The Pleygo Proposal

One of my jobs back when I worked in the financial services industry was to give analytic support to teams that came up with new products. I always enjoyed those meetings. It was fun listening to smart people dig their teeth into an interesting problem.

The recent gush of PR for Pleygo, the well-connected, well-funded company that claims to be able to extend the Netflix DVD-by-mail model to Legos got me thinking about those conversations. More than a dozen blogs and news sites, including heavy hitters like Time and Businessweek, ran what appeared to be lightly paraphrased versions of the same press release. They were depressingly similar both in what they said and in what they left out. What you didn't see were the kind of questions you would normally associate with product development brainstorming meetings and we're talking some fairly obvious questions.

Though this isn't my field and I don't bring any special expertise beyond a few years in marketing, here are some of the topics I'd expect to hear raised when people first heard about this model.


The Way Kids Play

One of the many great features of Lego is the way the interchangeability of the pieces allows children to recombine them in new and imaginative ways. Give kids a little time and pieces from that rented X-Wing will be thoroughly mixed with the permanent collection. The guns will be protecting the medieval castle, the radar dish will be helping Batman track the Joker and the engines will be making the train set look really cool.

Imagine trying to separate out the X-Wing pieces from all those other sets, keeping in mind that many of the components that look similar (say the windshield from the fighter and the windshield from the Batmobile) may be different enough not to be interchangeable. Now imagine going through this process every time you want to return a set to Pleygo.

Of course, even if users can keep the rented sets segregated, the model still run into a still bigger challenge, what you might call the duration of play problem. It generally takes about two to four hours to watch a DVD (possibly spread over two or three days). After viewing, the value of that DVD to the renter drops sharply; there no incentive to keep it around. This is one of the reasons why the rental model has worked so well for home video.  With toys, some are played with once while others are played with almost daily for months. If you're paying $25 dollars a month and your child keeps a $40 set for six weeks, you're not coming out ahead. (Actually, some kind of rent-to-own model might work better.)


A Niche of a Niche

So who's the target market here? With Netflix, it was pretty much everyone with a DVD player. With Pleygo, it's certainly much smaller. For the reasons mentioned above, it's probably not children who play with Legos in the conventional sense (play is problematic for this model). Instead I think we're mainly looking at the subset of non-collecting model builders. These people are certainly out there but are there enough of them to justify millions in start-up costs?

Dozens of Choices

Another factor to consider when thinking about the viability of a mail-order business, either rental or retail, is catalog depth. Going all of the way back to Montgomery Ward and the Sears Wish Book, one of the historic advantages of mail order is the ability to offer huge selections. No video store could ever offer the choices that Netflix could (By mail. Streaming is another story). This isn't the case with Pleygo which offers a selection not much better than Target and probably no better than the Lego store at the mall. (The Lego store also has bins of different sized bricks so you can mix and match exactly what you need -- a huge plus for Lego enthusiasts).


A Logistical Nightmare

One of the great insights of the original Netflix model was that shipping DVDs was surprisingly cheap, fast and convenient. Shipping packages is none of those things. Remember, the value for renters here comes from getting access to many more sets than you could get on a monthly budget of $15, $25 or $39 (the last making sense only if you're regularly ordering sets with more than 500 pieces). Even if we assume that most of the sets mailed to the $15 and $25 members fit in the smaller boxes, it's still difficult to see how Pleygo plans to break even on shipping costs if these customers if they order three or more sets a month.

And then there's handling. Once again, the Netflix comparison is instructive. To process an incoming DVD, you make sure the bar code matches the title then feed it into a machine that checks to see if it's still playable. With a box of Lego pieces, the process would entail sorting and checking hundreds of components, making sure that nothing was broken, that pieces from other sets hadn't been mixed in, and that moving parts (motors, gearboxes, switches) still worked. And this process would have to be flexible enough to work with dozens of different sets.


"Wait! There's More!"

There is a partial exception to the claim I made about these points not being raised in other coverage about Pleygo, but it's a depressing example because in this BusinessWeek article by Susan Berfield, the questions feel more like the patter of an infomercial than any kind of actual journalistic inquiry.

That’s great, but most customers have a more mundane concern: How does Pleygo keep track of all those pieces? [founder Elina] Furman says that actually hasn’t been much of a problem, though each set does arrive with a bag of spare parts. The bigger issue has been figuring out how to offer free and fast shipping. For now, the company uses priority shipping from the U.S. Postal Service. Pleygo needed its version of the red Netflix envelope, too. That turned out to be a custom-designed cardboard box that comes in two sizes: small and large.

Throughout the BW piece, I got the feeling that the writer was being fed the questions with the (implicit?) understanding that there would be no follow-ups. Furman has a huge incentive to keep the good news flowing until the IPO and this piece gave her the chance to issue a reassuring if not credible "we're on top of it" about logistic concerns without having to lay out specifics or release supporting data.

Weekend Kael Blogging

If I blogged this before, I apologize, but given the recent careers of Brian McGreevy and "Pittacus Lore," I thought this passage was worth revisiting.

Part of what has deranged American life in this past decade is the change in book publishing and in magazines and newspapers and in the movies as they have passed out of the control of those whose lives were bound up in them and into the control of conglomerates, financiers, and managers who treat them as ordinary commodities. This isn’t a reversible process; even if there were Supreme Court rulings that split some of these holdings from the conglomerates, the traditions that developed inside many of those businesses have been ruptured. And the continuity is gone. In earlier eras, when a writer made a book agreement with a publisher, he expected to be working with the people he signed up with; now those people may be replaced the next day, or the whole firm may be bought up and turned into a subdivision of a textbook-publishing house or a leisure-activities company. The new people in the job aren’t going to worry about guiding a writer slowly; they’re not going to think about the book after this one. They want best-sellers. Their job is to find them or manufacture them. And just as the studios have been hiring writers to work on novels, which the publishers, with the help of studio money, will then attempt to promote to best-sellerdom at the same time that they are being made into movies. The writer Avery Corman has suggested “the horrifying prospect of a novelist being fired from his own book.” It won’t horrify the people who are commissioning these new books—pre-novelizations.

"Why Are Movies So Bad? Or, The Numbers"
Pauline Kael  1980

New site

Notstatschat, added because of this contribution.  I should do the equivalent for Epidemiology conferences some day . . .

The ongoing airplane debate

It has been a long time since we have had a blog discussion and I have to admit that I am enjoying this one a lot.  So, where Mark P and I agree is that cars are clearly the lowest hanging fruit and the clarification in the last round makes it clear we are in fundamental agreement on this point.

Where we may disagree is that I think some small policy changes in air travel could yield important reductions.  The lack of alternatives may make this less likely than one would think (and TSA is quite good at ensuring air travel doesn't become too convenient) but I think there are two telling examples.

The first was the sequester and the special treatment air traffic controllers got relative to other public services.  After all, we had no trouble cutting assistance to Americans with inadequate food, rationing access to cancer care for Medicare patients, or to biomedical research.  Was this really the impact of the sequester (increased cost of air travel) that was the most pressing relative to the other items on this list?  The one area of true bipartisan agreement>

The second was blocking the merger of two airlines, one of which was bankrupt and the other was not far behind.  This could have led to higher prices, true, but in an industry where profits have been eaten to nearly zero was this really the biggest disaster possible?  That airlines might have enough money to not have to make brutal pension cuts due to financial distress (see this for the pension woes of American, one of the two airlines involved in the blocked merger)? 

So I guess my issue is not that we should focus on airlines as the lowest hanging fruit but rather that we should stop actively intervening to increase airplane consumption.  Now I live 4,000 miles from family and plane trips are already costly.  I definitely remember childhood trips to visits the grand-parents being 3 long days in the car.  I am not eager to replicate those days.  But I am also worried about carbon emissions.

Maybe if planes were properly priced we could get the political will to adopt 1980's era train technology as an option for shorter trips?  At 186 mph, no TSA, and fast boarding, there is no reason that you could make the trip between San Francisco and Los Angeles way more carbon friendly. 

Just take the old logging trail to Safeway...

Perhaps I'd better better add some nuance to the to the comments alluded to here.

For starters, I meant not to defend SUV use in LA but to argue that SUVs are as or more defensible here than they are in the vast majority of urban areas that don't have mountains running through them. Even here, most SUVs and big pick-ups are embarrassing reminders of market inefficiency and conspicuous consumption.

I grew up in a pick-up culture and spent a large part of my youth loading firewood and shoveling manure into the beds of various trucks. I still have great affection and respect for vehicles that can work like hell six days a week then get you out of trouble on a Saturday night. I don't, however, have any use for people who buy these fine machines not to haul loads or cross washed-out stretches of dirt roads, but to drive up and down the 405 during rush hour.

The point I was going for was that Megan McArdle's attempt to undercut the moral authority of environmentalists was muddled and more than a little dishonest. This was probably preordained the moment that McArdle, perhaps the ultimate product off the the NYC/DC bubble, decided to frame her argument as taking the side the ordinary folks in the rest of the country.

The entire piece is pretty much a train wreck (if you'll pardon the expression). First off, its anti-air travel premise has to coexist somehow with her previous position that seemed to call for more airports. Then we get this textbook example of using relative measures when you need absolute.

Those trips are simultaneously less necessary and more carbon intensive; almost eight times as many passenger miles are traveled by car as by plane, but passenger car travel only accounts for 3 to 4 times as much greenhouse gas emission.

If I want to reduce spending by, say, fifty percent and I have two costs, one of which is three to four times as much as the other, guess which one I'll focus on? There is, of course, a partial  exception when the lower cost is associated with an extraordinarily low-hanging piece of low-hanging fruit, but in this case, the low-hanging fruit is actually associated with cars, not airplanes.

I'm not happy about it, but for time-constrained long-distance transportation there is simply no currently available substitute for airplanes in this country. If we fixed the externalities (which we should), people would travel less, but when people travel in excess of five hundred miles, they will still opt to fly until we see major improvements in high-speed rail.

With autos, however, we have lots of low-hanging fruit from zoning changes to improved public transportation to upping fuel efficiency. It's this last one that leads to one of the clumsiest attempts of slight-of-hand I've seen in a long time, McArdle's odd conflation of not having a car and of not having an SUV.

From:

And while most of those car trips are the business of everyday life -- getting to work, procuring food, etc. -- most of those flights are either vacations, or elite workers flitting to conferences and business meetings.

To:

Giving up air travel and overnight delivery is much more personally costly for the public intellectuals who write about this stuff than giving up a big SUV. If you live in one of the five or six major cities that contain virtually everyone who writes about climate change, having a small car (or no car), is a pretty easy adjustment to imagine. 

This is simply amateurish. In the penultimate paragraph, McArdle goes from the necessity of having a car to the necessity of having an SUV, having laid no groundwork despite the fact that if easy improvements in automobile  fuel efficiency are possible, her whole argument falls apart.

Priors

Mark P and I have been having a conversation about climate change and car use in the comments of this post.  Somehow I seen to have gotten him to defend SUV use in Los Angeles.  Not that this is irrational -- to be fair I was telling him on the phone yesterday how I have actually considered purchasing an SUV for my next vehicle (would it help to note I am looking at how much to save up to make it a hybrid?). 

But the real context was that I quoted Megan McArdle.  Ms. McArdle has a fairly poor reputation among the progressive movement due to her defense of Libertarian ideals using some pretty sneaky arguments.  Add in some tendencies for her writing to be lively but a bit sloppy and people can be very skeptical of McArdle quotes.  In particular, I suspect that progressives are annoyed at her firing at a key piece of the lifestyle of some of their core groups (we build a global community via travel) as part of putting us on the defensive. 

On the other hand, I do think that it would be useful to admit that fighting climate change is going to involve sacrifices.  Cheap energy is a positive good.  I love cars, electricity, and a wide variety of food even out of season.  But I think the real trick will be to focus on pricing in the externalities that massive burning of carbon entails.  Does that main people should not have SUVs or air travel?  No, but it does mean it might be worthwhile to make sure that the costs of these items is properly priced into the market. 

So I think it is worth thinking about these arguments, even when we are suspicious of the source.  After all, I would be even more surprised if progressives disagreed with her post on brokers and why it is a bad thing if the only way they can manage small accounts is by fleecing their owners.  On the other hand, I get deeply suspicious of arguments as to why companies shouldn't necessarily be held liable if their products prove harmful.  

Let me guess, it's like Netflix but with Legos

This is what a few million in start-up capital and  a good PR firm can get you, people all over the internet slightly paraphrasing then posting your press releases for you (or in the case of Businessweek, going the above and beyond and writing an unadulterated puff piece in exchange for a couple of exclusive quotes).

Pleygo’s Near-Perfect Pitch: It’s Like Netflix for Lego (Businessweek)


Pleygo Is Basically Netflix for Legos (Time)


Pleygo is to Lego what Netflix is to movies (Gizmag)


Pleygo: Netflix for LEGO (Tehnabob)


Pleygo, A Netflix-Style Rental Service For LEGO Sets (Geekologie)

What none of these articles mention is that, other than both products being relatively durable -- almost none of the reasons why DVDs-by-mail was a good idea apply to Legos-by-mail, but that's a post for another time.

The topic for the moment is the way products and businesses generate buzz. Right now journalists mainly seem to rely on the circular "We talk about it because it's important"/"It's important because everybody's talking about it." One of the many problems with that line of reasoning is that it's really easy for people with money and influence to get that cycle going by appealing to journalists' laziness, greed, vanity and herd instinct.

Much of the effectiveness of PR comes from the fact that, compared with traditional advertising, it hits us with our defenses down, We tend to assume that the writer has uncovered something interesting and dug up the relevant details. That was never entirely true, but these days, with a flack-to-hack ratio approaching 9:1, you should generally assume the opposite.

Social epidemiology of who does not get vaccinated

This post on who is actually refusing vaccination for their children is interesting indeed.  Consider:

 As Seitz-Wald explains, the unvaccinated kids are clustered in some of the wealthiest schools and neighborhoods, particularly in California, where some extremely expensive private schools have vaccination compliance rates as low as 20 percent. Anti-vaccination sentiment has been stereotyped as a mindless lefty cause, but in reality, Republicans are slightly more likely to oppose vaccination than Democrats. The real correlation is between having a lot of money and class privilege and opposing vaccination.

 This puts the whole issue of selfish behavior in a completely different context.  Especially as failing to vaccinate an older child can result in the infection of younger children.  So people with the most resources are deliberating deciding not to support the social good of reducing the burden of infectious disease among children? 

The speculation about reasons is unclear, but the most grisly possibility is that it is a status symbol showing that a special class of people should not have to follow the rules.  There is very little public health justification for exempting people because they want to feel special and like the rules do not apply to them.  We did not create special person exemptions with the prohibition of dumping raw sewage on the streets or dropping your garbage into city parks, we should not do it here. 

Climate change and air travel

I have heard this argument from Megan McArdle before:

The question answers itself, doesn’t it? Giving up air travel and overnight delivery is much more personally costly for the public intellectuals who write about this stuff than giving up a big SUV. If you live in one of the five or six major cities that contain virtually everyone who writes about climate change, having a small car (or no car), is a pretty easy adjustment to imagine. On the other hand, try to imagine giving up far-flung vacations, conferences, etc. -- especially since travel to interesting locales is one of the hidden perks of not-very-well remunerated positions at universities, public policy groups, nongovernmental organizations, and yes, news organizations.

But I tend to credit it as having at least a little bit of truth.  It would personally cause me a great deal of grief if it were to become a social norm, given how far away from my family that I live.  But it is true that air travel is a very tough source of carbon emissions to remove, given the need for high energy density fuel.

But I think that this fits in well with how nice it would be to improve train travel, which is a very carbon-friendly mode of transportation.

Government secrecy

It is fashionable right now to see people who leak government secrets as being some sort of hero.  It is true that secrecy in government action can be subject to significant abuse.  But Eric Posner points out that transparency is not all good in a democracy:

Thus, the debate is not “democracy vs. security,” as the press has invariably framed it. It is, paradoxically, “democracy vs. democracy.” The secret ballot is the most famous illustration of the essential role that secrecy plays in a democracy. The secrecy of the ballot protects people from intimidation so they can vote sincerely, but it also enables a dishonest government to manipulate elections since people’s votes are not publicly verifiable.

Commentators always emphasize the importance of openness to democracy, forgetting that secrecy is just as essential. Often they treat secrecy as a disagreeable golem that lurks unwanted in our democracy, whose claims must be entertained but should be treated with the utmost skepticism. The New Yorker’s John Cassidy, for example, celebrates Snowden (and Manning) for generating huge gains in public accountability, while discounting the government’s claims that he caused serious harms to national security by revealing methods to enemies who can henceforth evade our spies.

I think that the secret ballot is a very good example of a case where transparency could actually prove counter-productive.  The potential for intimidation in revealing the specific voting decisions of people who need to work with the next government (think of government bureaucrats or people who contract with the government) is actually pretty huge.  I also wonder if the focus on victimless crimes doesn't lead to more problems than it is worth, leading to a huge need for secrecy about matters that are usually adult decisions.

I am not sure I completely agree with the decision to go with lower levels of government transparency there is clearly a trade off here.  But I have to agree that Posner brings up a good point that there is a point where openness could actually create more problems than benefits. 

Infrastructure that requires no new tech

Matthew Yglesias on low tech solutions:

It's no hyperloop, but here's one way we could make the trip from New York to Washington, DC much faster. It's called a "passenger train" and all you need to do is instead of relying on existing tracks build whole new tracks that go more or less straight. And instead of slowing the train down by stopping in Baltimore and Wilmington and Trenton and such you'll just traverse a bunch of jurisdictions without actually providing them any service.

What is ironic is that these jurisdictions that are bypassed may still be better off.  All you need to do is have small express trains to either Washington, DC or New York (whichever is closer).  Two fast trains may well be better than one slow train that is always stopping.  It even fits the Mark P principle that it can be done now with currently available technology.  No need to hope that technological break-throughs will continue at a historical pace to allow the technology to become viable one day . . .

Film history for fools -- box office disasters

Consider this a footnote to the previous Motley Fool rant.

There's an old and very common saying in Hollywood that the biggest money-losing film ever was the Sound of Music. The joke here is that though the film did rather well...

Upon its initial release, The Sound of Music briefly displaced Gone with the Wind as the highest-grossing film of all-time; taking re-releases into account, it ultimately grossed $286 million internationally. Adjusted to contemporary prices it is the third highest-grossing film of all-time at the North American box office and the fifth highest-grossing film worldwide.

... The films it inspired lost a lot of money. That's a bit of an oversimplification. Music was just the last of a string of hit musicals in the early Sixties ( West Side Story, The Music Man, My Fair Lady, Mary Poppins) but it was the biggest and it suggested an upward trend and, to the extent that it was responsible for what followed, it might well justify that money-losing title. 

The commercially and/or critically unsuccessful films included Camelot, Finian's Rainbow, Hello Dolly!, Sweet Charity, Doctor Dolittle, Star!, Darling Lili, Paint Your Wagon, Song of Norway, On a Clear Day You Can See Forever, Man of La Mancha, Lost Horizon and Mame. Collectively and individually these failures crippled several of the major studios.

I don't want to push the analogy with comic-book movies but there are similarities, particularly regarding the budgets and the stories executives told themselves to justify them. 

And I'm pretty sure if Motley Fool had been around in, say, 1967, these upcoming movies would have generated lots of optimistic exclamation points.

Because that's the way it is with hot trends, they just keep getting bigger and bigger forever!

And don't forget to invest! Super-powered movies have been some of the highest-grossing films of all time, and as these franchises continue to grow, the numbers are only going to get more impressive. The Motley Fool's new free report "Your Ticket to Cash In on the Superhero Battle of the Century" details what you need to know to profit from your favorite superheroes. Click here to read the full report!

DC Comics Turns to an Anti-Hero in Its Time of Need

As part of researching a couple of ongoing threads, I've been reading more Motley Fool than is good for me lately and it's brought home just how much of a scam MF and most of its ilk is. They've mastered a reassuring, knowing tone despite displaying only the most superficial knowledge of the industries they're discussing.

What's worse, each tired piece of under-researched conventional wisdom is presented as a reason to call your broker. Netflix is going places since it grabbed House of Cards (never mind that they probably overpaid, particularly since they didn't even get syndication rights); Hold it, Netflix might be in trouble because their new kids' show is a spin-off of the flop Turbo (never mind that the Turbo show was part of a much larger Dreamworks deal that involves hits like Kung Fu Panda and How to Train Your Dragon or that historically spin-offs of hit kid's movies like Disney's Hercules, Lilo and Stitch and even the Lion King haven't been notable hits on their own so it's not clear how much difference a good opening for Turbo would have made).

The truth of the matter is that very few of us should try to pick stocks and if you find yourself frequently saying "I didn't know that" when reading Motley Fool posts you are definitely not one of those few.

Weekend blogging -- Anthromorphic Theater

This cartoon from the aftermath of the meltdown had been lying forgotten in a corner somewhere since it first came out. It's less topical now but it's a nice snapshot of a part of the crisis some people mey have forgotten.

Owning a business in Russia can be tricky, it seems

This story cited by Tyler Cowen really shows the problem of private or corruptible police:

Most of the imprisoned are not there for any political reason. Their incarceration has to do with the nature of Russian corruption, said Elena Panfilova, the director of the Russian branch of Transparency International, a nonprofit group that studies corruption around the globe. Run-of-the-mill bribery schemes, practiced from China to Mexico, usually involve the police, fire inspectors or other regulators asking for payments on the side to allow a business to operate. In these instances, the interests of the business owners and corrupt officials are aligned — both ultimately want the enterprise to succeed.

But in Russia, the police benefit from arrests. They profit by soliciting a bribe from a rival to remove competition, by taking money from the family for release, or by selling seized goods. Promotion depends on an informal quota of arrests. Police officers who seize businesses became common enough to have earned the nickname “werewolves in epaulets.”

This type of problem really points out why you need a state that is strong and well functioning.  Because there is a bad equilibrium for a police force to shift into (see above), it is critical that there be an external check on the shift into these equilibrium.  It also tells us just how valuable a tradition of "good government" is and how deeply we should prize it.