Drewbot

In a recent issue, The Economist discussed the financial markets’ reliance on ratings agencies. In the piece they unpack the reasons for this reliance and the alternatives going forward.

Reading it spurred a thought: perhaps the issue lies not with the ratings agencies but with the concept of rating itself. Boiling down complexities to a single note is always perilous. In the best cases, blind spots remain as subjects emerge with new types of complexity not considered when the model was made.

But ratings remain because they’re easy. The Economist doesn’t see them leaving anytime soon because institutional investors are “reluctant to do their own credit analysis.” Even when people know ratings are faulty, people choose to believe in ratings because it’s more appealing that dealing with complexity itself.

Further, the market has evolved to a speedy form dependent on easy, one-size-fits-all, business assessment. If investors were to perform the work of ratings agencies and understand the complexity, their data would be dated by the time they finished. 

And this isn’t limited to financial markets. Pick a reductionist rating start interrogating it: movie age ratings, Nielsen television ratings, and even an overemphasis on calories as a dietary indicator in the 1990s. All of these might start out nicely, but they eventually falter. Nielsen underweights youth programming as it can’t account for digital viewing habits. Focusing on calories ignores the impact of sugar or fats, let alone completely overlooks any aspect of nutrition.

Does anyone know of a book or article that explores the perils of one-dimensional ratings in general?

What happens when you’re obsessed with appeasing your current, insanely loyal customer base? You end up adding features requested by superusers and end up with this:

• The Age of the $600 TiVo is Nearly Upon Us (via Gizmodo)
• BlackBerry Bold-ly Gambles with High Cost Handsets (via GigaOm)

Who needs a TiVo with four HD tuners and storage for nearly two weeks of HD content? I’ll bet you $600 it’s a person who already owns a TiVo, if not several. Same for BlackBerry: are accolades like “best keyboard ever” relevant to anyone who doesn’t own a BlackBerry?

High-end BlackBerrys and TiVos are short-term business boosts, at beast. They extract profits from passionate consumers with little regard for growing their base. Such pricey products that pander to loyal users are an appealing option when companies need to show the market profits now. These companies are scared to go back to the drawing board and invest in R&D while abandoning the requests of core customers who seem to be the only people still rooting for them.

This move is the beginning of a death spiral: it appeals to the most valuable, existing customers while your mass market base shrinks. No one enters your funnel because—honestly–-who the hell is going to take a risk on $600 TiVo when Comcast is spotting you a DVR for a few bucks a month.

Josh Nguyen wrote about about Yahoo’s downturn a bit ago and reminded me of this phenomenon. Personally, I can’t help thinking that this ‘loyal customer myopia’ plagued Jerry Yang and contributed to the downfall of Yahoo.

As Yahoo faltered, the overwhelming passion of the core fans was always held up as proof the company was on the right track. While Yahoo stagnated, innovative programs were often evaluated by whether or not the “Yahoos” would love them. They never considered that their core user base was a shrinking minority within the larger, evolving web. Making decisions based on loyal feedback and enthusiasm guaranteed stagnation. New users weren’t coming into the funnel because they weren’t being addressed. The only way Yahoo could go was down.

Take note: you can always lose existing users, but you can never add existing users.

TiVo and BlackBerry have two of the most passionate groups of users among stagnant companies. I fear that they’re listening too closely to these people, prioritizing their feature requests, and selling products that are only valued by the users they already own. With this strategy, they can only go down. New users will balk at the prices and never earn the experiences needed to justify the cost. It’s a catch-22 that will eat away at their base.

To follow politics is to follow language.

Note of the euphemisms, metaphors, and turns of phrase. Linguistic innovation allows for rhetoric and logical tricks and turns. It takes a program or idea with one meaning and cloaks it in another.

If you want to know what’s important and what’s being hidden, pay attention to new phrases. These emerge due to political needs. They’re carefully vetted by marketing and PR agencies, focus grouped to death, and hammered into representatives and candidates so the natural noun or verb is all but forgotten.

No new term has made me quite as angry as “job creators,” today’s euphemism for corporations.

The term is unavoidable if you’re paying attention to the debt ceiling debate. It made it’s first major appearance in May of this year when the GOP rolled out the “House Republican Plan for Job Creators.” Lobbying groups and other associations are taking up the flag. The Job Creators Alliance only recently emerged (whois dates the URL to October of 2010) and sports a who’s who of conservative backers.

What’s particularly evil about the phrase is how it hides one of the major reasons for the GOP debt ceiling hold up. John Boehner keeps refusing compromises from the left due to “tax increases on … job creators.”  And if we unpack this populist tinged language we’re lead back to corporations, and from there to lobbyist and reelection money.

So with just a little linguistic twist, a carefully chosen and tested euphemism, playing chicken with US interest rates can be cast as defending jobs, not kowtowing to the future funders or reelection campaigns. And this noun isn’t yet a year old.

If you want to follow politics always mind the language.