Budget

Innovation resistance at Metro, part 3: Missing the forest for the trees

by David Alpert   •   September 30, 2009 1:53 pm

Unlike many other transit agencies, Metro has resisted encouraging third party applications that help riders, partly because they perceive technology from a top-down point of view, and from unrealistic expectations because Google is big and rich. But this obsession with control and getting revenue is causing Metro staff to lose sight of the bigger picture.

Greater Greater Father-In-Law told me a story about his days consulting for health care companies. One large nonprofit hospital with a budget around a billion dollars a year decided to make some forays into establishing a for-profit arm. They created a pharmacy where patients could buy medicines and supplies. This pharmacy did pretty well, and started turning a profit. Executives spent a very large percentage of their time reviewing the performance and exploring ways to improve it.

However, the pharmacy only netted about $60,000 a year. That was less than the cost of one employee. Yet this project was eating up much more of the executives' time than monitoring the operations of the actual hospital. If they could have found a way to serve the same patients with even one fewer staff member, they would have netted as much money for the hospital as the entire pharmacy project. That doesn't mean that it was a bad project, but context is more important.

There's nothing wrong with Metro looking into the possibility of getting some money. But they want to spend $500,000 to investigate this. And we have some strong evidence that $0 is the most they'll get. Even if that's not true, there's no way it's anywhere near $500,000. If Google had offered, say, $50,000 a year for 10 years, would Metro have jumped with joy? But they could make that much just by not spending $500,000 in the first place.

The biggest danger is that once they've sunk $500,000 into this, it'll be all the more difficult to then agree to release the data gratis. Right now, the debate is about doing something that costs Metro nothing, and getting a benefit to riders. After $500,000 goes down the drain, it'll psychologically shift the debate into one about whether it's right to do something that doesn't recoup the investment, despite the benefit to riders.

At last week's Board meeting, Metro's Sarah Wilson repeated another one of staff's arguments against this project: that it might cut into the money Metro gets from ads on wmata.com. But Metro only gets $70,000 a year from ad revenue on the site, out of a total budget of about $1.5 billion. That's four-thousandths of a percent of the budget, and probably less than Sarah Wilson makes.

Sure, every little bit helps, but if the $70,000 in ad revenue is such a concern, why is $500,000 acceptable for a contract just to find out about the possibility of making money? There's no way that working with Google Transit is going to reduce all of that revenue. Let's say it reduces it by $10,000 a year. Just to recoup the $500,000 would take 50 years.

Zimmerman also noted that better and more accessible trip planners could bring in more riders at off-peak times. Many buses and most trains are full at rush hour, but the commuters don't need a site to tell them how to get to work. The people who would use it are tourists visiting the area, and people riding to unfamiliar locations. A lot of that is off-peak. And every rider who takes up an empty seat on a bus is pure profit for Metro.

Anyway, Metro's real business is transportation. The ad revenue is a nice sideshow, but it shouldn't trump convenience to riders. Wilson was arguing that Metro should not help riders in order to force them to use the Web site against their will, all to protect this tiny sliver of revenue. Why not charge for the trip planner entirely? Should Metro promulgate a new policy that every train will pause for 15 seconds after it reaches a station and before the door opens, in order to force riders to look at the ads on the walls? What's the difference?

Of course, the difference is that the ad revenue is a line item on the IT department's balance sheet. If Metro gets more money in bus fares from riders who use the system because of Google Transit, they get no credit. But if ad revenue goes down, even a tiny bit, that might hit their budget and deprive them of the opportunity to hire more staff. It's a common attitude in bureaucracies and large companies alike.

The IT department clearly isn't going to see the big picture. It's the General Manager's job to do so, or if he can't, the Board of Directors. One of them has to stand up and say that it's more important to help riders and try to increase ridership on services with extra capacity than to zealously guard a tiny bit of ad revenue on wmata.com and obsess over a departmental P&L.

Next: Why Metro IT might be moving so slowly.