Mar 04
lindsayrgwattBusiness behavioral economics, causeworld
Today an interesting Tweet from @umairh popped up:
opinions on causeworld? there’s something bugging me about it. http://nyti.ms/coFtpR
CauseWorld in a cause celebre (sorry, couldn’t resist) of the web world right now. The premise is hopeful: you use your phone to check in at various locations to earn “karma points” which you can then donate to a charity – and an advertiser pays for the donation.
Sounds like a win, right? In return for you giving up some privacy (you can be 100% sure that your check-in data is getting sold to advertisers), the world becomes a better place.
I’d argue the world actually becomes a worse place.
When you choose to give money directly to a charity you have to make two conscious choices: the cause and how much. Every person has their own complex calculus for arriving at the final decision, but it’s immediately clear to you what you’re doing as it’s your money and your choice.
CauseWorld changes this completely. The first aspect is that you don’t actually know how much you’re giving as they are purposely hiding the value of the “karma points”. For example, if you earn 30 karma points, you can donate clean water to one person in Sudan for one month. 30 karma points means that you have to check in probably about 6 times.
Now you can feel good because you’ve saved someone’s life for one month. And what’s that worth? Well, the brutal answer is, 30 cents. You could have gone to GlobalGiving.org and saved 100 people for $30:
Similarly, maybe you wanted to use 100 karma points to get 1 pound of food for monkeys in the Congo. That’s 20 check-ins. And worth a whopping $1. You could have gone to GlobalGiving and donated $25 to the exact same group to save the same monkeys (Jane Goodall Institute):
Let’s examine what your 30 cents means. You’ve generated six data points that have probably been sold to a company (the sponsor) and will likely be sold to more. You’ve given up a lot of your privacy as you’re now selling every single location you go to (each of your checkins corresponds to a geographic location; I’ll bet CauseWorld can pinpoint your home within six months of using their service). You’ve had to look at multiple ads for sponsors. You’ve also generated a tax break for the company that makes the donation because they are giving the cash instead of you.
What’s really bad, is that I’ll bet you’ll be less likely to donate your own cash to charity this year because instead you think you already gave via CauseWorld. Lets say that last year you gave $100 to a charity. That was a lot to give at once, but it didn’t take long and it felt good. This year, to do the same thing, you’re going to have to check in 2,000 times (each check-in in 5 cents). That’s a heckuva lot of work. I’ll bet that after the first thousand checkins you slow down – if you even make it that far. And this is where the damage occurs: you still think you’re giving to charity, but it’s at a much lower rate than last year.
There’s another issue here, too. When you pick the charity, you’re donating to your agenda. When you do it via CauseWorld, you’re only donating to their charities. There is zero chance that any of their selected charities will go against the agenda of their advertisers.
We’ve seen this before: it’s called the health care system. Your insurance company (CauseWorld) gives you a service that’s paid for by your work (advertisers) and you never see the price it costs for a doctor to fix you (the charities) – and you can only see certain doctors. As a result you use too much health care, the price goes up all the time and you frequently can’t see the doctor you want/have to go out of your way to find a doctor.
CauseWorld is going to do the same thing to charities: you think you’re giving more because you’re spending more time ‘donating’, but really you’re not and you’re also not giving to the charities that really matter to you.
PS
If I was CauseWorld my response to this would be:
a) We make it easier for people to donate during tough economic times. This rings hollow. No one knows if charitable donations are going to be down due to this recession, but America has gone through many recessions before and charitable giving has grown faster than the economy.
b) We open up giving to a new audience that normally would not donate. This is not likely true either. The article in the link above estimates that 70-80% of American households donate money. These are the same people who are going to use CauseWorld (if this was not the case, P&G, Citi, etc. would not be lining up behind CauseWorld). Therefore there just aren’t that many of them who aren’t already donating. And, if you believe my logic above, they’re now probably going to actually donate less.
Jan 31
lindsayrgwattBusiness competition, monopoly, ottawa airport, yow
I was going through my photos today and found this one:
Now, you might be reasonable asking: “Lindsay, why on earth would you want to take a photo of a photo of the Ottawa airport’s board of directors?” Because this is a great example of monopolistic excess.
When you arrive in the Ottawa airport domestic terminal, you’re greeted with this ad. It’s conspicuously placed so that almost everyone has to look at it. Since Ottawa’s the nation’s capital, a lot of politicians and assorted ‘important’ people must pass through the airport, and I’m sure the board thought this was a great way to get some exposure for themselves.
I, however, am neither important nor interested in the details of the board. What I’m more interested in, is what does not appear on the ad. There’s absolutely no way to contact any of these folks. If you’re like me, and it’s 1:30 am in the morning and you’ve been waiting for 45 minutes for your bags because a) there wasn’t a gate ready for your plane [think about that-that means that the tower assumed your regularly scheduled plane wasn't going to arrive. Does that mean they were assuming a crash?] and b) there were two other planes in the same boat and therefore no baggage crews, you might want to reach out to these folks to explain a teachable moment.
However, this ad is, instead, a monument to corporate self-gratification. There’s no way to contact these people and instead they simply gloat over you as you await your bags. No phone number, no email address, no website. Nothing It’s unintentionally the ultimate symbol of monopolistic hubris.
I know there’s not a lot that can be done to stop the monopoly that an airport’s going to have in a (relatively) small town like Ottawa, but some high speed rail would sure go a long way to making life a little more awkward for that board (Ottawa-Montreal and Ottawa-Toronto are the bread and butter of the airport). And that wouldn’t be a bad thing.
Jan 20
lindsayrgwattBusiness, Technology apple, payments, speculation, tablet
It’s official. Apple’s releasing something next week; maybe the table computer that’s going to revolutionize everything. Lots of people have speculated as to what’s going to be in it. A lot of people expect that it might save journalism and media.
Let’s speculate about how it might save journalism (or your industry of choice). It’s going to have to provide a great experience that’s fundamentally different from how it works today (check out this Sports Illustrated mock for one hypothesis). However, I think it’s going to have to make it really easy to pay for this content, too. Ads alone aren’t keeping these folks in business, so a new format alone (which is just more ad inventory) isn’t going to be enough.
So what could this mean? Well, imagine a monthly subscription to all New York Times content – across your tablet, iPhone and the web – with the first 100 articles or so free.
Similarly, right now it’s tough to do subscriptions for an iPhone app. You have to put the app in the store and then the subscription occurs within the app (e.g., it sells for $0.99 in the store but then it’s $9.99/month within the app to use it). I’m hoping that with the tablet, Apple will continue switching the store to allow transparent per month pricing at the time of purchase, with a free trial.
Ideally, two things come out of the tablet:
- New ways to convince users to subscribe to content. Ideally, providing a ubiquitous payment system that works across all digital channels
- An improvement to subscription pricing in the iTunes store
These sound totally banal, but if this happens it will suddenly be financially viable for a whole new type of software to be developed for the iPhone. Apple can build its mobile lead and really revolutionize a lot more than just journalism.
Nov 08
lindsayrgwattBusiness, Finance
I either didn’t exist, or was way to young to remember it, but the ‘7os were tough economic times. The reason: inflation. Prices were quickly going up, and when this happens faster than the economy grows, your standard of living drops. Here are some quick charts from the Berkeley Econ dep’t:
It took Paul Volcker raising interest rates to absurdly high levels in the early 1980’s – and thereby bringing the economy to a standstill – to tame inflation. This had a profound effect on society: the Fed send a clear signal that they would not tolerate a rapid increase in the prices of goods and services. If such a rise occurs, then they raise interest rates, even if it risks putting the economy into recession.
This has held true to today and as a result, we haven’t had any serious (excluding gasoline) increases in the prices of goods and services since 1981 or so. As a result, this type of inflation hasn’t caused this recession or any since the early 1980’s-and that’s a great thing.
However, notice that I’m being very specific in my choice of words: I’m defining inflation as the increase in the price of goods and services. Recently we’ve had all sorts of recessions caused by other types of inflation: the Tech Bubble of ‘99/00, the Oil Shock of ‘07/08 and the Housing Bubble. In fact, some folks believe that we’re seeing a bunch of other bubbles right now: Chinese property market, U.S. equities, and on and on and on.
So here’s the hypothesis: since the Fed is so tightly monitoring the prices of goods and services – because that’s how they define inflation – they’ve pushed ‘inflation’ into other markets. If you were to look at other prices and define ‘inflation’ as occurring when they rise too rapidly, you’d think to yourself “holy crap, we’ve got an inflation problem.”
There are some hints that people are starting to think this way. A recent New Yorker article on Larry Summers contained the following:
In 2007, Summers started looking at the looming economic crisis. Back in 2003, he had attended a Federal Reserve conference in Jackson Hole, Wyoming, in which economists were celebrating the fact that central bankers seemed to have mastered the use of monetary policy to tame inflation without causing the economy to slip into a recession, as had happened in the past. Summers warned that perhaps the victory over inflation meant only that the next recession would be caused by some new phenomenon.
And in a recent investment email, David Einhorn talked about asset price inflation:
Further, the Federal Open Market Committee members may not recognize inflation when they see it, as looking at inflation solely through the prices of goods and services, while ignoring asset inflation, can lead to a repeat of the last policy error of holding rates too low for too long.
This is a really tricky problem to solve. Taming inflation is straightforward: you just tell the public that you want inflation to be between 0.5-2% and then raise interest rates any time it looks like it might be higher. The public pretty quickly learns that you mean business and don’t misbehave.
But trying to prevent bubbles is a crazy hard problem. You can’t say something like “asset prices can’t increase more than 10% a year” because nobody is going to agree to that. There are legitimate times when a category of asset prices could increase way faster than that and it would require unprecedented (and unacceptable) government intervention to avoid it.
Instead, the challenge to the Fed has to abstract the problem and understand how to create a set of incentives to get people to behave properly. This is a really hard problem as first, everyone has to agree on what causes the problem (almost impossible as people who are making quick money have an incentive to disagree) and then Congress, etc. have to be convinced to actually implement regulation.
It’s going to be fascinating to see if the Fed and the Obama administration rise to the occasion and try to solve this problem. As the Chinese apocryphally said: “may you live in interesting times.”
Sep 24
lindsayrgwattBusiness, Technology
There’s a great two-part interview with Marc Andreessen up at the Business Insider (although it’s occasionally painful to watch as their streaming is buggy beyond belief).
Marc talks about Netscape and what he’s learned about creating technology businesses, strategy, etc. Here are a couple of gems:
- Jim Clarke spent four years in the wilderness at Silicon Graphics before he had a product that people actually thought was useful. This helped him mentor Marc while Netscape was in its wilderness period
- Before starting Netscape, Jim & Marc had a variety of ideas, including an idea for XBox Live-but it was 1993 so it couldn’t work.
- When they started Netscape they had two elements that helped them:
- The idea worked: Mosaic as a browser was a research success. They just had to rewrite the code and commercialize it
- They defined their business model (sell servers and commercial browsers; give non-commercial browsers away for free)
- Note that the above basically says “create a great product and then build a company”, not the other way around
- Business plans are useless – but the process of planning is very valuable. It forces you to think critically about your business and show that you understand the issues
- Every tech company starts off doing something different than one it originally planned to do. Microsoft started writing compilers but made money in OS. Apple started with the Apple II but made its money on the Mac. Silicon Graphics started selling computer chips and ended up making supercomputers.
- “There’s not a tension between product and business [in the technology industry] – there’s a staging. You don’t have a business until you have a product – especially a product that lots of people want.” It’s about product/market fit. Make a killer product and then scale up. Marc seriously wants to avoid creating companies that grow to 75 people, go nowhere and everyone just collects a salary.
Marc answered one big question I’ve always wondered: why did AOL buy Netscape? After all, the business tanked immediately after they bought it.
It turns out that AOL never really cared about the business and actually never even bothered to really run the company. They bought the company so that they would be perceived as “the blue chip internet company,” the “GE of the Internet”. It worked – there stock subsequently quadrupled and they were able to buy Time Warner.
Finally, he was asked what three things made him the success that he is. His answers might surprise:
- Luck
- Timing – which he considers luck
- Place – being in Silicon Valley has forced him to be better as he is always surrounded by so many smart people
Here are the videos:
Aug 10
lindsayrgwattBusiness netflix, supply chains
There’s a fascinating article in the Chicago Tribune about how Netflix delivers their DVDs. I have a nerdy love of companies that are really, really good at what they do (Toyota, Amazon, etc.) so this sort of article always interests me.
Here are some killer numbers for you:
- 95 percent of titles are rented every 90 days
- every day they go through their entire nation-wide inventory of 89 million discs and figure out where each is
- less than 1 quarter of 1 percent of discs are mistakenly shipped
No wonder these guys are worth $2.6 billion.
Jul 16
lindsayrgwattBusiness crisis, Economics, housing, law of unintended consequences, Risk
I’m always fascinated by the unanticipated side effects of people’s actions. Here’s an interesting one related to housing.
Housing has definitely started the current economic crisis – but no surprises there; it’s just simply people taking on too much debt. However, it might make it worse than other crises. Why? Well, when people buy houses, they tend to stay in them – even if their neighbourhood goes to hell and has high unemployment, etc. On the other hand, the renters tend to get out of town.
Here’s the killer quote from a study linked to via Creative Class:
Being tied down to a house tends to make people less likely to leave an area in which employment prospects are deteriorating …A seminal study by British economist Andrew Oswald of the University of Warwick traced the link between unemployment and homeownership. Oswald looked at the United States, the United Kingdom, France, Italy, and Sweden between 1960 and 1996 and discovered that, on average, a 10 percentage point increase in homeownership tended to correlate with a 2 percentage point increase in the unemployment rate.
Jun 18
lindsayrgwattBusiness ecommerce, retailing, selling
A few weeks ago, the Alley Insider ran this chart:
This is what total economic victory looks like: Amazon is becoming the platform for buying anything. There are a lot of reasons why, but one has to be the attention to detail that Amazon pays in making it easy for you to buy. I was reminded of this recently when my Prime subscription came close to expiring. When I logged in, every single page placed the following banner at the top:
You literally cannot make it easier to buy than this. They have interrupted me right at the point where I’m making a decision and reduced by decision to “click or don’t click” – there’s nothing else to think. Sheer genius and I can’t imagine more than about 10 companies on earth being able to deliver this sort of clean, crisp experience. Attention retailers: do what Amazon does…
Jun 02
lindsayrgwattBusiness Music
I couldn’t help but notice two very different sides of the music industry this weekend. One side is run by sclerotic corporations who are completely removed from the realities of their business. Their latest move, according to the New York Times: petitioning governments to increase the license fees paid by bars/restaurants/night clubs to play music on their premises. Apparently Australia is at the forefront of pliant governments and the music industry is hoping to export this globally.
These are massive, monolithic corporations in their final death throes. Failing at being able to create either great music or an innovative way to deliver it to their consumers, they’re basically using the courts to try and maintain cash flow.
The opposite side of this was on display this weekend at the Brooklyn’s Yard. Mr Scruff was dj-ing there as part of their Sunday Best program. $10 cover, a couple of hundred people, sunshine, beer, tacos – and an incredibly accessible musician. Here’s a shot of Mr Scruff spinning – how many dj’s let you actually stand behind them and watch them work?
Plus, every attendee got a download code for a one hour mix of the show:
It’s stunning to think of the contrasts here: a musician offering you a memento of the great time you had at his show (and consequently getting free press like this blog entry) vs. a company essentially suing to try and get more cash. Old music companies RIP.
Apr 15
lindsayrgwattBusiness behavioural economics, decision making, Economics
Behavioural Economics is all the rage these days. It recognizes that we are not fully rational and tries to to ‘nudge’ us to make positive changes in their lives (for instance, creating systems where if you get a raise it is automatically saved in a 401(k) unless you opt out).
But what if you wanted to create a system that instead preyed on people’s irrationality? You’d probably create an auction site like Swoopo. Swoopo offers products (usually high tech) starting at $0.15. A timer then starts counting down, and if it hits zero, whoever bid that price gets the product at that price. As the timer’s counting down, you can nudge the bid higher by $0.15 by clicking a button – and now you’re the highest bidder.
What’s the catch? It costs you $0.75 to place a bid.
This is the perfect ‘crazy’ machine. Users think that they’re buying the product for a low price (say, 80% of what it would cost at Amazon), but the system is designed so that everyone who has bid has massively subsidized the cost of the prize. It’s like a Ponzi scheme where everyone’s agreed to the rules beforehand and is actively competing to be the last sucker.
Don’t believe me? I watched the site for a few seconds today and a Wii + Wii Sports was bidding at $85.80. If it sold at that price, Swoopo would get $85.80 + 571 (the number of bids) * $0.15. That’s $428.25. A Wii currently sells for $249.99 on Amazon; Wii Sports is about $50.
Even crazier: it didn’t go at that price. I watched the bids rise to $103.35 before I couldn’t stand to watch any longer. At that point Swoopo was going to get at least $619.35 in total cash for it.
Congrats to Swoopo for creating the perfect machine for converting human greed into cash.
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