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February 4, 2010

Chart of the day: journalistic innumeracy illustrated

Filed under: journalism, media, newspapers — Rakesh Agrawal @ 3:38 am

This Bloomberg graphic and its interpretation in the accompanying story is full of errors.

What would readers conclude after looking at the graph above?

  1. Best Buy sales have gone up at least 10 fold in the last 2 years. (Recession, what recession?)
  2. Best Buy’s monthly sales at the end of 2009 were roughly $22 million, at the peak of holiday season.
  3. Newegg is the #2 electronics retailer, after Best Buy. Amazon, buy.com, Walmart and Target aren’t players in electronics.

That’s what the graph says, but all of those conclusions are wrong.

In reality, Best Buy did $8.5 billion in revenue in December. In fiscal year 2009, Best Buy did $45 billion in revenue. $22 million in revenue is a rounding error.

What the graph really shows is how useless these Mint.com data are for analyzing consumer spending by category.

The reporter apparently didn’t understand the methodology behind Mint’s data. Mint allows consumers to track their credit and debit transactions. Consumers enter their account information and mint pulls transaction data from their banks and presents it online. Here’s how that methodology leads to the above erroneous conclusions:

  1. The enormous growth in the graph likely represents the growth in mint.com’s user base. Mint launched in September 2007 and has grown to 1.8 million users. (Mint was recently acquired by personal-finance software maker Intuit for $170 million.) Best Buy’s comparable store sales were down for fiscal year 2009 and up marginally for fiscal 2008.
  2. Only transactions by Mint’s users are included in this number, accounting for the multibillion-dollar difference. Even then, those numbers may not be complete as not all users import all accounts.
  3. Newegg is the #2 dedicated electronics player as classified by Mint. Because Mint collects transaction level data, not item level data, it doesn’t know what to do with purchases from diversified retailers like Amazon, buy.com and Walmart. (Amazon wouldn’t even show up as a leading bookseller; on my Mint account, it shows up as “Shopping”.) By Best Buy’s own definitions, consumer electronics only account for 36% of its revenue.

There’s also zero justification in the Mint data to support the chart’s caption that Best Buy generated these huge returns by “offering discounts on laptops and flat-panel televisions.”

These kind of errors are rampant in our business news because many reporters don’t understand numbers or methodology. When I was in school at the Medill School of Journalism, most classmates took the minimal math and economics classes they could and still get a journalism degree.

One of the most frequent numerical mistakes by journalists is confusing percent increases with percentage point increases. If your credit card’s interest rate goes from 10% to 15%, it’s a 5 percentage point increase, but a 50% increase.

This journalistic innumeracy hurts us all. We can’t make informed decisions about what government is doing if people don’t understand the numbers. Even basics get confused: journalists frequently confuse millions with billions (via Paul Kedrosky).

Journalists are at least partly to blame for the dot com bubble and the housing crash. Not understanding the economics, they repeated the lines of “experts,” such as investment bank analysts and real estate agents — most of whom had clear incentives to keep pumping air into the bubbles. I read many stories about how exotic mortgages were making housing more affordable. What was actually happening was that the easy availability of credit and flood of otherwise unqualified buyers in the marketplace drove up price. Basic supply and demand.

Unfortunately this problem is only going to get worse. Many of the sharpest minds I know from the journalism business have left to go on to other careers for many reasons — the difference in pay (often 2x or more), instability and constant layoffs and backward thinking management.

Additional analysis of the data also takes time, which is becoming harder to come by as newsrooms across the nation shrink. The pressure to do more “quick hits” like charts of the day will lead to more sloppiness and misinformation.

More on: journalism, newspapers

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February 3, 2010

Plowing through the middleman

Filed under: facebook, journalism, media, newspapers, twitter — Rakesh Agrawal @ 7:53 am
Snow plow in Arlington County

Snow plow in Arlington County. Creative Commons image by Ron Barber.

The snow day. Growing up in Michigan, it was always a treat. Whenever a significant amount of snow was in the forecast, I’d wake up early to see if I got the day off. I’d listen to the radio as the DJ went through the school closings or watch the crawl on the local morning news. It took some patience as they went through the list, but once in a while that patience was rewarded with a day off.

Kids today don’t have that level of suspense. As a fan of Arlington County on Facebook, my newsfeed showed that school is closed today. A quick check of the Arlington Public Schools Web site also provides that information. No more listening through “Angelus Academy, Anne Arundel Community College, Anne Arundel County Schools, Apple Montessori School, Aquinas and Old Town Montessori School…” (In a large metro area, this is killer.)

It’s yet another example of how media consumers can cut out the middle man and go directly to the source.

In much of the discussion about aggregators such as Google News and digg, what’s left out is that much of the media are themselves aggregators — compiling data from school districts, local businesses, funeral homes, police and fire agencies, etc.

Newspapers didn’t really get to play in the school closing game, but compilations of local events, lunch menus, high school sports scores, police blotters and obituaries have been a key part of the newspaper content mix. Such content is an even greater proportion of What People Care About. Many of these needs are now being better served online as easy-to-use tools such as Facebook, Twitter and flickr get adopted by these news sources.

Instead of reading about promotions and awards in the newspaper, I can get that information delivered to me through LinkedIn or Facebook status updates. Sadly, I’ve found out about the death of a high school classmate through Facebook.

And it’s a much better experience than what fits in a newspaper:

  • The filter is personal. It doesn’t matter whether that person was important enough in the eyes of a newspaper’s editor. I also don’t have to read through long lists of people I’m not interested in.
  • The content is richer. Clay Reid’s Facebook page is filled with photos and remembrances from friends.
  • It’s interactive. With promotions and job changes, I can quickly reach out to friends and congratulate them.

In the case of a snow day, you can make plans with your other friends who suddenly have the day free right on Facebook. And then upload the video of you snow blading down the hill.

More on: newspapers, facebook

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