in the way it’s meant to work, in theory?

A lot of the recent analysis of Groupon has concentrated on the financials, which have a habit of proving whatever you want them to prove. Yes, Groupon is losing ever-increasing amounts of money — but it’s doing so because it can, and because it’s convinced that all the money it’s spending on customer acquisition today is going to be repaid in spades tomorrow. If Groupon stopped spending money today on customer acquisition and marketing, it would be extremely profitable already, at its present size. It just wants to get even bigger and more profitable still, as fast as possible: a perfectly respectable capitalist goal.

Which brings us to the question of whether size matters, when it comes to Groupon. Insofar as Groupon has a moat — something which protects it from competition — it’s scale. But is scale particularly useful for Groupon? Where are the economies, there?

The simple and obvious answer is that the more customers Groupon has, the better it can get at targeting deals. Groupon is all about local — but if you live in a big city, some restaurant over on the other side of town ain’t local. If, thanks to its scale, Groupon can show you places much closer to home, or otherwise targeted to what you’re interested in buying, it will have a huge advantage over most of its competitors.

And then there’s the “Group” part of “Groupon” — the social aspect of the site, with people turning deals into opportunities to get together with their friends in the real world. Again, as with any network, size is crucial.

Mark started off the thread by pushing back against my assertion — sourced to Groupon itself — that diners spending their Groupon at a restaurant averaged a check 80% greater than the face value of the Groupon. Looking at the offers in his area, he reckoned that diners both could and would spend almost exactly the amount of the Groupon.

Joseph then followed up with more anecdote, buttressed by provocative thinking:

A good mate who owns a restaurant and did one of these deals after said it was outright amazing – many people would come in and spend EXACTLY the amount of the coupon. They didn’t want to go 50c under and heaven forbid they went 50c over and have to pay more at full price

Even worse, you seem to have to more effects. One is a priming effect. New customers assume your $30 entree is worth $15. That is poison.

I’m generally unpersuaded by argument from anecdote, and I don’t think the priming effect is all that strong. But the post was a great one if only because it set off a whole stream of posts from Mark, starting with the smart thesis that people buying Groupon shares are basically buying a lottery ticket. It’s true that if Groupon cracks the targeting nut, then it will be worth many billions of dollars. But there’s no evidence that it knows how to do that, or that it has yet done so, or that it’s going to be able to do so in future.

While it’s true that almost all marketing is targeted to some extent and a few companies have been able to take that targeting to a relatively high level, identifying customers who have a high likelihood (rather than a slightly higher likelihood) of buying something remains an extraordinarily challenging business problem…

Groupon has to worry about non-responders (who are still associated with some costs), and about bargain hunters who use the offer then never come back (who cost Groupon’s partners a substantial amount), and about regulars who use an offer for a visit they would have made anyway (who represent a double loss).

Separating all this chaff from the customers you want would be daunting even with the best of data and you will not have good data. How do I know? Because I’ve been there. I’ve dealt with third party data and I’ve written the hundreds of lines of SAS code needed to produce clean, usable data-sets. And I was only dealing with data from four or five sources, not trying to tease out a badly defined target variable from data collected from thousands of merchants.  (remember, we’re trying to identify customers who made their first visit using a Groupon offer and have since returned on their own dime.)

In a follow-up post, Mark tried to work out how Groupon was targeting its offers, based on the offers he was receiving. Except it was pretty clear, from an offer he got for a 24-Karat-Gold Specialty Facial and Chocolate Foot Scrub (only $125!) that there was really no targeting going on at all. Which impression was buttressed by the fact that Groupon was advertising as “New” its attempts to get its readers to hand over basic information about themselves, such as their sex and zip code.

And Mark’s smart when it comes to noticing the strategy behind Groupon’s messaging, too: the company is signing up subscribers by promising to save them money, rather than help them discover new merchants. Maybe that’s the best way to get new subscribers in the door — but it does hint at a quantity-over-quality mindset which isn’t entirely alien to Groupon’s founders:

The people behind Groupon have proven extraordinarily adept at running up big numbers and generating hype, but they have shown remarkably little interest in setting up a sustainable, profitable company. Their targeting strategies would have been considered somewhat primitive a decade ago. Their attitude toward customer data is nonchalant. They’ve used a carpet bombing approach to advertising (including the inevitable Super Bowl ad) which generates large email lists but seldom produces high quality ones.

All of this makes me wonder if these people are more focused on the stock price in 2012 than in the solvency of the company in 2020.

If there’s a weakness here it’s that Mark is being way too scientific about the fuzzy art of marketing when it comes to small local merchants. Groupon can carve out an impressive business just by being better than a billboard, if enough merchants come back for more. And so far, Groupon’s merchants have shown themselves to be quite willing to be repeat customers. But will that last? I suspect Mark might be right about this:

Merchants keep coming to Groupon despite its mediocre list and the fat slice it takes out of every deal (from Wikipedia):

As of 2010, it is difficult for local merchants to get Groupon interested in agreeing to a particular deal. According to the Wall Street Journal, seven of every eight possible deals suggested by merchants were dismissed by Groupon.

Just to be clear, merchants spend time and effort putting together offers that will probably be rejected and, if they’re not, will probably bring in a lot of customers they don’t want. They do this because Groupon has successfully branded itself as the next big thing.

This is not something the company stumbled into. Groupon has aggressively pursued fast growth, generated ubiquitous buzz and has done its damnedest to portray itself as part of the social media movement. The ‘social’ aspect of Groupon’s business has always been trivial to the point of cosmetic but it plays a large, even dominant role in the public image of the company.

I do worry that Groupon is as famous for being valuable and fast-growing as it is for providing the first-ever scalable solution to the problem of how small local businesses can leverage the marketing power of the internet. It feels like a momentum play, in contrast to say Google, which is a stock I’d happily own on a multi-decade time horizon.

Mark concludes:

In one sense, Groupon’s strategy has worked very well. After all, the people who started the company will almost certainly walk away with a great deal of money. Eventually, though, the company will have to make the transition to former next big thing and since being the current next big thing is an essential part of the company’s model, that transition is not going to be pretty.

I can definitely see Groupon recapitulating the arc of AOL. It will build a solidly profitable core business, which will go into decline, and then will have to work out whether and how to pivot to something else.

At the same time, I can also see Groupon — and especially its nascent Groupon Now business, if it ever takes off — becoming part of life as it’s lived on a daily business, a bit like local cable TV. As Mark says, it’s a lottery ticket. And if you buy it on the first day of trading, after it’s already had its first-day pop, then you’d better be feeling lucky.

COMMENT

Excellent post and it looks informative. Thanks for your sharing.

http://www.cogzidel.com/groupon-clone

Posted by rajanrufus | Report as abusive

Real estate datapoint of the day, Bill Gross edition

Felix Salmon
Jun 10, 2011 16:35 UTC

How much would you pay for an empty lot in a highly desirable location? If you fancy moving to southern California, Pimco’s Bill Gross might have the perfect place for you: an 18,150-square-foot bayfront lot in Harbor Island which he’s selling for $26.5 million. According to Redfin, the buildable square footage on the site is 9,734, which puts the price at $2,722 per buildable square foot or $1,460 per raw square foot.

It’s instructive to compare, here, the most famous sale of an empty lot in Manhattan: the area bounded by Central Park West, Broadway, 61st Street, and 62nd Street. The lot eventually became 15 Central Park West, where the apartments ended up selling for a total of $2 billion.

The price on that lot was $401 million: a record $690 per buildable square foot, or roughly a quarter of what Gross is asking. On a raw-square-foot basis, a bit of fiddling with Google Maps and the Photoshop Measure tool puts the lot size at about 63,000 square feet, which means that the lot was sold for about $6,365 per raw square foot — and remember that 15 Central Park West has 201 units and rises as much as 35 stories.

The difference is partially a function of construction costs: 15 Central Park West cost a good $1 billion to build, while a California mansion can be put up for a small fraction of the value of the lot. But still, in the context of property values continuing to slump across the country, it’s striking that the top end of the market seems to be immune to such pressures. While everybody else is hurting, the plutocrats — whether in Manhattan or Newport Beach — just go on accumulating their millions, blithely unaffected by any downturn.

(Via Carney)

COMMENT

@ DanHess – buying a piece of vacant land from Bill Gross does not allow you to “hitch your wagon” to Bill Gross’s investment ability.

Posted by johnhhaskell | Report as abusive

Dimon or Geithner?

Felix Salmon
Jun 10, 2011 15:06 UTC

I’ve just noticed that Jamie Dimon’s little speech to Ben Bernanke last Tuesday recapitulated many of the points that Tim Geithner made in his own speech the previous day. Let’s play Dimon or Geithner:

  1. “We have a very complicated regulatory structure with multiple agencies, with closely related and sometimes overlapping missions and roles.”
  2. “It has been more than three years since the start of the financial crisis that led to those reforms.  And we are now in the midst of a fundamental reshaping of the financial system.”
  3. “Most of the bad actors are gone. They were thrifts, all the mortgage brokers, and some banks.”
  4. “The firms that took the most risk – no longer exist or have been significantly restructured.  That list includes Lehman Brothers, Bear Stearns, Merrill Lynch, Washington Mutual, Wachovia, GMAC, Countrywide, and AIG.”
  5. “We had a crisis, and it entailed need to do a lot of things to fix it and reduce risk.”
  6. “Higher capital and liquidity are already in the marketplace, we estimate more than double what it was before.”
  7. “19 firms have together increased common equity by more than $300 billion since 2008. The average level of common equity to risk weighted assets across these institutions is now 10 percent, much higher than before the crisis.”
  8. “Debt maturing in one year or less, as a share of total liabilities, has declined dramatically to roughly 40 percent of the pre-crisis level.”
  9. “Regulators are tougher in every way possible.”
  10. “It’s a good thing that there’s no more subprime.”
  11. “There’s far more transparent accounting.”
  12. “The US banking system today is less concentrated than that of any other major economy.”
  13. “Central banks and supervisors need a balance between setting capital requirements high enough to provide strong cushions against loss but not so high to drive the re-emergence of a risky shadow banking system.”
  14. “Capital requirements cannot bear the full burden of protecting the system against risk, and they should be considered in the context of the reinforcement provided by these other reforms.”
  15. “We need to improve the chances of promoting a uniform global approach that does not damage US firms.”

Simon Johnson has responded to these arguments with a post entitled “The Banking Emperor Has No Clothes”:

Big banks in almost all other major countries have run into serious trouble, including the UK and Switzerland – where policymakers are now open about the scope for further potential disaster…

Mr. Geithner’s thinking is completely flawed on bank size. The right lesson should be: big banks have gotten themselves into trouble almost everywhere; U.S. banks are very big; these banks have an incentive to become even bigger; one or more of these banks will reach the brink of failure soon.

But the fact is that Geithner won’t think that way, not least because of the fact that he arrived at Treasury from the New York Fed, an institution which is literally owned by the big banks such as JP Morgan.

Dimon will always push as hard as he can to have as little regulation as possible and to have no restraints at all on the size of his bank. That’s his job — you can’t really blame him for it. What’s more worrying is that Geithner seems to be very close to Dimon’s way of thinking.

(The answers, by the way: 1, 2, 4, 7, 8, 12, 13, 14, 15 are Geithner; 3, 5, 6, 9, 10, 11 are Dimon.)

COMMENT

I don’t believe banks are allowed to buy equities at all to meet their capital requirements, otherwise they would just be a hedge fund. They were buying these bonds because they were profitable for them – all part of their record profits and the record bonuses for the execs who signed off on buying the bonds. I think they would have bought the bonds regardless of the capital requirements, because they were too lazy to investigate what they were buying. With lower capital requirements, they would have bought other, lower rated, higher yielding bonds, which also suffered similar fates as the sub-prime securities.

I have a problem with placing blame on capital ratios when the real culprit is mislabeling of products. You are saying the demand for low risk products drove the creation of high risk bonds that were sold as low risk, and therefore we shouldn’t set capital ratios high – and that’s just another argument for not regulating banks at all, as low capital ratios offer no protection against gabling with assets. That is fine, as along as the FDIC doesn’t insure them, and the Federal Reserve doesn’t lend money to them every night, and other banks don’t lend to them if they are part of either system.

Capital ratios are a much better tool for managing growth than setting interest rates, which can be inflationary and often don’t yield the desired results (low interest rates don’t always create growth, as we are seeing now, and high interest rates will not always stop bubbles, for if the expected profits exceed the cost of capital, people will still borrow money, but the higher interest rates will drive up prices). They shouldn’t be discarded because they are undone by incompetence and malfeasance, that combination will always result in failure, regardless of your protections.

Posted by KenG_CA | Report as abusive

Counterparties

Felix Salmon
Jun 10, 2011 05:12 UTC

Fantastic post by Elie Mystal on living with bad credit — ATL

Anil Dash on why he favorites/likes so many things — Dashes

South Africa to Trevor Manuel to be head of the IMF — EM

The phone number: “a false technological prison built of nothing but laziness and hostility to consumers” — TIMN

Matthew Latkiewicz’s rather handy taxonomy of wine labels — NYM

Emerging vs developed equity volatility — Reuters

How capitalism makes health care worse and more expensive — Economist

New York media salary datapoint of the day — TBI

COMMENT

Please never use the word “fantastic” in the same sentence as “Elie Mystal” ever again. K, thanks.

Posted by BasilSeal | Report as abusive

Confessions of a Vertrue call-center operator

Felix Salmon
Jun 9, 2011 22:20 UTC

I had a fascinating conversation this afternoon with someone I’ll call Casey, who spent most of the past two years working for Adaptive Marketing, a/k/a Vertrue, a/k/a Ben Stein’s sleazy paymasters, as a Customer Care Assistant. Casey’s job was, essentially, to spend 40 hours a week, at $9 an hour, being abused by people who found out that they were being charged $29.95 a month on their credit card for a service they’d never heard of and had no idea they’d ever signed up for.

Needless to say, this is not a great job. But Adaptive Marketing didn’t make it any better: they ran the call center in a highly authoritarian and draconian fashion, monitoring every call and disciplining anybody who cancelled a contract without the requisite authority to do so. “It’s a fearful and autocratic environment,” said Casey. “Every day I would go to work thinking it would be my last day.”

Casey did reveal to me the magic words you need to say to a call center operator if you want a refund of the charges made to your credit card. Once you’re through to a call-center operator, canceling your account is easy — they’ll do that no questions asked, and won’t even try to keep or upsell you. But getting a refund is harder.

Here’s how it works: if you see a charge on your credit card and you want your money back, the trick is to threaten legal action. If you say that you’re going to sue, or that you’re going to your local attorney general, or anything along those lines, then presto your refund is on its way. Look at the transcript of a typical conversation which took place between Delci Lev and a call center supervisor named Teresa:

Supervisor: Your account is cancelled and you will no longer be charged.

Ms Lev: And credited.

Supervisor: The terms and conditions to which you agreed stated that you are not entitled to receive…

Ms Lev: No I didn’t sign anything…

Supervisor: …any refunds at the point of cancellation.

Ms Lev: Okay. Here we go, Attorney General, Department of Consumer Affairs. You got it Teresa. What’s your number?

Supervisor: As a confirmation of this call?

Ms Lev: No what is your…

Supervisor: My name is Teresa. My ID number is 153051. You will receive your two credits within two business days and you will no longer be charged.

Teresa steadfastly refused to budge on the refund (this passage comes on page three of the transcript) until the magic words were uttered — “Attorney General”. The minute that happened, bingo, “You will receive your two credits within two business days.” (Incidentally, Teresa subsequently quit the company, fed up with how horrible her job was.)

Threatening legal escalation isn’t the only way to get a refund — you can also say that you’re bankrupt, in other dire financial straits, or that there’s been a death in the family. But it’s the easiest.

The problems arise when you want a refund of more than six months’ worth of charges — at that point you’re likely to be told that you need to write a letter to Adaptive Marketing’s administrative offices in Omaha. And those calls come in quite frequently: Casey told me that Vertrue made a point of targeting elderly people in general, and seniors in assisted-living facilities in particular, because they tend to get confused or forget what they’ve signed up for. Often the calls would come in only after they died, from people going through their accounts, discovering thousands of dollars in monthly charges going back five years or longer.

In any event, there’s always two hurdles to clear: you need to threaten legal action and you need to ask for a refund. One or the other, on its own, will never suffice. And if you want a refund for multiple months, you need to ask for that, too: give Vertrue half a chance, and they’ll refund only the most recent charge. Casey was frank: “Most people we got were very dumb.” Vertrue makes money by ripping off people who aren’t particularly smart, and don’t have the imagination to ask for multiple refunds rather than one. And Casey’s job was to get them off the line before they realized that they were still out hundreds of dollars, even after one month’s refund — or no refund at all, just a cancellation.

Meanwhile, Vertrue’s freescore.com site — the one shilled by Ben Stein — is still up and running and still breaking the law, a full year after the law went into effect. Why it isn’t being prosecuted for this I have no idea. But Vertrue’s business is clearly on the decline, as it gets attacked by class-action suits and state attorneys general from around the country. When Casey joined there were 150 people in the call center; today, that’s down to about a dozen, and employees are being sent home for lack of anything to do. Those half-hour wait times, it seems, are a thing of the past — as is Vertrue’s business model.

Vertrue is owned by a group of private equity investors led by One Equity Partners, the private equity arm of JP Morgan. I hope they managed to dividend out of it much less money than the $800 million they bought it for. Because at this point it’s undoubtedly worth only a tiny fraction of that sum — if it’s worth anything at all. They don’t even have Ben Stein on the freescore.com homepage any more.

COMMENT

My wife recently discovered that she was a victim of Vertrue’s scams. Over several years they were deducting between $18- $35 each month, amounts and names changing on credit card statements, one such was MVQ Shopessentials. After reaching their call center in Neb. they agreed to refund a minute fraction of the total amount stollen of $1360.
I continued to pursuit and seeing that I was getting nowhere with Vertrue Inc. and realizing they were under law suit by AG’s of numerous states, BBB rating of “F” and virtually an $800 million company of sewer rats, I decided to give up! NO not really. I then approached Barclays Bank (issuer of the credit card) and after many letters and phone calls and emails, they reimbursed us half the stollen amount. But I was not going to be happy with just half that was stollen.
So more calls to Barclay’s Security Dept., letters to their CEO, agreement to meat with NBC News regarding the situation, Barclays then refunded the full $1360 that Vertrue stole from my wife.

I am absolutely amazed that this company (with several subsidiaries, apparently just as fraudulent) with all its lawsuits and bankrupts, it is still able to steal from unsuspecting consumers. Wow what a country. If you can steal enough to hire enough lawyers, you can go on for years and years. Company started in the 80′s by Gary A. Johnson founder and CEO. Harvard MBA. Evidently he skipped the classes on business ethics.

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