Opinion

Felix Salmon

Chart of the day, free checking edition

Felix Salmon
Aug 30, 2011 13:30 UTC

AB083011CHECKING2.jpg

American Banker runs this eye-opening chart today, showing what’s happened to the availability of free checking over the past couple of years. In a nutshell, at small and medium-sized banks, and at credit unions, things are little changed. It’s down a bit; it’s not down a lot. But America’s biggest banks, behaving in a pretty cartel-like manner, have nearly all abolished it in unison. Two years ago, 96% of them had free checking; now, only 35% do.

“Free checking”, of course, has always been a bit of a misnomer; as I wrote last year, checking is never free. It’s just that in recent years banks have been able to conjure the illusion of free through a system of regressive cross-subsidies, where the poor pay massive overdraft fees and thereby allow the rich to pay nothing.

Still, for the time being, credit unions and smaller banks seem to be able to retain their free-checking services even as the big banks have abolished theirs. Some of this can be seen as a simple marketing expense:

Some community bankers see free checking as their latest opportunity to set themselves apart from the purportedly “Too Big to Fail” banks that have become lightning rods for public criticism since the financial crisis. The ultimate goal, of course, is to poach those big banks’ customers…

Marcus Schaefer, CEO of Truliant Federal Credit Union in Winston-Salem, N.C., calls free checking “an opportunity for us to have another way of differentiating ourselves from large financial institutions.” … he says the policy would change only as a last resort.

At heart, though, what we’re seeing here is the simple fact that there are no economies of scale in retail banking, once you get past a deposit base of a couple of billion dollars or so.

Big banks actually spend more on average to operate each deposit account than small banks, and they have long relied on overdraft fee income to help subsidize free checking. But a 2009 regulation restricted banks’ abilities to charge overdraft fees, which prompted the first wave of cutbacks in free checking.

Conversely, it costs less on average for smaller banks to operate checking accounts and they historically relied less on overdraft fee income, according to Moebs.

“Those that are in this huge bank group, they are truly beyond their economies of scale, and their expenses are usually high in processing areas,” he says.

In any case, I realize it’s now time for me to revisit the wager I offered Patrick Adams, the CEO of St Louis Community Credit Union, last year. Here’s what he wrote, about the Durbin Amendment:

Here’s another surefire lock of a bet. You will be more frustrated than ever. Your costs at the bank will be up. Your costs at the retailer will be up. You will be confused as to which retailers accept your debit card and which ones don’t. You will have no clue what the minimums and maximums of your debit card activity will be because there will be no consistency among retailers.

As a result, you will carry more cash and more checks… And, what about this double-dip possibility? You’ll use more checks at the check-out counter and the retailer will charge you a processing fee for doing it. (See, their handling of checks and cash are more expensive than debit cards.) You’ll pay for that, as well.

If this legislation is passed, I will mark my calendar to re-visit this issue a year after enactment. If I am wrong, I will eat the biggest piece of humble pie ever, including a public apology to everyone – starting with Senator Durbin. I must tell you that I’m extremely confident that an apology won’t be forthcoming.

It’s been over a year now since the Durbin Amendment was signed into law, and it’s time for Adams to re-visit this issue. Are his customers more frustrated than ever? Are their costs at the bank up? Are their costs at the retailer up? Are they confused as to which retailers accept their debit card and which ones don’t? Are they carrying more cash and more checks?

I offered Adams a specific wager — if he’s processing more checks per checking account today than he was at the time the legislation was passed, I said I’d donate $100 to his credit union. And I’ll honor my side of the bet, even though he didn’t formally agree to his side, and so I won’t expect a $100 check to come to Lower East Side People’s if he isn’t. So, Patrick, there’s a $100 bill lying on the table. Are you able to pick it up?

Update: Adams has replied, and we’ve agreed to push the bet back to July 2012, the one-year anniversary of when the Durbin rule was enacted, rather than just signed into law. The bet is on!

COMMENT

While you’re on the topic of subsidies why don’t you tackle the fact that federal credit unions pay zero income taxes while banks do. Think that might result in a little extra cushion to give services away? Think taxing credit unions might pay for a few more services for the truly deprived? Especially since most now have as thier only membership criteria that you live in a particular area? I don’t like NSF fees either and I think they have been abused. However, they hit rich and poor alike. Plenty of poor people don’t overdraw thier accounts, plenty of rich people do. NSF fees target the careless, regardless of economic class. My grandmother has never had an NSF fee in her life. I’ve had plenty. And I’m a lot “richer” than her. And an awful lot of overdrawn accounts are charged off by banks. Isn’t it shocking that people who overdraw thier accounts walk away rather than pay for spending the money they didn’t have? Even if you take away the fees? Who would have thought it? Like I said NSF fees have been abused by the banks but let’s not overdo the poor poor people vs bad rich people talk.

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Counterparties

Nick Rizzo
Aug 30, 2011 05:13 UTC

Steve Jobs is a believer in the liberal arts. He’s also the biological son of an eighty-year-old workaholic vice president of a casino in Reno.

The CEO of Sino-Forest has resigned, presumably because his company is a fraud. Vindication for Muddy Waters, which always sounded like an old-time Bluesman to me. One such Bluesman, David Honeyboy Waters, has just died at 96. Don’t feel bad about all people, though: here’s a scientist who gave back $240,000 in stock, presumably out of a feeling of moral responsibility.

Peter Kaplan, inspirer of three imitation Twitter accounts, is out of the gate with the first of what is sure to be too many meditations on the tenth anniversary of 9/11. It very well could be the best-written one we’re going to read. At the other end of our decade of disasters, Nate Silver argues that Hurricane Irene was not over-hyped.

Cheney biographer Bart Gellman has discovered an untruth in Dick Cheney’s upcoming biography. Meanwhile, Glenn Hurowitz argues that drilling in Canada’s tar sands is bad for American national security, a belief probably not shared by our former Veep.

The two most popular free e-books are the Kama Sutra and The Adventures of Sherlock Holmes. Somehow that makes perfect sense.

And here’s a map of the price of marijuana across the country. I am completely baffled by what’s going on in the Colorado/Kansas/Nebraska borderlands.

COMMENT

I highly doubt eastern CO and western KS are similar to Humboldt-like weather. I would assume the growing areas in CO are far from the barren border region. And the product would be destined for Boulder, Lawrence, etc. not Garden City.

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Lagarde leads from the front on Europe

Felix Salmon
Aug 30, 2011 01:21 UTC

Going into the Jackson Hole conference, everybody was breathlessly awaiting Friday’s speech from Ben Bernanke, which turned out to be incredibly boring. The most important speech of the meeting, by far, came on Saturday, and came from the new head of the IMF, Christine Lagarde. In decidedly undiplomatic prose she came right out and said what needed to be done:

Two years ago, it became clear that resolving the crisis would require two key rebalancing acts—a domestic demand switch from the public to the private sector, and a global demand switch from external deficit to external surplus counties… the actual progress on rebalancing has been timid at best, while the downside risks to the global economy are increasing…

I would like to delve deeper into the different problems of Europe and the United States.

I’ll start with Europe…

Banks need urgent recapitalization. They must be strong enough to withstand the risks of sovereigns and weak growth. This is key to cutting the chains of contagion. If it is not addressed, we could easily see the further spread of economic weakness to core countries, or even a debilitating liquidity crisis. The most efficient solution would be mandatory substantial recapitalization—seeking private resources first, but using public funds if necessary. One option would be to mobilize EFSF or other European-wide funding to recapitalize banks directly, which would avoid placing even greater burdens on vulnerable sovereigns…

The United States needs to move on two specific fronts.

First—the nexus of fiscal consolidation and growth. At first blush, these challenges seem contradictory. But they are actually mutually reinforcing. Credible decisions on future consolidation—involving both revenue and expenditure—create space for policies that support growth and jobs today. At the same time, growth is necessary for fiscal credibility—after all, who will believe that commitments to cut spending can survive a lengthy stagnation with prolonged high unemployment and social dissatisfaction?

Second—halting the downward spiral of foreclosures, falling house prices and deteriorating household spending. This could involve more aggressive principal reduction programs for homeowners, stronger intervention by the government housing finance agencies, or steps to help homeowners take advantage of the low interest rate environment.

The diagnosis of what needs to be done in the U.S. is spot-on. Revenues have to be raised — in the future, not yet. Mortgage principal needs to be reduced. And the government needs to help the private sector translate low interest rates into growth, because right now it’s looking like a deer in the headlights and refusing to take advantage of them.

But it’s Lagarde’s diagnosis of her native Europe which is proving highly controversial. Anonymous “officials”, quoted in the FT, rapidly said that she had it all wrong:

Officials said Ms Lagarde’s comments missed the point of banks’ current difficulties. “The key issue is funding,” said one experienced central banker. “Banks in some countries have had trouble securing liquidity in recent weeks and that pressure is going to mount. To talk about capital is a confused message.

This is simply delusional: anybody who knows anything about banking knows that the distinction between a liquidity problem and a solvency problem is not nearly as clear-cut as this makes out. Indeed, if there weren’t any worries about European banks’ solvency, then they wouldn’t have any kind of liquidity problems. If a bank has “trouble securing liquidity,” any responsible regulator must take that as a message that the markets are worried about that bank’s solvency — especially if the problems are happening, as these ones are, in a broader global context where liquidity remains abundant.

And if the markets are worried about a bank’s solvency, then that bank’s solvency is what must be addressed — perception is reality in such matters.

Elsewhere in the FT, other anonymous officials said that the European stress tests were already doing what Lagarde was calling for. This despite the fact that only nine European banks failed those stress tests. Where Lagarde sees a huge systemic problem, European officials, it seems, still thinks it can patch things up by triaging the worst banks and applying band-aids.

All of which, in and of itself, makes Lagarde’s concluding words ring rather hollow:

We have reached a point where actions by all countries, doing what they can, will add up to much more than actions by a few.

There is a clear implication: we must act now, act boldly, and act together.

Obviously, that’s not going to happen. It’s not going to happen in Europe, where officials immediately rejected her proposals. And it’s certainly not going to happen in the US, where she’s significantly to the left of the Obama administration and where her policies could never, ever pass either the House or the Senate.

This is depressing — but the FT does manage to find a sliver of a silver lining: Lagarde, they write, “has said publicly what most policymakers have avoided addressing since the crisis began”. Maybe she’s just leading from the front, here: even if policymakers don’t embrace her position immediately, they might come round to her way of thinking as the world’s developed economies continue to stagnate and financial markets continue to fret over a possible sovereign crisis. If such a crisis starts looking imminent, then at least Lagarde has already laid out a plan for how the banks — a crucial vector of contagion — might be turned instead into a kind of firebreak.

Certainly one can’t ever imagine Lagarde’s predecessor, Dominique Strauss-Kahn, giving a speech like this. He was the consummate behind-the-scenes diplomat; he wasn’t given to big set-piece public speeches. Lagarde, in that sense, is a breath of fresh air at the IMF, and quite un-French in how she’s operating. I do suspect, though, that it’s going to take little a while before Europe’s leaders to come around to her point of view.

COMMENT

She is approx 90% right, however, she must resort to a sledgehammer next time she addresses the ‘experts’ … hope is not a strategy amigo. Lets not morph the EU in to Japan 2.0

Posted by FunnyYuan | Report as abusive

How to hack voicemail

Felix Salmon
Aug 29, 2011 20:09 UTC

When the NYT killed off its famous 111-111-1111 caller ID, one stated reason was “an expected change to federal law that will require legitimate caller ID signatures”. And the video above explains why such a change to the law makes sense — caller ID spoofing, up until now, has been easy, legal, and a great way of getting access to other people’s voicemail accounts.

Kevin Mitnick, in the video, says that to protect yourself from this sort of thing, the best thing to do is force yourself to type in your passcode every time you access your voicemail, even if you’re accessing it from your own phone. This is a standard move in the escalating war between hackers and civilians — the civilians are asked to make their own lives more difficult just in order to make potential hackers’ lives more difficult. And in aggregate, the amount of aggravation spent setting up and typing in passwords on cellphones will surely exceed the amount of aggravation caused by hacked voicemails.

A better solution is to get off antiquated mobile-phone voicemail systems entirely. Most of them are designed to rack up airtime minutes, and even the iPhone’s revolutionary visual voicemail system lacks basic modern features like voice-to-text transcription — something which comes in extremely useful when the number calling you isn’t in your address book and you therefore have no idea who it is. My own iPhone voicemail has 37 messages I’ve never listened to, which I daresay is not uncommon.

I don’t think that journalists or anybody else is likely to get much juicy information by hacking into voicemails these days: people don’t leave juicy information in voicemails, just because they know there’s a good chance the voicemail will never actually be listened to. But if for some reason you still like or use voicemail, then I can recommend moving to Google Voice, which keeps all your voicemails in one place, sends you emails with sometimes-adequate transcriptions, and is pretty much impossible to hack unless the hacker has your email password. In which case you’ve got much bigger problems than a hacked voicemail account.

In praise of DealBook

Felix Salmon
Aug 29, 2011 17:24 UTC

Every so often, Andrew Ross Sorkin will ask me when I’m going to write something nice about him. It doesn’t happen very often, because I’m more likely to feel the need to disagree with someone on the internet than I am to feel the need to agree with them. It’s called Siwoti syndrome, and it’s endemic to the blogosphere.

And so it’s fitting that the impetus for me saying nice things about Sorkin’s baby, DealBook, is the ridiculous column from the NYT’s ombudsman public editor, Arthur Brisbane, this week. It begins thusly:

WILL readers of The New York Times in print get less because The Times must invest to compete for readers and advertisers in the digital medium?

The DealBook business news product may offer an early indication. DealBook, which was greatly expanded last fall, is a prominent presence on NYTimes.com, offering up-to-the-minute news and trivia about Wall Street deals, regulatory issues, venture capital and personalities. In print, meanwhile, it owns a half-page inside Business Day four days a week — a much lower profile than online.

This is utterly bizarre. DealBook, one of the highest-profile expansions of the NYT in recent years, is indeed a digitally-native project. It would be pretty idiotic if most of the NYT’s new sections weren’t digitally native. But as Brisbane notes, DealBook exists in print as well, taking up two full pages per week. Therefore, thanks to DealBook, readers of the NYT in print are getting more than they were before — not less.

Much more importantly, DealBook content isn’t confined to the half-page DealBook ghetto; many of DealBook’s best stories have appeared on the front page of the newspaper. When you hire reporters like Sue Craig, you run her stories big — and that’s exactly what the NYT is doing.

Different types of news work best in different formats. The Sunday magazine is better in print than it is online; DealBook is better online than it is in print. This is cause for celebration: the NYT is proving that it’s nimble enough to use whatever format works best for given content. It has dozens of blogs; I haven’t seen Brisbane complaining that they’re not available in print, or referring to their contents as “trivia.”

But Brisbane has his mind made up.

DealBook has a strangely precrash feel to it.

We can all remember what things were like before 2008: Wall Street was king, New York was the center of the financial universe, the titans of finance were gods. DealBook’s offerings remain closely aligned with that paradigm, even though the titans have lost their shine, markets have been shifting away from New York, and the postcrash world is determined far more than before by China and the broader global economy.

Despite this shift, DealBook’s reporting is about deals, hedge fund news and the doings of people on the Street.

It’s worth following Brisbane’s links, and not only because the first one goes to Reuters. His datapoints proving that Wall Street is irrelevant are (a) the fact that Lloyd Blankfein has hired a criminal defense lawyer; and (b) the megamerger between Deutsche Börse and the NYSE. Both stories, of course, have been extensively covered by DealBook; they’re right in its wheelhouse. And neither of them shows what Brisbane seems to think they show — that DealBook is an anachronistic throwback because Wall Street is less relevant than it used to be. Wall Street has always had lawyers and mergers; they’re what it’s built on.

Brisbane seems to think of Wall Street, and/or DealBook, as some kind of recondite island, insulated from bigger economic forces:

When the world economic system shuddered and stock markets dropped, I was left wondering whether The Times should have spent its money not on expanding DealBook but on enlarging its stable of journalists aimed at the wider subjects of international banks and sovereign debt.

This is just bizarre. For one thing, there’s no conceivable sense in which this is an either/or choice — Brisbane adduces no evidence whatsoever that absent extra DealBook reporters, the NYT could or would have hired more experts on the international-banks-and-sovereign-debt beat. And he ignores the screamingly obvious fact that DealBook’s new recruits know substantially more about international banks and sovereign debt than the overwhelming majority of existing NYT journalists, and therefore add to and improve the NYT’s coverage of such matters.

As Larry Ingrassia says, DealBook journalists have indeed been covering the big global and national issues in the world of finance.

Brisbane, by contrast, wants to see “in-depth investigating of a complex ecosystem” in Europe, and wants the NYT to help its readers “understand deep crises like European debt” by having journalists “step up and look at things systemically.” Brisbane reckons that DealBook is doing none of these things; that’s a matter of opinion. But he goes further than that: he says that the NYT’s investment in DealBook “meant forgoing an opportunity to strengthen reporting elsewhere.” And by “elsewhere”, Brisbane clearly means “elsewhere on the international-business-and-economics beat.”

Brisbane offers no evidence whatsoever that this might be the case. And common sense says that the opposite is true. If the NYT is pouring money into deep analysis of international finance, that’s surely an indication of resources going in the right direction, not the wrong direction. Meanwhile, if you want to point to wasted resources, DealBook stories on George Soros’s girlfriend pale in relation to the kind of things regularly called out by the @NYTOnIt Twitter stream. Is DealBook setting up email addresses dedicated to reporting the names of bodega cats? It is not. Is DealBook breathlessly reporting that Facebook makes it easy to wish your friends a happy birthday? It is not. Has DealBook uncovered the astonishing fact that women wear dresses in the summer? It hasn’t, sorry. But Brisbane points to none of these things as evidence of resources being wasted on frivolity rather than being put to good use in serious investigations of Europe’s financial woes.

More to the point, DealBook is being funded generously precisely because it represents an opportunity to bring new advertisers and new money to the NYT. Brisbane, far from disdaining the DealBook party featuring “charter advertisers like Goldman Sachs and Barclays Capital,” should be celebrating the fact that “in today’s straitened circumstances” — his words, not mine — the NYT has managed to identify a deep-pocketed source of new revenues. If Brisbane wants to fund in-depth investigations of the possible global spillovers from a European collapse, then using new revenues from DealBook might be an obvious way of doing that, no?

In any event, as an assignment editor, Brisbane is pretty weak:

Just as the 2008 crisis was largely explained after the fact by The Times and other publications, the current situation feels like a replay in which we may learn only later how the tumbling dominoes were arrayed. Perhaps most important to Times readers, little is being written about the consequences that a catastrophic event in Europe could have on the United States and the world economy.

Perhaps The Times will yet jump in and expose the linkages between Europe’s institutions and the American economy and markets — before the other shoe drops.

Well, yes, Arthur, that’s the way that events in the news get explained — after they happen. You can’t explain the consequences of a catastrophic event before that catastrophic event happens, because we live in a highly complex and interconnected world which is inherently unpredictable. Was there any way of predicting, before the subprime bubble burst, what a collapse of the US housing market would do to international markets and economies? No, there was not. For instance: it caused massive losses in obscure German state-owned banks, it caused a strengthening of the dollar, and it also caused a flight out of alternative markets like Brazil. In hindsight, it’s possible to explain all of these things. But you need to see how the tumbling dominoes fell in order to be able to explain how they were arrayed.

Markets aren’t all-knowing, and they can be spectacularly wrong at times. But journalists are certainly worse at predicting the future than markets are.

Arthur Brisbane might be right about the cause of the next global crisis, but even if he is, there’s no good reason to believe that an investigative piece at this point would prove to be remotely prescient or useful for the NYT’s readership. That’s why journalists much prefer to do what they’re best at, which is reporting and analyzing the news — stuff which is happening now, or which has already happened. DealBook does that in a fast and readable and webby way, making smart tactical inroads onto a field being slowly abandoned by Rupert Murdoch’s WSJ. What’s more, DealBook — in contrast to the rest of the NYT website — is completely free.

So let’s celebrate the fact that DealBook is doing something successful and new under the auspices of the NYT. Criticisms of the form “you wrote A, but I think that B is more important and germane, so you should have written B instead” are always silly and demeaning. If Brisbane is forced to resort to that argument when criticizing DealBook, the inevitable result is that he just ends up looking particularly off-target himself.

COMMENT

maynardGkeynes, yeah I got the scoop on how the ECB was going to let banks post their liabilities as collateral for loans from FT Alphaville. No one else thinking out the box like that.

Posted by Danny_Black | Report as abusive

The future of Groupon’s business model

Felix Salmon
Aug 27, 2011 22:05 UTC

Has Groupon created an inherently profitable industry? Or is it one of the most effective means ever invented of taking investors’ money and setting fire to it? Since I wrote my big post on Grouponomics in May, the optics surrounding Groupon have changed considerably. Jeff Bercovici, for one, is convinced there’s nothing there:

Could the fastest growing company in history sputter out just as quickly? At this point, the better question may be: How could it not?

Jeff quotes Rob Wheeler, who’s equally adamant:

Groupon’s fundamental problem is that it has not yet discovered a viable business model. The company asserts that it will be profitable once it reaches scale but there is little reason to believe this…

Groupon’s venture investors and executives need a way to cash out before everyone realizes that the emperor has no clothes. I will probably buy a Groupon every now and again — I have no problem letting investors finance my cheap consumption. But as far as an investment goes, Groupon is looking about as profitable as giving away your merchandise for 90% off.

But the problem here is that neither Bercovici nor Wheeler seems to understand what Groupon is doing. I have my own doubts about whether Groupon will be able to achieve long-term success without running into a short-term liquidity crunch, but there’s nothing inherently illogical about Groupon’s cash-burning drive for growth.

For smart analysis of Groupon, you’re much better off reading Vinicius Vacanti and especially Henry Blodget — but be sure to read them carefully. Both of them are being quoted by the likes of Bercovici and Wheeler, who are drawing broad and simply false conclusions from what they’re reading.

At heart, what Groupon is doing makes sense. Its core business, I’m pretty sure, is profitable — although no one knows just how profitable it’s likely to prove over the long term. If you give Groupon a large number of subscribers in some given city, and a team of sales people in that city, those sales people will be able to sell deals to local merchants in such a way as to more than cover their own costs. That’s the model at the heart of Groupon’s business, and historically it has worked spectacularly well. It’s worked so well, in fact, that Groupon has found it incredibly easy to raise new equity capital and to grow faster than any other company in the history of the known universe.

Groupon has used all of its profits from selling deals to expand aggressively — to sign up new customers and launch in new cities and countries. This costs money, but it makes sense, given the substantial first-mover advantages available in the space. Groupon wants to be first to any given market, and it aspires to become a kind of corporate shorthand, like Hoover or Kleenex or Xerox, where the company name is used to refer to the whole class. Growing as fast as Groupon has done is expensive, but Groupon is convinced that the more money it spends up front, the more money it’ll ultimately end up making in any given market.

All this makes a lot of sense, and nothing we’ve seen with respect to Groupon’s losses invalidates any of it: there is no reason to believe that Groupon is in an inherently unprofitable business. Contra Wheeler, Groupon did discover a viable business model. And it’s just silly to think that when you buy a Groupon, that in some way Groupon’s investors are financing your cheap consumption: the cost of your cheap consumption is borne wholly by the merchant in question.

In fact, one of the two problems with Groupon is that its investors aren’t financing Groupon’s growth. As Blodget points out, of the $1.1 billion that Groupon has raised from equity investors, fully $942 million has been used to cash out its early investors and executives. If Groupon had held onto that cash and used it to finance its growth, it wouldn’t be facing a cash crunch right now. Groupon should be able to use the proceeds from its IPO to cover any potential cashflow crunch — but it’s nice to have the option not to IPO, if the market’s looking weak. Groupon should be able to tap its current private investors in the event that its IPO gets postponed or canceled — but right now they’re looking to make money on their investment, rather than throw more cash at it.

The other problem with Groupon is that its fundamental business model is looking less profitable than we might have once thought. This is Vacanti’s point: in mature markets, Groupon is making less money per subscriber, and less money per merchant, than it has ever done in the past. The latter decline is particularly precipitous:

boston-merchant.png

Now this isn’t necessarily as bad as it looks. The number of merchants that Groupon has in a town like Boston is a cumulative number: we’re looking at quarterly revenues, here — a flow — divided by a steadily-growing stock of merchants. Even if you haven’t done a Groupon offer in years, you’re still part of the denominator; my guess is that even merchants which have closed down entirely are included.

What really matters, in Boston and elsewhere, is whether Groupon can stay substantially profitable in such mature markets. And that’s why it’s a little sad and indeed a little worrying that Groupon is getting rid of its ACSOI profitability measure — something which is at heart, as Groupon CEO Andrew Mason explains, was always an attempt to try to work out the steady-state underlying profitability of the company’s operations. Maybe Groupon got rid of it because of all the criticism — but it’s also possible that Groupon jettisoned ACSOI because it was worried that it was falling sharply and maybe even headed into negative territory.

Over the long term, I suspect that Groupon will succeed or fail based on the perceived quality of its offers. It has grown fast based on the simple tactic of offering great deals to consumers — giving them things for much less than they would normally pay. But at some point, it would do well to start concentrating more on quality rather than just price. Here’s Ryan Sutton:

Have you ever heard of Amber on the Upper East Side or Mambo in the West Village? Nope. Yeah, well neither have I. They’re just two random sushi joints. But Groupon ran a special on both last week, and they sold over $85,000 in California rolls, tuna rolls and other fake forms of sushi. That in itself is a travesty…

What’s going on here with Groupon, a national brand is giving national attention to a local joint that doesn’t deserve it, and as a result, a lot of people’s money is being misallocated. It’s anti-economic. Groupon is the invisible hand of capitalism sucker punching good restaurants that deserve to succeed and helping out mediocre venues that deserve to fail.

The thing to pay attention to here is the perception of Groupon: that it’s a desperation move for mediocre merchants. If that reputation spreads, then Groupon will find it increasingly difficult to move its product, no matter how wittily-written its emails are. So if I were thinking of investing in Groupon, one thing I’d be looking out for would be the quality of the merchants being featured. If it’s high or rising, that’s good news; if it’s low or falling, that’s bad news.

Qualitative judgments, of course, aren’t particularly tractable, or easy to chart; analysts hate them. But ultimately the success of great companies like Apple comes down to precisely the quality of their products. And that’s something that might well end up determining the long-term fate of Groupon, too.

COMMENT

Agree with Felix, I think another Amazon will be their future, Groupon will be not Groupon, but it can maximise their traffic! Some of their deals have been beaten out by much smaller daily deals websites, like http://www.Hey-Deals.com

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Why I’m talking about Tim Cook’s sexuality

Felix Salmon
Aug 26, 2011 17:30 UTC

Every so often I put a blog post up, start getting feedback on it, and realize I’ve got things horribly wrong. And then sometimes, very rarely, the opposite happens: I put up a post and discover that I was more right than I ever suspected. My post yesterday on Tim Cook’s sexuality is one of those times.

Which is not to say that it’s uncontroversial. I’ve had significant pushback on it, and on the video above, from both inside and outside Reuters. The negative responses fall into a few broad categories:

Haven’t we moved on?

This is rarely accompanied by an elucidation of exactly what it is we’re meant to have moved on from. If it’s the kind of world where people are scared to come out at work, then, first, I’m sorry, but we haven’t. There are, obviously, no reliable statistics on how many LGBT people are out at their work, partly because “out” isn’t the nice, binary concept that a lot of journalists would seem to like it to be. (More on that later.) But I can tell you that I’ve had a lot of private feedback from gay professionals thanking me for my post, saying that it’s still hard for them to come out in the workplace, and that more open discussion and open acceptance of executives’ homosexuality is something we’re only beginning to work towards.

It’s still not normal, in most workplaces, to have an open and accepting culture where all gay employees feel comfortable being open about who they are and who they love. Apple, by all accounts, is very good on that front, and Steve Jobs’s other billion-dollar startup, Pixar, is even better. But the very fact that neither Apple nor Tim Cook has ever said anything about this aspect of his identity is a clear indication that people are still worried about it. The closet is an institution designed to protect LGBT individuals from scorn and hatred; without that scorn and hatred, it would not exist. It exists. And, lest we forget, neither the federal government nor most states gives equal rights to gay couples; in most states, including California, it’s still entirely legal for a company to fire someone just for being gay.

More generally, it’s still the exception rather than the rule for successful gay people in the public eye to be out. Some gay people who achieve success feel a responsibility to serve as role models and advocate for equality and public acceptance. That’s great. But what we see very little of is the people who simply don’t hide who they are, and who don’t make a big deal of it — the non-political gays. And the reason we see so little of it is because it’s a very tricky act to pull off. Instead, we have the institution of the “glass closet”. Which is clearly just a stepping stone on the path to full acceptance. So I think it’s reasonable to say that we’re a very long way from having “moved on”.

Why should shareholders care?

The number of things that shareholders care about, with respect to any given company, is as varied as the number of shareholders itself. But certainly there’s no particular or obvious reason why Tim Cook’s homosexuality is relevant to Apple’s shareholders, qua shareholders. As journalists, however, the media has a responsibility to more than just a company’s shareholders: its responsibility lies to the public as a whole. Including millions of gay professionals, their friends, their families, and people who aspire to being gay professionals. For these people, seeing Tim Cook rise to a position of such prominence and power is something to celebrate. If the media keeps that news on the down low, we’re therefore doing a disservice to that large and important part of our readership. Meanwhile, if shareholders don’t care, that’s fine. Most news is of no interest to most people. But that doesn’t mean it shouldn’t be published.

What business is it of mine what Tim Cook does with his genitals?

This isn’t an issue of sex, it’s an issue of sexuality — a central part of who all of us are. It’s about attraction, and identity. Not genitals.

Now admittedly Tim Cook’s sexual identity isn’t any business of yours either. But it’s worth asking who exactly we’re protecting here. Tim Cook hasn’t complained about coverage of his sexuality, but a lot of straight people who don’t know him seem to be very upset about it. It seems a bit like the old attitude of “I don’t care what consenting adults do in private, just so long as they don’t stick it in my face.”

All too often, secrecy surrounding someone’s sexuality is imposed upon that person by the straight society surrounding them. It’s the “I don’t want to hear about it” attitude which reached its nadir in the Don’t Ask Don’t Tell policy. Many gay professionals — I’m tempted to say most gay professionals, at least outside the creative industries — act very much in line with an implicit policy of don’t-ask-don’t-tell; coming out to co-workers is done individually, on a case-by-case basis, and acts as a sign of deeper friendship and outside-of-work socialization. And it contrasts quite sharply with the overt displays of straight employees who happily plaster their cubicles with photos of their spouses and children or unselfconsciously talk about the attractiveness of members of the opposite sex.

This is irrelevant, so we should ignore it.

Not when ignoring it is the problem. As commenter Hamranhansenetc said on my original post, “what you mean by ‘ignoring Time Cook’s sexuality’ is ‘pretending he is straight.’” It’s rude to do that. And skirting the issue of Cook’s sexuality only encourages and exacerbates that problem. As Hamran continues (you should really read the whole comment, it’s great), “In the larger sense, it does not matter that Tim Cook is gay and not straight. However, it does matter when the media pretend Tim Cook is straight and not gay. And that is what we are talking about here.”

Another commenter, RaidV92C, reacted a rather different way, but just as accurately: “This is not newsworthy, it’s west coast, liberal media, hollywood forcing homosexuality as NORMAL on the general public.” Yes. Exactly. Homosexuality is normal. And people who object to stories which cover an executive’s homosexuality as being as unexceptional as another executive’s wife and children are exactly the people who are winning if no mention is made of Cook’s sexuality.

Do we report that executives are straight?

Yes, all the time, especially when we talk about their families. And more generally straight is the default option — people are assumed to be straight unless we’re told otherwise. No LGBT person likes it when they’re assumed to be straight, but it happens every day.

Isn’t this a salacious invasion of Tim Cook’s privacy?

There is nothing salacious about someone being straight, or being gay. Insofar as you think it’s salacious, that’s because you think that being gay is somehow naughty, or shameful. Is this an invasion of privacy? To a certain extent, yes. More people know more things about Tim Cook now than they did a few weeks ago. That’s what happens when you become the CEO of Apple.

In any public corporation, there’s a small number of people whose jobs are outward-facing, and at the top of the list is always the CEO. He’s the public face of the company; if you see a corporate profile on the cover of a glossy magazine, chances are it will be illustrated with a big picture of the CEO. If you don’t want your face splashed across the world’s media, then you shouldn’t be CEO of a massively valuable company which touches millions of people. Sometimes, as in the case of Mark Zuckerberg, entire movies — and not particularly accurate ones, either — are made about you and your personal life. Reporting that Tim Cook is gay is absolutely nothing, in the invasion-of-privacy stakes, compared to The Social Network. But CEOs, especially CEOs of public companies, are public figures. Their salaries are a matter of public knowledge. When you’re a public figure, you lose a certain amount of privacy. And the higher your profile rises, the more privacy you lose. Tim Cook knows that; he knows that it’s silly to expect to be the CEO of Apple without the world knowing that he’s gay. So let’s stop pretending that we’re not talking about this subject for his sake.

Finally, one critical note I got went so far as to say that “I would think people who are gay don’t care” that Cook is gay. Which is almost hilariously, completely wrong. All the feedback I’ve got indicates, unsurprisingly, that LGBT people really care about this — they care about it a lot, and they want to see it celebrated as widely as possible. It’s perfectly natural to feel pride and joy when a member of your community rises to a position of great success and prominence.

I’ve been incredibly heartened by the thanks I’ve got from gay friends, gay acquaintances, and gay people I’ve never run across before, all saying that they wish there were many more people pushing this line of argument. And I was also heartened, when I talked to John Abell about this yesterday for the video above, that he thinks the same way: not only should the media cover Cook’s sexuality in a more matter-of-fact way, but that they will, as well. Cook himself need do nothing.

At the same time, though, I agree with Nicholas Jackson that it would be great if Cook was more open about his sexuality. The glass closet is not an unpleasant place to be. The more transparent the glass, the less likely you are to have people making you uncomfortable by assuming that you’re straight. And at the same time, by never “officially” coming out, you get to avoid having to talk about your sexuality in public — something very few people like to do.

It’s sad and rather silly that gays have to make some kind of formal and official statement about these matters; certainly straights don’t. But without such a statement, as we’ve seen, the media gets cold feet talking about sexuality, and perpetuates the stigma associated with homosexuality. A very common response to my piece from journalists was to question my sourcing: how did I know that Cook is gay? Do I have first-hand knowledge? (No, and if I did, I would never have written my post.) Do I have reliable sources? (No, I’m simply passing on information which is in the public realm, just as I do with dozens of other pieces of information every day.) And isn’t it unethical to talk about something unless you know for sure that it’s true?

What’s unethical, I think, is perpetuating the false idea that Tim Cook is straight — an idea which, it turns out, many people had. One person said it was “disappointing” that I disabused her of that notion. Why she should be disappointed to learn this news I can only guess, I haven’t asked. But honest journalism has to be honest. If I allow you to continue to believe a falsehood, that’s a form of dishonesty. And I, for one, am not comfortable with that.

COMMENT

MrMath.

You challenge people to posit why they are ‘against gay’ lamenting they would have no argument – and then you say imply that to be anti gay must mean that one is a ‘closet gay’.

Your upside down premise (‘Mr Math’???, really???) of asking people to provide ‘valid arguments’ and then spewing something such stupid and childish positions that don’t deserve a reasonable response – in fact only validates how you and the ‘gay agenda’ are miserably ideological.

I’m not making an anti-gay statement.

I’m making an anti-gay supporter statement.

You losers claim ‘morality’ and then go on to make absurd claims.

Homosexuality is a disease. It is the misalignment of gender, and sexual orientation. Just as most complex forms of behavior are learned – they can be unlearned. We are in fact biological machines – and we will one day have the ability to create an adaptive environment that creates outcomes we desire – including sexual orientation.

That we don’t yet have the ability to correct homosexuality, and that gays can live otherwise healthy and normal lives, does not change the fact that it is a medical condition that would otherwise be cured.

100 years ago, were someone to have discovered a cure, or therapy for ‘gay’ that worked – gay simply would not exist for the most part, certainly not the extent that we have a disproportionate minority of bit&es in the media raving about it all day.

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Counterparties

Nick Rizzo
Aug 26, 2011 05:15 UTC

Here’s a fairly great, cranky interview Der Spiegel recently did with Gorbachev.

Dan Gillmor argues in the Guardian that ghostwritten Op-Eds have no places in newspapers. I’d love to hear Jack Shafer’s thoughts on this, but unfortunately Slate.com just laid him off. Here’s an exit interview with AdWeek, where he says he plans to become an alcoholic, “Because one of the things I’ve always prided myself in, in these first 59 years of my life, is being a controlled drinker. I think now is the time to throw off the training wheels, and see if maybe in the last decade and a half of my life, I can be an accomplished, functional alcoholic. And that’s starting tonight.” Oof.

In the tech world, the major internet service providers have agreed to further crack down on illegal downloading by only giving six (!) warnings. Meanwhile, AOL, with its cheap share price luring circling private equity firms, has hired Wachtell, Lipton and Allen and Co. CEO Tim Armstrong says, “There is no deal on the table, no proposed deal.” That’s not exactly a resounding denial, Tim.

Apparently some large hurricane might be hitting the East Coast soon. You can follow our live coverage here.

And here’s a terrifying photo illustration of Philadelphia Eagles quarterback Michael Vick as a white guy. It’s accompanied by a provocative article on race, of course.

Don’t ignore Tim Cook’s sexuality

Felix Salmon
Aug 25, 2011 19:47 UTC

Tim Cook is now the most powerful gay man in the world. This is newsworthy, no? But you won’t find it reported in any legacy/mainstream outlet. And when the FT‘s Tim Bradshaw did no more than broach the subject in a single tweet, he instantly found himself fielding a barrage of responses criticizing him from so much as mentioning the subject. Similarly, when Gawker first reported Cook’s sexuality in January, MacDailyNews called their actions “petty, vindictive, and just plain sad.”

But surely this is something we can and should be celebrating, if only in the name of diversity — that a company which by some measures the largest and most important in the world is now being run by a gay man. Certainly when it comes to gay role models, Cook is great: he’s the boring systems-and-processes guy, not the flashy design guru, and as such he cuts sharply against stereotype. He’s like Barney Frank in that sense: a super-smart, powerful and non-effeminate man who shows that being gay is no obstacle to any career you might want.

One of the issues here is that most news outlets cover Cook as part of their Apple story, and Cook’s sexuality is irrelevant to his role at Apple. And so the other story — the fact that the ranks of big-company CEOs have just become significantly more diverse — is being overlooked and ignored. And that’s bad for the gay and lesbian community more broadly.

The institution of the closet is one of fear — one where people would rather be ignored than noticed, because they fear the negative repercussions of being known to be gay. It’s an institution which Cook, like any gay man born in 1960, knows at first hand. But now the risk of being ignored is bigger in the other direction: if the world can’t see gay men and women in all their true diversity, if the only homosexuals they know of are the flamboyant ones on TV, then that only serves to perpetuate stereotypes.

As the Apple story moves away from being about Steve Jobs and becomes much more about Tim Cook, we’re going to see a lot of coverage of Cook, the man. He is, after all, not just one of the most powerful gay men in the world; he’s one of the most powerful people in the world, period. The first instinct of many journalists writing about Cook will be to ignore the issue of his sexuality. It’s not germane to his job, they’re only writing about him because of the job he holds, and therefore they shouldn’t write about it.

On top of that, Cook is not exactly open about his sexuality, and Apple has never said anything about it. Cook’s formative years, professionally speaking, were the 12 years he spent at IBM between 1982 and 1994 — and at that company, in those days, coming out was contraindicated from a career-development perspective. Mike Fuller, a gay VP at IBM, told the Advocate in 2001 that he knew “IBM employees who worked for the company in the 1980s who told me they left IBM because they weren’t comfortable coming out at work”; this comes as little surprise. After all, the years that Cook spent at straight-laced IBM coincided with the height of the AIDS panic, when people were worried about sharing toilet seats with homosexuals. It would be hard to come out at any company in that kind of atmosphere.

But thankfully we’ve moved a very long way from those days. Homosexuality is no longer something shameful, to be coy or secretive about — especially not when you’ve risen to the very top of your profession. In fact, it’s incumbent upon a public-company CEO not to be in the closet.

Four years ago — a long time itself, in the history of gay rights and public acceptance thereof — John Browne resigned as CEO of BP under a shameful cloud. The reason for his downfall was not that he was gay, but rather that he was in the closet. As I explained at the time, in trying desperately to remain comfortably in the closet, he ended up lying repeatedly to the UK High Court – and that is why he had to resign.

Back then, there were no public-company CEOs on Out magazine’s gay power list; this year, Cook topped the list even before he became CEO of Apple. Keeping his sexuality a secret is no longer an option. And so the press shouldn’t treat it as though it’s something to be avoided at all costs. There’s no ethical dilemma when it comes to reporting on Cook’s sexuality: rather, the ethical dilemma comes in not reporting it, thereby perpetuating the idea that there’s some kind of stigma associated with being gay. Yes, the stigma does still exist in much of society. But it’s not the job of the press to perpetuate it. Quite the opposite.

Update: For a better and more heartfelt version of this post, read Joe Clark from back in February: “When you tell us it’s wrong to report on gay public figures,” he writes, “you are telling gays not to come out of the closet and journalists not to report the truth.”

COMMENT

Seriously, people? If you don’t like what is being said, all I can say is “F*ck off”. No one is holding you at gunpoint to read the article, nor are they forcing you to like it. If you don’t agree with it, go somewhere else and do something else. Don’t make your bigoted opinion ruin the article for those who actually want to enjoy it.

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