Moneybox
A blog about business and economics.

May 22 2015 6:49 PM

Young Twentysomethings May Have a Leg Up in the 1099 Economy

The more Uber and Uber-but-for services proliferate, the more people wonder: What do all these independent-contractor jobs mean for the economy? With an estimated 34 percent of the American workforce currently in freelance or independent contractor jobs and as many as 40 percent forecast to be in those jobs by 2020 according to Intuit, it’s an increasingly pressing question. And while there’ve been a few stabs at answering it—including one earlier this year by Uber, which unsurprisingly concluded that people like working for Uber—the truth is no one knows. A report released this week by the group Requests for Startups doesn’t really know either, but it does add some interesting statistics to the discussion.

To conduct the report, the authors (three students at Stanford University and one Y Combinator alum) and their collaborators (mostly startups and on-demand service providers) distributed online surveys to 1,330 independent contractors. Respondents were offered a chance at winning one of 20 $100 Visa gift cards if they completed the survey, which 897 ultimately did. The authors analyzed the responses by dividing companies into four segments: ridesharing (companies like Uber), manual labor (companies like HomeJoy, a house-cleaning service), delivery (companies like Postmates, a food delivery service), and passive income (companies like Airbnb). A lot of their findings support points we’ve heard before: People who work as contractors value the flexibility, but worry about the money they earn, and juggle the contract work with other full-time or part-time jobs.

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What's interesting about this report, though, is the picture it provides of contract work for young adults, particularly those under 24. About 39 percent of the survey’s respondents said they were between age 18 and 24—the biggest age cohort. For select questions, the report broke out how these people answered questions as opposed to all other workers. Here’s what it found:

Young adults are much more likely to take a 1099 job because the pay is better, the flexibility is greater, or they have friends who also work there.

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“What convinced you to work for the current companies you work for right now in an independent contractor role?”

Requests for Startups

Young adults work significantly fewer hours than other 1099 employees.

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“In the typical week, how many hours do you work as an independent contractor?”

Requests for Startups

They’re also more likely to grow out of the need for a 1099 job and leave it.

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“Why did you choose to leave the companies you no longer work for?”

Requests for Startups

Here’s the real kicker, though: Young adults are also way more likely than everyone else to have health insurance. Considering that one of the big drawbacks of freelance and contract work tends to be lack of benefits, having health insurance is huge. Presumably, most of them also have Obamacare to thank, which lets children stay on their parents’ health insurance policies until they turn 26.

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“For the following insurance products, choose what best describes your current situation.”

Requests for Startups

There’s been a little written on how Obamacare drives the 1099 economy, mostly focusing on how it lets workers purchase health coverage without a traditional employer. But it makes sense that another big piece of that would also be giving young adults still on their parents’ plans the freedom and peace of mind to take piecemeal, contract-style work while they figure out what they actually want to do for a career—or look for better full-time options. So when you consider the health insurance benefits many of these young adults have alongside the other trends in contract work—fewer total hours, and a much more short-term outlook—you can see how being a contractor as a young twentysomething might not seem so bad. Which gives them a big leg up on just about everyone else.

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May 22 2015 4:15 PM

Almost Half of America's Biggest Cities Are Basically Built Like Giant Suburbs

The word city may conjure up the image of a dense urban space full of street life and people willing to pack themselves like tinned fish into subway cars for their morning commute. But in the real world, a city is just a set of political boundaries. And often, what's inside those lines looks all but indistinguishable from a suburb, from cul de sacs to roomy houses to lots and lots of highways. If you've ever driven around a place like Phoenix or Austin—or lived basically anywhere outside the East Coast—you're well aware of this.

Recently, Jed Kolko, chief economist at the real estate website Trulia, has been on a mission to show precisely how suburban many of the country's biggest cities really are. Even if you're familiar with how American metropolises tend to sprawl, his findings are striking.

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The U.S. Census Bureau doesn't distinguish between urban and suburban tracts in its official data. So Kolko and Trulia developed their own definition by asking more than 2,000 adults whether they thought they lived in an urban, suburban, or rural neighborhood. "Our analysis showed that the single best predictor of whether someone said his or her area was urban, suburban or rural was ZIP code density," Kolko explained in an article for Fivethirtyeight this week. "Residents of ZIP codes with more than 2,213 households per square mile typically described their area as urban. Residents of neighborhoods with 102 to 2,213 households per square mile typically called their area suburban."

Using those benchmarks, Kolko categorized each zip code in the United States as urban, suburban, or rural, then calculated the percentage of households within different cities that lived in each sort of zone. He kindly sent me the results for 34 U.S. municipalities with 500,000 or more residents (only a few of which he published at Fivethirtyeight). In 16 of them, more than half the city could be considered suburban, based on density. Eight of them were about two-thirds suburban, or more. Sunbelt cities like like Charlotte, Forth Worth, Phoenix, Tuscon are especially diffuse. Nashville has little more than an urban nub.

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Jordan Weissmann

Initially, I was surprised by the fact that both New York and Washington, D.C., qualified as 100 percent "urban" by Kolko's measure. Large sections of Queens, where it's not unheard of to find backyard pools and front lawns, seem awfully 'burb-like, as do some wealthier, mansion-studded chunks of Northwest D.C. What that speaks to is the fact that the areas many Americans consider "urban" aren't really hyper-dense. As Kolko noted at Fivethirtyeight, ZIP codes at the threshold between urban and suburban include places like Falls Church, a strip mall-filled stretch of Northern Virginia, and Teanec, New Jersey.

"The variation across big cities in how urban they really are is enormous," Kolko wrote to me in an email. "Even the least urban parts of Queens are still more urban than the average neighborhood in many other cities."

And many other cities, for that matter, barely look like cities at all.

May 22 2015 2:24 PM

eBay Joins the Turf War for Amazon Prime Subscribers With Its Own Loyalty Program

Last week it was Walmart getting into subscription delivery to ostensibly take on Amazon Prime; this week it’s eBay. The company is piloting a loyalty program in Germany that gives members benefits on shipping and returns, one which it plans to introduce there more widely in the second half of the year. A Web page advertising the program, to be called eBay+, doesn’t offer specifics on cost, but it’s been reported that the annual fee could be around €15 to €20, or about $17 to $22. That would make eBay’s loyalty offering among the cheapest out there. Amazon Prime—which comes with many more perks than free shipping—costs $99 a year, and Walmart’s service is being priced at $50.

Here’s a little more from the Wall Street Journal:

Ebay is promising better product placement for sellers’ merchandise, and also discounts on selling fees and a subsidy to help cut the cost of shipping and returns, according to a spokeswoman. Sellers will have to agree to dispatch goods on the day they are purchased and offer free returns within one month. The spokeswoman declined to disclose the price, and said eBay will have more details to share once it is introduced in the second half.
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While eBay’s program hasn’t started yet, The Street is reporting that people are already skeptical. Maike Fuest, eBay's director of communications for Germany, told The Street that eBay+ will help sellers “commit existing customers even more strongly to themselves” and also “gain new customers.” But sellers are concerned that they’ll have the bear the cost of all these new eBay+ benefits. Customers, for their part, might wonder how eBay plans to standardize same-day shipping (and free returns one month later) when they are buying from scattered eBay sellers instead of eBay directly. EBay, after all, isn’t exactly the well-oiled logistics machine that Amazon is, nor has it built its reputation on customer service in the same way.

But perhaps that’s why eBay feels like the time has come for eBay+. When eBay spins off PayPal in the third quarter of this year, the company will lose its thriving, fast-growing payments arm, and be left with its dwindling marketplace and a vague aura of dustiness. To make itself viable as a standalone business, eBay desperately needs to reinvigorate its offerings and refresh its reputation with consumers. A loyalty program could be a great way to do that. If it’s executed well, that could draw far more customers into eBay and, maybe more importantly, put it back alongside modern e-commerce sucesses like Amazon Prime and Google Express in their minds. The key phrase, of course, is “if it’s executed well.”

May 21 2015 3:10 PM

Austin, Texas, Is Blowing Away Every Other Big City in Population Growth

Austin, Texas, keeps tearing along as the fastest growing big city in the country. According to census figures released today, its population shot up 2.9 percent during the 12 months that end in July of 2014. Among the 50 largest American cities (and to be clear, these figures are for cities proper, not their wider metro areas), the next closest on the list was Denver, which managed 2.4 percent growth. Which is to say, no other major city even came close to Austin's pace of expansion, much as has been the case ever since the recession ended.

Three quick takeaways after the graph:

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Jordan Weissmann

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Americans still love the sun

Overall, the vast majority of U.S. population growth is concentrated in the South and West. Likewise, the cities topping this list are mostly scattered through states like Texas, California, North Carolina, Florida, and Colorado (And did I say Texas? Let me say it one more time: Texas.). There are some prominent Eastern and Midwestern exceptions in Minneapolis; Washington, D.C.; and Columbus, Ohio. But the Sun Belt's lure of cheap housing and warm weather isn't losing its appeal to Americans. That said, Pacific boomtowns like Seattle and San Francisco are benefiting more from hot job markets, which have outweighed their miserably expensive real estate prices. 

America's fastest growing city is really a fast growing suburb

Austin is a delightful town with a growing number of high-rises and walkable neighborhoods packed with trendy restaurants and bars. But it's nearly impossible to survive there without a car, an enormous amount of the housing stock is made up of single-family homes, and it's not actually all that noticeable when you leave its city limits. Like many of the places topping the growth charts, much of it just feels like a large collection of 'burbs. Today on FiveThirtyEight, Trulia economist Jed Kolko points out that based on neighborhood density, Austin could be considered more than half suburban, as would other high-growth locales like Phoenix; Fort Worth, Texas; Charlotte, North Carolina; and Houston. So while cities are growing as political units (which is wonderful for their tax bases), that doesn't necessarily mean Americans living in them are opting for what most of us would consider urban lifestyles.

Only a few big cities are outpacing their wider regions

Given how indistinguishable some major cities are from the suburbs that ring them, I got to wondering: How many are actually growing faster than their wider metro area? Not many, it turns out. Among the top 50 cities, only 14 had grown faster than the state as a whole and grown at least 0.2 percentage points faster than their wider metro area (sadly, the census didn't includes a margin of error on its growth estimates, so I wanted to leave a little room). Of that group, the star destinations were Portland, Oregon, and Miami, which are just about as far apart, geographically and spiritually/culturally/psychologically, as two cities could be.

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May 21 2015 2:42 PM

How a Danish Company Is Helping People With Autism Get Jobs in IT and Tech

This post originally appeared in Inc.

William Hughes is a marketing intern at Towers Watson. Hughes holds a master’s degree in political science from Stony Brook, which he received in 2013, as well as a bachelor's degree from Hunter College. He also has autism.  

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"We're highly talented individuals. We may not see things the same way as a neurotypical person, but we will get to where we're going," the 48-year-old Hughes said.

The fact that Hughes is employed—let alone by the largest human resources consulting firm in the world—makes him an exception. Typically, it's very difficult for people with disabilities to find work: Just 68 percent between the ages of 16 and 64 have jobs, according to research from the American Community Survey. And only 32.5 percent of young adults with autism work for pay, according to the National Longitudinal Transition Study 2.

Hughes is bucking the trend in part thanks to the training he received from Specialisterne, a company that hires high-functioning autistic employees and prepares them for employment in the IT and technology sector. In many cases, people with autism may actually have more to offer companies than the average worker, especially in the world of tech.

Thorkil Sonne, who founded Specialisterne in 2004, wants to change the professional fate of people with autism—and he has a personal stake in the cause: His own son Lars was diagnosed with autism 15 years ago. The Danish company—which literally translates as "the specialists"—is off to a promising start and has since expanded to nine countries worldwide. The United States is his next target because it represents a huge market with about 50,000 people with autism turning 18 each year, according to the New York Times. But changing the way companies think of autistic employees is going to be a marathon, not a sprint.

Sonne has learned that Specialisterne has a difficult business model to uphold abroad, especially without the same level of government support that it receives in Denmark: He told the Times that it would take roughly $1.36 million and three years for the U.S. branch to fully sustain itself.

Training and finding jobs for people on the autism spectrum still goes against so many social norms in the workplace.  

"Employers aren't hiring people with autism because they're locked into a social paradigm, where everyone is looking for happy, mainstream employees who are good team players and good at promoting themselves," Sonne said"There's a total divide between talent and vacant jobs in the high tech sector. Our mission is to remove that divide."  

Specialisterne has already seen some success: Software juggernaut Microsoft announced in April that it will partner with the organization in an effort to promote workforce diversity at its Redmond, Washington, headquarters. Specialisterne has also worked with the German database company SAP, with Hewlett-Packard in Australia, and with a number of American technology companies. Sonne estimates that Specialisterne has generated 500 jobs for people with autism so far.

Employees with autism can often bring exceptional skills to the table, such as pattern recognition, enhanced memory, and the ability to consistently engage in repetitive tasks, according to Sonne. And in 2009, scientists researching autism at King's College in London found that most individuals diagnosed with the disease possess "some form of outstanding ability," according to the Times. But people with autism tend to lack the social aptitude that employers, like those in Silicon Valley, tend to screen for.

That's why traditional hiring practices like phone interviews may actually be discriminatory, according to Timothy Weiler, the director for talent and rewards at HR consulting firm Towers Watson. Weiler helped to get the Specialisterne program up and running at his company.

"Employers need to alter the way they're screening candidates and be careful about expecting the type of social interaction that most of us were screened on, which is direct eye contact, firm handshake, a smiley sunny disposition. ... Some of those things really have no correlation to success in the workplace," Weiler said.

Of course, everyone with autism is different. "The autism spectrum is a very wide, broad net, and so not everyone is going to have the same issues," Hughes said.

Sonne, for his part, urges hiring managers to keep an open mind with those employees.

"Say what you mean and mean what you say. Don't use irony or sarcasm," he said. People with autism likely won't be pick up on those cues, he added.

Even so, Sonne's organization wants to help autistic workers cultivate their social skills as much as possible. The program uses a "show versus tell" methodology in lieu of a sit-down interview. After an introductory workshop, where individuals are asked to complete tasks such as building and programming their own robots, Specialisterne chooses a handful of applicants to go through with the assessment training course. The company evaluates applicants on their teamwork, motivation, and professional skills. When Specialisterne worked with SAP, this was a four-week session. Hughes' program lasted from February through September: After the training, most candidates worked as seasonal employees at the company's White Plains, New York, location.

Hughes said these lessons were valuable to him.

"It helped me get insight into what I was doing wrong, and it's been helpful to get me back into the workforce," he said.

Of Hughes' training group, he was the only one to get a job at Towers Watson. At least one of his colleagues went back to school after the training, although many stayed on as employees with Specialisterne in White Plains.  

It's worth noting all of the individuals in Hughes' group already had college degrees, although Sonne said that this isn't a requirement for someone who wants to enter the program.

"It's important for them to know how teamwork works, because many have been told that they cannot do it," Sonne said. "Our experience is that if we can explain the expectations, they will be able to fit in."

Hughes, for his part, agrees: "We have different backgrounds but we can work together very well. Ultimately, as the group succeeded, each one of us felt like we succeeded. That's the important thing for people to realize."

Expectation management is one of the organization's greatest challenges, given that it's highly selective: It hires only about one in six of the people it evaluates, the Times reported. While the company does its best to help the applicants get jobs, not everyone is successful in the end, and Sonne admits that recovering from that rejection can be especially difficult for their candidates. 

Still, Specialisterne aims for more in the future: Its ultimate goal is to have 1 million people with autism employed.

May 21 2015 11:32 AM

This Chart Shows How Oil Is Losing Its Total Grip on American Transportation

Long term, seemingly immutable trends break. All the time. Especially in the realm of energy.

The U.S. Energy Information Administration just published a great chart that shows how oil—once pretty much the only transportation fuel we used in America—is losing its grip at a nontrivial rate.

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The chart shows the changing amount of BTUs (British thermal units) consumed across all modes of transportation by energy source. And for much of the past half-century, the picture was rather simple. It was pretty much all petroleum (gasoline/diesel), and it rose pretty much every year.

But several years ago, we started to see the beginnings of the slow-motion disintermediation of petroleum as a transportation fuel. No, gasoline, isn’t quite going the way of whale oil. But it has been losing market share at an alarming rate—and at the same time as the need for energy throughout the system has been declining.

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U.S. Energy Information Administration, Monthly Energy Review

According to the EIA, the U.S. transport system required about 6 percent fewer BTUs of energy to function in 2014 than it did in 2007. And it used nearly 10 percent less oil than it did that year. In fact, oil consumption was lower in 2014 than it was in 2000. And as a proportion of transportation fuel, petroleum hasn’t been this low since 1954, when coal was still a significant transportation fuel. Petroleum’s market share has fallen from 96.5 percent in 2004 to 91.5 percent in 2014.

We can chalk that up to two powerful trends—the simultaneous rise of alternate fuels and the growing efficiency of America’s vehicle fleet.

First, other fuels are slowly gaining traction. Especially biofuels—chiefly ethanol, the controversial, subsidy- and mandate-aided gasoline substitute made from plants like corn. From a tiny base, 135 trillion BTUs in 2000, ethanol consumption rose eightfold to 1.092 quadrillion BTUs in 2014. Add in the small amount of biodiesel, and these renewable biomass fuels in 2014 accounted for 4.7 percent of the transport sector’s energy consumption—up from .5 percent in 2000. They have increased their market share tenfold in 14 years.

At the same time, the fracking revolution has made natural gas cheap and plentiful. As a result, it is increasingly being used as a transportation fuel, especially for buses and trucks. (The natural gas figures in this chart include gas used to operate pipelines as well as vehicles that run on natural gas.) Check out the website NGTNews.com, and you’ll see a daily flow of news stories about large numbers of fuel-intensive vehicles switching to natural gas, such as a school bus fleet in Oregon or the latest additions to the fleet of UPS, which has 2,500 vehicles that run on natural gas. Meanwhile, companies like Clean Fuel Energy are building filling stations and inking supply deals with big users—which in turn make it easier for more companies to adapt. According to the EIA, natural gas in 2014 accounted for 946 trillion BTUs, or about 3.5 percent of the transport sector’s energy consumption, up from 2.2 percent in 2004.

Combined, natural gas and biofuels account for 8.2 percent of the energy used by the sector.

And this data set doesn’t include electricity used to power cars. Every month, several thousand cars are sold that run exclusively or partially on electricity—combined sales of plug-in hybrids and all-electrics were about 9,000 in April. There are also a few buses that run entirely on electricity.

There’s another big factor that’s taming the need for all fuels—and that is particularly taking a bite out of oil use. Vehicles that use petroleum have been getting much more fuel-efficient. As Michael Sivak and Brandon Schoettle of the University of Michigan report, the typical car sold in April 2015 gets 25.2 miles per gallon, compared with 20.1 in October 2007—an increase of 25 percent. Companies are developing technologies and products that make large, gas-guzzling vehicles more efficient, whether it is XL Hybrids tricking out cargo vans to be hybrids, or Greenroad’s slightly Orwellian behavior modification software that can cut buses’ fuel consumption by a few percentage points.

That’s not to say that petroleum is out as a transport fuel. It’s still the dominant one by far. Most companies would be psyched if their product had a 91.5 percent market share. But there’s reason for concern. With each passing day, a slightly smaller proportion of America’s vehicles run on petroleum. And with each passing day, companies that profit by helping vehicle operators and owners use either less oil, or less fuel, are getting bigger.

May 20 2015 6:40 PM

Banks Are Now Pleading Guilty to Crimes. So Why Aren’t They Being Punished Like Criminals?

Not so long ago, federal prosecutors were simply terrified by the idea of what might happen if they ever brought criminal charges against a major bank. They worried that the consequences of a felony conviction might cause a large financial institution to collapse and wreak havoc on Wall Street, much as the accounting firm Arthur Andersen went bust after it was convicted for its role in the Enron scandal.

So the Department of Justice and the Securities and Exchange Commission landed on a compromise. When bankers got caught doing something illegal, the government asked them to pay a hefty fine and sign a "deferred prosecution agreement," in which they promised to mend their behavior forever more. The government lawyers got to trumpet billion-dollar penalties. The banks got to go back to their businesses without much long-term damage. For everyone else, it was pretty clear Wall Street had simply gotten "too big to jail."

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Lately, the government's lawyers have gotten a little braver. Attorney General Loretta Lynch announced Wednesday that four of the world's largest banks had pleaded guilty to criminal charges that their traders had conspired to fix the massive and poorly regulated foreign exchange market. Citigroup, JPMorgan Chase, Barclays, and the Royal Bank of Scotland all admitted to being felons. Meanwhile, Switzerland's UBS, pleaded guilty to manipulating the benchmark Libor interbank lending rate. The five banks are ponying up $5.6 billion in fines.

But that's basically the extent of the punishment. As the New York Times reports:

For the banks, though, life as a felon is likely to carry more symbolic shame than practical problems. Although they could be technically barred by American regulators from managing mutual funds or corporate pension plans or perform certain other securities activities, the banks have obtained waivers from the Securities and Exchange Commission that will allow them to conduct business as usual. In fact, the cases were not announced until after the S.E.C. had time to act.

So, federal prosecutors are now confident they can bring criminal charges against major banks without ushering in a financial catastrophe, as long as they water down the consequences. Is this progress?

Maybe. Promisingly, Bloomberg reports that the Justice Department is still considering bringing charges against some of the individuals involved in the foreign exchange scheme. Even if the targets of its investigation turn out to just be relatively low-level traders, that would still demonstrate some determination to treat blatantly criminal activity as blatantly criminal activity; we are talking about a group of conspirators that had the gall to call itself "the cartel," after all. Moreover, this is "the first time in decades" that any American megabank has pleaded guilty to a criminal charge, as Reuters notes. Previously, the Justice Department had extracted pleas from foreign banks like Credit Suisse and BNP Paribas. And as I wrote last year, there were reasons, mostly involving cooperation from regulators, to doubt that prosecutors would try to do so with a U.S. firm.

Still, so long as banks are allowed to pay for their crimes by simply writing a check, it's hard to think of these as anything other than ersatz convictions.

So here's the big question. Is the Justice Department still too scared to pursue actual criminal penalties against a bank? Or, now that prosecutors have taken the step of forcing an actual plea from an American institution, will they feel empowered to seek somewhat harsher punishment the next time around? How brave are they, really?

May 20 2015 5:52 PM

Fed Still Probably Isn’t Ready to Hit the Brakes on the Economy

For months now, the market has been waiting, wondering, and parsing when and if the Federal Reserve will finally decide to cool off the economy by raising short-term interest rates. On Wednesday, we found out the Fed still hasn’t made its decision but thinks that a rate hike probably isn’t going to happen in June.

In late April, members of the Federal Open Market Committee “expressed a range of views about when economic conditions were likely to warrant an increase in the target range for the federal funds rate,” according to meeting minutes released Wednesday. A “few” think that by the time the Fed’s June meeting rolls around there will be enough positive economic data to give a rate hike the thumbs up. But “many” find it “unlikely” that we’ll know by then whether the economy has improved enough to merit a rate hike, “although they generally did not rule out this possibility.”

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While the FOMC meeting minutes are rarely, if ever, definitive, the economy has also sent mixed signals recently. Jobs numbers were terrible in March. April was moderately better, but earnings still aren’t increasing as much as you might expect ahead of a rate hike. Industrial production and retail sales have also been weaker than expected, and the housing recovery remains slow. The Fed thinks some of that can be chalked up to bad weather, but it’s not exactly sure how much. “Various reasons were also advanced for believing that some of the recent weakness in the pace of economic activity might persist,” the minutes note. So, more uncertainty. But also more certainty that, most likely, nothing dramatic is going to change in June.

May 20 2015 4:41 PM

Spotify’s New Features Aren’t Just About You. They’re About Money.

When the Swedish startup Spotify arrived stateside in 2011, there was nothing else like it: a music-streaming service that offered instant access to just about any song you could think of, all for free—and, somehow, all perfectly legal.

Four years later, the streaming business is getting awfully crowded, and Spotify is just trying to stay a step ahead.

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At a press event Wednesday in New York, the company announced a batch of new features designed to keep listeners coming back at a time when rivals like Apple, Google, and Amazon are doing everything they can to lure them away. Perhaps more importantly, the features promise to give advertisers new ways to target the 45-million-odd Spotify users who don’t subscribe to its ad-free premium service.   

Here’s what’s coming in the update that Spotify is rolling out today, starting with users of its iPhone app:

• Spotify Now is a new tab that serves up custom playlists designed to suit various moods, activities, and times of day, like “Morning Commute,” “Workday,” and “Early Evening.” Spotify says the playlists will include both human-curated selections and automated recommendations based on your own music and preferences. This feels like a direct response to Spotify’s rivals, notably Beats Music and Songza, which were acquired last year by Apple and Google, respectively.

As I explained when Google acquired Songza, that’s not only valuable to listeners. It’s also potentially of great value to advertisers, because it tells them what you’re doing at any given moment. Think of ads tailored not just to techno fans, but to people who are listening to techno while riding the subway in New York City on their way to work in the morning.

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Video clips are Spotify's clever way of getting you to watch video ads.

Screenshot courtesy of Spotify

• Video clips and audio shows will now join music among Spotify’s offerings. So your “Morning Commute” options may include not only that techno music you’re so fond of (God help you), but the latest installments of your favorite daily podcasts, plus video clips from the likes of ESPN, the BBC, and Comedy Central. (Disclosure: Slate is among Spotify’s launch partners, and its Culture Gabfest will be among the podcasts initially featured.)

Again, there are ramifications for advertisers as well as users: If Spotify can get people watching their phones rather than just listening, it should have more success with video ads, which tend to be more lucrative than audio spots.

• Spotify Running is easily the niftiest of the new offerings, if it works as promised. When you start running, Spotify says its app will detect your pace and automatically serve up music calibrated to match the beat of your footfalls. This feature won’t be limited to the Spotify mobile app: The company says it’s partnering with Nike and RunKeeper to integrate Spotify Running into their fitness apps.

Not one of Spotify’s new features is revolutionary, and I doubt they’ll be enough to keep Apple from poaching some of the company’s subscribers when it launches its new, Beats-based streaming service this summer.

But they’re quite shrewd in another respect. Spotify’s biggest advantage over its competitors is its freemium model: No one else can match the depth of its free service, and that free service in turn serves as a powerful loss leader for the company’s subscription business.

Right now, the free service accounts for roughly 75 percent of its users but just 10 percent of its revenue. At a time when Spotify’s subscription business is facing unprecedented competition, it's going to have a heck of a time increasing that paying-customer base. So its biggest growth opportunity lies in better monetizing those free users. The new features, provided they catch on with users, should help it do just that.

May 20 2015 1:26 PM

PayPal Owes $25 Million for Tricking Customers Into Using Its Online Credit Service

PayPal is probably best known for helping customers use their bank accounts, credit cards, or debit cards in online transactions. But as a big financial payments company, PayPal also offers lots of other products. One of them is PayPal Credit, a “simple, flexible credit line” from Comenity Capital Bank that can be built into your basic PayPal account. The “cool thing” about PayPal Credit, PayPal explains online, is that if you connect it to your main PayPal account, you’ll then “see it as a payment option when you checkout.”

The company apparently got a little carried away with its cool factor, because the Consumer Financial Protection Bureau is alleging that it signed up some customers for PayPal Credit without asking their permission and tricked them into using it by default. “In many instances, Defendant automatically set or preselect the default payment method for all purchases made through a consumer’s PayPal Wallet to PayPal Credit,” the CFPB writes in a complaint filled Tuesday with the U.S. District Court for the District of Maryland. “In other instances, consumers were not able to select another payment method. For example, some consumers affirmatively selected another payment method after realizing that PayPal Credit was set as the payment method for a transaction, only to have the payment method switched back to PayPal Credit during the checkout process.”

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Needless to say, the CFPB is not amused by these antics and has slapped PayPal with a $25 million penalty, which the company has agreed to pay. The first $15 million will go to consumers as refunds, with PayPal also ponying up a $10 million fine. “PayPal Credit takes consumer protection very seriously,” Amanda Christine Miller, a PayPal spokeswoman, said in an emailed statement. “We continually improve our products and enhance our communications to ensure a superior customer experience.”

PayPal Credit launched in 2008 as “Bill Me Later,” a program advertised as letting customers shop now and pay after the fact. Some of these promotions promised to give new sign-ups small amounts of money back on a purchase or no interest for the first several months; the CFPB says that in “many instances” PayPal didn’t honor these offers. The CFPB also alleges that PayPal Credit often failed to process payments in a timely manner or lost payment checks, leading to late fees and interest charges for consumers. On top of that, the CFPB claims that even when PayPal’s own systems were down, such that users couldn’t make payments, it would hit them with penalties. And of course, there were also the people who didn’t know they’d enrolled in PayPal Credit until they were officially welcomed to the service by debt-collection calls for late payments, late fees, and interest.

According to a PayPal employee, the CFPB investigation focused on claims from a very small number of PayPal Credit users—just 0.01 percent. That might help explain why PayPal is getting off with a relatively light penalty in this case, especially compared with the $727 million the CFPB demanded from Bank of America over deceptive marketing and billing practices in April 2014. Still, PayPal Credit doesn’t come off looking too good in this latest dispute—or too cool, either.

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