What Walmart, Facebook, and Credit Cards Have in Common

If you thought Mark Zuckerberg buying a Walmart with his 5 billion dollar limit credit card to setup a giant trampoline arena for padded sumo suit wars you’re close. If you thought hidden costs, you win a pony**.

Walmart, Hail to the King Baby

Walmart the epitome of logistics and cheap manufactured goods is America’s favorite department store. But for the lower cost on six packs of under wear

  • we subsidize Walmart employees with government healthcare (most are uncovered)
  • community wealth is harvested to a remote cost center, unless you live near Walmart’s HQ
  • driven by cost, cheaper foreign goods have exasperated erosion of national manufacturing capability

Facebook may appear to be a free site to socialize (or snoop) on your friends and play games but it has it own set of hidden costs.

  • While most users consciously ignore the distraction of ads, what about ads embedded into news feed, search and banners all around the messages of friends. Imagine calling a friend and being put on hold mid conversation to listen to an ad. I’m confident “free” phone services like this are on the way. Your attention and time aren’t free.
  • The aggregation of user generated content is a well known maneuver for web businesses. Why fight to generate content when users can do a better job of entertaining themselves. While I believe this is a good idea in theory, the practice of taking the vast majority of that collective value is questionable at best
  • Data and relationship portability is nil. Do you want to swap microblogs from Facebook to Twitter, Posterous or Tumblr? Good luck with bringing your network and all your posts with you. In fact, out of all the blog like social web services only a handful are cooperative to changing services. This is the equivalent of changing mobile service providers but not being able to call your friends

Credit card companies appear to be the perfect lender. I can leverage a 30 day payment period and get rewards to eek extra value out of any purchase I make.

  • The credit card business thrives on late payments. If you fall into a tight squeeze (see US unemployment rates) the credit companies want to be the first ones to swoop in and bail you out. They have statistical evidence of correlation between high balances and missing a payment. This triggers the trap of abusive interest rates and collection agencies ready to buy that debt at a premium if you don’t pay it off fast
  • Every transaction with a credit card incurs a fee to the merchant which is passed on to consumers in the form of higher prices. This varies between 1-5% and for the majority of core community businesses (small) it’s closer to the high side
  • Don’t forget about fees related to currency exchanges. Credit cards will convert currency at the cost of a generous percentage.
  • Inactivity charges. These are pretty stealthy, because we tend to use one or two cards for most of our transactions to ease book keeping, but may have several cards

Still with me? Now the good news

Being aware of these hidden costs means you can spot them in many different areas of your life. They’re literally baked into everything we do and use. Here’s a quick list of just a few hidden costs I pay throughout a day:

  • email ads
  • meetings, hint I could be working
  • 7-11- Farmville ads on my big gulp and over the store front door^
  • news sites – twitter, Hacker News, my favorite blogs, and rss reader all have their own agenda whether it’s page views, marketing, or aggregation of content. A minute on twitter can quickly turn into an hour of reading intriguing posts
  • my smart phone. I can be distracted or interrupted at any time by an email or text message. If I’m working on a tough problem I’ll even welcome the escape from facing down the challenge of learning something completely alien to me (the nuances of shifting web frameworks)
  • my day job. But wait I get paid for that right? Timing is everything, and when a hot idea strikes it can cost me 3 long days and the motivation to implement the “new hotness”
  • programming languages – which one am I most enamored with today, what will get the job done fastest. At work it’s C++ but there are hidden costs in reading extraordinarily verbose code which conceal the beauty and simplicity of well implemented algorithms.
    If I opt for Ruby I have to start building utility libraries from scratch and the processing time is longer*
  • Victus Spiritus- yup this blog has had all forms of hidden costs. Hunting down pluggins, updating everything, learning the basics of php and more about HTML/CSS with a never ending quest for the perfect theme. The pay off is I’m minimally capable with these tools, but do I want to master CSS or found a company?
  • and the list goes on…

Notes:
*= A much as I dig Ruby from a solution design perspectives, it’s runtimes are dog slow for math compared to c/c++. I’ve considered Duby by Charles Nutter but dynamic invocation on the JVM may make JRuby my goto language

^= it looks like Mark Pincus & Zynga are building games that don’t suck based on development investment

**= Pony’s are in limited supply, see Ruby’s default value for inventory size

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  • http://steamcatapult.com/ Dave Pinsen

    It's not fair to say we subsidize the health care of Walmart workers. Walmart offers health insurance to all of its employees; that some of are eligible for lower cost (or free) government-paid health care isn't Walmart's fault. Walmart pays above minimum wages, but, realistically, in a low margin retailer, there's only so much you can pay workers.

    Also, I don't know how much impact Walmart has really had on the outsourcing of manufacturing jobs. Low margin, labor-intensive manufacturing (e.g., textiles) was moving overseas before Walmart became as big as it is. Walmart's impact was mainly on small retailers.

    But, a flip-side to Walmart's creative destruction of small retailers is that it created a huge market for entrepreneurs with new products.

  • http://www.victusspiritus.com/ Mark Essel

    Appreciate the counter view of Walmart, agree that transition of much manufacturing was happening before Walmart, but their decisions have an impact on the trend.

    I can't begrudge their success in doing so, but I can be more aware of costs outside of the instant dollar value of making a purchase. I do shop there (and Target, and everywhere else I can buy crap from) and always marvel at how they deliver goods so cheaply. I didn't mean to bash them too badly, just to raise awareness of hidden costs.
    Wikipedia and far more biased sources had lead me to believe they have pricey healthcare packages, and hours that allow the employer to avoid paying for healthcare. It's what they've chosen to do, to compete on price. I can't fault the rationale.

  • Loli
  • Leland

    Right Mark. When it is “legal” and the system is based around highest possible profit, companies will always do the cheaper thing, regardless of morals. The lack of morales is one of the key problems with the corporate capitalism America currently employs.

  • Leland

    Absolutely there is much to be said about the cost of distractions.

    I would suggest that we can live simpler and more productive lives by intelligently examining the real cost of distractions in our lives.

    I think everyone here would agree that in most cases, people do not consider where to go, what to buy and what software to use including the cost of their time. It is generally assumed that our time is not so valuable, unless we could be doing work instead.

    I believe that by including distraction-time cost in our calculations of day-to-day decision making, we can have better lives.

    For example:

    I can decide whether or not to use twitter… Normally, because twitter is free, i would assume that my personal “cost” is near zero. However, because I know how seductive twitter is for reading just one more message, I can intelligently calculate that, on average, I would probably spend 30 minutes every day for very little hard-knowledge gain. Sure, I would “keep up to date with timely messages from Mark Essel” but will knowing about the latest fashion trend really help me in my personal life? Last time I checked, i'm not a fashionista, so no.

    Another example:
    I can choose to install an RSS feed reader into my desktop.. it's free, so why not? Well, again, I would be easily seduced into reading up on the latest tech news and etc.. I have timed this, and on average I could spend an hour every day keeping up-to-date on just four major blog feeds. There is just not enough time in the day to spend 15% of it on keeping that up to date… it just doesn't make sense unless my full time job is a news correspondent or something similar.

    Sure, sometimes I might find some useful information about a new startup or a new technique for doing something in my life.. but is it worth on average an hour each day? No it's not.

    One thing I will add… leaving comments on articles in good blogs has rewarded me greatly with connections and relationships I would never previously have been able to obtain.. so I feel spending 30 minutes making comments and reading through some articles is time well spent. I'm very happy to have the privilege to talk and leave my ideas to you Mark. :)

    And so, keeping our focus on how much something costs in both money AND distraction time is a key for people close to technology nowadays. It is just too easy to download and attempt to use the latest social technology when the benefit is minimal and the time usage is massive. There is a reason facebook is blocked on most company firewalls. : )

  • http://www.victusspiritus.com/ Mark Essel

    Killer comment Leland. Your specific examples are certainly blog worthy, and I think many folks would appreciate you pointing out the time costs associated with various information gathering that we take for granted.

    I understand the importance of taking a break from coding or reading detailed documentation every so often. And catching up on blogs,startup & tech news is a great way to chill. Plus while walking, smart phones have really opened up that time slot for multitasking (writing posts, reading articles/posts, commenting)