Tag: business

Higher Education can’t Keep Up: Online Retailers Need to Hire Experience, not Diplomas

It’s pretty hard for anyone to admit it but it’s true: universities can’t keep up with the times. They cannot deliver qualified individuals for the growing online retail segment because there is nothing to be qualified on. Of course, there are some courses that cover some successful business models but truth be told there is no use in knowing Amazon’s business model as long as there is already one Amazon on the market.

The original college drop-out overachiever.
The original college drop-out overachiever.

How did it come to this? When did this pillars of economic evolution start to lose ground? Let’s have a look at some of the potential causes and some answers on how to hire and develop the right individuals for the online retail segment.

Universities teach rules. On the internet rules are meant to be broken.

The whole concept behind higher education was that one might benefit from (1) a few extra education years, (2) access to some very experienced professors and most important although not usually talked about – (3) a network of like minded, probably successful colleagues. These three factors don’t really apply to online business in general and online retail in particular:

  1. with wonder kids such as Mark Zuckerberg and the Google Duo, dot-com entrepreneurs are expected to be successful before their early thirties. Spending too much time in the academia is not really the best choice if you are an aspiring young millionaire. Have a look at this M. Zuckerberg’s interview back when Facebook was Thefacebook.com. The thing you should be thinking about – how can someone driven, ambitious and aware can stay in college for 4 years when he feels ” ‘near future’ being like anytime in the next seven or eight days.” Remember – this guy is a Harvard drop-out.
  2. as for the “very experienced professors” – there is no way they can actually be that experienced unless their name is somewhere along the lines of Jeff Bezos or Jack Ma. The high education fees and the time spent in conventional education facilities are not really that useful when it comes to innovation. Professors are not really the most adaptable types. Most of them are still trying to understand and explain the Dot.com Bubble. They are historians rather than explorers. Of course, understanding our past can save us from some trouble but it can also lead to a certain lack of innovation, a thing the internet thrives on.
  3. the network of like minded, probably successful colleagues is not really spending that much time in the classroom. They are studying, alright, they are building networks and they are building stuff. Just not where you would expect them to do that. They hang out in technology hubs, they read books on their Kindle and their laboratory is probably a Macbook.

Unfortunately a college diploma shows only that the individual can remember some things and can obey rules. That’s great for middle management and below but what do you do when you need to hire talent? Where can you find people that can turn Brick and Mortar stores into online retailers?

How to attract talent that can develop Online Retail Companies?

No matter how big your company is – you will be always faced with recruiting issues. How to look for the right candidates, how to attract them and how to keep them are always distinctively  difficult issues.

Some of the larger companies, such as Walmart, have chosen the path I believe works best: buying entrepreneurs. When I say buying  – think more than cash. The large pay check is one type of incentive, but not the only one. The right kind of people need a purpose, a direction and the freedom to choose their own teams. They will be motivated by a large vision, a goal to strive to and a team that can help them achieve that goal.

Here’s how Walmart CEO Mike Duke managed to lure ex-eBay engineer Jeremy King, now CTO of Walmart. Notice how Mike Duke had already decided that although ecommerce is not really the biggest piece of the pie – it is the key to continue Walmart’s development in the future.

After years of seeing his company lag online, Duke swore that digital was now a priority for Walmart. Duke had restructured the company, placing e-commerce on equal footing with Walmart’s other, much larger divisions. He had made serious investments in high-tech talent, acquiring several startups.

Hire experience – any kind of experience.

Remember – what did you do when you first tried to ride a bike? Chances are that unless you were an unusually talented  child or a late learner you got a few bruises out of your first try. However, due to those slightly annoying incidents, you managed to learn what to do and what not to do.

As an online retail business owner or manager you should be looking for experience. Experience doesn’t come easy. As I said earlier in the article – there is no one there to teach young professionals what to do and what not to do. So far, at least. As such you will be dealing with people that failed, struggled, tried again and again and eventually learnt a thing or two about online retail.

In time, education will adapt to this changing landscape and it will offer better suited courses. In the same time online retail will develop into a mature industry and things will start to get rusty again, just as it had happened to classic retail. Then you will be able to hire diplomas again. Until then – keep you eyes open for experience.

Social gaming architecture

“Your friend sent you a request” says my Facebook notification. That must mean one of my Facebook friends is playing one of Zynga’s or Konami’s social games. You know the type – manage a farm, a city or something close to that. You’ve finished building a windmill – what an achievement –  share it with your friends. Need your crops faster – oh, no – share it with your friends.

Zynga’s top brand: Farmville

These type of games, however annoying are highly addictive (at least for a moderately short period of time), highly viral and for a while they seemed to be the grim future of the gaming industry. After a fast growth period Zynga reported a loss of $400 million dollars in 2011. Not because of how bad its games were doing (Zynga owns 2011 top 5 most played games on Facebook and its revenues were $1.14 billion dollars). No, they payed “stock-based compensation expense for restricted stock units issued to employees”.  $510 million dollars in stock-based compensation it did not had to pay until it went public.

However bleak Zynga’s future might look they still own some of the most popular social games and they started to adapt to the rising trend of mobile-based gaming (tablets and smartphones).

Its main competitor, Konami, is not doing too bad, either. Actually Konami’s social gaming division reported a 77% increase in revenue. Given the sharp rise in Zynga’s and Konami’s revenue we can see clearly that social gaming is a great investment . What makes it so?

Social gaming is highly addictive

Social gaming makes use of some incentive design based on social activity and achievements. Social gaming companies use human psychology to create levels of addiction close to gambling and these games usually have slow learning curve, use many motivators to commit users to revisit the game (plant a crop, come back after 10 hours to use it) and use instant gratification to convince users to purchase upgrades.

Behavior economics in social gaming

Interestingly, most of behavior economics principles can be found in these type of games: from peer pressure to “doing the right thing” (don’t let your crops die) and clearly seeing the outcome of one’s action – all add up to a picture where behavior economics seem to be the baseline for virtual economic architecture in games such as Farmville.

The virtual life in social games

Collectible real-life World of Warcraft coins

Reality perception is altered when such games are played and playing the game seems to be more of a daily task then entertainment. To understand the high interest users have in this type of gaming we must remember that in our day to day life few things seem to add up like the virtual life in social games does. Click a button – start building a farm. Click another – plant crops. Come back after a day and you can cash in your hard earned coins that you can reinvest. It is a little harder to do that in real life. Sometimes – no matter how hard we try achievements don’t seem to pup-up.

We expect an end to our actions. If possible a fortunate one. We have been planting crops and harvesting them for thousands of years. Our bed time stories always have an end. The movies we watch program us to expect an introduction, action and the grand finally. Our lives don’t usually have that and this is one of the causes of modern stress and depression. Having a secondary life where everything is simpler and more colorful is a reward in itself.

The architecture of social gaming

Most social games have a pretty simple story that gets you hooked. The first form of profitable social games were the MMORPGs (Massive Multiplayer Online Role Playing Games) where you played a character and took possession of his actions. Other players would join in and you would search for coins, artifacts and battle different monsters or other players.

What are the lowest common denominators of most successful social games?

1. The story – as we are used to stories from infancy we best deal with adopting a new concept if we receive it in a story. Weather you are living in a future where aliens are threatening to take over the universe, a village where your survival depends on how well you manage your farm or a fantasy world where elves and trolls are trying to get you – you need a story. Without a story no game-addiction can develop, there is no understanding of one’s actions and the game flops.

2. The setting – the environment is really important as that is the context for the players actions. If you are in a farm you don’t usually battle star ships. There is no need for extra mana to cast a spell and there are, usually, no monsters you have to slay.

3. The character – people play games to foster their imagination and to escape the usual reality. That’s the same reason we watch movies – we need alternate realities where we can embody some other character.

4. The economy – whether players are searching for extra stamina bottles, artifacts, coins or other incentives they do that because they understand the need for an alternate economy. Economics are so well embedded in us that social games that have no economic notion can never become mainstream.

5. The limitations – social games have to have limitations. Without limitations there are no achievements. Without achievements there is no psychological  gratification. No limits – no endorphin.

6. The incentives – what makes users tick? Incentives. Search for an artifact and you can defend your castle. Develop more farms and you can buy more land. Upgrade your ship and you can win the battle you previously lost. Incentives makes people act. Just as the real world economics incentives are the carrot that works better than the stick.

7. The social features – imagine playing tag by yourself. It isn’t too fun, is it? We are deeply social animals and everything we do is based on how other people react to our actions. Social gaming evolved so fast that it makes it so easy for users to attract peers and develop common interests.

What social gaming lacks right now?

Most of what we now call social games have developed strong social ties, a great system of incentives, some kind of limitations, some kind of game economics but they lack the story and characters. It’s not all about the graphics. The user has to understand the back story and understand who is he in the game. Just like our real lives the most important things about how we relate to the world are the things that shaped us, who we are and who will we become.

Zynga’s social games lack the story and the characters which is not much of a problem right now but people will get bored with the shiny incentives and peer pressure. For a long term user retention social games need to develop personas and epic stories.

Thomas Metzinger, a German philosopher, stated in “The Ego Tunnel” that we understand reality through a scaled down replica of the reality surrounding us. He based his research on neurological research, human psychology studies and artificial intelligence tests. Why is that important for social gaming? If users are not fully immersed in the gaming reality – they can easily abandon games. The game world is not really a personal perception of reality. Social games are shifting the perception of what is real and what is not but only for a limited time.

In the future I expect social games to develop the social gaming worlds to an alternate reality and developing characters. It’s happening right now with World of Warcraft. There are 10.2 million paying subscribers, fully immersed in the story and characters Blizzard created.

Bonus takeaway

In 2010 we wrote a study on Facebook Gaming. Most of the assumptions and predictions turned out to be right. Here is Gaming on Facebook .

Part two of this article will come soon and will focus on the economics of social gaming.

 

What is Shopkick?

Physical stores have a greater conversion rate than online stores. Conversion rate for in-store traffic is 20% in fashion, 50% in electronics and 95% in groceries. Physical stores are therefore superior to online stores in terms of conversion rates where a 5% conversion rate is considered very good. Even though classic retailers benefit from a high conversion rate the traffic is way lower than online.

Shopkick gets traffic to brick-and mortar stores

Shopkick is a company based on a mobile product that works on iOS and Android mobile devices. It uses different in-store incentives (discounts, freebies) to reward potential consumers that choose to check in using the app in the partner stores.

The check-in, incentive redeem technology is quite impressive. It does not use, as one might expect, GPS features as these are not accurate enough. Founder Cyriac Roeding, explains just how accurate GPS on smartphones is: “It is so inaccurate that you could check into a Starbucks two blocks away”.

Instead Shopkick uses sounds inaudible to the human ear to check you into stores. The technology is patented worldwide and Shopkick founder says they are doing great with over 7000 large retail stores.

What is Shopkick after all?

Simply put Shopkick is a mobile based company. But if we think about it – Shopkick is much more than that. It is the bridge between online and offline retail. Its incentives increase real traffic in stores, increase revenue and all with a simple mobile solution.

Shopkick is doing way better than Foursquare in terms of growth acceleration and revenue per user. After all it has real, tangible discounts. While Foursquare offers you electronic badges and peer recognition (“Look buddy, I am the mayor of this place”) Shopkick’s incentives engage users and marketers even more. The numbers are clear on this: with 3 million  monetize – able users Shopkick is here to stay.

Why did George Soros buy Facebook stocks?

George Soros buys 341.000 Facebook Shares

As you might have heard George Soros, the Hungarian – American investor known for his 1 billion $ profit in the 1992 “Black Wednesday UK Crisis”, is reported to have sold his stakes in financial companies such as Citigroup, JP Morgan, Goldman Sachs and Wells Fargo, and bought 341 000 Facebook Shares.

Why would Soros buy Facebook stocks?

The decision to buy Facebook stocks that have been steadily falling since the IPO  is at least intriguing as the share price dropped 45% since the 18th of May 2012, the day when Facebook went public. Even more intriguing is Soros’ decision to sell his financial companies shares over Facebook.

Let’s look at the chart and then a quick set of facts:

Is this the end of Facebook stocks nightmare?

As you can see the drop in shares price seems to have leveled out. I suppose that might be the lowest point Facebook will see in a long time. After all the company is doing great in terms of users and revenue (next to 1 billion users, Q1 2012 revenue up 45% from Q1 2011).

LATER UPDATE: Facebook unlocked its inside investors shares and the share price dropped 6% and than bounced back to ~$20 per share.

What does George Soros know that we don’t?

George Soros is known as a very informed investor. He knows when to sell and when to buy. He also sold his minor stakes in Intel and Dell.

I can only assume that George Soros bets on one of the following:

  1. A large partnership Facebook is about to join. Last week I’ve noticed some Apple-Facebook motion and discussed the possible implications. Such a move will have positive implications on Facebook’s stocks.
  2. Facebook stocks will begin to rise as the company will provide the market with evidence of its increase in revenues, in the future.
  3. George Soros’ is attempting to trick the market into increasing demand for Facebook stocks. His actions can be enough to increase the Facebook stock price.

I believe that by the end of the year Facebook stocks will see a positive trend and pass a 25$ /share price. After all Facebook is a very valuable company and will continue to be so in the future.

Behavioral Economics and Social Media

Humans are not usually rational. The neoclassical economists were wrong. We don’t make the best economic choices given more information. We do not plan for the future. We care about what others think of us. We act on impulse. All these things are the basis for Behavioral Economics Theory.

This (rather) new economics theory has caught momentum and is now one of the hottest topics in theoretical economics. Well… as hot as an economics theory can be. It blends psychology and neoclassical economics (the thing we generally call economics) to help explain why we act the way we act and to help policy makers increase the likelihood of better economic decisions.

There are many variables and a lot of information on the subject but for a better understanding we can look at some principles outlined by The New Economics Foundation:

  1. Other people’s opinion matters: we take great interest in what others think or do. We don’t usually get informed on economic topics. We usually copy behavior and decisions. Why? First of all we are a social species. We want to be socially acceptable and we can do that easiest by mimicking. It’s also easier.
  2. We are creatures of habit: even if what we do is economically wrong we will continue doing it out of convenience or because we have a habit that forces us to do what we do.
  3. We want to do the right thing: we have an innate sense of justice that leads our behavior. Most of us pay our fines not because we might go to jail but because “it’s the right thing to do”. We help others because it makes us feel good, not because there is any financial incentive in it. Actually such incentives may actually be counter-productive as they take out the primarily motivation – doing the right thing.
  4. We act according to our self image: we care about our commitments and we like to stand up for what we believe in. We see ourselves in a certain way – that leads us to certain kind of behavior in order to avoid cognitive dissonance.
  5. We are more loss averse than gain interested: we hang on to what we believe is ours. We treasure our possessions more than we value what we could potentially gain.
  6. We are not very good with data: we don’t really understand numbers, we’re bad at calculating probabilities and we take decisions based on how information is presented to us.
  7. We need to feel empowered to take action: too much information can lead to the inability to act. Too many options make us feel helpless. People need to have a clear understanding on how their actions affect the world around them to fully commit to any activity.

Behavioral economics in social media

Feelings, sharing, likes, friends, fans are not words we usually hear in business economics. We do hear them pretty often these days in social media. Business are starting to understand the importance of customers behaving socially. Social behavior is what drives companies to success or into the ground. There are no formulas in financial economics that can describe the feelings people have toward one company or another.

Classic economic behavior can be described in numbers on a spreadsheet but is not the way real people act. It is a flawed economic model in an economy that results in debt and frustration. The first result can be seen in the financial models we’re currently looking at. The second one cannot.

There is a growing media that helps express and amplify the principles of behavioral economics. That is the Social Media. With the growth of such social networking companies such as Facebook or Twitter, people started acting more and more connected. We now have an way of observing behavior with the help of social media. As it turns out all the principles of behavioral economics can be seen in social media. Let’s have a look at them:

Behavioral economics principles at work in Social Media

  1. Other people’s opinion matters: we care what our (Facebook) friends think of us. That’s why we share interesting quotes, we “like” only certain brands and we are very careful before posting something online.
  2. We are creatures of habit: first of all have a look at your behavior today. You have probably checked your Facebook timeline or Twitter profile at least once today. Why? Because you are accustomed to Facebook. You can’t give up checking the news, the photos your friends posted or the new products your favorite brand advertised on Facebook. Increase in mobile internet popularity is only enhancing this behavior.
  3. We want to do the right thing: people are sharing more and more social causes through social media. With over almost 1 bn users, Facebook acts as a catalyst for social causes. Social causes spread fast and users are very likely to share social messages. But that’s not all. Individuals as well as organizations now know that anything wrong-doing can have a long term negative impact on their life. Here is a video of a police officer pepper spraying demonstrators that quickly lead to a large negative social media response. If you were to search Google for the phrase “Sgt. Pepper Spray” you will find no less than 213 000 pages that frown upon his behavior. Eventually his email address and home address leaked to the internet. You can imagine the outcome.
  4. We act according to our self image: People have a certain self image that translates into social media behavior. For example: Barack Obama’s “Hope” presidential campaign was not really about the soon to be president. It was about the people that he represented. People found in the campaign a positive message for change. They’ve seen that the presidential candidate expressed a need for better people to run the country. People such as themselves. A lot of Obama’s success story happened on the internet where people expressed their views on “Change”. The messages they’ve spread were positive expressions of self image. People were not “like”-ing Barack Obama. They were “like”-ing themselves and the way they wanted their friends to see them.
  5. We are more loss averse than gain interested: Think about how often you see messages like “don’t lose the opportunity”. Why? Because they work. Groupon cashed in on the feeling people have regarding limited time discounts. So did Woot. Using loss-aversion works really well in online retail.
  6. We are not very good with data: If neoclassic economics theory would be true and if we really were rational beings, Groupon would never had caught on. Buying a discounted sky dive or a night lamp when we have ten already does not make sense economically. However, people did buy those things. Why? Because social media goes hand in hand with presentation bias. Suppose we see a 70% discounted offer on blue handkerchiefs that were already bought by 300 people. We think – “oh my, I must buy that handkerchief now or they will go out of stock. Look – 300 people already bought it”. The information has been framed (70%) and enhanced by other people’s behavior. We do not think whether we need the handkerchief or not, whether it is an economically safe behavior. We see the deep discounted price, we see that other have already bought this (see point number 1.) and we “need” to buy the handkerchief. Now.
  7. We need to feel empowered to take action: there are millions of products on Amazon. Billions of web pages indexed by Google. If we were to browse rather than search we would probably get frustrated and quit. However – we still use Amazon and we still use Google. Why? Because of targeting. Both companies dig through millions of terabytes regarding other people’s behavior to serve us the products and results we are most likely to buy or open. That makes our choices easier and we feel empowered to act.

I believe behavioral economics are here to stay. The kind of human behavior they explain has always been here. Social media is just acting as a catalyst to this kind of behavior. If we are to look deeper into behavior economics we need to use social media data to better understand the way we act and how can we get to economic results. The internet economy is growing at a faster rate than any other sector because successful online entrepreneurs already know the seven principles outlined here even if they’ve never heard of behavioral economics.

UK – the heaviest Internet Economy in the world

Internet has changed many aspects of our lives and will continue to do so. As people shift their attention more and more toward the internet so does the economy.

UK leads the way towards this new economy with a £82bn ($128 billion) internet economy. About 16% of this ecosystem is accounted for by mobile connections. The overall traffic is expected to increase each year between 2010 and 2015 by 37%. What does that mean? Having an ever increasing interest for mobile connections and ecommerce we might see three trends in the future:

  1. Mobile networks will need better infrastructure to handle the growing traffic.
  2. Mobile internet will increase in popularity which leads us to…
  3. Mobile commerce will set new challenges to retailers as consumers get more informed, faster deliveries and better deals

Data regarding these numbers has been put together on a study commissioned by Vodafone UK to ATKerney. You can find the study here.

It’s interesting to see that the internet economy reacts to people needs and wants as is stated in the graph bellow:

 

As you can see the internet is expected to be the most commonly used media in Europe by 2013, with 50% of all media consumption.

The other media (radio, print, TV) is expected to continue to decrease in the following years.

With smartphone usage doubled between 2008 and 2010 it is expected that smartphone terminals will be a major player in the internet economy ecosystem. Data is already used more often than voice. Mobile operators will adjust their market accordingly and that will increase the internet consumption even more.

Online retail (both web and mobile) accounts for roughly £45bn ($70bn) – approximately 6% of GDP, leading the UK to the 1st place in G20 countries as internet economy share of GDP.