I’m a pretty regular user of my local library, usually with 3-4 books out each month (with only 1-2 completely read + a few bucks in late fees). I bought a Kindle a few months ago* and was happy to hear that I can now borrow e-books from my library onto it. Overdrive runs the digital media portion of my local library system, and also runs it for many others. Previously, the DRM software restrictions made it impossible to get onto a Kindle. You can run a search for a branch close to you on Overdrive.com.

Unfortunately, so far I haven’t been impressed. The titles are very limited, and usually my city only has one copy of each. I’m still hopeful that a lower cost for distribution means it will this system more popular. Maybe libraries can even get a cut by offering a link to the book for sale. Here are a few stats:

• Lending period: 21 days for me, which is the same as physical books. You can electronically return the book earlier if you like.
• No late fees. The book is automatically removed from your Kindle device when time is up. You’ll get an e-mail warning, but this also means you can’t just keep it an extra day or two to finish up for $.50 in late fees. Poof!
• Maximum checkouts allowed at one time: For me, this is 10. Plenty.

I do like not having to drive to the library, of course. Finally, for more free reading material, I now use Instapaper to transfer all long web articles (like Boomerang) to read on Kindle. Much less eye strain. My most recent clipping? The famous 1979 Businessweek article The Death of Equities.

* By the way, I would definitely go for the $30 savings for “special offers” Kindle version. I would honestly have paid the same price as without ads (but don’t tell Jeff Bezos that). The ads are not intrusive to the reading experience at all, and and the coupons offered regularly save me money. You can view a list of all previously offered discounts here. It seems like every month I either get a Kindle book for $1 or something like $5 off any $10 Amazon purchase.

What happens when a former Apple executive and other top geeks focus their energy on a… thermostat? The Nest Learning Thermostat. I just finished a neat Wired magazine article about this new gadget, which hopes to make saving energy both trendy and hassle-free.

First, it looks like something Apple would make. When the heat is on, it’s red. When the A/C is one, it turns blue. You use it like any other thermostat, turning it up and down whenever, and it’ll even show you how long until you get there. What’s wrong with existing programmable thermostats? For one, they are often so hard to use that half of them aren’t programmed at all. A study actually showed that programmable thermostats used more energy than non-programmable thermostats, which led to the EnergyStar label being pulled for all of them.

How is it better? If you’re being efficient, you get rewarded with a little green leaf icon, nudging you towards more savings. It learns your habits, and uses that to minimize your energy use. If you forget to turn it down on a weekend getaway, it will fix that for you. Or, you can jump online and set it yourself, since it connects via WiFi and stores your energy consumption patterns online. It even has motion detectors built in so it knows if people are around, and it lights up when you approach it. All with just the trickle of power that a normal thermostat gets.

It also costs $249, much more than competing beige thermostats. It’s supposed to pay for itself in two years, so that’s a savings of $10 a month. If it reduces your usage by 20%, that means your current bill should average at least $50 a month.

There was a thought-provoking NYT article about luxuries last week that pointed to a 2006 report by the Pew Research center that surveyed Americans on what they considered “necessities” versus “luxuries”. Some things have become more accepted as a necessity over time:

Other things have stayed “needed” on a constant level, like having a car, TV, or clothes washer. I stewed on this over the weekend, because right now I have all 7 of those things listed above. But as recently as 10 years ago, I only had a computer, broadband internet, and a microwave. No car, no washer/dryer, no air conditioning, no dishwasher.

Are any of these really a need? Even if you live somewhere hot, somewhere in the world there are people living in the same conditions without air conditioning. My wife’s grandmother still used a washboard to clean her clothes up until recently. On top of that, each of our needs or wants can be scaled up or down. You may “need” a car for work, but that car can cost $200,000 or $20,000 or $2,000. A house can cost $1,000,000 or $100,000 or less. Even a TV can cost $2,000 or free (you can’t even give away a tube TV these days). You could run your A/C all day long, or set the thermostat to 83 like my dad does.

It would seem that the real decision is more about priorities. Somewhere in those spending priorities is saving for a rainy day, or saving for retirement. Some people are effectively making the decision that they want to live in a 3,000 sf house instead of a 1,500 sf house than, rather than stop working period 5 years early (or work part-time instead of full-time for 10 years). Is that wrong? I don’t necessarily think so, if that’s their choice. In the end I couldn’t think of any easy answers, but hopefully we start making our choices more consciously rather than just going along with others.

Costco just announced that they are raising their annual membership fee 10% in the US and Canada as of November 1st, 2011. This makes the Gold Star and Business memberships $55 and the Executive membership $110 per year. The maximum 2% cashback reward that comes with Executive Membership will increase from $500 to $750. The last price hike was in 2006, so the membership fee has actually been rising less than inflation. See Costco press release, WSJ article.

Is Costco worth it? As someone who shops at Costco regularly, I’ve asked Is the Executive Membership upgrade worth it? (You can’t lose money by trying it out.) This time, I thought it would be interesting to look at how the Costco business model itself affects the value to customers. There are various articles about the Costco business strategy, for example here, here, and here. This is a quick and dirty summary:

• Costco tries to make a low but constant profit margin, combined with large volume. Two metrics for this are operating margin, and sales per square feet. Costco keeps around a 3% operating margin, which means for every dollar in sales they get 3 cents of profit before things like interest and taxes. They don’t want this number higher (more room for competitors), or lower (race to zero). Costco has more sales per square feet than Wal-mart, Home Depot, or Nordstroms. They keep this high with low prices, bulk packaging, and limiting selection.
• Instead, most of the profit can be seen as coming from membership fees. Roughly half of the 22 million members in US and Canada are Gold Star/Business members paying $50 a year, and the other half are Executive members paying a $100 a year but with a 2% cash back check. Simple math says that Executive members should be spending $2,500 a year at Costco for this to be a good idea ($2,500 x 2% = $50). Spend $5,000 a year, and your membership is “free”.
• They treat their employees better with higher pay and benefits than say Wal-mart or Sam’s Club, as well having better stats for upward mobility. One number given was Costco pays 40% higher than Sam’s Club. I think this makes for a more stable operation and less employee turnover.
• They treat their customers better with a generous lifetime return policy. They’ve had to tighten it up with customers abusing the policy by returning TVs every year before the Super Bowl and buying a new one (now limited to 90 days on electronics), but it’s still very customer-friendly. I’ve seen people return empty wine bottles.

What’s the result? I like to look at it this way – at the two extremes:

• If you buy nothing and they can’t make any profit on markups, they’ll still charge you the $50 membership fee.
• If you buy $5,000 of stuff and get the 2% cashback, your membership fee is basically free ($100 minus $100). If you remove membership fees, you’ll find their retail profit margin is actually a thin 1%. I visualize this as the 3% overall margin minus 2% cashback. That leaves them with 1% of $5,000 = $50 again. Coincidence?

In the end, Costco makes money even with such low profit margins, as long as they keep you as a happy customer. Over 90% of people renew membership every year. This leaves Costco only concerned about expansion of members. In fact, they have a rule that they never charge more than 15% of the cost of any product. That’s tiny in the retail world. Remember, they still need to pay for the building, worker wages, and so on. As a result, Costco prices will always be “very good”, but it can be beat by short-term sale prices of an aggressive competitor or “extreme couponing” at grocery stores.

For some perspective, Wal-mart’s operating margin is around 6%, and Target’s is almost 8%. Since the basic membership fee is $55 a year soon, your only hurdle is to buy enough stuff to make the $55 worth it. Assuming based on the operating margins that Costco prices are 3% cheaper than Wal-mart, you’d have to spend $1,833 a year (about $150 a month) at Costco instead of Wal-mart to pay for the $55 membership fee.

Based on these assumptions, if you are someone who is satisfied with all-around competitive prices and doesn’t want to hunt for the best deal all the time, and would be spending more than $150 a month at Costco, then the new membership fee should be still worth it. Our family got $88 cash back last year.

If you do go for it, you can get 3% cash back on gas, 2% cashback on restaurants, 2% back on travel, and 1% back on everything else with the TrueEarnings Card from Costco and American Express, which also replaces your Costco membership card.