If you shop online (and if you’re reading this, you probably do) when was the last time that you purchased something that wasn’t 5 stars?

The online shopping world abounds with star rating systems, or their ilk.  If you buy on eBay, you probably wouldn’t even consider buying from someone who had less than a 99% feedback rating. If you look at reviews on CNET, Consume Reports, etc. you hesitate on that purchase if it isn’t an ‘Editors Pick’ or a top rated product in its category.  Considering buying that album from iTunes? Going to see a movie? Finding a contractor…  This list could go on.

The fundamental driver of this is the notion everybody has that they deserve the best.  But when you pick something with 5 stars, is that what you are really getting?

Aside from blue jeans (the one thing the human race has perfected), its hard to imagine that there is one product that satisfies everyone.  5 stars just means the people that take time to rate stuff online, and arguably find this rating valuable, rate that product very highly.  This is a very small percentage of the online population IMHO.  Accuracy here is fighting a large selection bias.

But if you have a product, and you can’t get to first place, is there any benefit to trying to be second?  I don’t think so.

The people that use ratings as their primary decision criteria will not buy your product.  Why would they?  You can offer a lower price than the #1 option, but then you really are just giving away money –and potentially a lot of it– to grab a few people that are willing to take second best because of a lower price.

If you are faced with this situation, you are better off instead selling to the audience that isn’t buying stars.

As usual, Malcolm Gladwell says it best:

James Bagnall of the Ottawa Citizen has been covering Nortel for a long time, much longer than my time with the company.  It was with great interest that I heard from a co-worker that James was doing an 8-part series called “Who Killed Nortel?”.

Would it tell me things I didn’t know?  Would it point the finger at people I respected?  Would it conclude the collapse was due to bad luck, incompetence, or something more sinister?

Even knowing the series was on the Ottawa Citizen, I found it horribly hard to find the articles and then to navigate them (its improved a bit now that the series is complete).  To save you the same frustration, I collected them here:

• Investigating the death of a global titan
• Part 1 - Last things first: Bankruptcy protection
• Part 2 - A group of retired executives sign up for one last battle to save their former firm
• Part 3 - The beginning of the end
• Part 4 - Looking for a turnaround
• Part 5 - On the road to ruin
• Part 6 - The silence in the boardroom
• Part 7 - ‘The world turned upside down’
• Part 8 – The Man Who Wasn’t There
• After Nortel: Tech’s last chance

I found the series very enlightening.  It points to leadership apathy, a board that lacked knowledge of the telecom industry, bad luck, incompetence, and -of course- the well known financial scandals as contributing causes.

As I was growing up, the only way I could get introduced to new music was listening to a few select stations that I could pick up in our back-woods log cabin.   Aside from one musically enlightened friend who gave me guidance (thanks!), I was at the whims of these stations DJ’s and program managers for the music I was exposed to.

What is the dynamic today? What brings to my attention the hidden gems that would otherwise hide in my thousands of songs? What tells me what new music I could listen to?

Of the several options I have tried I find myself returning to the Genius Playlist Creator and Genius Recommendations on iPod/iTunes. I suspect that many others of the other iPod/iPhone users out there have done the same.

In some ways this is a great thing:

• The music is tailored to your tastes (the ‘demographic of one’)
• It fits with your schedule, and not some time slot defined by radio listener demographics
• Its location independent (well, ok satellite radio offers this too)
• You don’t have to hear ‘popular’ songs multiple times a day
• While the radio station was keen to appeal to everyone they risked pleasing nobody
• As your mood changes, so can your music
• You can easily try new music and buy

But there are drawbacks:

• Your music is now controlled by an algorithm; while its amazing, I notice many song show up VERY often (almost like iTunes is trying push certain artists… hmmm)
• You are only pointed to new music in iTune’s library; it makes me wonder what I’m missing… does iTunes bother with fringe artists?
• There is always the risk that Apple decides to actually manipulate the results to promote music not based on taste, but who is paying more to be promoted (hey – this sounds familiar)

I’ve tried the new forms of radio: internet-based, satellite radio, even a brief foray back into local radio, but they are all basically the same formula…  I think they have finally lost me to the ‘demographic of one’.

I currently digested a large quantity of Ayn Rand in the form of ‘The Fountainhead’, ‘Atlas Shrugged’ and her non-fiction work ‘Capitalism: The Unknown Ideal’.  The intent was to get a better grounding on the concepts of Laissez-faire Capitalism, and try and get my own opinion on how this relates to the role of government.

I tried more contemporary writers, but it seems that –in recent decades– conservatives have decided that religion plays a role in the right as does capitalism.  As a result, their rationale seems severely tainted and illogical. Rand’s work appears to me to be some of the most objective (pun intended) on the topic, and strays little from logic into dogma.

For some of you reading this, you might be surprised to know that I believe in small government, as small as possible!  This is likely because of my rants against recent right-leaning governments like the Bush-administration.  After reading Rand’s works, it clarified to me that I was not upset with the ‘capitalist’ component of right-leaning government, but rather with what Rand calls ‘pull’ and ’statism’, which are quite contrary to the concepts of capitalism (although media has done a great job of making them sound to be synonymous).  Some authors (e.g. Naomi Klein) have even coined terms for this kind of capitalism: Disaster Capitalism which further try to draw the concepts of capitalism as being immoral.  This may more aptly be termed ‘Disaster Socialism’ but more on that in another blog post.

Back to the point: Where do you draw the line on what government does, and what it doesn’t do?

It might surprise some people to know that the concept of laissez-faire (AKA free-) capitalism  –at least how Ayn Rand presents it– does not suggest that there is no role for government.  Quite to the contrary, she suggests that capitalism cannot exist without a government  to enforce laws, patents, property rights, and protect the safety of their citizens.  But this is usually where the role of government ends: courts, military and police.

I would propose that the line needs to extend a bit further, to include mandatory health insurance for all. Now while Ms. Rand turns in her grave, let me explain why something so much associated with socialism should fit with the capitalist world view:

Unlike other types of business that free-market capitalism can effectively advance, health care has some unique attributes that you don’t find in the oil, car, telecommunications or other industry:

• Freedom of choice: People who need medial care are often incapacitated, and unable or unwilling to make ‘buying’ decisions that would usually facilitate the proper workings of the capitalist system.  If I am unable to be moved because of a high risk of further injury, I cannot propose that I be moved to an alternate hospital or doctor to take care of my injury because I prefer their prices or services.
• Medical care is time-sensitive:  Unlike buying steel, you often don’t have the time or expertise to decide who is going to provide you with the best health care at a reasonable cost.  If I am bleeding out, I don’t see myself sending out several requests for quotation (RFQs) to various doctors who are going to provide me the best product at the best price.
• Its hard to recompense people for shoddy workmanship:  When people are engaged in the fair exchange of goods and services, and something goes wrong, usually it does not involve injury or death of the purchaser.  As a result, the capitalist system allows for financial damages to be recompensed.  Large lawsuits may result in large payoffs for medical malpractice, but they are not consistent with providing better service, and are not really fair to either side; as the person who has lost life or limb cannot be adequately recompensed financially, and the poor decision on the doctor’s part may be ruinous financially or professionally to a doctor who was right 99.999% of the time.  Its only the lawyers that win in the case of medical malpractice cases.
• Nobody is really willing to take second best health care: When you buy a car, you may for personal reasons to buy a Ford, Toyota, BMW, or Ferrari based on how much money you make, and just how important a car is to you.  They all fundamentally fill the role of transporting you from A-B, in the same amount of time (assuming you adhere to speed limits), while protecting you from the elements.  The free market is more than adequate to regulate what products are provided, their quality and their price.  If your life is in danger, are you really willing to consider a second-rate doctor, equipment or medical procedure?
• Unsatisfied demand: The law of supply & demand is the fundamental core of capitalism, but once you have experienced a disease that could recur, or be with you for life, you become so tainted in the eyes of the private health insurance system that they will refuse your application for care, or for any upgrades in your coverage (ie. this is the demand that is unsatisfied).  If you are lucky enough to have good coverage, for example as provided by your employer, you become so reliant on that coverage that you are completely at the mercy of that employer, and your fate gets tied to theirs (i.e. they say file for bankruptcy).  The only more important than supply and demand is freedom of the individual, being effectively enslaved by your employer is completely contrary to capitalism.  That said, the insurer has right too… more on that later.

While you may completely disagree with my conclusion, you must agree that the points listed above at least warrant health care getting some specific focus by our elected officials beyond other industries!

We MUST maintain capitalist principles when it comes to providing health care.  For me the concepts of capitalism and a ‘meritocracy’ are synonymous in my mind.  That is, resources will flow to those who put them to the best use.  Since taxation is a necessary evil to allow for the formation for some government, with the goals as stated above, it must be kept to an absolute minimum.  The only way to do this is to make sure that any government money that gets put into health care is used the most efficiently, i.e. by it being used by a capitalism-driven system.

So to be absolutely clear, I don’t mean that the health care practitioners, the hospitals, or even the regulation of these be under government control.  Rather, everyone has a basic (but not irrevocable) right to a certain level of health care, whose baseline can be defined by what a private system provides.

I am in for the long term, so I am holding. I expect them to beat estimates today, and there is the potential for Steve Jobs to show up on the call too. Apple continues to be a good news story, and one of the few really well run companies.