MIT’s Eric von Hippel was the other speaker at IPRIA’s anti-IP workshop. He wasn’t so much anti-IP than highlighting what can be done without it; namely, that lots of interesting innovations come from users who have no commercial interests whatsoever. Continue reading “Lego User Innovations”
Category: Strategy
Web site competition
[From Hitwise] Bill Tancer who likes to analyse website hit trends examines the impact of the myspace outage on other websites. It seems like that when myspace went out, Google hits went up. Of course, that could just be myspace users trying to find out what was going on. Continue reading “Web site competition”
Sorting customers out
Marginal Revolution reports on one way firms sort their customers out. Continue reading “Sorting customers out”
Towel washing in hotels
I am currently at an ACCC conference on the Gold Coast. While there is a water crisis here, the hotel I am staying at does something common to all hotels these days; it asks you to think about whether you want your towels and sheets changed everyday. Here is the plea on a little card:
We care about the environment. We are committed to undertaking practices that preserve our natural resources … Working together, we can conserve millions of litres of water, save energy and minimize the release of detergents into the environment.
Now a colleague who was on a tad on the political right objected to this imposition by the hotel pandering to the ‘greenies.’ He indicated that he would prefer to stay in a hotel without such policies. I think he is a moron. Let me explain why.
Here is how I read the hotel card:
We care about our shareholders. We are committed to undertaking practices that contain our costs … Working together, we can conserve millions of dollars of costs, save energy and minimize the release of funds to laundries and detergent manufacturers.
I love this policy. It is clearerly profit maximising and at the same time can be pitched to customers as something socially responsible. If you want to be socially responsible, you are. But if you don’t — like our anti-environmentalist friend — you also win. By saving costs, competing hotels pass on the savings to their customers in the form of lower room charges. If you still choose to have your towels changed everyday you can but you still get the benefit of sharing in the cost savings from the greener customers. If there was a hotel that didn’t have such a policy and you went to it, you would pay more and still have clean towels. Hence, you would be a moron.
The reason for this wonderful win-win is that you can also read the card this way:
We care about resources. We are committed to undertaking practices that preserve our resources … Working together we can save millions of litres of water, detergent and towel washes, save energy and minimize the use of a service some people don’t value.
The point is that hotels found a way not to bundle into their product something that many people didn’t value — daily towel and sheet changing. Why did they know this? Because those same people don’t practice this in their own homes. And for the most part they are not thinking of the environment but the actual resource costs of washing. Regardless of whether they are in their own home or a customer of a hotel, that lack of value persists. Hotels have found a way to unbundle that part and they do not even have to go through the difficulty of charging for the service. Very easy.
Verbability Update
Following up on my earlier post regarding effective brands that become verbs, today brings news that google has been recognised as verb in the Webster Dictionary. It now joins the likes of hoover and xerox. According to that news item, Google itself is not happy about this; although it is really hard to imagine why.
The next Paul Krugman?
When Paul Krugman wrote for Slate, he produced a stream of articles that clearly explained economic phenomenon. One of my favourites is this one about the baby sitting coop. Krugman is more politics than economics these days.
David Warsh suggests that Shane Greenstein, a Professor of Strategy at Northwestern University may well fill the gap. Shane writes for IEEE Micro, a magazine of the Institute of Electrical and Electronics Engineers. This is not usually at the top of economics reading lists but his columns have been interesting enough to have been formed into a book: Diamonds are Forever, Computers are Not. My favourite article of Shane’s is this one on platform competition. But there are many others and you can access them here. Continue reading “The next Paul Krugman?”
Paying people to watch ads
In an earlier post, I noted that the television-ad game is a funny one. In order to get viewers to watch ads they don’t like, broadcasters intersperse them with television programs they do like.
Today, CBS have announced a new way to get people to watch ads. They are going to provide clues within ads that give viewers the chance to win prizes. This isn’t such a new idea. Individual ads have often contained incentives to watch them. What is new is that it is being done at a broadcast level. Specifically, it is directly aimed at giving people an incentive not to skip ads using digital video recorders. [In this respect, it is similar to the Ayres-Nalebuff saving-lottery scheme].
Ultimately, the ideal would be to separate out the ad market from the television one and have people pay to watch television and to be paid to watch ads. Clearly, the latter is a market that is difficult to achieve as it is hard to monitor compliance. But, as a matter of principle, it is what one would want. Paid download television is a step in the right direction there giving people a paid opt-out option for ads.
The penny drops
Sometimes we can be a little slow. A few weeks back I wrote about Amazon.com’s wrinkly pricing. This is where it gives users of its A9 search engine a 1.57% discount on its products when they conduct a certain number of searches.
Amazon.com say that the 1.57 is approximately pi/2; that is, pi as in 3.14 etc. Apart from noting that that was a non-round number I thought that they were just being mathematically cute in the way Google often is.
Well, the penny has finally dropped for me at least. The discount is a reward for searches that itself make Amazon more money through advertising (perhaps of its own products). So the discount or rebate is a share of the value or ‘pie’ created from this type of activity. It would ‘split the pie’ as they say in negotiations. Hence, pi/2. It was not mathematically cute but economically cute. La di da.
Verbability
I was involved in a short but interesting discussion today about whether the word ‘blog’ was a good word blog related activities. I argued that its chief virtue was that it could easily by made into verbs and adverbs such as blogging, blogged and blogable.
This lead to another thought: was ‘Google’ so successful in becoming known because it had the same verbability [yes, I know verb doesn’t really have verbability]? That is, ‘Google’ is not only a noun (for the search engine) but a verb both present (googling), past (googled) and future tense (to google). Notice that this is a feature that Look Smart, Microsoft Search, Yahoo and Britannica do not have. I have never known anyone to yahoo themselves!
In economics, one reason Freakonomics has taken off is that it is now an adjective. Amongst my colleagues we talk often of ‘freakonomicsy’ ideas to describe ideas that Steve Levitt might pursue.
As a final example, consider Tivo. That product is both a noun (for the machine) and a verb (for what the machine does or has done). That is, it is common to have ‘tivoed’ a program.
The message here is that when choosing a name consider verbability. Of course, with Nintendo’s new ‘Wii’ console, say whatever you want about that name, it may just have what it takes (depending upon what you are doing of course).
Good popcorn and low ticket prices?
A few weekends ago, while I was writing an exam for my students, I got to thinking about popcorn and movies. Part of this thinking was inspired by this piece by Edward Jay Epstein that the entire movie theatre business was driven by popcorn and soft drink sales. That is, theatres competed not to be able to make money from movie tickets but from other sales. This appeared to make some sense given the high margins on those products and their persistence in the face of competition. [Something that was the subject of one of my earliest posts on this blog].
The theory goes like this. Consumers don’t think about buying popcorn or not until they are at the movie theatre. That means two immediate things: (i) movie ticket prices will be all they look at when deciding where to go and (ii) that they can be subject to monopoly pricing for popcorn when they finally get there. But it also means that movie ticket prices will be discounted somewhat because the theatres expect to earn some money from other stuff.
But then, this has another implication. Movie theatres will earn much more from add-on sales (like popcorn, etc.) if they are much more tempting when people get to the theatre. So the theatres that provide great food options will earn more money from that and will have a bigger incentive to get people through the door. In competition with other theatres that means that their ticket price will be slightly lower. But do we see this? Do we see movie theatre with the lowest ticket prices having the best confectionary options? My causal observation suggests that this isn’t happening. But if that is the case, how can Epstein be right in saying add-on sales drive the movie theatre business?
Core Economics 
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