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I obviously hit a nerve (probably several) with my column on Parrot Secrets. Some of this was expected. The idea of making so much money from an inexpensive web site would appeal to a lot of people, I knew. And I felt good about sharing the story after sitting on it for five years for just that reason. But I wasn’t at all expecting the outrage that some readers felt over the owner of Parrot Secrets not being the nice blonde lady in the picture but a young Indian man who doesn’t even own a parrot. People were pissed and yes, it probably says something about me that I still can’t really understand why they were pissed.

But, as always, I have a theory.

When I was a teacher 26 years ago I worked with a colleague who graded on the basis of improvement and perceived effort while I graded strictly on the final product – the paper or the test – not on how I felt about the student.

We discussed this a lot and my colleague, who still teaches in the San Francisco Bay Area, though no longer at Stanford University where we both worked at the time, felt that she was rewarding hard work, which she saw as far more important than talent. I thought that was crazy. While it may have made some sense to give a student the benefit of the doubt if they showed special initiative and improvement over time if that consideration meant, say, half a grade, I just couldn’t allow the other side, which would have been to grade down the student who just finds that work easy.

Yes, he missed class last week and yes, he may have arrived in class with a hangover, but did you read that paper? The kid’s a genius!

I feel genius should be rewarded.

In retrospect I have to admit that my colleague WAS, herself, a very hard worker and not in any sense a natural while I may have had a hint of a hangover about me, too.

So each of us may have been favoring our own kind.

I think this relates very much to the story of Parrot Secrets. You see what matters to me is not whether Nathalie or Kumar owns the company or even owns a parrot, but that the information provided by Parrot Secrets is useful and customers generally find it to be worth their money. And it seemed to me that was very much the case.

But to some readers that was absolutely NOT the case. They weren’t going to accept Parrot Secrets from Kumar no matter how clever he was, ESPECIALLY if the guy didn’t even own a parrot. They were offended, outraged, betrayed.

Yet I wonder how many web sites, even if they have a Nathalie working there, actually use her picture. While I HAVE seen pictures and video of Orville Redenbacher of popcorn fame and Colonel Sanders of Kentucky Fried Chicken was definitely the real thing, I don’t think Wendy of Wendy’s Restaurants ever appeared in an ad, and Colonel Sanders in his later years absolutely hated what PepsiCo was doing with what had been his restaurant chain.

So is it better to use a real founder in your ads if the founder is lying?

Most web sites don’t use pictures of people they actually know because real people don’t look that good and stock photos are cheaper. Yes, the GoDaddy girl works for GoDaddy, but she doesn’t work AT GoDaddy.

At heart here is truth in advertising, which is s sticky subject for a global network without end-to-end standards of almost any sort. But where truth in advertising CAN be enforced, it always comes down to performance: in this case, is the information from Parrot Secrets useful for raising and training parrots? Based on the company’s commercial success, lack of consumer complaints (until I wrote about it) and the number of competitors who have essentially ripped-off Parrot Secrets material, I’d say it gets a passing grade on truth in advertising.

But that’s just me and I am apparently an unprincipled idiot, or so I am told.

Let’s take it from another angle. When I was in high school the line from the College Board was that SAT preparation wasn’t necessary. Their tests would give you the same grade whether you took a prep class or not. Looking back 40 years later it is fairly clear that was wrong – that prep courses like those pioneered by Stanley Kaplan CAN help and almost always do. I’ve confirmed this, by the way, with friends who later worked at the College Board.

Who is the bad guy here? The College Board explained later that they were trying to maintain a level playing field, which works up to a point, but when enough students are taking prep classes this policy starts to hurt people who are rejected from the right colleges for the wrong reasons.

Does Parrot Secrets hurt people? How? That’s MY measure.

Which brings me, of course, to bowling.

One winter back at the College of Wooster, in Wooster, Ohio, I took a bowling course that changed my life. P.E. courses were mandatory, and the only alternative that quarter, as I remember it, was a class in wrestling.

A dozen of us met in the bowling alley three times a week for ten weeks. The class was about evenly divided between men and women, and all we had to do was show up and bowl, handing in our score sheets at the end of each session to prove we’d been there. I remember bowling a 74 in that first game, but my scores quickly improved with practice. By the fourth week, I’d stabilized in the 140-150 range and didn’t improve much after that.

Four of us always bowled together: my roommate, two women of mystery (all women were women of mystery to me then), and me. My roommate, Bob Scranton, was a better bowler than I was, and his average settled in the 160-170 range at midterm. But the two women, who started out bowling scores in the 60s, improved steadily over the whole term, adding a few points each week to their averages, peaking in the tenth week at around 120.

When our grades appeared, the other Bob and I got Bs, and the women of mystery received As.

“Don’t you understand?” one of the women tried to explain. “They grade on improvement, so all we did was make sure that our scores got a little better each week, that’s all.”

No wonder they turned the Stanford University bowling alley into a computer room.

I learned an important lesson that day; success in a large organization, whether it’s a university or IBM, is generally based on appearance, not reality. It is understanding the system and then working within it that really counts, not bowling scores or body bags.

In the world of high-tech start-ups, there is no system, there are no hard and fast rules, and all that counts is the end product.

The high-tech start-up bowling league would allow genetically-engineered bowlers, superconducting bowling balls, tactical nuclear weapons—anything to help your score or hurt the other guy’s.

Anything goes, and that’s what makes the start-up so much fun.

But evidently only I see it that way. You probably know better.

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Let’s face it, the economy is in trouble and so are the rest of us.  Based on the dregs I find in my spam filter that makes this a hot season for folks selling plans for how to make big money on the Internet – plans that mostly aren’t worth what people pay for them.  Either these advertised sites are simply scams or they are promoting the obvious — often free government web sites that diligent folks could find on their own.  But that doesn’t mean there aren’t legitimate Internet businesses that can be started on a shoestring.  So to do my part for the economy I’m going to offer-up what I have always considered to be the cleverest little Internet business of all: www.parrotsecrets.com.

I assume you’ve taken a look at the site and are back now.  What makes Parrotsecrets so great?  It doesn’t look like much, does it?  I’m sure there are a thousand – maybe 10,000 – very similar sites on the net right now.  And that’s the point: there is plenty of opportunity to replicate this model.

Before I lose you here’s the literal bottom line on Parrotsecrets.  The site sells 15-20 eBook sets per day seven days per week.  Using the low end of that range is 5,475 copies per year for gross sales of $437,726.25 from a web site that costs less than $10 per month.

The profit on Parrotsecrets, even after various expenses I’ll detail below, is WAY north of $400,000 per year.

Could you live on that?

Me too.

The thing I love the most about Parrotsecrets is not the great money but that it actually serves a need.  People really do have problems with their parrots and there isn’t that much information out there about how to train and care for parrots that is in an easily accessible form.  Parrotsecrets not only isn’t a scam, it isn’t even a waste of money.  This is a real business doing real good for real customers.

Parrots are apparently a huge financial drain and $79.95 is nothing to pay if it saves a vet visit per year and keeps you from losing a fingertip or having your parrot call Grandma a whore.

The first thing that’s remarkable about Parrotsecrets is how it came about.  The owner of Parrotsecrets, for one thing, doesn’t even own a parrot.  Rather, the owner set out to find a niche in the information economy that could be filled with eBooks as sold here.  The first step in the development of Parrotsecrets, then, was to identify the frustration of Parrot owners.

I’m not going into the fine details of how parrots were isolated as a subject, but it involved a lot of scanning discussion forums and looking for unrequited Google searches.  In time it became clear to the entrepreneur that parrots were an untapped market.  If you were to undertake something similar you could either isolate a topic you actually know a lot about (either as a master or a victim) or go searching like the Parrotsecrets owner did.  Either way, I’m sure you’d soon come up with a topic.

The young and lovely Mrs. Cringely has a particular health problem she darned well doesn’t want me to reveal to anyone including you that I have figured is perfect for the Parrotsecrets treatment.  I’ve been urging her to move forward on her own but she just won’t.  So if I ever get a weekend off (I’ve waited over a decade so far, which makes that unlikely) I’ll write the darned eBook myself and retire.

eBooks have no manufacturing costs, no inventory costs, and almost no distribution costs.  Best of all, it is a GLOBAL business.  People are having trouble with their parrots everywhere, you know, not just in the U.S., and Parrotsecrets can deliver anywhere.

But first you must have something to deliver.  Having identified a topic, the founder of Parrotsecrets needed an eBook.  The easiest way to do this was to post the requirement on one or more of the many freelancing web sites.  Writers bid on the job and the original eBook (note there are now four eBooks in the offer) went for around $2500, deliverable in 30 days.

The Parrotsecrets founder ordered from Amazon.com every book on parrots (deliverable to the winning freelancer) then waited a month for the eBook to appear.

That month was used to buy the domain, design the web site, prepare a Google AdWords campaign, and be ready to be up and running as soon as the eBook was finished.

If you’ve been keeping track you can see that starting this business cost substantially under $10,000 and probably under $5,000.  The Kauffman Foundation on Entrepreneurism says 95 percent of small businesses are started for less than $10,000. This is one of those.

The web site follows a popular design philosophy.  It is a single page that scrolls on and on forever, pounding the reader with testimonials and reason upon reason for buying the eBooks.  These characteristics have shown themselves to be very persuasive with the Parrotsecrets target audience, which are older women stuck with (or thinking about getting) naughty parrots.  That’s why the figurehead for Parrotsecrets is Nathalie Roberts (“A Parrot Lover For The Last 12 Years”).

Nathalie (“A Parrot Lover For The Last 12 Years”) looks like someone we can trust.  

Nathalie also doesn’t exist.

Nathalie Roberts (“A Parrot Lover For The Last 12 Years”) is like Betty Crocker – a character created to market a product.  If you are offended by the idea that Nathalie isn’t real, then start boycotting cake mixes, kids.

EVERYTHING about Parrotsecrets is calculated.  Nothing is left to chance.  The site is promoted by word-of-mouth (remember it performs a real service) and with Google AdWords.  Of course AdWords can kill you if you aren’t careful and that’s part of the reason why parrots were chosen in the first place: there simply isn’t that much competition for the word “parrot.”

According to the Internet Archive’s Wayback Machine, Parrotsecrets has been around since May, 2004 or almost five years, during which it has generated more than $2 million for its owner. 

The owner of Parrotsecrets isn’t Nathalie Roberts, isn’t even a woman, and isn’t even American.  He’s Indian and lives in India.  When Parrotsecrets began he lived (and still lives as far as I know) with his parents, who are both medical doctors.  When the site started in 2004 he was 18 years old, making him 23 today.

Parrotsecrets doesn’t run on autopilot.  The owner has invested continually in improving the product adding eBooks and free extras to improve the appeal of his product.  He (or someone) corresponds with his customers using e-mail.  But given that the service is coming primarily from India you can imagine that his continuing costs are quite low.

Imagine what it would be like to make $400,000+ per year.  Now imagine what it would be like to be 23, single, living in India, making $400,000+ per year.  And Parrotsecrets is not his only web site.

I have known about Parrotsecrets since 2005 when I met the owner in Las Vegas, of all places (a surreal experience — an Indian teenage tycoon on his first-ever visit to America starts with Vegas).  In one sense I didn’t want to blow his cover because it is so cleverly drawn.  But now I can see the need for a lot of smart people to make a new living as they lose their jobs.  I’ve also rationalized that this column may actually drive business his way, not just from parrot owners but also from entrepreneurs who want good examples of a product to emulate.

Go forth and multiply.  May the Parrotsecrets be with you.

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Yesterday morning in Palm Desert, CA a number of technology startup companies were shown to the public for the first time at the DEMO Conference.  One of these new companies was an Internet mortgage startup called home-account.com (don’t forget the dash).  Home-Account was born in my kitchen in Charleston just over a year ago – long before any of us realized the housing crisis was going to be as bad as it has become.  Just to be clear, I am a co-founder and shareholder in Home-Account.com.

People with ideas are always seeking me out.  In this case my visitor was a mortgage broker from Charlotte, NC. He knew that lenders weren’t helping homeowners own their homes as quickly as they might.  Simply put, it was in the interest of the lender to keep mortgage holders owing as much as possible for as long as possible, with each refinance generally starting the game all over again.  There had to be a better way, but that way also had to still support the broker and his family.

So he created a subscription service with a flat $1500 fee.  With that payment up front the broker would work with homeowners as long as he was needed, helping them to refinance their homes again and again at little or no cost as their fortunes improved and interest rates could be driven down.

And it worked.  Gaming the mortgage system by planning several refinance events ahead, it was possible for those homeowners in Charlotte – 600 of them over seven years – to save an average of $400 per month on their mortgage payments, own their homes quicker, and pay an average of $175,000 less in mortgage interest as a result.

Remember this is real money we’re talking about.  $175,000 is more than the average American personally saves for ANY reason.  It is more money than they save for retirement and more than they invest in the stock market. This means that taking this new approach to buying their home can be the most important financial decision of most people’s lives.

Home-Account just takes that analog process developed in Charlotte and makes it digital and national. And because it is cheaper to use computers than telephones and Home-Account has a chance to serve all of America’s 52 million mortgage holders, that one-time $1500 subscription payment could be dropped to the present $10 per month.

It’s a heck of a deal.

And it’s also a lot harder to do than it looks.  Home-Account is effectively a customer-driven automated mortgage underwriting system – the first such system EVER built. If you’ve shopped for mortgages on the Internet maybe you thought you were using such a system, but you weren’t.  The difference is key: while those guys say you MAY QUALIFY for a certain mortgage at a rate that somehow later always goes up, at Home-Account we say you ARE APPROVED and the rate is LOCKED.  There are never any added broker points or Yield Spread Premium – a term for extra interest payments that go to the broker. 

Loans recommended by Home-Account are the cheapest you can get.  If ours looks more expensive than theirs it is because theirs aren’t real. 

Where those other Internet mortgage sites hand you over to 25-50 banks or brokers who are paying for your lead, Home-Account doesn’t sell you to anyone, instead offering-up to the homeowner or home buyer a handful of real mortgages that we know are the best you can qualify for based on your situation.  The lenders get pre-packaged loan applications ready to be funded and they get them FOR FREE, because Home-Account takes no money from anyone except its subscribers.

The service was announced yesterday morning, gaining some press and a lot of interest but also two important questions were asked again and again:

1) Why should homeowners or those about to buy a house subscribe to Home-Account for more than one month?

2) How do you make enough money charging only $10 per month?

That first question is pretty compelling.  Why not pay $10 for the first month, finance or refinance your house saving an average of $3500 in broker fees and closing costs, then just drop the service, saving that $10 per month in the process?

The answer starts with the fact that many people in the current economy won’t qualify AT ALL for a loan.  If you already own a home and have a mortgage, keeping the one you have may be the best advice.  And it is the advice you’ll get from Home-Account if that’s the case.  But don’t expect the same from any other Internet mortgage site because they will ALL try to drag you into some kind of transaction whether it is in your interest or not.  That’s because they work for the lenders and only Home-Account works for you.

If you don’t qualify we’ll tell you that, but we’ll also tell you what you need to do to become qualified.  The more financial information you give us the more we can help.  We’ll teach you how to improve your credit score, literally telling you which bills to pay off first and how much to pay each month.  Home-Account monitors your progress and keeps you on-track.  It’s precisely the kind of service I wish my parents had bought me as a gift when I was first on my own a zillion years ago.

People with better credit who qualify immediately for loans at Home-Account then drop out can’t take advantage of the strategic advice that’s at the heart of the service.  THEY WON’T save $175,000 in interest charges.  That requires following a multi-year strategy.  They may not even get the very best deal on that initial loan because we might be able to help them quickly improve their credit score enough in a month or two to get a lower rate.

Listen, a big reason we’re in this global financial mess is that people took on more debt than they could handle, at least in part because they really had no idea how much debt they could handle.  Most people don’t know where they stand financially.  At least half of what Home-Account does is help subscribers get a handle on their largest expenditure, their mortgage, after which the rest of a subscriber’s finances just tend to fall into place.  Who — once they had that clarity about where they stand financially —  would give it up just to save $10 per month?

If that’s not enough reason to maintain a subscription maybe it would help to know that services very comparable to LifeLock (ID theft prevention) and MyFICO (credit score management and optimization) come as part of the subscription for no extra cost.  We don’t add them on: they are part of how we do what we do.

It is our hope that enough people recognize the long-term value of this service to subscribe and stay subscribed.

Yeah, but how do we make money?  Home-Account appears to be disintermediating the entire mortgage broker business and $10 per month seems a poor trade for $3500 per loan in lost fees. 

That depends on who you are.  Home-Account is loyal to homeowners and would-be homeowners and for that group the $10-per-month trade for $3500 in fees is GREAT.  And it’s not all that bad for Home-Account, either.  What we do is complex but it scales well.  We have costs, but they go down with volume. There are 52 million potential customers in the U.S. alone so we have plenty of room to grow.

The best way to understand the Home-Account business model is in light of a comparable business.  Our preferred comp is PayPal. Both are Internet financial sites serving markets of comparable size.  And where PayPal’s gross revenue per customer last year was $14.17, Home-Account’s revenue per subscriber is $119.40.

We can live with that.