The SoapBoxers

The recent focus on the case of Troy Davis has made me think about the death penalty and its place in the American justice system.  I won’t comment on whether or not I feel Davis is guilty, because I haven’t paid enough attention to his case to justify having an opinion.

Capital punishment is a controversial issue in the United States.  Fourteen states have abolished it (Alaska, Hawaii, Illinois, Iowa, Maine, Michigan, Minnesota, New Jersey, New Mexico, North Dakota, Rhode Island, Vermont, West Virginia and Wisconsin), while other states (notably Texas) execute prisoners with some regularity.

Are there crimes worthy of capital punishment?

The first question I ask myself is whether there are crimes that are worthy of the death penalty.  I do feel that there are some crimes where the death penalty is an appropriate punishment.  I believe that capital punishment is an appropriate punishment for cases of premeditated murder in which the perpetrator acted in cold blood.

While there is a segment of the population that advocates the death penalty for some sexual crimes, specifically those against children, I do not agree.  While I am the father of two young children, I believe is necessary to consider what is just in these cases, rather than what I would prefer for the punishment.  I truly believe that at some point down the road, medical science will discover a treatment for sex offenders.  The high rate of recidivism among offenders make me believe that an underlying mental defect contributes to the behavior.  However, I do realize that this is a controversial opinion and don’t want to get sidetracked too much.  The article is about capital punishment, not sex offenders.

Should we use capital punishment?

So I agree that there are crime worthy of capital punishment.  Do I agree that we should actively use the death penalty?  No.

There are a number of arguments that are made against the death penalty.  Amnesty International and other organizations argue that capital punishment is cruel and unusual, and often are joined by world leaders such as the Pope and Jimmy Carter.  Others argue that the cost of the nearly inexhaustible appeals a death row inmate is allow are a huge burden upon the taxpayers, and that it would be cheaper to simply incarcerate the person for life.

Those aren’t my reasons.  I’m opposed to the death penalty because it’s irreversible.  Our entire criminal justice system is biased toward the accused person, in an effort to prevent wrongful convictions.  For example, the burden of proof in a criminal case is beyond a reasonable doubt, as opposed to the civil burden of proof, which is a preponderance of the evidence.

What I worry about is one wrongful execution.  If you imprison someone for life and discover that they were wrongfully convicted, you can set them free, pay a settlement, and let them begin the rebuild their life.  Things will never be the same as they were before their imprisonment, of course, but they’ll still be able to hear the birds sing and catch a game at the stadium.

If you execute someone and realize later that they were wrongly convicted, there’s not much you can do other than apologize and cut a check to their family.

Can’t happen, with all the safeguards in the system?  I disagree.  It would only take a few dirty cops working in concert to plant evidence and frame someone.  While I believe that the vast majority of cops are dedicated public servants, it’s no secret that a small number are corrupt.  But even if those involved in the investigation conduct themselves professionally, evidence can sometimes be misleading, especially when dealing with newer scientific methods which are still being refined.

It’s my belief that one wrongly executed person is one too many.  I’d rather have a hundred serial killers doing life in prison (instead of on death row) than one innocent person executed.  I don’t want that “one too many” to be me.

The topic of gold investing is a divisive one. One group of people say that gold is a great way to hedge against inflation and that it is a much better than currency. Others, such as myself, feel that the gold investors are simply replacing a de jure currency with a de facto currency. Are people investing in gold because of an underlying value in the product, or because they feel it will be a valuable trading chip in the case of an economic meltdown? If it’s the latter, then gold has become a de facto currency. If both are currencies, should we ridicule the dollar while at the same time praising gold?

Who knows more about precious metals than the people who go deep into the crust of the earth to extract them? Today, we sit down with Engineer Joe, a metallurgical engineer currently working at a mine in Peru.

Kosmo: First of all, why invest in metals at all? Why not put your money into other raw materials, such as rock, paper, chemicals, or water? What makes metal special?

Engineer Joe: You can buy rock (minerals), natural resources (paper, wood, whathaveyou), and most of the chemicals needed to make plastics are metals or derivatives of metals on the market. Water is not considered a tradable thing because of its abundance, but the metals and chemicals to treat water can be bought.

But none of those things retain their value like metals. Metals are easier to reuse (thus why they pay you to recycle aluminum and other scrap, but you have to pay to recycle paper and plastics), easier to extract, and easier in general to work with.

Kosmo: OK, gold is pretty, and it conducts electricity really well, but if you’re starving, you can’t eat it. It seems ridiculous to pay $1900 per ounce for something with fairly limited uses.

Engineer Joe: Gold is the flubber of metals. It can do some weird shit, along with looking cool. It’s extremely malleable (a single gram can be beaten into a sheet of 1 square meter, or an ounce into 300 square feet), one of the most chemically resistant solid elements (for complete dissolution, you need to use a teflon coated beaker), more dense than most metals (almost twice as dense as lead), and it’s pretty rare (as of 2009, only 165,000 metric tonnes have ever been mined in human history, whereas most of the larger metal mines produce over half a million tonnes a year of common metals). Take all that, and find that it has a relatively low melting point and conducts electricity. It has all the most desirable characteristics of metals, rolled into one.

Kosmo: OK, gold is flubber. Very versatile and great for a lot of things. However, is there a point at which you go to a substitute? If gold goes to $1 million per ounce, obviously you’d need to use substitutes for a lot of uses. Not optimal, but acceptable. $1 million is an extreme example, but where is that line in the sand? $2500? $10K?

Engineer Joe: Yep, one of the best substitutes for gold is silver, which may be in part why its value has grown so much over the last two years. Certain applications can use other metals, which drives their value up as gold rises. But there are certain things that only gold may be used for, such as thin film deposits as on circuit boards. Only gold can be applied so thin and precise, and not corrode over millions of uses in many environments.

Kosmo: There are a lot of mines currently extracting metals from the earth. Is there any way I can keep track of the status of mines?

Engineer Joe: The USGS maintains a list of total inferred reserves (inferred by initial exploration), total proven reserves (final prep before mining), and total available reserves (in mines currently operating). As a company starts to reopen a mine, it moves the reserves from proven to available, which usually causes speculation that more supply will be available, and thus a price drop.

Most people are looking at the total reserves available for mining right now and the demand on the market. London Metal Exchange (LME) keeps track of all available raw metals available for trading on the market, and, for a price, you can see how many tonnes of any metal or significant mineral are available. You can also track the demand with their system. They also act as a middle man for buying large quantities.

Kosmo: One of the factors that keep the price of gold and other precious metals so high is the perception of scarcity. In theory, a mining company could strike a rich vein of gold tomorrow, right?

Engineer Joe: Actually, there is a mine in Alaska near Bristol Bay (Pebble Mine) working on obtaining necessary permits. If they can get things rolling in the next couple of years, you will see a drop in Gold, Silver, Copper, and other metals. It is the largest polymetallic deposit in the world, and their initial estimated production numbers show that it will dwarf all other mines currently in production. But they still have a long way to go.

Kosmo: When oil prices began to skyrocket, I heard about oil companies re-opening wells that had been capped years before. Oil wells that were unprofitable when crude was selling for $50 per barrel were profitable when oil was selling for $90 per barrel. It makes sense that there would be a similar situation in the mining industry – mines where the cost of extraction was high enough to make them unprofitable when gold was selling for $500 per ounce could be a cash cow with gold selling for $1900 per ounce.

Engineer Joe: Yes, this is the case of many mines. Most large mining companies will expand and buy these old properties, or just the mineral rights to them. They will do an assessment, determine the cost of remediation and reopening, and set a minimum price needed for reopening.

The Climax Mine in Leadville, Colorado is a good example. It was shut down in the early 90’s (as well as many times before), but Phelps Dodge (now owned by Freeport McMoran) announced in 2005 that it would refurbish the processing mill and reopen the mine. In 2008 Molybdenum prices dropped below where they though it was profitable to continue with reopening, so they idled the project. They resumed in early 2010 when both their stock price and Moly prices rose. It still has yet to be opened. Many presume that they just want to get the property “ready to operate” but not actually produce anything because it deters other companies from trying to develop a new mine or would be a good property to sell to a company looking to expand. It can take over 5 years to develop a new metal mine in the US right now. The EPA actually gives precedence to issuing permits if a company wants to reopen a mine because it includes clean-up of any problems that may exist and that the government is currently funding. So the process is faster than obtaining new permits from the EPA.

The problem that Freeport and many other companies see with reopening is the price of environmental remediation, and the fact that after buying the property, entering into environmental contracts with the government, the prices may drop due to the increase in proven reserves available for mining. That is why it is good for large mining companies to own the mineral rights, but not develop the old mines until the price gets so high that even with a drop it will be profitable to operate the mines.

Kosmo: In the oil market, OPEC has the power to set prices. They act as a cartel, working in concert to fix prices in a manner that maximizes their profit over the long term. This does not violate U.S. anti-trust laws because as a foreign entity, OPEC is not subject to these laws.

Does a similar situation exist in the metals market? Is there a cartel setting prices, or does the price fluctuate simply based on supply and demand?

Engineer Joe: I’m not aware of any cartels in the mining industry, other than diamonds. The most accessible diamonds are in Africa, and those mining companies did a good job over the years of protecting their investment. Things are changing now, as many jewelers won’t buy diamonds from Africa. There aren’t really any other companies or countries that have the most of a particular metal.

There is, however, an entity that plays a major role in the market.

There is this country in the Far East, with over a billion people. Maybe you’ve heard of it? For the last decade, they have been buying and stockpiling metals of all sorts, based on what they think they will need for the development of their country. This is probably the single reason why metals skipped a downturn in the mid-2000’s. Right now, they are still buying metals used for alloying steel, along with copper and other critical metals, and just stockpiling them. They’re still in raw form, so when processing prices drop, they can take advantage and have as much as they need. And if the prices rise, well then, they’re in a good spot to sell at a rate that wouldn’t flood the market.

Within the country, there are many natural occurring rare earth elements not found in abundance in many other places. They won’t sell those on the open market, and many speculate it’s because most rare earth elements are used in missile guidance systems and smart weapons. They really aren’t breaking any rules, but many speculate if there was a war, China (oops, just said their name) would be the most powerful country because of the amount of resources they have stockpiled. That is kind of scary, but the truth. And who knows how many oil reserves they have.

I was in a meeting when the planes hit the twin towers of the World Trade Center.  I know that the meeting was related to the project that re-wrote the system I support – turning a fat client application into a thin client one.  Any details of the exact content of the meeting have long since faded.

At the time, I worked in a building that houses five thousand IT professionals.  The building has a constant buzz of background conversation as people work together to solve problems.  On a typical day, you’ll see most people at their desks, with 2-3 people at some desks.  As we walked back from the meeting on September 11, 2001, where was none of this.  We became aware of the fact that larger groups of people were huddled around monitors.  At first, this seemed a bit unusual, but not overly so.  After all, in such a large building, there will be a handful of slightly odd occurrences at any point in time.

We quickly noticed that this was not an aberration – there were lots of groups of people huddled around monitors.  Curiosity got the better of one member of our team, and he joined one of the groups.  A minute later, Jeff caught up to us and shared the news – terrorists had attacked by crashing planes into the World Trade Center.

Most of the rest of the day was spent following the news as it unfolded.  Management didn’t make much of an effort to deter people.  Work wasn’t getting done, but there was the overriding feeling that this was an important day in the history of the country.  Impromptu prayer services were organized.

Later that day, I was in my car and noticed a single air plane flying across the sky.  Since US air space had been closed earlier in the day, the jet was clearly Air Force 1.  It felt very odd being able to look into the sky and know exactly where the president was.  Then the plane passed, and the sky was entirely devoid of air traffic.  Surreal.

Gas prices had risen dramatically during the day.  I had filled up a few days ago, so I wasn’t forced to buy at the panic prices of September 11.  I resisted the urge to top off my tank – would an extra two gallons of gas do anything for me?

I’ve never been the type of person who watches very much news.  However, that night, I was glued to CNN.  For the next several days, I followed the developments – praying for the victims, and hoping that more would be pulled out alive.  Hoping, too, that there would not be a backlash against American Muslims who had nothing to do with the attacks.

The Iowa State – Iowa football game was scheduled for the following weekend, and  I had a ticket to the game.  Like all other games that weekend, it was postponed.  I decided not to let the terrorists win, and I went forward with the weekend as planned – sans football game.  I drove the 330 miles to Ames, Iowa and had a good time hanging out with friends (including The Crunchy Conservative).

It’s certainly not as dramatic as Zarberg’s personal memories of 9/11 (great article with several photos), but that’s my story of September 11, 2001.

Where were YOU on September 11?

On Thursday, Amazon was given a one year reprieve from collecting sales tax by the state of California. During this year, Amazon will likely lobby California legislators in an attempt to make them, and other internet-based vendors, exempt from the duty of collecting sales tax.

Historically, only in-state sellers have been responsible for collecting and submitting sales tax. If a California resident drives to Oregon and buys a big screen TV, the Best Buy in Oregon does not collect California sales tax on the TV (and since Oregon has no sales tax, this means that no state received sales tax revenue from the sale). Of course, residents of states that have a sales tax are required by law to file a use tax form on which they list out of state purchases and pay taxes on those items. However, this is widely ignored, and a large chunk of the population is completely unaware of this requirement.  You would think states would make an effort to education people, but I haven’t seen evidence of this occurring.

The core question, really, is whether Amazon is like the Oregon Best Buy (which is not required to collect California sales tax) or like a California Best Buy (which is required to collect California sales tax). The California brick and mortar stores say that Amazon should be treated the same as they are – but Amazon could just as easily say that they (as an out of state internet retailer) should be treated the same as an out of state brick and mortar retailer.

In recent years, a number of states have passed – or strengthened – legislation defining the meaning of a business nexus. In California, affiliate programs such as the Amazon Associates program are deemed to be a business nexus, which would trigger the requirement to collect sales tax. Personally, I think this constitutes a pretty weak business nexus, as the associates are clearly independent contractors rather than people who are captive to Amazon.com.

(For those of you who don’t know what the Amazon Associates program is, it’s a system that allows people to earn a commission on Amazon sales by linking to Amazon on their web sites. The links contain a special code that allows Amazon to determine the source and credit the correct account. Look around The Soap Boxers and you’ll see a few of these.)

When California’s new law went into effect on July 1, Amazon immediately terminated agreements with thousands of Amazon Associates. No Amazon Associates meant no business nexus in California. Now that Amazon has a one year reprieve, will they immediately reinstate their affiliates?  There has been no word yet. Here are some reasons why they might not.

• If Amazon wants to continue to lobby for an exemption to collecting sales tax, they will want to minimize the perceived important of the Associates program. Rushing to reinstate the Associates will make it appear as if the Associates are a critical aspect of Amazon’s business – a bona fide nexus. Thus, they may choose to exhaust their lobbying efforts before reinstating affiliates.
• Amazon has retained mathe heavy hitters. There were some people making thousands of dollars per month from the Amazon Associates program. Many of these people set up shop in a neighboring state when Calfornia’s law went into effect (which had the effect of taking income tax money away from the state of California).
• While many people switched to a different affiliates program when Amazon drop the Associates program, many simply left the old links in place. In some cases, links were sprinkled across hundreds or thousands of pages on a web site, and there was the perception that it would take too much effort to make a change. These links are golden to Amazon – they are still directing traffic to Amazon, but Amazon isn’t paying a commission on the links.

Quarterbacks– A couple of guys I like here that will not immediately come off the board but can help you out. First is Josh Freeman – The Bucs are young and people forget they won 10 games last year. Look for even a better performance this year. Also he is a bigger name, but the Cowboys are not going to be ahead in many games so grab Tony Romo to get you some big time stats. Be a little more cautious of him however in leagues that penalize for throwing interceptions

Running Backs – Love me some Ryan Matthews. He was highly touted last year but was banged up early, never really looked to be in shape, and was a large bust as a rookie last year. Have a short memory here. He will get the load of carries for a Chargers offense that was #1 in the league last year.

Legarrette Blount is another guy I like (wow two Bucs players early on) He came on late last year and since he is in Tampa flies under the radar. He should be on yours

Wide Receivers – Former Stud now turned sleeper is Chad Johnson ( I am calling him by his real name since he got shut down by the Jets last year and then never followed through to change his name back) He is with the Pats, Brady has to have someone to throw to…and let’s face it….the Patriots have NO running game at all. Dez Bryant – See my comment from Romo above. Miles Austin still will get the brunt of the coverage which means a healthy and big play maker Dez will get plenty of chances to shine

Tight Ends – Heath Miller – Big Ben is in town for all of the games this year, and with and aging Hines Ward, this guy becomes and even more popular target for the Steelers offense.

Kickers – I will go to the homer card here and take the rookie from Nebraska Alex Henery – He steps right in with the Eagles who have had David Akers…well …forever. This is one of the harder places to kick in all of the NFL due to the wind conditions as well as the fan base, but the Eagles will have plenty of opportunities to score. If you have to have a rookie on your team, this is the guy to have as he is about the safest bet to score 130-150 fantasy points.

College Football Week 1 recap

The early talk of the college football season is not the fact that Johnny G picked straight up upsets by Bowling Green and more impressively the Baylor Bears over TCU. Nope, the newly rolled out uniforms of the Maryland Terrapins made the twitter world blow up last night. If you think these looked funky, wait until you see what they will roll out later this year with some other color combinations that they have available in their arsenal.

Once again Notre Dame proves that they are horribly over-rated in the polls and now have a distinct possibility of starting 0-2 as they face Michigan this week.

Boise State blows out a super over-rated SEC foe in Georgia. Boise State has 17 returning starters and a bunch of seniors….Georgia well…they could not even beat the Colorado Buffaloes last year. This was about the easiest upset pick of the week in Johnny’s opinion. Boise now has a clear path to undefeatedness once again but will they get a shot at the title game once and for all? I am sure the talking heads on ESPN will be rolling this out all day today…too bad I am not home to watch it.

Until next time…stay classy Dubuque Iowa!

When I was in high school, we filled out questionnaires to gauge our interests.  When the results came back, we were given handouts about which careers would be a good fit.

Most people received info on a few careers.  Two of us received the entire handout, with information on dozens of different careers.  The computers had choked on our answers and couldn’t really determine where we fit.  Even at this early stage, The Man was learning not to pigeonhole the Kos.

I ended up working in IT.  It’s an interesting job on most days, a good company to work for, and my co-workers are great.  Often, though, I wonder what it would have been like to end up in a different job.  Here’s my list of dream jobs.

1.  Baseball player.  I’m 36, so the window is really closing on this.  Lack of talent could also be a roadblock.

1B.  Baseball General Manager.  If I can’t play the game, why not control the game?  The general manager is in charge of nearly every aspect of team operations, from the annual draft to trades.

2.  Writer – As the Beatles would say, I want to be a paperback writer.  I’ve had an interest in writing since elementary school.  In recent years, I’ve been working harder toward this goal.  It would be great if I can eventually become a full-time writer, but barring that, it’s a fun part-time gig.

3.  Paleontologist – You didn’t see that one coming, did you?  I’ve had a deep interest in dinosaurs since the day I was first made aware of them.  I’m sure that a large part of the allure is that fact that this is an almost entirely theoretical field.  The fossil record can provide a lot of clues, but you can’t directly observe dinosaurs.  (Or can you?  maybe a trip to Costa Rica would do the trick?)

4.  FBI Agent – At one point, I went as far as contacting them regarding a position in the computer crimes division.  By the time I heard back from them, life circumstances had changed and the window had pretty much closed.  Computer crimes would be an interesting gig, but so would forensic science.  Although I don’t watch the fictionalized shows like CSI, I’m a big fan of The Forensic Files.

5.  Lawyer – If you’ve been a long time reader, you’ve probably seen me swerve into legal topics from time to time.  I’ve always found the law interesting.  I’d be interested in a lot of different areas, but I think I’d end up as a defense lawyer (with only innocent people for clients, of course).

6.  Professional student – If money was no option, I’d pursue a few degrees (or maybe just attend a few hundred random classes).  I have a very broad set of interests, and could easily fill the rest of my life learning new things (and reading contemporary fiction in my down time).

Now it’s your turn.  If you could change jobs, what would you be?

OK, it’s a grab bag of random thoughts today.

First of all, the other writers don’t get enough credit.  This site stated out as my baby, and in the early days I was writing 5-7+ articles every single week.  I can’t imagine how this was possible, but I made it happen.  Over the years, the number of regular writers has grown to the point where I write between one and three articles each week – much more manageable.  In addition to taking a big chunk of the load, the other writers also introduce unique perspectives.  A heartfelt thank you.

There’s a new car in Kosmo’s garage.  The first three car purchases I made were Ford Tauruses.  This time around, not only did we go outside the Ford family, but also with a foreign car maker.  The “new” car is a 2007 Hyundai Elantra with about about 66,000 miles on it.  It will be used primarily for for 70 mile round trip commute.  The previous owner stated that it would get 35 on long stretches of highway.  I can definitely believe that.  I mix in a bit of town driving and am getting in the 32-33 mpg range so far.

I’m still hoping to see more $99 HP Touchpads pop onto the market after seeing my order confirmed and then canceled.  However, in fairness, it sounds like I was only able to place an order in the first place because of a glitch with Barnes and Noble’s web site.

Hurricane Irene is going to be in the news all weekend, and she threatens the east coast.  I’m hoping for the best.  If you’re in the affected region, please stay safe and heed any warnings (or orders) to evacuate.  Many people are watching New York City, which has tremendous financial exposure to a hurricane.  Hopefully the storm will have weakened somewhat by the time it hits New York.

I haven’t been writing much new fiction for the site lately.  I do apologize for that, but if you find yourself in dire need of my stories, you can always grab a copy of Mountains, Meadows, and Chasms from Amazon (Kindle edition).  I do expect to get back to at least one story per month in the future.  Weekly stories may be a thing of the past, though.

One of the reasons why I haven’t been writing as many stories – or articles – lately is the sheer number of projects on my plate at the moment.  I’m engaged in a few activities that are actually producing revenue streams, and feel obliged to devote some time to those efforts, even though they aren’t as much fun as writing fiction.

Between the activite projects and the ones I’m trying to get off the ground, I could probably work full time on my writing for the next six months without needing anything new to work on.  However, the fact that I have a “real job” means squeezing these projects into a small chunk of free time.  I’ve just begun work on a series of novellas about an unconventional detective.  I plan to do a simultaneous launch with two of the novellas (on Kindle, naturally), hopefully around the end of the year.  I’ve also gotten a start on a rather interesting non-fiction book that is currently on the back burner.  Then, of course, is my full length serial killer novel, which I’ll find the time to finish … sometime.

On Wednesday, Apple announced that CEO Steve Jobs will be stepping down from that role.  Jobs has been battling health issues – including pancreatic cancer – for several years, so the move was not completely unexpected.

For most people, Steve Jobs IS Apple.  Co-founder Jobs was forced out of Apple during a 1985 power struggle with CEO John Sculley (whom Jobs had hired).  By 1997, Apple was in a death spiral and its stock was hovering around $13 per share.  At  the close of day yesterday, Apple’s stock has trading at $373.60.  That’s impressive enough – but there have been two stock splits since then, meaning that a single $13 share has turned into 4 current shares worth a total of $1494.40.  As a longtime fan of Apple products, it was great to see Jobs initiate such a dramatic turnaround.

The big question is how this will affect Apple long-term.  Will the company endure a  recurrence of Jobs withdrawal?  I think things will be different this time, and these are the reasons:

This separation is different – The separation in 1985 was far from amicable.  Jobs was essentially fired.  This is a very different situation, with Jobs continuing as chairman of the board, as well as an Apple employee in some capacity.  He’ll be around to mentor new CEO Tim Cook as needed.  Barring a dramatic downturn in his health, Jobs is not going to simply fade into the background – he’ll still represent Apple.

The company culture is different – When Jobs was forced out in 1985, Apple was a company with a lot of infighting.  The Apple II division and the Macintosh division considered themselves to be rivals, with the Macintosh division flying a pirate flag over their building.  There was no strong sense of direction.  In fact, the Apple IIe line was not discontinued in 1993 … nine years after the introduction of the Macintosh.  While I loved the IIe as a kid, the Mac was an exponentially superior product by the time 1993 rolled around.  At the time Jobs left, the company was just 9 years old – still not fully mature.

The company is more diversified – When Jobs took over in 1997, Apple basically offered just Macs.  Jobs streamlined the number of different Mac models (at the time, there were a large number of models being sold, creating confusion for customers).  Since then, Apple has branched out into new areas (iPod, iTunes, iPhones, iPad, etc).  This diversification makes the company less vulnerable to a downturn in a specific market.

In a nutshell, I expect Apple to continue to charge forward.  Tim Cook has been with Apple since 1998, had been serving as Chief Operating Officer, and was the man Jobs had hand-picked to succeed him.  I expect that Jobs will still be involved in a lot of design decisions, while distancing himself from the more “boring” types of work.

HP TouchPad (Photo credit: blogeee.net)

On July 1, 2010, Hewlett Packard finalized a deal to buy Palm for $1.2 billion. Palm was a relatively small company struggling to keep its footing in the smart device market – competing against behemoths like Apple and Google (Android). Finally, the financial resources of industry titan HP would allow the Palm OS to thrive. My buddy Lazy Man over at Lazy Man and Money is a longtime Palm enthusiast, so this was great news for him.

Exactly a year later, HP launched a tablet based on their mobile WebOS – the HP Touchpad.  The 16 GB (storage) model debuted at $499 and the 32 GB model at $599.  This would be the tablet that would threaten market leaders Apple (iPad) and Google (makers of the Android OS that power most non-iPad tablets, such as the Samsung Galaxy).  Right?

Unfortunately, sales were lackluster.  While the Touchpad has nice integration with other WebOS devices, the fact of the matter is that there aren’t a lot of people with WebOS devices.  There were also other differentiation features – such as support for Adobe Flash (a technology that Apple steadfastly refuses to support on the iPad), but it wasn’t enough.  Faced with a TouchPad priced at the same level as an iPad or Android device, customers grabbed the Android or iPad.  A big reason for this was a lack of apps (although an emulator does allow the TouchPad to run many apps written for WebOS based phones).  While the iPad and Android devices might not have had a huge assortment of apps at launch, they do now.  HP was bringing an entry-level assortment of apps to the table while joining the race halfway through.

On August 18 – a mere 49 days after launch – HP announced that they would produce no more WebOS devices (although they will continues to develop the actual OS until they figure out what to do with it).

The next day, clearance prices were announced.  $99 for the 16 GB model and $149 for the 32 GB model.  People gasped – and raced to buy one.  What followed ended up being a huge debacle, with angry cutomers, crashed web sites, and orders cancelled hours or days after being made.  What went wrong:

What HP did wrong 

I really don’t understand HP’s logic.  Did they really underestimate the difficulty of competing with Apple and Google?  If so, that’s a pretty colossal failure.

Throwing in the towel after seven weeks on the market seems to suggest a minimal commitment to the effort.  Perhaps they could have included coupons good for $100 worth of TouchPad accessories from the HP store?  A lot of accessories are very high margin, so this would have looked great to customers without costing HP much.  Or perhaps they could have given new buyers a $100 credit toward the purchase of new apps.  Perhaps even a big discount on a wireless HP printer to use with the TouchPad (forcing people to buy ink cartridges – a nice revenue stream).  I came up with those three ideas while writing this paragraph – I’m sure HP’s marketing department could have come up with many more.

It seemed pretty obvious at the time of the price cut that they could have probably clearanced the devices at $200 and still sold all of them.  When  you drop down below $100, the device becomes a reasonable subsitute for a lot of other tech items.  Not only is it a cheap substitute for a laptop, but also a possible replacement for the 9.7″ Kindle DX ($379) at less the the price of the cheapest Kindle ($114).  Heck, you could even use it in place of a 10″ digital picture frame when not using the other features.  You essentially have a device with Swiss army knife type of flexibility, and it’s undercutting the single purposes devices that it could replace.

What the merchants did wrong

A lot of people placed orders, received confirmations, and they received a cancellation notice much later.  In my case, I received a cancellation order this morning, more than two full days after placing the order.  Needless to say, a lot of people were angry about this.  I wasn’t particulalry upset, because this seem to be a likely scenario based on what I was hearing from other people.

I’m not really sure what the issue was here.  Some sort of a failure regarding an inventory system, no doubt.  Barnes and Noble’s web site was perhaps in the brightest spotlight.  I saw a comment that Barnes and Noble’s inventory system is set up to handle books, which can always be re-ordered from the manufacturer.  That’s fine – as long as you only intend to sell books.  If you’re planning to sell items that can be discontinued, your system has to have a way to realize that zero stock means that you are completely out.  Sometimes zero means zero.

And maybe toss the affected customers a small gift – a $10 gift card, perhaps – for the inconvenience. 

What the customers did wrong

OK, I understand that you’re angry about stores being out of stock and orders being canceled, but tone down the venom just a wee bit.  It the case of brick and mortar stores, what exactly could you expect?  These stores had no way of know that there would be a mad rush to buy the TouchPads.  It’s not as if this was a planned promotion and the stores were able to stock up beforehand.  Some employees were probably very surprised to see Black Friday crowds in August.

I agree that the online merchants goofed up big time – but some of the rhetoric is out of place.

Then there’s the guy on eBay selling information.  For $99 he’d tell you where you could buy a TouchPad for $130.  No refunds if the information was out of date.  It seems fairly obvious that this was an attempt to trick people into thinking he was selling a $99 TouchPad.  The text of the listing clearly says what he’s selling, but a lot of people likely just saw “TouchPad – $99”.

Then, of course, the people re-selling for a huge profit.  The $99 item could be found online for $200, $300, $400, $500 – and in the case of one web site, $700.  I know people caught caught up in TouchPad mania, but these were devices that wouldn’t sell for $499 – now they are listed at $700?

What’s next?

HP has a waiting list, and you can sign up to be notified when more TouchPads are available.  It actually makes sense for HP to sell as many as possible through it’s site instead of other merchants, since this would keep 100% of the revenue in-house.  Will they?  I don’t know.  How many more devices will be available?  Again, no idea.

Where do we go from here?  Suddenly, HP has an installed base of excited tablet customer.  Do they retract their withdrawal from the market?  The 16 GB touchpad has a materials cost of around $300, so the $99 price point is not sustainable long term without some other sort of revenue stream.  Could HP siphon off enough revenue from a data plan and app store to make up the difference?  Could they save a few bucks by using cheaper parts?  They’d have to position themselves as a cheaper alternative to the iPad and Android devices – but maybe there’s a spot in the market for that.

Another point is that not only does HP have a lot of tablet customers, but they have a unique blend of customers.  They not only have the tech crowd, but also a big chunk of the general population who hadn’t previously considered a tablet.  I work in IT, but really hadn’t considered a tablet.  At $500, it’s a really expensive toy.  At $99, it’s not hard to justify the cost.  We don’t own a laptop, so it would have been convenient to connect a TouchPad to a hotel WiFi network while traveling.

Then, of course, WebOS itself.  Will HP find a way to license it?  Will they wring out a few dollars and sell it outright (I’ll bid $99)?  Or will they throw it over the wall to the open source community?  Making it open source is probably the best way to ensure that it will actually survive long term – open source labor (volunteers) is very cheap …

What are your thoughts regarding the TouchPad soap opera?

Photo credit: 401k

There is no debate that the rich pay a disproportionate amount of income taxes in the United States. Whether this is fair or not is a political discussion that I won’t address in this article. I’m more concerned about the reliability of statistics that are floating around.

You’ve probably heard that the top 20% of earners pay 80% the taxes and that the rich pay half the taxes. Are these comments true?  What percentage of taxes do the rich pay?

To answer this question, let’s to go the authority on tax statistics – the Internal Revenue Service. The data used in this article comes straight from the IRS web site.

Before we get started, I’d like to make a few points:

• These statistics are based on returns, rather than people. The lower levels of income tend to have fewer people represented by a return (single people are over-represented in these levels). This means that you can’t say that 8274 EARNERS had an AGI of more than $10 million or more. This could be a dual income household where each spouse earns $5 million.
• Data is from tax year 2009. The is the most recent data available at the time this article was written.
• I’m not exactly sure what to make of the returns with no AGI. I have included this data for the sake of completeness, but this group likely includes a hodgepodge of exception statuses and the stats for this group might not make much sense. Caveat emptor!

Let’s take a look at the first table. This lists the percentage of returns for each income level, as well as the group’s percentage of the nation’s aggregate AGI ($7.6 trillion) and individual income taxes paid ($865 billion). Dollar amounts are in thousands. What data can we glean?

• The top 20.57% of returns – those with AGI of $75,000 or more – earn 62.37% of the nation’s AGI and pay 83.96% of the taxes. So the much quoted stat about the top 20% paying 80% of taxes is true (assuming it means 20% of returns).
• What about the rich paying half the taxes? This depends on your definition of “rich”, but returns with more than $200,000 in AGI represent 2.79% of all returns, earn 25.76% of AGI, and pay 50.14% of taxes.
• Returns claiming AGI of more than one million dollars represented 0.17% of all returns, but paid 20.49% of all taxes.

Here’s the data:

OK, but what rate does everyone pay? In the next table, I’ve simply divided the taxes paid by the AGI to determine the effective tax rate.

• Returns with an AGI of $10 million or more have an effective rate significantly lower than several other income levels. Why? Capital gains. Note that this income level doesn’t have an upper bound, and the more extreme outliers are generally going to be the result of capital gains. It’s much more difficult to earn $1 billion in wages than $1 billion in capital gains (I’m speaking in relative terms; both are extremely difficult to do).
• There’s a noticeable jump between the 100-200K group and the 200-500K group. Not only are there some rate increases in these levels, but you will also see the effect of phase-outs of certain itemized deductions.

Here’s the data:

As a whole, the aggregate effective tax rate is 11.35%. For each $100 of AGI, the government will collect $11.35 in taxes. The 100-200K group is basically right at this level, but the other income levels drift far away from this baseline. What percent of the “expected” taxes are paid at each income level (based on the expectation of $11.35 in taxes paid on each $100 of AGI).

I’ll let you peruse this data without any observations, other than pointing out that 100% would be equal to the expected 11.35% effective rate.