Google Steps More Boldly Into PayPal’s Territory (NYTimes, 12/20/06)

December 20, 2006
Google Steps More Boldly Into PayPal’s Territory
By MIGUEL HELFT
SAN FRANCISCO, Dec. 19 — Steven Grossberg, who sells video games online from his home in Wellington, Fla., recently sent an enticing offer to 20,000 customers: $10 off any purchase over $30 using a new payment service, Google Checkout.
Traffic on his site more than tripled, and best of all, he said, Google picked up the tab for the promotion.
“I think it’s fantastic,” he said. “I’m selling the product. Google is getting tons of customers to sign up for Checkout. Customers are happy because they are getting a monster deal.”
And Google is not charging merchants any processing fees through the end of 2007.
As a result, getting customers to use Checkout will increase profits, Mr. Grossberg said.
So starting next year, he plans to take some of the money he spends to list items on eBay and try a new marketing strategy: placing ads alongside Google’s search results.
That is exactly what Google wants to hear.
When Google introduced Checkout in June, it was seen as a formidable rival to PayPal, eBay’s online payment service. And with Google aggressively promoting Checkout during the holiday season and beyond, its use with some merchants has already surpassed PayPal’s.
But Google’s plan for Checkout has always been about more than online payments. The service is a calculated effort to expand Google’s base of advertisers, which provide the bulk of the company’s revenues.
And Google has made a substantial financial commitment to the service’s success. Goldman Sachs estimates that Checkout promotions will cost Google about $20 million in the current quarter.
The campaign to promote Checkout also says something else about Google: As rivals Yahoo and Microsoft are working on getting the basics right in their search and advertising systems, Google is racing ahead to consolidate its lead.
“I believe that Google’s advantage is widening with time and this is one example,” said Scott Devitt, an analyst with Stifel Nicolaus & Company. “Checkout could be a game changer, and the competitors are doing nothing of the sort.”
Unlike PayPal, a full-fledged payment system that can be used to transfer money between individuals and can draw funds directly from bank accounts, Checkout merely offers users an easy way to use their credit cards. Checkout users enter their credit card information, shipping and billing address into Google’s system. Then, they can pay with Checkout at participating stores without having to enter their personal information again and again.
Google says thousands of merchants are using the service. That is dwarfed by PayPal, which has millions of merchants and 123 million users around the world. In the most recent quarter, PayPal processed $9.1 billion in transactions, up 37 percent from a year earlier. While most of those were payments between eBay buyers and sellers, the number of PayPal transactions outside eBay rose 59 percent, to $3.3 billion.
Google has not released figures on the number of Checkout users. Still, there are signs that with the heavy promotions, the service is making significant inroads.
GSI Commerce, a company that runs about 60 online stores, including toysrus.com, levis.com and timberland.com, said that one in five holiday sales at its partners’ stores through the end of November were completed with payment systems other than credit cards, which include PayPal, a service called BillMeLater and Checkout. Of the three, “Google is the biggest by far,” said Michael Rubin, chief executive of GSI Commerce.
At StarbucksStore.com, Checkout transactions topped PayPal transactions by about a third, said Tracy Randall, president of Cooking.com, which operates StarbucksStore.com.
Checkout’s gains have not necessarily heralded a PayPal decline. A Goldman Sachs report this week said that based on conversations with various merchants, Checkout appeared to be making gains against traditional payment options and that PayPal’s share of online transactions was also growing.
Regardless, it is clear that the promotions have played an important role in Checkout’s quick adoption.
When Google introduced Checkout in June, it charged merchants 20 cents plus 2 percent of the purchase price for every transaction. (PayPal charges 1.9 percent to 2.9 percent plus 30 cents a transaction, while credit companies typically charge about 1.95 percent and 30 cents for every purchase.)
Yet, to lure merchants to its advertising system, Google offered them $10 worth of free transaction processing for every $1 in advertising they spent on Google.
But Google recently got more aggressive. On Nov. 8, it waived transaction fees for all merchants, regardless of whether or not they were Google advertisers, through the end of the year. Then, on Nov. 27, it began offering Checkout users $10 off $30 purchases at many e-commerce sites and, in some cases, $20 off $50 orders. And on Dec. 5, it announced that transaction processing would remain free to merchants through the end of 2007.
In other words, Google plans to lose money on every Checkout transaction for more than a year. Yet the company believes it will be worth it.
“It’s a way to incentivize more merchants to join our network,” said Benjamin Ling, a product manager for Checkout. “We want everyone who sells online to be a Google advertiser.”
The incentives offered by Google could benefit merchants and the company in several ways, according to online marketing experts.
Consider first that the ads of stores who accept Checkout are highlighted with an icon — a Checkout shopping cart. That increases the likelihood that users will click on those ads, which creates revenue for Google. What’s more, once users click on an ad, the availability of Checkout makes it more likely that they’ll complete a transaction.
In other words, Checkout generates more sales leads for online retailers — what online advertisers call click-through rates — and more of those leads turn into actual sales.
But the system offers merchants ancillary benefits, said Scot Wingo, the chief executive of ChannelAdvisor.com, an e-commerce services company that helps independent store owners sell on multiple online marketplaces, including eBay, Amazon and their own Web sites.
Google ranks ads based on a secret algorithm that combines factors like the price advertisers are willing to pay and the click-through rate of a particular ad. The idea is that ads that are clicked most frequently are those that users find more relevant.
So by having a Checkout icon that increases click-through rates, over time advertisers will have to pay less to get the same ranking for their ads. Or, they could pay the same amount for more ads with better placement, Mr. Wingo said.
“When you factor all of these together, it can have a pretty significant impact on your economics as a retailer,” Mr. Wingo said, adding that many merchants are likely to plow any savings back into Google.
There are other ways in which Google could benefit from Checkout, according to analysts. Checkout gives Google detailed knowledge of its users’ buying habits, which the company could use to customize the delivery of ads or search results to specific users.
And the system could make it easier for Google to develop a new advertising model in which advertisers pay only when a user completes a transaction, rather than every time a user clicks on an ad. This model, known as “pay-per-action,” could bring additional revenue to Google.
Mr. Ling said Google had no plans to tie search results to buying habits or to use Checkout to move to a cost-per-action ad model. But he added: “If there is a service that is of value to consumers, we will consider it.”
Not everything has been smooth sailing for Checkout. In the middle of the holiday shopping season, the electronics merchant J & R suspended the use of Checkout, telling customers that it was experiencing delays in processing orders due to the popularity of the system. And Ms. Randall, of Cooking.com, said there had been some “operational issues” with Checkout at StarbucksStore.com, but that Google had worked quickly to resolve them.
Google acknowledged the problems. “We have experienced some growing pains,” said Douglas Merrill, a vice president of engineering at Google who is responsible for Checkout. “Whenever we find issues, we drop everything else to fix them.”
That is in part why laptopsforless .com, a retailer in Anaheim, Calif., chose to expand payment options by implementing PayPal first, said Jeff Gardner, vice president for marketing and e-commerce. “We feel like we want to wait until the bugs are worked out before jumping into it,” he said about Checkout. But come next year, he added, “it is our intent to offer our customers both.”

From Lips of Children, Tips to Ears of Investors (NYTimes, 12/17/06)

December 17, 2006

From Lips of Children, Tips to Ears of Investors

By MATT RICHTEL

SAN FRANCISCO, Dec. 16 — Wanted: investment adviser, the younger the better.

In a nod to the wisdom of youth, many wealthy, highly connected and well-educated technology investors are taking counsel and investment tips from their children, summer interns and twentysomething receptionists.

These venture capital investors say there is good reason to ask young people to help them assess new technology: as the investors themselves are aging, the technology — including social networking Web sites and mobile gadgets — is designed for, used by and sometimes built by people half their age.

“Children are a secret weapon in my arsenal for making investment decisions,” said Heidi Roizen, a managing director at Mobius Venture Capital, a Silicon Valley firm.

Last year, Ms. Roizen asked her daughters, Niki and Marleyna Mohler, ages 13 and 11, to check out a handheld video player she was thinking about backing. The daughters quickly tired of the gadget, so Ms. Roizen did not invest.

And this year, Ms. Roizen bought Niki a subscription to World of Warcraft, the popular online role-playing game. The idea was to get her daughter familiar with the genre so she could offer advice about an investment Ms. Roizen had made in another game company.

“I was a guinea pig, a lab rat,” Niki said of the experience, in a tone that suggested she was also experimenting with sarcasm.

While the idea of testing products on consumers is hardly new, its emergence in the world of venture capitalists is something of a sea change. After all, this is an industry of independent-minded investors who have historically made decisions by trusting their knowledge of engineering, strict analytics and their own gut instincts — along with a bit of the herd mentality.

Unlike the formal consumer tests and focus groups at large companies like Procter & Gamble, these inquiries are taking place closer to home, with friends and family. But their impact can be broad, because venture capitalists not only help steer the development of new ideas but also invest billions of dollars in those ideas on behalf of investment groups and wealthy individuals.

To some, the approach looks like a product of the desperation felt by investors trying to identify the next YouTube or iPod.

“There is something comical, and maybe silly, about relying on kids,” said Paul Romer, a professor of economics at the Stanford Graduate School of Business. “It seems risky.”

But Mr. Romer noted that it was getting tougher to pick the winners among start-ups. Young people, Mr. Romer said, may be better equipped than investors, who tend to be in their 30s or older, to see nuances and identify trends.

“The people making the decisions may not appreciate some of the small differences that might be apparent to end users,” he said.

Those end users include Mariana and Tatiana Megevand, who live in Geneva. Last year, Neil Rimer, their uncle, heard the girls, 14 and 12, talking about one of their favorite Web sites, Stardoll.com.

The site lets visitors create and dress up virtual paper dolls. Mr. Rimer is not just an uncle but also a venture capitalist, a partner with Index Ventures, based in Geneva. He decided that his nieces’ interest constituted one of the better tips he had heard in a while.

“The next Monday I went in and talked about it with my partners,” he said, “and that week we were on the phone to the company.”

Index and other firms, including the venerable Sequoia Capital, have invested more than $10 million in Stardoll this year, and the company has moved to Geneva from Finland. Mr. Rimer says he still talks to the girls about what they like and what they would improve. He has given them some incentive, too: a small stake in Stardoll that could be valuable if the company prospers.

Other firms have started surveying groups of children. IDG Ventures, a Boston firm, recently asked one of its associates to visit its partners’ homes and ask their children to assess a new social networking site.

The trend may indicate the rise of something new in the venture capital industry itself: humility. A notoriously self-assured bunch, these investors are admitting that some innovations may be lost on their g-g-generation.

“The funniest thing is when we sit around and say, ‘I’m not sure because I would never use this,’ ” said Jeff Fagnan, 36, a general partner with Atlas Ventures.

The investors said consulting with younger people would have been unheard of in the dot-com boom of the 1990s. Then, investors were immersed in the very technology they were financing, ordering books on Amazon, downloading music from Napster and buying and selling on eBay. But now, in the so-called Web 2.0 era, venture capitalists’ personal interests have strayed from the sweet spot of innovation: Web sites like MySpace intended to connect people, free Internet calling tools like Skype or software for mobile phones.

And people now in junior high and high school have spent their lives with technology. “This is the first generation for whom the computer is a native language,” said Jim Gauer, managing director of Palomar Ventures, a Los Angeles firm. “We’re all going to have to get re-educated and learn that language.”

Or they can do what Palomar and others have: hire a native speaker. Last summer, the firm had an intern, Adam Gottesfeld, 21, who was heading into his senior year as an international studies major at Princeton. Mr. Gottesfeld so impressed the firm with his technological knowledge that it has offered him a job as an associate when he graduates.

After Niki, Ms. Roizen’s daughter, became proficient at World of Warcraft, her mother took her to visit Perpetual Entertainment, a game company in San Francisco she had invested in. Niki had some criticisms of the company’s game, a role-playing epic called Gods and Heroes, telling its developers that it seemed unpolished and choppy. The game makers, taking advice from Niki and others, improved the product by the time she visited again.

“When she picked me up, she said, ‘Did you like it? Was it more fun?’ And I said yes, the whole car ride home,” Niki said.

Niki is not only teaching, it seems, but also learning about business. A couple of years ago, Ms. Roizen said, her daughter was looking at Neopets.com, a Web site where people play with virtual pets.

“She said, ‘I don’t get their business model,’ ” Ms. Roizen recalled. “She was 11.”

Brands for the Chattering Masses (NYTimes, 12/17/06)

December 17, 2006
Brands for the Chattering Masses
By KEITH SCHNEIDER
CINCINNATI
FOR many, many decades, successful branding — one of the corporate world’s holy grails — involved a clear set of rules. Produce quality goods at the right price. Frame the value in memorable messages seen by millions on television and in print. Then fine-tune the pitch by measuring sales and evaluating consumer responses through letters, phone calls, focus groups and surveys.
Nowhere have those rules been applied more effectively than here, the home of Procter & Gamble, which made a fortune turning Crest, Pampers, and Tide into must-have items on household shopping lists. But the branding game has changed radically, largely because of the myriad choices the Internet provides consumers and because of the economic influence of widespread Web pontificating, known as the blogosphere, which barely existed as a popular force until about four years ago.
As consumers eagerly post word-of-mouth commentary in online communities, message boards and Web logs, a straightforward question confronts brandmeisters: Who wins and who loses as time-tested practices of mass production and mass marketing are undermined by the informed and often cranky voices of the knowledge age?
A possible answer to that question can be found here, on the fourth floor of a 19th-century brick and stone building on Main Street, in the office of Nielsen BuzzMetrics.
The company, an A. C. Nielsen unit formed this year in a merger of three smaller companies, asserts that it has welded together technology, communications and business expertise in a new way; in essence, it can gain access to the electronic musings of millions of people to learn about the values, desires and opinions that start marketing trends. Essentially, BuzzMetrics represents the entrepreneurial convergence of brand- and online-business specialists holding M.B.A.’s — several of whom trained at Procter & Gamble — with computer scientists who say they are building the digital equivalent of a crystal ball.
BuzzMetrics’ computer scientists and programmers, led by Sundar Kadayam, a 43-year-old software engineer, say they have developed sophisticated search engines to sweep the Internet and drill down into rich veins of extemporaneous word-of-mouth commentary and conversation found online.
The search engines retrieve phrases, opinions, keywords, sentences and images, and the company runs the data through processing programs powerful enough to sift millions of messages simultaneously. By analyzing vocabulary, language patterns and phrasing, the programs determine whether comments are positive or negative, and whether the authors are men or women, young or old.
“The days of sitting behind the focus-group wall are going the way of the buggy whip,” said Mike Nazzaro, BuzzMetrics’ president and chief operating officer. “We are fundamentally changing the way marketing and market research will be done in the future. We’re providing guidance to marketing decisions that was never possible.”
BUZZMETRICS maintains that blogs and their attendant message boards and forums are tuning forks for consumer sentiment that threaten to upend traditional branding efforts. An influential blogger can undermine a brand faster than any grapevine ever before encountered in the marketplace, as the computer maker Dell discovered. The company’s level of service and quality was denounced by bloggers this year, and the complaints found broad exposure when one popular media site added its critical voice.
At the same time, positive word of mouth magnified by the Internet can be a boon, as Toyota discovered with its hybrid Prius sedan, which has been praised by admirers on sites created just for that purpose.
“There are winners and losers,” said Paul M. Rand, a partner and the global chief development and innovation officer at Ketchum Public Relations. “Companies adapt or go to the bottom. Consumer-generated content on the Internet is a complete disruptor. It forces companies to work smarter and listen harder.”
Marketing executives, awakened to both the threat and the potential, are scrambling to harness data culled online. BuzzMetrics, a pioneer in trolling for brand awareness on the Web, is still a tiny company: it says its revenue for 2006 will be about $20 million. For now, it occupies a sweet spot in a promising new industry, but should search giants like Google move more aggressively into its market, BuzzMetrics may find the going tougher.
“Search is at the core of everything Google does and we are more committed to improving search than ever before,” a Google spokesman said in an e-mail message. “We will continue to innovate our search technology to provide users with the fastest and most relevant search experience on the Web.”
For the time being, say analysts at Forrester Research and Jupiter Research, BuzzMetrics is at the front of its field. In a report published in September, Peter Kim, a Forrester analyst, said that brand monitoring appears poised for enormous expansion as companies shift priorities and resources in the $12-billion-a-year market research business. Emily Riley, an advertising analyst at Jupiter, predicts that companies will double spending on brand monitoring in 2007.
Among BuzzMetrics’ competitors are Umbria, based in Denver; Cymfony, in Watertown, Mass.; BrandIntel, in Toronto; Biz360 in San Mateo, Calif.; and MotiveQuest, in Chicago.
While their specific approaches vary slightly, all use some form of Web search engine, analysis programs and human analysts to help organize data and provide a narrative that clients can understand, Ms. Riley said. Their ultimate goal, she said, is “to find out the deep thoughts of consumers and help clients understand what’s happening in their markets.”
Both Mr. Kim and Ms. Riley said the old methods for keeping track of consumer sentiment, measuring the competition and improving advertising were in rapid transition. Traditional media are fragmenting. Focus groups are expensive, constrained and slow. New research shows that consumers are eager to evade advertising on television, block pop-up ads on the Internet and sign up for “do not call” lists to bar telephone solicitations.
At the same time, new surveys show that 90 percent of consumers trust word-of-mouth suggestions, and that some make purchases based on such guidance. “Consumer-created content is still new enough that it’s much more influential at driving brand awareness than driving purchases,” said Ms. Riley, the Jupiter analyst. “People who read about something on a blog will generally do some further research, either by asking friends or through a search engine, for example, before forming their opinion,” she said.
“We’re brand radar,” said Pete Blackshaw, 42, a former brand manager and Internet marketer at Procter & Gamble who is now BuzzMetrics’ chief marketing officer. “You can’t fly a plane without radar.”
Among the growing number of BuzzMetrics’ fans is Bruce C. Ertmann, corporate manager for consumer-generated media at Toyota Motor Sales in Torrance, Calif. “Toyota is rebalancing how it engages its customers and its markets,” said Mr. Ertmann, who is 49 and has worked for Toyota for 23 years. “BuzzMetrics is helping us understand what’s happening.”
Around Thanksgiving, for example, the Lexus division of Toyota ran a series of new holiday television commercials, one of which featured two men, a new car in the driveway with a huge red bow on its roof, and dialogue that seemed to indicate that the men lived together and that one had given the car to the other.
Some viewers were struck by what they saw as a television spot directed at the gay market and complained to the automaker. Lexus executives responded that the ad was not aimed at the gay market — but the company, unnerved by the nature of the complaints and by research showing that the commercial was weak in terms of brand recall, dropped the ad.
Mr. Ertmann said that Toyota, protective of its reputation and wary of controversy, was essentially reacting instinctively and taking action without evaluating all the information that became available. After it hired BuzzMetrics to gauge consumers’ attitude on the matter, it discovered that most viewers — especially the young urban and suburban consumers who write and read blogs and could buy Lexus vehicles — were pleased with the Lexus ad.
“A decision had been made to pull that ad from the rotation, and that decision was made before we had a chance to gather the BuzzMetrics analysis and report it back to Lexus,” Mr. Ertmann said. “I was disappointed that Lexus did not wait for this cutting-edge intelligence.”
Other companies have also turned to BuzzMetrics for advice. TechRepublic, a unit of CNET Networks, and publisher of a Web site for information technology professionals, has used the company’s services to track technology trends. ConAgra, the food giant that makes Pam cooking spray, Reddi-wip topping and Healthy Choice prepared meals, has used BuzzMetrics to anticipate lifestyle and dieting trends. Sony’s online entertainment group tapped the company to help it track interest in computer games, and Coca-Cola has used BuzzMetrics to gauge responses to a short comedic film posted on YouTube.
The headquarters of Nielsen BuzzMetrics are in the Greenwich Village office of the American arm of its parent, VNU, a media company based in the Netherlands. Smaller research and development divisions are in Pittsburgh and Tel Aviv. But about 40 percent of its staff of 120 and many managers are in Cincinnati.
BuzzMetrics offers a range of services and products to suit the new rules of marketing. One report, costing $20,000 or more, tells companies what their customers are saying on the Internet and what that means for their brand and markets. It also sells its proprietary search software and database, BrandPulse, to companies that want to use their own staffs to monitor such content.
THIS service costs from $80,000 to $500,000, depending on how many of the client’s employees will use the database and search engine, the number of brands and competitors covered and the specific information sought. The Cincinnati office is led by former executives of two companies founded here during the Internet boom of the late 1990s.
The first, PlanetFeedback, was started by Mr. Blackshaw and Mr. Nazzaro, now 40, a Harvard M.B.A. and former Procter & Gamble brand manager. The primary product of PlanetFeedback, which was financed by $31 million in venture capital, was a Web site intended to attract consumer opinions about products and services, and to earn revenue from advertisements.
The second company, Intelliseek, which Mr. Kadayam helped to found, developed Internet search and information retrieval programs and software. In 2004, Intelliseek bought PlanetFeedback, combining the market, branding and Web expertise of the Blackshaw-Nazzaro team with Mr. Kadayam’s computer science background.
Early last year, VNU invested in an Israeli research and development company, which then bought BuzzMetrics. With additional capital from VNU, BuzzMetrics bought Intelliseek and changed the name of the company to Nielsen BuzzMetrics.
Now that it is generating steady revenue in brand monitoring, BuzzMetrics is considering how to use its media search and monitoring capabilities to expand into other markets such as politics.
Mr. Kadayam recently projected on a large white screen the company’s most promising new tool, which he calls Floodgate. It is a program that displays in real time what people around the world are saying on thousands of blogs and message boards. The program shows each new message as a blinking green dot that fades to light blue and then vanishes after a few minutes. The program can cluster messages according to general themes, and track keywords and phrases and the full content of what the writer is saying.
Click on any dot and the message appears in complete text in real time. A blogger from England writes about the ritual of putting her baby to bed. One from California celebrates buying a new computer game.
Within a few minutes, the screen begins to look like the night sky, full of blue and green stars, all arranged by subject — an evolving constellation of the thoughts and desires that form the parameters of the new information universe.

Stolen Lives Protectors, Too, Gather Profits From ID Theft (NYTimes, 12/12/06)

December 12, 2006
Stolen Lives
Protectors, Too, Gather Profits From ID Theft
By ERIC DASH
Melody Millett was shocked when her car loan company asked her if she was the wife of Abundio Perez, who had applied for 26 credit cards, financed several cars and taken out a home mortgage using a Social Security number belonging to her actual husband.
Beyond her shock, Mrs. Millett was angry. Five months earlier, the Milletts had subscribed to a $79.99-a-year service from Equifax, a big financial data warehouse, that promised to monitor any access to her credit records. But it never reported the credit activity that might have signaled that they were victims of identity theft.
“I feel like the whole thing is a sham,” said Mrs. Millett, a 37-year-old information-technology manager from Overland Park, Kan. “You feel completely violated because here are the people who know the industry. They hold all the data.” The services, she contends, are oversold.
It is not just criminals who are profiting from identity theft; financial institutions are making money, too. Fear of identity theft has helped give rise to a nearly billion-dollar business in credit-monitoring services sold by the major credit bureaus — companies like Equifax, Experian and TransUnion — as well as direct marketers and banks.
Javelin Strategy and Research, which analyzes the credit-monitoring market, says more than 12 million Americans are now subscribers. The services alert them when lenders have requested their credit files, usually an indication a credit application has been made in their name.
Credit monitoring has quickly gained traction with consumers through aggressive advertising that often promotes its value in protecting against identity theft. But its abilities are far more limited than is commonly perceived.
In the meantime, measures that could stem fraud from identity theft — like legislation empowering consumers to block access to their credit records, making it impossible to extend new credit — have faced stiff resistance from industry groups.
“Identity theft has essentially become a business — not just for bad guys but for good guys, too,” said Robert Gellman, a privacy consultant in Washington. “A lot of the people that are involved in profiting legally from identity theft are direct participants in the whole credit system that doesn’t have the protections in place to prevent identity theft in the first place.”
Some criticism has been aimed at banks, which tolerate a certain amount of fraud as a cost of doing business. But the biggest beneficiaries from identity theft have been the three credit bureaus.
Banks and other lenders have long bought information like a person’s payment history or debt load to assess a loan’s risk. But credit monitoring turned the system on its head and helped create a new, consumer- focused financial data industry.
In addition to selling files to lenders in bulk, the bureaus now market largely the same records to individuals, including entries that reflect applications for credit, new accounts or balance changes. While the data is sold to a big financial institution for 20 cents to $1 a report, according to analysts and industry executives, it can be repackaged and sold to consumers in the form of credit monitoring for $3 to $16 a month.
Persuading customers to sign up can be costly. But today, Wall Street analysts estimate credit monitoring alone to be a $900 million category, growing 20 percent a year or more.
“It’s a pretty big market considering that 10 years ago it didn’t exist,” said J. Bradford Eichler, a consumer data company analyst at Stephens.
Peace of Mind, at a Price
Representatives of Equifax, Experian and TransUnion, whose consumer affiliates are being sued by the Milletts, would not comment on the couple’s specific contentions because of the continuing litigation. But they say credit monitoring is a valuable tool.
“Our products give consumers an early warning system so they can limit the damage and take care of the problem right away,” said John Danaher, president of TransUnion’s online consumer services arm.
And indeed, many consumers speak glowingly of their experiences with credit monitoring. Wendy Barrington, a 36-year-old Houston woman, recalled the annoyance a friend faced for months after her financial information was stolen.
“I am not about to risk something I have worked so hard on,” said Ms. Barrington, who pays about $15 a month for TransUnion’s credit-monitoring service. “All it takes is one person stealing your information and you are in a world of hurt.”
Still, some consumer advocates caution that people may be overpaying for that peace of mind.
For one thing, Americans can essentially create their own credit-monitoring service by taking advantage of a federal law that guarantees access to one free credit report a year from each of the three bureaus. And thanks to so-called zero liability policies, the cost of fraud is generally absorbed by the credit card companies, merchants and banks.
At the same time, credit monitoring may fail to detect that a credit request was even made. For example, a fraud artist may use someone else’s personal identification information — like a Social Security number — but take out a loan in his or her own name. The data mismatch can cause the bureau’s computer systems to route the loan request to a separate file so that a credit-monitoring service never picks it up.
That is what Melody and Steven Millett, the Kansas couple, say happened to them.
In late January 2003, Mrs. Millett found something was wrong when a Ford Motor Credit computer system refused to let her set up an online account to pay off an auto loan. When she called the lender, Mrs. Millett said, she was told that an account had already been set up with Mr. Millett’s Social Security number but a different name: Abundio Perez.
She later learned of at least 26 cases in which Mr. Millett’s personal information had been used in credit applications by Mr. Perez since 1989, according to a lawsuit filed by the Milletts against the credit bureaus, data providers and several creditors in June 2004 in federal court in Kansas City, Kan.
The previous August, Mrs. Millett had bought a credit-monitoring subscription from Equifax. Soon after the Ford Motor Credit incident, she also signed up for credit monitoring with Experian and TransUnion.
At least one credit application using Mr. Millett’s Social Security number came after the Milletts obtained their credit-monitoring subscriptions, according to their lawyer, Joyce Yeager. But not once, Mrs. Millett said, did the couple receive notice of unusual access to their credit records or the misuse of Mr. Millett’s data. Quite the contrary, the bureaus sent them a succession of reassuring e-mail messages suggesting that their information was safe and offering congratulations.
In their legal claims, which have been separated into several class-action lawsuits, the Milletts say that the bureaus’ monitoring services do not work as advertised.
“The core identifier is your Social Security number,” Mrs. Millett said in an interview. “You use it for work, for taxes. You would think that identifier would be covered by someone advertising they protect you from identity theft. To think that they are not is just flabbergasting.”
Donald Girard, an Experian spokesman, acknowledged that his company’s credit-monitoring products could not detect cases in which a credit applicant used someone else’s Social Security number but his or her own name because those records were stored separately. He added, however, that in such cases consumers are “not harmed” financially.
Protection vs. Prevention
Initially, the credit bureaus sold monitoring as a way for consumers to understand and manage their credit scores before taking out big loans. But since a wave of data breaches in 2004 heightened consumer fears, a security message appears to have moved toward center stage.
“It is advertised as monitoring for identity-theft protection,” said Michael R. Stanfield, chief executive of Intersections, a direct-marketing company that offers credit monitoring through big banks and card companies. But he said consumers hear protection “and don’t understand if it is prevention or detection.”
“What is needed in the marketplace are products that are going to help you protect your information, monitor it when it is in the process of getting used in a financial fraud, and catch those financial frauds when they are about to occur,” he added.
Privacy advocates have suggested providing more fraud-prevention tools to consumers by allowing them to freeze access to credit records if they think they have been identity-theft victims — or as a precaution.
Beginning with California in 2003, such laws have passed in 26 states, including New York last month. But of roughly 148 million credit-eligible customers in those states, Experian estimates 30,000 have elected to freeze their files.
Financial and retailing lobbying groups have generally opposed such legislation at the state and federal levels since it could hinder a retailer in issuing a store-branded credit card — or a bank in extending a loan — to a legitimate customer, who must first unfreeze the credit file. It can also restrict the bureaus from selling consumer credit files.
The big credit bureaus, after initially opposing tougher legislation, are taking a wait-and-see approach. “It may be that we evolve to that at some point,” said Maxine Sweet, Experian’s vice president for consumer education. “We have to make sure that we are not interfering with what is a very important part of the whole consumer credit economy.”
Such a freeze might not have helped the Milletts, since the problematic files were kept under another name. Mrs. Millett is still using a credit-monitoring service, but she would not recommend it to a friend.
“I still have credit monitoring because of the simple fact that it is the best tool available at this time,” she said. “It is not ideal, it is broken, and it is not as advertised.”

Identity Theft Resources
Federal Trade Commission (consumer.gov)
Free annual credit report (annualcreditreport.com)
Privacy Rights Clearinghouse (privacyrights.org)
Identity Theft Resource Center (idtheftcenter.org)
Internet Crime Complaint Center (ic3.gov)
United States Postal Inspection Service (usps.com)

Wal-Mart Says Thank You to Workers (NYTimes, 12/04/06)

December 4, 2006
Wal-Mart Says Thank You to Workers
By MICHAEL BARBARO and STEVEN GREENHOUSE
Faced with public demonstrations of discontent by its employees, Wal-Mart Stores has developed a wide-ranging new program intended to show that it appreciates its 1.3 million workers in the United States and to encourage them to air their grievances.
As part of the effort, Wal-Mart managers at 4,000 stores will meet with 10 rank-and-file workers every week and extend an additional 10 percent discount on a single item during the holidays to all its employees, beyond the normal 10 percent employee discount.
The program, described in an internal company document, was created during a volatile six months period, starting when the company instituted a set of sweeping changes in how it managed its workers.
Over that time, Wal-Mart has sought to create a cheaper, more flexible labor force by capping wages, using more part-time employees, scheduling more workers at nights and weekends, and cracking down on unexcused days off.
The policies angered many long-time employees, who complained that the changes would reduce their pay and disrupt their families’ lives. Workers even staged small rallies in Nitro, W. Va., and Hialeah Gardens, Fla., the only such protests in recent memory.
The portion of the new outreach program called “Associates Out in Front” is described in company documents as a way for Wal-Mart to show workers “that we do appreciate you and that we have an ongoing commitment to listening to and addressing your concerns.”
The documents were provided to The New York Times by WakeUpWalMart.com, a group funded by the United Food and Commercial Workers union, which fears that Wal-Mart will undermine unionized stores.
The program includes several new perks “as a way of saying thank you” to workers, like a special polo shirt after 20 years of service and a “premium holiday,” when Wal-Mart pays a portion of health insurance premiums for covered employees. Sarah Clark, a spokeswoman for Wal-Mart, said the program was a “a more formalized, contemporary approach” to communicating with and collecting feedback from its fast-growing work force.
But she said it was not a response to workers’ concerns about new company policies. The Associates Out in Front program, much of which is not described in the documents, she said, “is about building on something that is already very good.”
In interviews, half a dozen Wal-Mart workers said there was a growing perception within the company that managers did not respond to employees’ ideas and complaints.
Kory Uselton, a 35-year-old overnight floor cleaner at a Wal-Mart in Tyler, Tex., said his store manager offered “robotic” company-approved responses during a recent meeting when workers questioned the new attendance policy, which originally called for disciplinary action after three unauthorized absences (although it was later revised to four unexcused absences).
Asked if absence for a family emergency, like a sick child, would be authorized, Mr. Uselton recounted, the manager said, “No, it’s not.”
“Many of the associates were very upset,” Mr. Uselton said. “Management is just not listening anymore.” Some Wal-Mart employees said workers might be afraid to speak up because they have seen coworkers retaliated against — for instance, transferred to worse shifts when they voiced their complaints.
Ms. Clark said Wal-Mart already had several systems in place that allowed employees to criticize company practices. Among other things, she said, there was a toll-free hotline workers could call to report ethical lapses, a Web site on which chief executive H. Lee Scott Jr. answered questions and a policy, known as the “open door,” that permitted anyone to bring complaints to officers at the highest level of the company.
Industry analysts and labor experts generally praised Wal-Mart’s new employee outreach effort, which they said appeared to imitate practices from companies known for cultivating a healthy relationship between managers and employees.
“When you look at the list of best employers,” said Richard W. Hurd, a professor of industrial and labor relations at Cornell University, “you will find programs that look something like this.”
The question, he said, “is how sincere the effort is and how much change you see in workers’ lives.”
But he said the perks, like the 10 percent discount and the shirt for long-time workers, are “a very token, modest form of appreciation. It is not sufficient.”
Adrianne Shapira, a retail analyst at Goldman Sachs who tracks Wal-Mart, cautioned that, whatever the reasons for the new program, the pace of change at the company carried its own hazards.
“I think they are asking a lot of their people right now,” she said. “It’s a lot of change in a short period of time at an already hectic time of year. It has to be pretty challenging for workers.”
The Associates Out in Front program, which Wal-Mart is introducing over the holiday season, was developed by company executives about seven months ago, Ms. Clark said. It is, in part, the result of recommendations from a group called the Care Council, 700 Wal-Mart workers who advise executives on ways to improve working conditions.
Under the program, store managers are to meet each week with 10 employees who sign up to discuss concerns, suggestions and ideas for improving operations. The program also requires regional general managers to conduct monthly town-hall meetings that are open to every worker in the area.
A new management training program, called “Leaders Out in Front,” is intended to encourage hourly workers to advance their careers and help existing managers become “better ambassadors and mentors,” according to the memo.
Not all of these perks are new. During previous holiday seasons, Wal-Mart has paid health care premiums and offered an additional 10 percent discount. But they were sporadic or at store managers’ discretion, rather than offered annually across the chain, said Ms. Clark, the spokeswoman.
Other perks, like a shirt that states length of employment in five-year increments starting with 20 years of service, appear designed to build morale, but might do the opposite.
Cleo Forward, a 37-year-old support manager at a Wal-Mart in Dallas, said the new program was promising, but that it fell short in recognizing long-time workers who felt unappreciated by the changes.
“They are going to spend $15 on a Polo for you after 20 years? Give me a break,” he said. “We would rather they lift the wage caps.”
Still, Mr. Forward said, he would like to be able to resolve his problems inside the company — and viewed Associates Out in Front as step in the right direction. “Maybe the company is willing to listen,” he said. “If that is so, I am happy. I want to be part of that process.”

Wal-Mart Says Thank You to Workers (NYTimes, 12/04/06)

December 4, 2006

Wal-Mart Says Thank You to Workers

By MICHAEL BARBARO and STEVEN GREENHOUSE

Faced with public demonstrations of discontent by its employees, Wal-Mart Stores has developed a wide-ranging new program intended to show that it appreciates its 1.3 million workers in the United States and to encourage them to air their grievances.

As part of the effort, Wal-Mart managers at 4,000 stores will meet with 10 rank-and-file workers every week and extend an additional 10 percent discount on a single item during the holidays to all its employees, beyond the normal 10 percent employee discount.

The program, described in an internal company document, was created during a volatile six months period, starting when the company instituted a set of sweeping changes in how it managed its workers.

Over that time, Wal-Mart has sought to create a cheaper, more flexible labor force by capping wages, using more part-time employees, scheduling more workers at nights and weekends, and cracking down on unexcused days off.

The policies angered many long-time employees, who complained that the changes would reduce their pay and disrupt their families’ lives. Workers even staged small rallies in Nitro, W. Va., and Hialeah Gardens, Fla., the only such protests in recent memory.

The portion of the new outreach program called “Associates Out in Front” is described in company documents as a way for Wal-Mart to show workers “that we do appreciate you and that we have an ongoing commitment to listening to and addressing your concerns.”

The documents were provided to The New York Times by WakeUpWalMart.com, a group funded by the United Food and Commercial Workers union, which fears that Wal-Mart will undermine unionized stores.

The program includes several new perks “as a way of saying thank you” to workers, like a special polo shirt after 20 years of service and a “premium holiday,” when Wal-Mart pays a portion of health insurance premiums for covered employees. Sarah Clark, a spokeswoman for Wal-Mart, said the program was a “a more formalized, contemporary approach” to communicating with and collecting feedback from its fast-growing work force.

But she said it was not a response to workers’ concerns about new company policies. The Associates Out in Front program, much of which is not described in the documents, she said, “is about building on something that is already very good.”

In interviews, half a dozen Wal-Mart workers said there was a growing perception within the company that managers did not respond to employees’ ideas and complaints.

Kory Uselton, a 35-year-old overnight floor cleaner at a Wal-Mart in Tyler, Tex., said his store manager offered “robotic” company-approved responses during a recent meeting when workers questioned the new attendance policy, which originally called for disciplinary action after three unauthorized absences (although it was later revised to four unexcused absences).

Asked if absence for a family emergency, like a sick child, would be authorized, Mr. Uselton recounted, the manager said, “No, it’s not.”

“Many of the associates were very upset,” Mr. Uselton said. “Management is just not listening anymore.” Some Wal-Mart employees said workers might be afraid to speak up because they have seen coworkers retaliated against — for instance, transferred to worse shifts when they voiced their complaints.

Ms. Clark said Wal-Mart already had several systems in place that allowed employees to criticize company practices. Among other things, she said, there was a toll-free hotline workers could call to report ethical lapses, a Web site on which chief executive H. Lee Scott Jr. answered questions and a policy, known as the “open door,” that permitted anyone to bring complaints to officers at the highest level of the company.

Industry analysts and labor experts generally praised Wal-Mart’s new employee outreach effort, which they said appeared to imitate practices from companies known for cultivating a healthy relationship between managers and employees.

“When you look at the list of best employers,” said Richard W. Hurd, a professor of industrial and labor relations at Cornell University, “you will find programs that look something like this.”

The question, he said, “is how sincere the effort is and how much change you see in workers’ lives.”

But he said the perks, like the 10 percent discount and the shirt for long-time workers, are “a very token, modest form of appreciation. It is not sufficient.”

Adrianne Shapira, a retail analyst at Goldman Sachs who tracks Wal-Mart, cautioned that, whatever the reasons for the new program, the pace of change at the company carried its own hazards.

“I think they are asking a lot of their people right now,” she said. “It’s a lot of change in a short period of time at an already hectic time of year. It has to be pretty challenging for workers.”

The Associates Out in Front program, which Wal-Mart is introducing over the holiday season, was developed by company executives about seven months ago, Ms. Clark said. It is, in part, the result of recommendations from a group called the Care Council, 700 Wal-Mart workers who advise executives on ways to improve working conditions.

Under the program, store managers are to meet each week with 10 employees who sign up to discuss concerns, suggestions and ideas for improving operations. The program also requires regional general managers to conduct monthly town-hall meetings that are open to every worker in the area.

A new management training program, called “Leaders Out in Front,” is intended to encourage hourly workers to advance their careers and help existing managers become “better ambassadors and mentors,” according to the memo.

Not all of these perks are new. During previous holiday seasons, Wal-Mart has paid health care premiums and offered an additional 10 percent discount. But they were sporadic or at store managers’ discretion, rather than offered annually across the chain, said Ms. Clark, the spokeswoman.

Other perks, like a shirt that states length of employment in five-year increments starting with 20 years of service, appear designed to build morale, but might do the opposite.

Cleo Forward, a 37-year-old support manager at a Wal-Mart in Dallas, said the new program was promising, but that it fell short in recognizing long-time workers who felt unappreciated by the changes.

“They are going to spend $15 on a Polo for you after 20 years? Give me a break,” he said. “We would rather they lift the wage caps.”

Still, Mr. Forward said, he would like to be able to resolve his problems inside the company — and viewed Associates Out in Front as step in the right direction. “Maybe the company is willing to listen,” he said. “If that is so, I am happy. I want to be part of that process.”