Another great post about the death of the traditional music biz.

Jeff Price mirrors other blogs in writing about how the old model for the music business is dead. It's too bad that the major labels haven't figured this out yet.

Predictably Irrational

On a friend's recommendation, I just read Predictably Irrational. I know that this is intended to be a political blog and this is not a political book, but I think it's still a fascinating exploration into why we do things that we do - especially since so much of what we humans do is fundamentally not rational.

It's a quick read, I highly recommend it.

Tibet, China, and the Olympics

The Chinese government isn't entirely bad. After all, over the past two decades they've orchestrated what is perhaps the greatest economic rise in history, lifting more people out of poverty more quickly than ever before. And it has certainly opened up quite a bit over this period as well. Both of these trends should be applauded and supported.

But unfortunately, not only do the ends not justify the means, but I believe that the overall tally of evils that the Chinese government commits greatly outweighs the benefits it provides. The environment in China is toxic. The government is corrupt, authoritarian, abusive of the peoples' basic freedoms, utterly indifferent to the evils of other countries when it suits their needs (more on this below), and it behaves like an immature paranoid petulant child on the world stage whenever there is any issue that affects its pride.

The upcoming Beijing Olympics I think epitomize this latter point. The Chinese government has made the Olympics a centerpiece of national pride more than any other host nation that I can recall. Good for them, and I actually wish them well for a great event.

But it is in this context that I watch what has been going on in Tibet. I think the government has exposed its Achilles heel. It is determined to show a new, open face to the world for the Olympics. And it is determined to orchestrate the Olympics to go flawlessly - and without a whiff of anything embarrassing.

Therein, I believe, lies the dilemma for the Chinese government, which I believe activists for the myriad causes that have complaints about the Chinese government would be wise to exploit. If they protest in any sort of visible way, China must either respond or not. If it responds with openness (as it has promised), then it "suffers" the embarrassment of the world seeing the protest. (Of course, any legitimate government should have no fear of visible dissent, but this is one reason why I believe that the government behaves like an immature child.) And if it responds with a clampdown - as it has done in Tibet over the past few weeks - it reveals its true colors as a brutal regime whose claim to legitimacy is so tenuous that it cannot suffer dissent. Either case would be a PR nightmare for the government, and thus a win for the activists. All they need to do is lie low and avoid being rounded up until the event.

One more thing about why I think the Chinese government needs to "grow up." The Chinese government demands to be treated with the respect on the world stage that is given to other major powers and is exceptionally thin skinned when it feels that respect is not forthcoming. But among other things, maturity means understanding that respect is something that must be earned. For example, China has had ample opportunity with North Korea and Sudan to demonstrate that it is worthy of great-nation status, and has all but abrogated any responsibility - despite it's unique position to do so - to help to reduce the unmitigated evil that these two countries inflict upon their populations; quite the contrary, it has been the primary support propping them up. In another example, China tries to have it both ways on the environment: demanding to be treated as a developing nation with regard to carbon emissions, even after surpassing the US. Mark Twain once said "Patriotism is supporting your country all the time, and your government when it deserves it." The same is true for respect. I cannot respect a government that fails to earn that respect.

I've been to China. It is a wonderful country, it has tremendous potential to be a true leader on the world stage. And the government does deserve a lot of credit for the progress the country has made. But it is not enough - more change is needed if it is to truly become the great nation it aspires to be. The Chinese government has made the Olympics a defining moment for the country. I wonder if it will be all for show, or if it will truly become a defining moment.

Fee for your thought?

I've got fees on my mind lately. The news that United Airlines is going to start charging $50 to check two bags certainly struck me as indicative of the whole problem.

It's really this: calling something a "fee" is only legitimate in two circumstances. The first is when it is passing through a charge from a 3rd party. The Sept. 11 security fees on airline tickets, or the service charge to buy a ticket from Expedia or Travelocity would fall in this category. The second is when the fee is charged for a discrete or incremental (and presumably optional) service. Examples here include a corkage fee for bringing your own bottle of wine to a restaurant, or a surcharge for 2nd-day delivery of a package.

Sadly, though, we're seeing a proliferation of all sorts of "fees" that meet neither of these criteria and which are, in my opinion, downright fraudulent and deceptive.

My favorite example of abusive "fees" charged to customers is the "fuel surcharge" that we're seeing applied not only to airline tickets, but also to many other everyday services. Don't get me wrong - with the high cost of fuel, businesses that are fuel dependent need to recover their costs, and there is absolutely nothing wrong with raising prices to do so. But companies are simply t insulting their customers by pretending that this is some "fee". It isn't - it's simply raising prices, but it's fraudulent because it let's the company pretend that they're not actually raising prices (after all, the advertised airfare is unchanged) when, of course, they are. Fuel is critical to the act of flying an airplane. It isn't as though passengers can opt out of using the fuel to get to their destination. The fuel for a flight is part and parcel of the cost of operating the flight. When you are spending $500 on an airline ticket, $200 (or probably more) is going to fuel costs anyhow; what is it about the $20 covered by the "fuel surcharge" that makes it different? Why not simply call this a $300 fare with a $200 fuel surcharge? Calling out a fuel surcharge is like buying bread with a separate "wheat surcharge." If it's an integral part of the cost of the product or service, then there is no excuse for arbitrarily excluding parts of that cost because they make the resulting price inconveniently high. It is an act of deception.

My other favorite example in this vein is the increasing number of hotels that tack on exorbitant "resort fees" for each night of a stay. I would have no problem with this if the fee were tied to usage of "resort facilities" (however defined), but I have yet to see a hotel that actually let you opt out of services as a way to bypass the fee. Wheat in bread.

Which brings me back to the United Airlines baggage policy. As a customer, I'm not wild about the policy, but I can see why they do it, and at least it's honest: you don't have to pay the fee if you don't use the incremental service to which it's tied. Interestingly, United justified the fee by saying that all passengers pay for baggage service in their ticket prices today, but only one in four passengers check two bags, so now they can pay for the incremental cost. This justification would work if they were actually going to call out baggage services as a discrete fee, separate from ticket prices altogether, but they aren't actually doing that.

I actually think that airlines, hotels, and others would be very well served by doing two things: first, break everything out into true a-la-carte pricing. For an airline, this would mean publishing a base fare. Want a better seat? $20 more. Refundable or changeable? $100. Want to check a bag? $25 per bag. Want early boarding? $5. Peanuts and soda? $5. Lobster? $100. Let people create the right options for what they want.

And then create simple packages (discounted, of course, relative to the a-la carte sum total) to provide an incentive for these upgrades. "First class" means you get all of the above options, but anybody who doesn't want all of "first class" could pick and choose what they did want. Maybe there aren't any more first class seats on the airplane, but how hard would it be to load a few more first class meals and extra wine for the folks in coach that are willing to pay for it? This turns a cost-center into a profit center.

Hotels could do the same thing, and for many hotels that have a mix of business customers (who may not make much use of the "resort amenities") and leisure customers that may make sense. But I 'd suggest that hotels would have more luck going entirely in the packaged model: eliminate the damned resort fee and internet access fees and all of that, raise the base room rates by the right amount to cover these costs (and then some), and make it all inclusive, straightforward pricing. Personally, I hate splurging for a hotel that charges $450 a night and find that they want another $16/day for Internet access. As irrational as it sounds, I'd rather spend $500 a night and have it all included, with no nickel and diming. But at least the Internet access is legitimate to break out if the hotel decides to do so - if I don't like the cost, I can choose to forego it (and often do). It's the "resort fee", which I have no way of avoiding, that I find so insulting and disrespectful.

Successful businesses show their customers they care. Hmmm....I guess I shouldn't be surprised to see airlines embracing bogus "fees", should I?

An open letter for the recording industry

A friend of mine pointed me to this blog post, talking about how the music biz has changed and what the industry should do to address it. Very well said, in my opinion.

Bill Gates on Immigration, Education

Yesterday Bill Gates testified to Congress about the need to both improve our nation's math and science education, and to increase the number of workers who can come here on H1-B visas. I wholeheartedly agree with this position. Improving our math and science education is not a particularly controversial point, so I won't belabor it. But I think it is worth reiterating the need to increase the H1-B visa cap.

For a long time, our nation enjoyed a near monopoly on producing qualified engineers and scientists, but this lead is rapidly eroding as other countries (especially China and India) have started producing world-class technically trained people. The laughably small 65,000 cap on the H1-B visas means that the US is effectively cut off from this pool of talent. While this may appear to help US workers compete with foreigners who supposedly are willing to work for lower wages, the actual result is that American companies have to work with the best homegrown talent (often leaving many roles unfilled), as opposed to being able to work with the best talent period. So we end up deliberately weighing our companies down with two handicaps: insufficient staffing, and sub-optimal staffing (sub-optimal not because the American talent isn't good, but rather sub-optimal because the pool of talent is artificially restricted).

This is not to say that we don't have top-notch homegrown talent; we absolutely do. And despite its many documented problems, our educational system does still produce some of the best and brightest. But it doesn't produce nearly enough for what our industry needs. Gates pointed out - quite correctly, IMO - that allowing more H1-B visas would not throw Americans out of work, and would not depress wages. For one thing, even if the cap were doubled, the number of visas would still be far too small to impact the market. And since the tech job market is still seeing labor shortages and wage inflation, increasing supply to meet that demand will help these companies achieve more, which will lead to more growth.

Companies faced with H1-B restrictions do the only logical thing: they outsource. So instead of hiring a talented engineer from, say, India, to work in California at California wages, we are instead paying that engineer Indian wages to work in India, thus helping to build up the competitiveness of the Indian economy and of Indian companies. While I applaud growth of foreign economies and companies (even though they're competitive, it's in our interests for other countries to be prosperous!), it is pretty clear to me that these arbitrary restrictions on the movement of the best labor is a US-taxpayer subsidy for these foreign corporations at the expense of domestic corporations. This hardly seems to be in our best interests to do.

I'll add one more point from a social perspective, since immigration is a hot topic these days. Many of the most active voices favoring greater restrictions on immigration claim that immigrants are a drain on society, live on welfare, increase crime, etc. They're largely talking about poor and illegal immigrants, and these claims may or may not be true, but we should be very clear about the kinds of people that come in on H1-B visas: these are people we WANT in this country. They are highly educated, highly skilled, highly paid workers. They will educate their kids here (producing the next generation of skilled American workers), they pay taxes and in general are a huge net positive to the economy and to society as a whole.

Personally, I think we should remove numerical caps on H1-B visas altogether and instead restrict them only to the candidate's meeting a bar of likely economic potential. Let the our companies have access to the best talent in the world, wherever that may come from, and have them bring those people here. We're the United States, why should we be afraid of competition?