Hey, you know what’d be fun on a boring Monday in May? A little role play!

And I’m not talking about 12-sided dice and renaissance faires either, I’m just talking about some simple role reversal.

More specifically, I’m going to complain to you about a web host!

So, about three years ago I was trying out some competitors to, you know, test the waters in case I ever decided I wanted to switch hosts.

I used three places, and they all absolutely stank. I mean, they were horrible. I’m talking worse than us!

Every server I tried with these places was pretty much just not working. Besides that, their support was all universally useless, and their panels were a weird hodge-podge of different systems they’d cobbled together I guess. You also either couldn’t get shell access or had to fax them your driver’s license to enable it?!

The worst thing was, they were all difficult to cancel, and a few even tried to get out of giving me my money back (I was in their “unconditional” guarantee!)

Finally, I decided to splurge (I’d been spending like $7.95/month) and tried a VPS place for a whopping $49 a month!

Well, they were great! I mean, they still had a weird hodge-podge of different panels, and they sure laid stuff out differently than I was used to, but my VPS at least stayed up and I could do anything I wanted.

I never needed to contact support, which was fine with me, and luckily for them, I never really did too much with the account but kept paying them anyway for the last three years (I’m willing to bet a few of you are in this boat as well… thanks!)

Finally

Last month, I finally decided to transfer my little bit of crap I had with them over to a DreamHost PS! When I went to cancel, I decided to check my credit card statement and noticed that for February and March I’d been charged $89 instead of $49?!!

Eh? I searched through all the emails I received from them and the only thing I could find that seemed possibly related was one that mentioned they were upgrading all the features on their VPS, but don’t worry existing users would get them all at the same price!

So, I wrote them a nice email:

Helllooooo….

I just noticed this and that somehow you guys upgraded me without my permission from $49/month to $89/month!

Uh, what happened? It wasn’t my choice.. I did get one email saying resources were going up .. for FREE.

Please refund the extra $80 you’ve charged to my credit card asap.

Also, I’d like to cancel my service as of April 30th, I believe what I’ve already been charged for.

Thanks,
josh!

To which they replied:

Sir,

On 02/17/08 our support team notified you to tell you that your server had run out of resources, and that the only way they could keep your server from staying offline was to upgrade you. They did so for free for one week, and asked you to get back to them to work with them to resolve the issue. They stated that if they didn’t hear from you they would leave you on the higher package level instead of leaving you down completely.

After a week, and a followup reminder sent to this address that the account was being left at Signature level so that you could remain operational, your package was upgraded.

Admittedly this was an atypical situation, but most would probably agree that after not hearing from you the decision to leave you up and operational was preferrable to the decision to simply let your server fail.

As per the contract you agreed to at signup, we do require a 30 day written cancellation notice to close down your account. I can accept this as that notification and close your account 30 days from today, on May 18th. I hope that this helps.

All the best,
Christian

Ha, ha, ha… what?

So, because I was (somehow) crashing my own (private) server, they, without permission from me, started charging me an extra $40 a month, so it wouldn’t crash!

Gee, thanks guys!

I also appreciate it when my cable company notices that I haven’t been enjoying HBO and Showtime and most would probably agree that after not hearing from you the decision to give you all these great movies and original tv series was preferrable to the decision to simply let you suffer with Oxygen and TBS!

But actually, that never happened becuase that would be CRAZY!

I went back to look for this alleged email, and I found it:

Subject: 7 Day Trial upgrade to the Signature package for yourserver.com.

Hi,

This server has reached it’s limit on i-nodes which is number of files on the system.

Below is an output of where most of these I-nodes are being used:

357219 -> /vz/private/1753/root/var/qmail/mailnames/yourserver.com/user/Maildir/cur
457677 -> /vz/private/1753/root/var/qmail/mailnames/yourserver.com/user/Maildir/new

That is roughly 700,000 i-nodes for this mail account. Please clear this mail out and notify us within 7 days so that we can downgrade your account back to the Essential. Otherwise, you will be billed for the Signature package.

Thank you,
Tommy

First off, nice subject! No wonder I didn’t read that email!

Ah, I see.. I had a catch-all at the domain hosted there and it was filled with three years of spam!

It’s besides the point that there’s no mention of inode limits anywhere on their site or tos (I’m not saying who they are because there’s no such thing as bad publicity!), or that I guess their VPS solution has problems with some instances affecting others in certain inode-related areas.

The point is that it is crazy to assume that you may just UPGRADE your customer without hearing back from them, as opposed to say, just DISABLING their account.

I wrote back:

Hi Christian,

Um, actually no, I would have preffered to have the server fail.. I’m sorry I didn’t see those emails, but I did not agree to the upgrade!

Please refund the $80 extra dollars and set my service to cancel on May 18th, after downgrading back to the $49 plan for the rest of the time.

Thanks,
josh!

To which Christian replied:

Josh,

I understand that some people may feel this way. That’s why we gave you free time at Signature level before keeping you there, and the opportunity in successive messages to go ahead and downgrade. We made multiple contact attempts and then provided the service, which you used for two months.
I’ll need to look into the possibility of refund. I’m not sure what the protocol is offhand, so I’ll need to do some digging.

I’ll downgrade your account immediately but if the same problem exists I expect your server to start failing again shortly. If it does, you’ll need to upgrade an I won’t be able to authorize a free upgrade - not with a dispute pending. So make sure that if the server fails and you’re comfortable with that, that if you change your mind you will need to explicitly agree to the new $89 per month rate.

-Christian

HA! Man, at this point I was starting to get bemused and maybe even a little bit angry. Here I am, a guy who totally loved this host, had paid them about $1800 over three years while using virtually no resources, and they’re going to make me fight over $80 at the end?!

Especially when they have no chance in actually keeping it. I happen to know as something of a dabbler in the web host arts myself that it is very very hard for an Internet merchant to win a chargeback dispute with a consumer! My next email brought this up:

Hi Christian,

Please refund the $80 or I’ll have to take it up with my credit card company directly! Yuck!

Thanks,
josh!

Oooh, but he was not intimidated!

Josh,

I will need to take this up with our Controller. My personal opinion is that you were given clear and fair warning of the charges which were not put in place until after a lengthy period in which we provided that upgraded service for you free of charge. We made multiple efforts to contact you and it was your responsibility to keep your contact information updated with us, or in this case keep messages from your provider whitelisted so that we could communicate with you. As you were given plentiful and frequent notice of the upgrade and the consequences for not responding, as you utilized the resources and received benefit from them through multiple billing cycles, and as all of this can be documented, I am certain that we could be victorious contesting a chargeback request. However, as I stated previously this is not my call. What I will do is send this along to our Controller for review, and set your cancellation date to May 18th as promised. Though normally it is not allowed to downgrade and provide cancellation notice at the same time, given the odd circumstances I WILL allow that request to stand, which will save you some funds.

I hope this helps,
Christian

Oooohohhohoohoooo! Well! I hope it helps too! I am so grateful you are now allowing me to “downgrade” to the only plan I ever signed up for!

Anyway, long story short, they said it’d take two weeks to decide, so I contacted American Express and disputed the charges, and then a few days later they credited my $80.

And the moral is, billing issues are the biggest issues for consumers! Why burn up three years of good will at $49/month over $80? Before this, I honestly would have recommended them to people if I hadn’t been their direct competitor! I swear!

People can forgive a lot of bad service/bad product/headaches/incompetence/gross negligence if you just give them back their money. It’s kind of like saying, “the deal is off,” no hard feelings?

It is 100% worth it. Now, when they talk to their friends, they’ll be like “Well, I had a bunch of problems, but in the end they gave me my money back.”

As opposed to me who’ll be like, “They were fine until the end when they stole $80 and refused to return it! I PLEDGE ON MY UNBORN CHILDREN THAT DREAMHOST SHALL CRUSH THEM!”

That’s something that translates across all businesses too, because it’s just a universal way of doing business. It doesn’t matter what industry you’re in, nor what product or service you have, there are good ways of doing business, and there are not so good ways.

And I feel like although we don’t always succeed 100% at the specific details of trying to offer awesome web hosting for super cheap, we are generally successful at running a business that doesn’t lie, cheat, or steal, and always tries its best.

Now, you guys be me and please go write a ton of blog posts I can use the rest of my life.

Thanks!

Ha, did you think you’d gotten through those stupid strike-themed posts?

Well, apparently you are!

The writer’s strike seems to be finally coming to an end, and I don’t know whether to be happy or sad. On the one hand, it means I can finally get back to writing awesome blog posts. On the other hand, it means I can no longer get away with writing these blog posts… which is bad news because this well of creativity is tapped, my friends.

The sad truth is, I did that entire “billing mistake” thing just so I’d have easy blog fodder for another week.

A Last Hurrah

I guess I’ll just quickly wrap up a bunch of stupid things I was planning on “striking” against but never got around to. I never expected this thing to end and was pacing myself.

Hopefully this strike really is settled or you ain’t going to be seeing any new posts here until at least the first Sunday after the Ecclesiastical Full Moon date after March 20th!

A Strike on Fax Machines!

How in the hell is it 2008 and everybody still uses fax machines?

Give me some widespread e-signature standard already, world!

A Strike on Social Networks

Is it just me, or do social networks only appeal to people who 1. are single 2. have no job or 3. care about what their friends are doing?

Because I, for one, am none of those things.

A Strike on Cell Phones

Why do cell phones still keep any data locally?

When you get a new cell phone, you should just have to log into it, like you do, say, a new email client, and whammo, all your contacts/pictures/text messages/themes/preferences/ETC.. are syncronized with a (non-proprietary) server.

We need IMAP for Phones.

(I lose my cell phone once a month.)

A Strike on Global Warming

Dallas warned me not to post this, but he’s in Thailand (trying to enjoy it while it’s still above the ocean.)

There’s just three things that bother me about global warming.

1. There’s literally no way we can be even reasonably sure about what will happen. There’s just no experiment we can run on our entire planet that we can set up an adequate control for!

2. Even if the earth does get warmer, we can’t really know (again, what would the control be?) all the effects that will have on us until it actually happens. The earth’s climate has changed a lot over the billions of years it’s been around, and yet here we are, over 6 billion strong and fatter than ever!

3. Even if the Earth does warm, and even if it is bad for us, there’s again no way we can possibly verify what actually caused it, nor if there was anything we could have done to prevent it.

I mean, I’m all for clean air and water and not wasting electricity and saving the whales, but isn’t just having clean air and water and more money and whales to ride reason enough?!

And if we want to focus on literally saving the human race as we know it, maybe we should be spending more R+D on stopping near Earth objects!

We know they’re out there, we know they’ve hit Earth before, and we know it’s very bad when they do!

A Strike on Getting Old

I broke my left foot playing basketball when I was 27.

It took about a year to heal, but it’s pretty much been fine since.

Now all of the sudden, 3 years later, everytime I get up after being inactive for a half hour or more my left foot kills!

And that’s the real reason why I don’t worry about global warming in the future … I refuse to get older.

Now, please feel free to hold your own stikes in the comments, before the writers settle!

Welcome back to this week’s (and the final) edition of Friday illiterative lists!

Two business practices of pretty big-name companies came to my attention this week that I thought were too underhanded/sleazy not to be shared/copied.

#1. Sending something via FedEx Express Saver:

On Tuesday I had to FedEx some stuff from downtown Los Angeles to Chino. It’s only 36.5 miles so I figured, why not save a buck (or twenty?) and choose “Express Saver” .. it must be cheaper and it must get there in the same amount of time when we’re this close!

Wrongo! I guess FedEx really doesn’t want to cannibalize their overnight delivery sales for packages that aren’t going so far. So much so that they will actually ship an envelope from LA to MEMPHIS on its way back to Chino!

#2. Checking a domain’s availability via Network Solutions:

Now I didn’t do this. But a fair number of our customers must still remember way back when Network Solutions was the only registrar, and for some reason go to their site to check the availability of domains before attempting to register them with us.

BIG MISTAKE!

Since at least January 8th, any (non-gibberish) domain you decide to just CHECK availability for via their site, Network Solutions GOES AHEAD AND REGISTERS!

Although undoubtably sleazy, this maybe wouldn’t be sooo terrible if NetSol wasn’t still charging $35/year!

I’d actually thought about this a while ago. I thought, “If *I* were a good-for-nothing cyber-squatter, I’d set up a registrar, advertise insanely cheap rates, and then whenever anybody went to check or register a domain with me, I’d just register it for myself and then offer it to them for much more!”

But then I thought, “What about when people caught on? They’d come and check completely fake domains they never wanted, and then I’d be out the $7 a year for all these worthless domains!”

Of course, all this was way before ICANN’s Add Drop Grace Period (AGP) came into effect. The AGP provides registrars with a five-day grace period to delete a domain they’ve “mistakenly” registered and to get all their money back. The original purpose was to help people out when they make typos or when a registrar is the victim of fraud; noble enough goals.

In practice, the AGP has resulted in “Domain Tasting,” the numerous ill side-effects including:

Allowing Net S.O.L. to actually implement this practice at no financial risk.

Allowing the “Drop-Catching” business to thrive… currently 100% of expired .com/net domains are re-registered immediately by cyber-squaters and AdSense fiends.

Allowing these skuz-buckets to register hundreds of thousands of domains a day, testing their typo-traffic-potential, and then deleting hundreds of thousands that don’t make at least $7 a year.

Allowing these skuz-buckets to actually only require a domain to make 42 cents a year to be profitable… even the domains they intend to keep, they go ahead and delete every five days. And then immediately re-register. That way, they’re never out the $7/year.. they’re only out the interest they could be earning on the money they have to keep with Verisign in order to keep their zillions of domains in perpetual register/delete/re-register limbo!

In practice, the noble goals that the AGP hoped to solve are just not very big problems. If you’re a “legit” domain-registering entity and you typo a domain: you’re out a few bucks. It’s your fault, c’est la vie. If you’re a registrar and you’re being massively frauded every day (as we are), you quickly develop techniques to find and fight fraud and you prevent suspicious domains from even getting registered in the first place.

The AGP as it is now hardly ever saves us any money from fraud, because the vast majority of bunk registrations we catch before we even submit them, and the rest we don’t catch until long after the five days have already passed!

There is a bright side to all of this! Thanks primarily to Network Solutions’ ballsy new policy, ICANN decided last week to finally end Domain Tasting!

Hooray! This is good news for the Internet, bad news for Google!

Good thing I sold all my Google yesterday and bought Yahoo!

Good thing I wish I sold all my Google yesterday and bought Yahoo!

This week, I learned another five things I did not know before:

Monday: Although charging a credit card is instantaneous, refunding really does take 3-4-5-6-or-more business days to process.

Tuesday: You can erroneously credit an expired credit card. The money does leave your merchant account.

Wednesday: You can credit a canceled credit card. The money does leave your merchant account.

Thursday: You can credit a debit card tied to a checking account that has been closed for months. The money does leave your merchant account.

Friday: If you charge somebody with an international credit card and then refund their money, by the time the money gets back on, the dollar will have weakened!

Lucky you to learn these things the fun fun-facts way!

I recently wrote a self-described ‘rant’ describing some of the experiences DreamHost has had working with Ruby on Rails on our platform, and with some recommendations on how the Rails community might be able to improve the situation. That post has received some excellent comments, including some by DHH, the creator of Ruby of Rails, and I’d now like to follow-up with some clarifications and further comments of my own.

My original post was intended primarily as commentary for the Rails developer community as a whole and they are, of course, free to take it as simply that. 37 Signals and DHH obviously have their own agendas, business and personal, and those agendas are largely not in line with any agendas DreamHost is working to further. I hope my comments may be taken as ‘food for thought’ by the larger Rails developer community. The project will survive just fine with or without taking my advice, and the zealous user community will likely remain zealous.

DIY

Some of the response to my post was essentially ‘do it yourself’. DHH also went so far as to recommend we not treat the Rails community as a ‘paid vendor’ and to ‘wipe the wah-wah tears’ from my chin. While that is a very valid request, I don’t believe it applies in this situation.

Ruby on Rails is a pretty small part of our overall service. We have already put in a not insignificant amount of work to support Ruby on Rails, including a pretty good amount of user training to assist people new to Rails, and have in general worked to further the cause for it in the shared hosting environment. Aside from hardware, we don’t really have very many paid vendors of any kind now. We have ourselves developed all of the custom perl-based software our business relies on (warts and all). We very much believe in the DIY mentality and it’s been a major part of our business history. Additionally, our business will not be significantly affected one way or the other by the future actions of the Rails community. It simply does not have the critical mass necessary for that.

That said, I would like to see Ruby on Rails reach toward that critical mass of users, and thereby become a larger portion of our business. For that to become a reality I believe it needs to be simpler to use on the server side of things. A larger user community is a good thing for any open-source project.

Bride of PHP?

I mentioned PHP several times in original post, but I very much do not want Rails to become ‘another PHP’. That would be silly, as one PHP is plenty! Ruby on Rails seems to have a conflicted identity at the moment. It is simultaneously compared to enterprise technologies like Java Servlets as well as more average joe programmer technologies like PHP. There are more traditional web programmers experimenting with Ruby on Rails and exploring it, and there are professional enterprise programmers investigating it. The amount of attention Ruby on Rails has achieved in such a short time is awe-inspiring.

Programmers are Lazy

The fact remains that both of those groups of web application developers, and I’d go so far as to say all web applications developers, want development environments that more or less ‘just work’. They want to focus on programming and leave the server administration alone. Rails does a great job at saving programmers on programming time (which is exactly why programmers like it), but many reports I’ve heard indicate that in many cases it trades that programming time for back-end server administration time instead. The average joe programmers out there are typically using completely managed hosting environments that they do not have much control over, and the enterprise programmers are typically using a somewhat complex and large-scale established environment that they also do not have much personal control over. Even those VPS users who do have more control over their server environment do not want to be spending their time managing that VPS. They want to be spending time writing those great applications.

If Ruby on Rails were made to be simpler to use with a wider range of hosting environments, big and small, that would ultimately benefit Rails itself far more than it would benefit DreamHost or me personally.

I would be happy to provide a free hosting account to anyone who would like to help work on these issues with us. Just contact me through our contact form and we can talk about it.

UPDATE! : DreamHost makes using Mongrel much easier! This is one way we’re working to make Ruby on Rails easier to use.

A rant by Zed Shaw, the man who wrote the original version of the Ruby application server Mongrel got me thinking about the experiences DreamHost has had hosting Ruby on Rails driven websites over the past couple of years. The rant itself is somewhat lengthy but is an interesting (albeit self-indulgent) read if you’re either a Ruby on Rails developer, a nerd who’s just into stuff like that, or interested in the behind-the-scenes of a highly public open source project.

I don’t have anything to add to Zed Shaw’s comments about how the Rails development team operates as I don’t have any personal knowledge of that. What I do have personal knowledge of is how difficult it can be to get a Rails application up and running and to keep it running. DreamHost has over 10 years of experience running applications in most of the most popular web programming frameworks and Rails has and continues to be one of the most frustrating.

Some History

When we first started implementing our support for Ruby on Rails, we wanted to do whatever we could to support it. It was an exciting and new web framework that was invigorating web application development. Ruby on Rails seemed to really fit in with our company philosophy and we thought our existing customer base would love it. We ended up implementing quite a lot of new features just to support Ruby on Rails, not least of all FastCGI support. Rails itself turned out to be far too slow to use without some sort of acceleration (unlike any other web programming environment we support), and FastCGI is by far the best suited to a shared web hosting environment. Unfortunately, Rails and FastCGI just don’t really get along! No matter what we did users of Ruby on Rails kept seeing regular internal server errors. The best guess I have is the FastCGI dynamic process manager was politely asking the Rails process to die and instead they were just exiting and leaving the application high and dry. That’s in layman’s terms, of course!

These issues were later mostly mitigated by a single user of Ruby on Rails who wanted it to work better on our servers, but the solution from the Rails community itself was quite honestly, stupid. They said to stop using Apache and FastCGI (a combination that successfully powers bazillions of websites, just not Ruby on Rails ones) and instead to entirely retool our servers with Lighttpd and SCGI (a FastCGI like protocol that may be technically superior, but next to nobody uses). That suggestion shows either a complete lack of understanding of how web hosting works, or an utter disregard for the real world. It’s all good and fine to recommend that users use higher end dedicated server hosting for their commercial applications but you simply cannot ignore the fact that nearly everyone will want to use lower cost shared hosting for getting started. It’s just simple economics. Additionally, people who use systems like Ruby on Rails want to spend time programming and not time setting up servers. Recommending technologies that are not widely used or supported by any major web hosting company is putting too much of a burden on your users, the people you want to keep happy! It’s a good thing we never even tried to switch our system to support Lighttpd and SCGI, too, because 6 months later the ‘in thing’ in the Rails community had shifted to Mongrel, instead. Make up your minds already!

How It Could Be Better

Zed Shaw mentions in his rant that even the Ruby on Rails application run by DHH (the guy who wrote Rails!) has regular issues and needs restarts several times a day. The Rails community is full of very smart programmers and they have implemented a great system that works awesome, when its not needing looking after. It’s one of the most fickle web application systems I’ve ever had experience with, and this is coming from someone who has experienced both the ill-fated Netscape web server as well as many iterations of PHP (PHP has many issues of its own, so don’t get too smug, PHP people).

Ruby on Rails has amazing potential, but here are some things that simply must be fixed before it will ever be as widely used as much less hyped web applications environments like PHP…

1. Ruby on Rails needs to be a helluva lot faster. With a proper accelerator it’s nicely usable but without one it’s painful. Ruby itself is a big part of the problem so this one may come down to just simplifying the management of the accelerator technologies, unfortunately. Mongrel seems like a big step in the right direction, even though it’s not Rails-specific. I hope the Rails core developers will be cooperating a lot more closely with Mongrel developers in the future.
2. Ruby on Rails needs to more or less work in ANY environment. You can’t just expect your users to set up their servers any which way. There are millions of established systems that cannot simply integrate any bleeding edge technology you think is better this week. If you continue to keep this attitude you are surely shooting yourselves in both feet.
3. You need to maintain backwards compatibility better. Admittedly this is the area where PHP has historically done very poorly, but that’s no reason to not one-up them. Also, Rails is admittedly very young as a development platform and you guys have gotten a LOT of attention very early on. Still, with big hype comes big responsibility. You need to keep the momentum going now.
4. Officially support shared hosting environments. The feeling I get from the Rails community is that Rails is being pushed as some sort of high-end application system and that makes it ok to ignore the vast majority of user web environments. You simply cannot ignore the shared hosting users. In my opinion, the one thing the PHP people did that got them to where they are today is to embrace shared hosting and work hard to make their software work well within it. That means it has to be very lightweight (it may be too late for that in Rails already!), and it has to ‘plug in’ to a wide variety of operating environments with minimal fuss and hassle. Compatibility work like that is not glamorous, exciting, or fun, but it’s gotta be done.

What Now?

DreamHost very much intends to continue fully supporting Ruby on Rails and we are working on additional support for it to be tied in with our DreamHost PS plans. Ruby on Rails does have great promise, and I think in time it may be able to meet the hype it’s got surrounding it. I just hope the community doesn’t get a big head before that happens!

The opinions presented here are entirely from the perspective of an outsider with some web experience. I know Ruby on Rails is in use on some very high traffic websites and it is certainly possible to make it work well. What I’m saying is that it really needs to be a whole lot easier. You have to be careful not to confuse user enthusiasm with easy to use. Enthusiastic users will fill in many many gaps in usability (DreamHost thrives on that fact!), but you cannot rely on that over the long-term.

UPDATE! : Further comments and clarification in a companion post.

UPDATE 2! : DreamHost makes using Mongrel much easier! This is one way we’re working to make Ruby on Rails easier to use.

Okay, I’m not exactly sure what the current state of the writers strike is, so I’m just going to make this a Happy New Years post and be done with it.

Happy 2008!

There, got that out of the way!

And now, here are a few of my personal new years resolutions:

* Eat more chocolate.
* Exercise less.
* Start smoking.
* Start really drinking.
* Save less money.
* Spend less time with family.
* Read less books.
* Be more selfish.
* Get less organized.

and of course…

* Get the January DreamHost newsletter out by my birthday.

Now, please don’t get accustomed to this, but I thought I’d go ahead and end this shorty-short post with a NEW FEATURE RESOLUTION!

Well, a new BETA feature resolution at least. Please go and test out a new webmail client at roundcube.dreamhost.com … and comment about it in this discussion forum thread … and who knows, maybe before the end of this writer’s strike we’ll have replaced squirrelmail with it!

Ha. AS IF!

I, like a lot of you I’m guessing, have a complicated relationship with chocolate. I mean credit cards.

On the one hand, I love them. These days, cash is about as necessary as fax machines and rotary jukeboxes. And hey, giving me 1% rewards plus 30 interest-free days to pay just sweetens the pot.

On the other hand, I hate them. I’ve always paid off my balance in full each month, but the amount of money they squeeze out of people who don’t is stupendous! Not to mention annual fees, late fees, cash-advance fees, and of course merchant fees!

I’m sure most everybody already knows this, but no credit card provider could ever survive on the billions they make from consumers.. they are inclined, nay, forced to also charge the merchant a percentage of every single transaction. (Usually around 2% + 30 cents.)

Of course, it’s still way worth it for most merchants to accept credit cards. The savings over not having to deal with (as much) physical cash are pretty huge, as well as the benefit that on average people paying with credit cards spend 30% or maybe 112% more than those paying with cash.. even at McDonalds! Credit cards are generally faster than cash too, and the whole world of eCommerce which would be pretty screwed if not for electronic payments.

But hey, it’s not ALL milk and honey for the credit card companies, right? They have a lot of expenses too… all those consumers that never end up paying their bills, all that fraud and theft, and all those frequent flier miles ain’t FREE you know?!

But hey, actually, they ARE free. And it IS all milk and honey.

Because, you know who pays for all that fraud and theft? Not the credit card companies. The merchants. If a customer disputes a charge that you received the funds for, the credit card processor just takes the money back from the merchant… plus a $25 fee!

And you know who pays for all those points and cash back rewards? NOT the credit card companies! The merchants. Yep, I didn’t even realize this myself until recently, but there’s a higher rate charged to the merchant for any cards that offer any sort of benefits back to the card holder (in fact, it’s even MORE than 1%)! And as a merchant you have no choice but to accept that higher rate for those cards… even though it wasn’t your idea to offer such crazy incentives. It was Discover’s.

And you know who pays for all those deadbeat consumers? I’ll give you a hint this time. NOT THE CREDIT CARD COMPANIES! Well, they actuallllly do, a teeny little. But in the end, it’s the individual themself who pays, by having their credit report ruined for a long, long time. And, worst case, the processor at least gets to sell the debt to collections, and make a note to never offer you credit again!

All and all, it’s a pretty sweet scam. It explains why MasterCard has more than quadrupled since its IPO a little over a year ago, and why VISA’s upcoming IPO has got people pretty hot and sticky (myself included?).

Yep, pretty sweet indeed. Owning a credit-card company is the closest you can get to printing money without overthrowing a small island nation (or counterfeiting). But it’s weird… generally when you have a scam this sweet the government steps in and makes it illegal so they can start doing it… strangely in this case, the US Treasury is still happily printing trillions of dollars of paper money like they have been every year since 1789.

What If The US Treasury Switched to E-Cash?

I don’t know, call me new-fashioned, but I think it’s about time for that to change. The US Treasury has an annual budget of over $11 billion in 2004. Mastercard’s expenses for running their world-wide transaction system came to just $1.5 billion in 2006.

It seems at least somewhat possible that the US government could set up a nation-wide electronic cash system for about $10 billion less per year than they spend on the current paper one.

And that $10 billion of savings would be the least of the benefits. This new system would be instantly ubiquitous, not based on credit, electronic, and have no transaction fees! We would drop credit cards quicker than you can say “Sweet sassy molassy!” if there were any free electronic payment system that was wide-spread!

With the elimination of paper cash, I wouldn’t be surprised if tax revenues went up as well.. a happy accidental side-effect of the elimination of anonymous transactions!

And I don’t want to hear any “Waa waa waa, I don’t want the government to be able to track my purchases!” Don’t fret: for you we will always save the option of living in a cave in Montana and trading rabbit pelts for your WiMax.

But for the rest of us, it’s fortunate we live in a modern, stable, free, democracy! Get your head out of your tin foil hat and pay your damn taxes like the rest of us! If the government does illegally pry through your transactions one day, tell the media, take them to court, and elect some new congressmen like an AMERICAN!

I don’t know, call me old-fashioned, but it irks me off to no end when somebody, no matter how much or how little they make, tries to under-report income to the IRS…

For example, just this past October, New York City started requiring all taxis to accept credit cards via this new touch screen with news, gps maps, ads, and even rfid! I was pretty excited… it seemed very future-oriented of New York, and I knew having all taxis uniformly accept credit cards would mean bigger tips, quicker transactions, more customers, and just more ultimate overall sweetness.

Well, the taxi drivers disagreed! They even had a STRIKE! They said they didn’t like the “GPS tracking” or the “5% credit card fee”.

Well, the GPS tracking concern is silly… I think they said they were worried about getting caught if they went places that were illegal for them to go anyway?

The credit card fee concern was silly too. First of all, I’m sure it’s more like 2%, and second of all, I wouldn’t be surprised if the average credit card patron tipped a full dollar more than the average cash patron, way making up for that 2% fee easily.

No, the REAL reason they are against credit card fares is because it is impossible for them to not report them on their taxes.

Anyway, it’s soooooo frustrating now… virtually every time you go to pay with a credit card, the cabbie is either like “Oh.. don’t you have any cash? I really prefer cash!” or “Oh, the credit card is ‘broken,’ sorry!” or “Too late, I already ‘cut the meter’… you have to tell me earlier if you want to pay with credit card.”

Which (the last two at least) are just blatant lies! They make it such a hassle that I’ve pretty much given up on even trying my (awesome) MasterCard PayPass anymore for fear of getting verbally (or physically, like actually happened to my friend!) assaulted!

So please, Uncle Sam… do yourself, and us, the cab-riding, chinese-restaurant eating, laundramat-using, public a favor and give up on the greenback! Make inefficiency and tax-evasion a thing of the pass, and only those who are inefficient and who tax-evade will miss it…

…it will be sweet revenge indeed.

The writers strike continues, and so do I. This is my third strike in a row, a turkey in the parlance of our times, which I now offer to you in the belated spirit of Thanksgiving.

The real turkey however, is the target of my now hardly-notorious STIKES.. the one laptop per child project.

For those less charitably-minded, let me explain the project a little. A few years ago Nicholas Negroponte, already hardly-notorious for his crazy Wired columns and being director of the the MIT Media Lab, decided that what would most benefit the poorest children of the world is not basic necessities and safe living conditions (like Bill Gates and Warren Buffet believe), but consumer electronics!

A Great Idea!

I believe this all started back in 2005, and I guess the main idea was to make a sub-$100 “laptop” that used very little power (so little as to be able to be hand-cranked back to life), but would at the same time catapult poverty-ravaged children into the 21st century! The laptop would have to be durable, easy-to-use, keep kids interested, and include learning software that could replace expensive books.

The lucky millions of children who got to use these laptops would get all this great “computer experience” and so be more ready to compete in the REAL WORLD when they happened to not die of starvation first.

A Great Idea?

Unfortunately, there are only two practical advantages to giving third-world children laptops:

There could possibly be savings compared to current textbooks and learning materials.

The children could gain familiarity with the most important tool in the modern world: the computer.

Well, it’s almost three years later, and what’s finally come out of the project is a $200 laptop, that runs some custom learning software on a custom operating system with custom hardware.

And frankly, the third-world is no longer interested! Despite being promised orders of several million from such reputable countries as Libya and Nigeria, so far Negroponte has only delivered 2,000 laptops so far, and has total orders for less than 200,000… many of those to rich westerners!

On top of that, Microsoft and Intel have teamed up to offer the ClassMate, a real-deal laptop running actual Windows for just a bit more than the crazy, custom, non-standard OLPC is turning out to actually cost. Negroponte is crying foul and saying, “They don’t care about the children … they’re just selling these things at a loss to protect their market share!”

Well Duh

Duh, Nicholas. If they cared about the children they wouldn’t be making cheap laptops for them at all.. they’d be starting foundations to train teachers and start schools and buy books and provide water and medicine and all that other boring stuff. But that’s not what Intel and Microsoft are for. That’s what the Bill and Melinda Gates Foundation is for.

Intel and Microsoft are for making computer hardware and software (and dominating while they do it).

How in the world did you think you could start a company with 20 people and beat the entire computer industry that’s been doing this for decades and decades? And how in the world did you think you could beat them on price?

What To Do

Don’t worry Nicholas, it’s not your fault. You’re a bold thinker, and bold thinkers don’t get that way by worrying about details.

I, however, am an italics thinker! And italics thinkers get that way by being practical and worrying about details. Fortunately for you, I am now going to give you some italics advice for free.. as long as you promise to follow it.

One Nintendo DS Per Child!

Give up on selling the hardware! You’ve said so yourself, “I’m not good at selling laptops, I’m good at selling ideas!”

You’ve already done the hard part and convinced at least some people that what the poorest children in the world need are home electronics.. now it’s time to let somebody with some experience fulfill the manufacturing.

The Nintendo DS is literally perfect for your needs:

It’s cheap. ($129… and I’m sure if you order 150 million Nintendo will cut you a deal.)

It’s power-efficient. (Easily lasts 14 hours on a single charge, even with the screen bright enough to be seen in direct sunlight.. there’s even a hand-crank charger!)

It’s a computer. (All advantages to be gained by giving a young child a laptop are also gained by giving a child a DS. Just by using a DS they’ll become confident and “fluent” in the use of technology, and future “real” computer use will come much much easier. Worked for me!)

It’s got wi-fi. (In fact, it even does ad-hoc networking, and allows downloading content from one host DS to all the others.. just the teacher could have the lesson plan on their DS and wirelessly beam it to all the students at the start of each class!)

It’s rugged. (Nintendo’s been making toys for actual children for over 100 years and Game Boys have survived actual wars.)

It’s powerful enough. (If it can handle Mario Kart tournaments, it can handle Multipli Kation tables.)

It’s small and has a touch screen. (Like the iPhone. Just like laptops have replaced the desktop, in the future ever smaller portable electronics will replace the laptop. Why teach on antiquated technology?)

It’s forward-compatible. (Nintendo’s portable systems have very long life cycles. Any software you write for the DS will very likely still be runable on the hardware they’re selling in a decade.)

Children love it. (You want a teaching tool that’s “fun to use?” You want a teaching tool that’s “collaborative” You’ve hit “the jackpot.”)

It’s a world-wide standard. (Over 53 MILLION have been sold already. The platform has thousands of developers. The future leaders of the developed world are growing up playing Nintendo DS.. why give the future leaders of the developing world anything less?)

It’s already used for education. (Millions use their DS to learn a language, develop logic skills, practice cooking, learn math, read books, research, and browse the web every day!)

It worked for Japan. (Since the original Game Boy was released in 1989, Japanese GDP has grown over half a trillion dollars, which is clearly 100% attributable to the device.)

For Reals

So please, Mr. Negroponte, hear my plea! Give up on the laptop, and just make a Nintendo DS cartridge with your educational software on it!

If only you’d done this from the start, you would have had your hardware already and maybe a couple million African kids would be on their way to a digital future years ago.

It’s not too late though.. switch your “buy one get one” promotion to be DSes now, and you could have that couple million yet! You could even partner with Nintendo and make a “special edition” DS you can only get through your program.

I suggest it have this picture on it, in honor of the italic thinker who made it all possible:

Josh Jones

In keeping with my writing bretheren, I am continuing my strike. Not my strike on writing however; just my strike on good writing.

So, remember how I got an iPhone? Well, I gave that one away. But then later, I actually got another iPhone, even though I still love that T-mobile HotSpot @ Home thing. I can ’splain! (That’s short for a’splain.)

It was the day they (not they Apple, they Hackers) announced the software-only unlocking process, and I wanted to give it a shot. We were also planning on getting an iPhone for my sister-in-law for Christmas (don’t read this, Sheireen), and I figured then was a good time to get one since they still had 4GB ones available for $299. Which was a 40% price drop compared to a 33% price drop for the 8GB ones.

I figured I’d buy a 4GB one, mod it, try it out a little, and then wrap it back up and save it for her for xmas.

So that’s what I did. After jailbreaking it, I tried out a bunch of the underground 3rd-party applications, and my absolute favorite was iBlackJack.

Favorite for it being the worst blackjack game I’d ever played!

Some of the faults:

Visually, it looked nice.. except the upside-down card was a bright apple logo, which just for some reason always looked confusingly like a right-side-up card.

The INSTANT the game was over, a pop-up appeared telling you if you’d won or lost. And by INSTANT, I mean INSTANT: you couldn’t even see what the dealer’s hole card turned out to be, it was covered by the pop-up!

Finally, and this was hard to notice because of the other problems, the dealer actually always drew exactly one card. It didn’t matter if they were already over 16 or were still under 16 after drawing, they always drew one card, no more, no less!

This iBlackJack was so awful it would always be the first thing I’d show to people who wanted to checkout my iPhone, just so I could sit back and watch the transition from excitement to confusion to utter disgust as it swept across the face of my victim.

This game served as a textbook example for Steve Jobs’ argument about why he claimed they wanted to lock out third parties from developing iPhone apps: playing it made me really hate Steve Jobs, personally.

But Then

Sadly, this could not last forever. Updates of iBlackJack kept coming out, and within just a few weeks, all the glaring usability and logic errors were squashed. Now it’s a decent little app, and serves as a strong counter-example against a locked iPhone.

Yes, the game was a boiling pot of dog turd at first, but now my iPhone (oh yes, it’s MINE now) has a full-featured blackjack game in it; one with such features as how many decks in the shoe, when to re-shuffle, when the dealer hits, and even if it should bother asking if you want insurance.

Oh Yeah, Insurance

That’s what I was going to talk about!

Everybody knows you should NEVER TAKE INSURANCE in blackjack. It’s yet another way gambling mimics real life.

In real life, as in iBlackJack on your iPhone, you should NEVER TAKE INSURANCE.

There are only two exceptions to this rule.

One, if it’s required by law. Goddamn it, I guess you gotta get it.. but still, only get the minimum amount.

Two, if you absolutely, positively would be ruined should the insured against event occur.. and the event has more than about a one in a million chance of occuring.

Let me ’splain.

The only way to build real wealth in real life is to take risks where the total expected return is greater than the total actual cost. “Total expected return” simply being the summation of each possible return times its chance of occuring. “Total actual cost” simply being the money/time/personal cost of this risk, plus the “opportunity cost” of what other risk you could be taking.

Makes sense, no?

Here’s an example… the “total expected return” of any casino gambling transaction is always less than the dollar cost of making it. Of course, that doesn’t make it totally irrational to gamble.. if your return still beats the total expected cost. Perhaps you derive entertainment from betting, or perhaps you would have just blown the money on strippers and blow… but it does mean it’s never a good move from a purely financial standpoint.

On the other hand, if somebody says, “If you loan me $50 today, I’ll pay you back $80 tomorrow,” and you figure there’s about a 70% chance they’ll pay up, you should probably loan them the money. Unless of course you’ve got a less risky way to get the same expected 12% return on $50 in one day.

Shamefully, it really does seems to be a fact of life that the higher the risk, the higher the reward. If you can accept a 90% chance of losing everything, you can find tons of investments that offer very high total expected returns… that’s even after taking the 90% chance of losing it all into account! It’s why there are venture capitalists.

Besides taking more risk, there’s only one other way to get higher expected returns: have more money.

“It takes money to make money”… true dat, double true! “Mo money, mo problems”… HA!

I don’t see Puff Daddy complaining.

Nevertheless, you should not be risking your entire net worth in any venture with a 90% chance of losing it all, no matter how high the expected return. Doing so is not the highway to riches, it is the trail to crazy town in a van down by the river.

So, unfortunately, you need to have a lot of money already for the world of higher total expected return investments to become available to you. When they do become available, your wealth will then be able to grow at a faster and faster and faster rate.. creating the positive feedback loop of more money => more chances for higher returns => ever more money => less problems!

So how do you start?

Therein rubs the lie. If you can only really make money by already having it, you’re pretty much screwed if you don’t already have it, right?

Yep that’s pretty much true. It’s why the rich get richer and why one laptop per child and girls don’t like boys girls like cars and money. Fortunately, there is one other way to make money, but it’s much, much, harder than all this risky investment stuff.

Saving it! When broke, the only option to build wealth obviously is to spend less money than you earn from your j.o.b. Easier said than done.. but then you can start investing in relatively safe things: buying a house, cds, bonds, etc.

As your nest egg builds, and you can afford to possibly lose some of it, you can start investing in riskier things with higher expected returns: S+P mutual funds, your friend’s small business, maybe even some individual stocks.

Some of those risky investments are not going to pan out.. that’s the risk, remember? But some of them will… and since they offer higher total expected returns you’re going to end up with even more money.. and then newer and ever more lucrative opportunities will keep presenting themselves: hedge funds with $5 Million minimums, angel / VC investing, emerging market real estate, heroin import… and the cycle continues!

Back To Insurance?

Oh yeah… BORING! So, the thing is, insurance is weird because it’s a reverse investment. Rather than risking money you have in the hope of getting a payoff in the future, you’re guaranteeing a loss now in the hope of not having a loss in the future.

Now, there’s nothing wrong with that, IF the value of the loss you’re guaranteeing now is smaller than the total expected loss you’re insuring against. It’s a perfectly valid way to get a return on your money, just like using cash to pay off an existing debt is compared to starting a new investment.

The problem is, with insurance the total expected loss is always less than the loss you’re guaranteeing yourself by paying your insurance premium every month. It’s how insurance companies make money! In fact, insurance (along with gambling) is one of the few “investments” where you know 100% the “total expected return” … and you know it’s negative!

After all, the insurance actuaries went to a lot of trouble to figure it out for you.

On top of that, the “total expected cost” of insurance is always higher than it seems. It’s not like you can just call up your insurance company and say “Hey, I need $35,000 to redo my floors, they got messed up” and the money is wired into your Caymen Islands bank account.

Noooooooooo…… file any sort of insurance claim and be ready for weeks, if not months of paperwork, calls, visits, faxes, more paperwork, more calls, and finally, higher rates in the future.

So, since all insurance is a very bad investment, you will be wealthier long-term if you never buy insurance! Of course, you’d also be better off long-term if you skipped the whole “saving, bonds, and cds” stage and went straight to “leveraged buyouts and social networking startups.”

But you can’t do that. You don’t have the funding yet. It’s a long shot that you’re going to strike it rich on a social networking startup, so you’d better have some money saved up first. It’s a long shot that you’re going to lose your house in a fire, but you’d be ruined if it did, so you’d better get insurance first.

However, as you progress up the ladder of more and more risky investments, one of the very first you should consider is the risky investment of “self-insurance.”

If you’ve got enough saved so that some particular event you were insuring against would no longer absolutely ruin you, it’s a pretty good investment to drop your insurance for that and go it alone. Now you are making the profit that Allstate used to get, and you’re still “okay” in the face of a disaster because of the money you’ve saved up.

Other Benefits

In fact, you will most likely make more profit than your insurance company used to.

For one, they have all kinds of overhead in dealing with claims that you’re not going to have.

For two, people aren’t the most rational consumers when they’re not spending their own money… sure you might get your whole car replaced if insurance is paying for it. But is it actually worth $2,000 of your money just so you don’t have some ugly dents in your passenger door?

For three, “your rate” won’t go up every time you “make a claim.”

Practice, Preacher, Practice

I’ve never bought more than the minimum car insurance legally required (liability) .. the key is just not owning a car you care about at all! I never get extended waranties or travel/rental car insurance, and although I do have home insurance (it’d suck to lose that in a wildfire/earthquake/mudslide/riot), I’m about to drop all coverage for everything inside.

I even just got a $14,000 claim for some water damage, and honestly.. it still isn’t worth it. I don’t have life or disability insurance because I think my wife would be fine with the money we already have, should I bite it or become really stupid. And I’d be fine with just paying for medical bills out of pocket if I didn’t have it through DreamHost… although I want to switch that to be self-insured too!

Over the last ten years, I estimate DreamHost has probably spent close to $2,000,000 more on health insurance than the cost off all benefits that our employees have ever claimed.

For a company filled with 20-somethings, (and, ahem, the newly-30) there just isn’t a lot of expensive health issues going on. If we had self-insured from the beginning, we probably could have cut out a ton of paperwork, offered even greater benefits, been more flexible with our policies, and probably had an extra $3,000,000 (with interest) tucked away for future medical expenses.

I’m not even sure why we haven’t started self-insuring still.

The ABCs of Getting Rich

Wow, that was sum’ lonnnnng ’splainin’!

Here’s the executive summary:

A. Don’t buy anything (that includes investments, expensive cars, fancy home electronics) that would ruin you if you lost it: that way you don’t need to buy insurance for it. If it’s a very good investment (like your house), only then should you buy insurance: so that it wouldn’t ruin you if you lost it.

B. As your build your wealth, less and less things will then be able to ruin you, and higher and higher “total expected return” investments will become available to you.. take advantage!

C. Save more money by spending more time reading free, long, blog posts.