Several months ago I wrote about a public forum we organized on the future of book publishing. Our panelists included Piers Pickard (Editorial Director at Lonely Planet), Graeme Connelly (CEO of Melbourne University Bookstore), Nathan Hollier (Manager at Monash University Press), Max Barry (independent author) and Emmett Stinson (Melbourne University lecturer in publishing and communications). Since then, dramatic changes have occurred. Lonely Planet has reorganised while moving aggressively into apps and digital publishing. Amazon has entered the publishing business, bypassing traditional publishers. Books have gotten shorter with efforts like Amazon’s Kindle Singles and TEDBooks being particularly interesting. Closer to home, Melbourne University Bookstore will be privatised soon. So, I decided to spend some time during the weekend editing the video from our public discussion. The podcast is now online. Please follow the link and watch it if you are interested in book publishing.
Author: kwanghui
http://kwanghui.com
Not all dropouts are created equal
There is a growing concern about the value of university education. The main complaint is that it is becoming too expensive. However, Michael Ellsberg goes as far as to suggest we invest not in university education but in “the kids who are dropping out of college to start new businesses”.
There are many facets to this debate, but I just want to point out one thing: not all dropouts are created equal. The current people who succeed after dropping out are a highly self-selected bunch. They are people who would probably have done extremely well regardless of whether they had dropped out or not. In other words, they dropped out despite a high expected rate of success, which means their expected returns from dropping out were high.
As you increase the number of people who drop out, you are drawing upon a different pool of people, with different abilities and propensities to take on risk. The dropout rate is around 16% in the UK and and 17% in Australia. For the sake of argument, imagine that we increase the dropout rate to 50% next year and ask those dropouts to start up companies. Do you really think this will greatly increase the number of successful entrepreneurs who end up like Michael Dell, Mark Zuckerberg or Steve Jobs? Having read several biographies of such individuals, my understanding is that success in each case was due to strong personalities, a willingness to take on risks, childhood experiences (or lack thereof), self-motivation, and a variety of other factors. Being a dropout was part of that journey, but wasn’t the underlying reason for success.
The present system is broken; tuition is too high and the quality of education at many universities leaves room for improvement. As someone who studies innovation I believe we should encourage entrepreneurs. But I don’t think the solution is to have more students drop out. What I predict will happen is a change in the price of educational degrees (as suggested by Mike Ryall), but more importantly that educational approaches and instructional styles will change. Whether that change will emerge from existing institutions or from entirely new organizations remains to be seen. Where there is a pressing problem, there arises the opportunity to serve a market need.
Podcasts on innovation by Tucci, Cassiman & O’Sullivan, Lim
I recently uploaded video podcasts for a couple of events organized by Melbourne Business School and IPRIA:
- Chris Tucci presented last week on “Creative Destruction and Intellectual Property: What’s an Incumbent to Do?” Part 1 covers the key concepts and Part 2 presents examples from his research.
- Bruno Cassiman and Don O’Sullivan presented several months back on R&D strategy and executive compensation, respectively. Bruno’s talk was on how collaboration on research and development (through open innovation and science linkages) can dramatically affect R&D outcomes. Don spoke on how the structure of executive compensation relates to the valuation of intangible assets.
Thanks to each speaker for allowing us to share their presentations online.
In addition I was recently featured in an interview on the University of Melbourne Up Close podcast. It is on the effect of acquisitions on inventor productivity and based on my research with Rahul Kapoor.
Impressions of the Occupy Melbourne protest
Today I happened to walk by the Occupy Melbourne protest and took some photos. They have set up a tent city next to Melbourne Town Hall. It was refreshing to see people with so much enthusiasm. The protestors seem peaceful and reasonably organized. Just as with Occupy Wall Street, several committees have been formed for dealing with various issues (media, parenting, food, legal, etc.). For example they have a communal kitchen which seems well run. We visited the main tent and it was interesting to watch a meeting in progress.
To me, the Occupy Melbourne group seems less `emergent’ than what the Wall Street group has been described as. Occupy Melbourne seems primarily to be an alliance of existing organizations, each with its own agenda that is already formed. These are broad in scope and they go well beyond the financial crisis to also include groups supporting indigenous rights, the Palestinian cause, the Falungong, renewable energy, and several other causes.
The result of this is that while chatting with people from several groups, it seemed they were quite keen to recruit me (and my donations) for their specific cause, rather than being truly in support of an overarching one. It felt a bit like being at a country fair with several different stalls to shop at, rather than a unified political rally. Perhaps this is also the case at the other “Occupy” events? I wonder if these coalitions can really get together because they cover such a broad range of things, some of which are inherently quite distinct. And with so many existing groups, I wonder if new individual voices will actually be heard. Lets watch and see how things develop.
Spend on windshield insurance instead of a better car alarm system
Recently our car was broken into, despite being parked in what I thought was a relatively safe place. While getting the broken window replaced, I learned that a key consideration when designing car windows is that they shatter safely, so as not to injure passengers. Car windows are not primarily designed to keep the crooks out; in fact the police officer who inspected our car was surprised that the burglars apparently needed to hit our window more than once in order to break it.
A corollary is that car windows are easy to replace. If you design something to break, you might as well make it easy to swap. Many car windows are apparently held in place by just two little hinges (as is ours) and the entire replacement process takes 15 minutes.
What this means is that you are probably better off paying for optional “glass insurance” than you are for a better car alarm system. If someone wants to break into your car, the alarm is not going to stop them. It might even lead them to damage the door or other parts of the car that are more expensive to repair than the window ?
In Australia, even “comprehensive” insurance packages do not usually cover damage to windows or windshields. In our case this is an optional extra that costs around $60/year. It turns out that each window costs around $200 to replace (the deductible is typically around $500). So at least to me, this seems a worthwhile extra to pay for.
Australian retailers need to buck up!
Mainstream Australian retailers need to improve: their online stores lag behind those overseas as well as those of Australia-based eBay traders.
A couple of weeks ago, I ordered two similar items online, one from a company in Sydney and another from Philadelphia. To avoid any trouble at home, let me be vague and just say that both of these items can probably be found on the same shelf in a physical camera store. The item from Philly arrived at my desk in just under a week. Furthermore, I received timely updates about my order, an email from the supplier when the package was shipped and a follow-up message after it arrived. Meanwhile, the order status from the Sydney store went through several stages and got stuck at “ready soon”. When when I finally telephoned them, a customer service officer mumbled an excuse and said it would be shipped soon. The item finally arrived today, a total of 15 days from start to finish.
I have had similarly poor experiences ordering a variety of products online from mainstream Australian retailers. Their online presence is often just an afterthought, with high prices, weak product variety, clunky websites and unhelpful customer service. As a result of the strong Aussie dollar, shoppers are increasingly buying online and from overseas. Rather than complain about poor business conditions, Australian retailers need to buck up. I don’t believe it can’t be done because there is a category of Australian retailers that is already as efficient as those overseas: eBay-based Australian stores. These are small and medium sized entities that use eBay as a storefront. One reason they are responsive is that when searching eBay, overseas competitors’ offerings appear on the same page as theirs, so rivals are not even a mouse click away. A second reason is user feedback. Each time a transaction clears, buyers and sellers can leave feedback about each another and eBay reports a breakdown of ratings over time (see sample image below). This generates an incentive to continually maintain good customer service so as to avoid a fall in reputation. It generally seems to work pretty well. I would go further and argue that we should expect even better service from big-name Australian retailers than from these eBay based stores, but we aren’t receiving anything close to it right now.
Congrats Andreas and Kyoung-hee
This past weekend was a very busy one for our fellow blogger Andreas Ortmann. He embarked upon a new research program, his most ambitious ever. It is completely ‘blue sky’ exploratory work and is going to cost so much that the Australian Research Council will not fund the project. The review panel also noted that it lacks a control sample, that it did not include planned repetition, and that the use of models was apparently not entertained. So yes, Andreas has just tied the knot with my ex-schoolmate from MIT, Kyoung-hee Yu. In a room filled with economist and management scholars who managed to get along without incident (probably because of the lawyers and an anthropologist who kept the truce), Andreas and Kyoung-hee began their journey together with lots of wine, a delicious cake, and lots of rejoicing. Congratulations Andreas and Kyoung-hee. May your journey together be filled with happiness.
Online distribution hits magazine prices
Electronic distribution is impacting magazine prices. Below is a table of prices for a sample of popular magazines. Data were obtained for printed magazines delivered to your doorstep from magshop.com.au and compared to prices from Zinio, which sells electronic magazines viewable on your computer, ipad or other device. Annual subscription prices were normalized by dividing by the number of issues per year included in the subscription.
You can download the spreadsheet here.
The Dead Tree Premium
It generally costs much more per issue to subscribe to printed magazines than to the electronic version of the same magazine. For example, a printed issue of Macworld Australia costs AUD7.33, which is 1.6 times more expensive than the electronic version costing AUD4.47. This “dead tree” premium ranges from a low of 1.3 for National Geographic to an astronomical 44.8 for Elle. A single printed issue of Elle costs the same as 3.7 years worth of electronic issues! Moreover the electronic subscription arrives immediately while the printed version may take days or weeks to be delivered, especially for overseas magazines.
Printed magazines may continue to sell as an “impulse purchase” at supermarket checkouts and news stands, or to collectors. However, I cannot imagine that the annual subscription model is sustainable at such high premiums for the general public.
US versus Australian Electronic Pricing
An interesting pattern arises when comparing the prices of electronic magazines in the Australian Zinio store with that of the same company’s US store. Some online retailers have been known to discriminate on pricing for their Australian stores. However, for the most part magazine prices are the same whether you buy them from the US or Australian Zinio store. For those of us Down Under, there has never been a better time to consume such media.
Notable exceptions are New Scientist, The Economist and National Geographic, which cost 1.85 times, 2.23 times and 2.36 times more in the Australian online store than in the US store, respectively.
National Geographic and The Economist
National Geographic and The Economist are both attempting to price discriminate. They are asking the highest amount for an Australian electronic subscription relative to the US one (AUD44.25 versus USD19.99 per year for National Geographic, and AUD266 versus USD126.99 per year for The Economist). Both are still cheaper than the printed versions, but not by very much (AUD 59 for the Geographic and USD365 for The Economist).
I wonder if they will continue to be able to extract additional surplus from Australian consumers. In both cases, the magazines are relatively unique, so perhaps there subscribers are less likely to switch to something else. Or perhaps their high pricing is temporary… there are lots of inexpensive magazines to read and a ton of websites and blogs to visit that offer interesting free content. One difficulty both firms will face is that their audience is relatively sophisticated and will become increasingly annoyed when they click the “renew” button to find that their subscription does not qualify for the much cheaper US price (sample screenshot). It was easier to justify higher Australian prices for printed magazines as being due to transportation and distribution costs. But in this case, they are distributing exactly the same electronic file, and via the same distributor. Too much of a gap between the US and Australian prices will lead to a temptation to find workarounds, as has been the case with other online retailers.
Apple’s Final Cut Pro is part of a broader strategic change
Apple’s new final cut pro is causing unhappiness. But it is only part of two broader changes: a shift in Apple’s strategy towards consumers and a broader change in the demand for videos.
Last week Apple launched the new version of their movie-editing software, Final Cut Pro X (FCPX). This led to a firestorm of criticism by professional video editors (see here, here, and here). Even Conan O’Brien decided decided to chip in :-). The main complain is that it lacks sophisticated features used by broadcasters and video professionals and that are available in earlier versions of the software. FCPX doesn’t even open projects built using earlier versions! On the positive side it is slick and easy to use.
Apple is consolidating its strategy
I suspect that two things are happening. The first is that Apple is consolidating their strategy around mobile computing, the iCloud and end-customers. The price tag for the new FCPX is an indication (US$299.99 versus around $1000 for the earlier version). The move by Apple away from “professional” markets has been happening for some time now and across multiple products. It happened with Aperture, which is now basically an upgrade for those using iPhoto, and a nice one at that, but distinct from Lightroom+Photoshop. Earlier this year Apple decided to discontinue its professional xserve rack mounted server. This year’s Macbook Pro notebook was the first to receive several new high-end features (Thunderbolt and 6Gb/s SATA) that have yet to appear in Apple’s high-end Mac Pro desktop aimed at professionals. This is not a surprise as Apple is now selling 2.4 times more notebooks than desktops.
Focusing on the consumer market makes good business sense for Apple because (a) it fits with their capabilities, which are about making complicated things simple to use, whereas a lot of professional software is by nature complicated and intricate, (b) they can cross-sell many more copies of the software to people upgrading from iMovie or iPhoto than they can to a niche audience of professionals, and (c) it fits well with their major strategic thrust on the iphone/ipad/icloud platform, which is consumer focused rather than enterprise focused.
Video consumption is changing
While video professionals are blaming Apple for not listening to their needs, there is a bigger trend that is happening here. Apple is responding to anticipated changes in the marketplace. Just as with the newspaper and book publishing industries, there are big changes happening with video production and broadcasting. An increasing number of videos are being made by “advanced amateurs”. This is driven by the proliferation of inexpensive video cameras, as well as new platforms for online video distribution. When I think about my own personal consumption of video, I am amazed how little television I watch anymore. I do watch the occasional movie, but an increasing amount of my video consumption is on Youtube, Vimeo and other sites sent to me via Facebook, twitter and email. Are these videos as well-made as those by professional broadcasters? No. But are they good enough for the general public? Often, yes. For these people, the new Final Cut Pro X is a terrific tool for the most part.
Beyond traditional video, there are other interesting developments, such as animoto that takes the pain out of making simple music videos. There is software like Toontastic that lets you make animated skits and apparently even the Gans family is now into it. Each minute of our free time we spend watching these things is probably a minute less spent watching professionally-produced video content.
I’m not saying this to defend Apple. As David Pogue pointed out, in the case of FCPX, Apple Blew It. Some of my friends are in this business and I can’t help feeling concerned for them. As one of them wrote to me, “the industry has gone nuts over this ‘upgrade’. it’s really bad and sad”. I think Apple should have launched FCPX as a different product, instead of discontinuing Final Cut Pro. But the knee-jerk reaction among video professionals right now is leading them to be angry about some some video editing tool. Fair enough. But they need to assess the bigger question: where will their industry be in 5 years, and where do they want to be in their careers?
Cloud based Econometrics and Statistics Software
While the rest of the world was busy with Apple’s iCloud, I spent the past few weeks working on a large-scale empirical project.
In the process I learnt a few things about cloud-based options for statistics and econometrics. The situation has developed quite a bit since Robert Grossman’s earlier post on using Amazon’s cloud for this purpose. Amazon now has a browser-based graphical dashboard to easily manage your cloud-based machines, instead of relying upon command line tools.
In my view, there are three relevant areas that are at different stages of cloud-readiness for empirical economists and statisticians:
1. Databases and datasets
Cloud based solutions are great especially for large datasets that require scaleability. They are also good for research projects that require multiple people to access them (e.g., if your project involves multiple coauthors or research assistants).
For simple projects with small datasets, a shared spreadsheet on Google Docs should suffice. For larger datasets, one good option is Amazon RDS, which is price-competitive and offers both SQL and Oracle databases; it is easy to maintain and backup. Another option is Microsoft Azure. We use Postgresql and Ubuntu on EC2 for analysing patent data.
One advantage of cloud based databases is that the technology is now mature. Demand is driven by many other business and scientific applications. We therefore benefit from positive knowledge spillovers. It is relatively easy and inexpensive to hire an RA with a computer science background to build an SQL-based dataset. A second advantage is that a number of other research databases are now starting to appear in the cloud making them easy to interface with cloud-based programming. This includes data on patents, genes, the US Federal Reserve and Census data. The number of research databases in economics and the social sciences is still small, but growing.
2. Regression and statistical software
This is where it is disappointing. Most of the popular software packages are not widely affordable for cloud use, including Stata and SPSS. You hit licensing snags. A small number of private service providers bridge this gap by offering High Performance Computing (HPC solutions), e.g., for Mathematica, but they are pretty expensive (at least to an academic researcher). Matlab will work but requires a ‘distributed server’ license that will cost a fortune. In general, these software companies want to sell you a 2-core or 4-core license that will run year-long on that computer on your desktop. What some of us need instead is a license that will run on 64 cores across 16 machines for just one month during which we are doing intensive number-crunching. More importantly, we want that license to be easy to transact, not to go through a complicated application and registration process. You might think this sort of licensing doesn’t exist, but I would argue that it is already happening, including with software such as Microsoft Windows Server and Oracle, which you can now rent on Amazon’s AWS cloud for whatever length of time you want, and with no transaction costs.
As a result of these issues, if you are on a budget your best bet is the open source “R Project” which is a statistical and econometrics toolkit that is growing by leaps and bounds in its popularity. It runs in the Amazon cloud on both Linux and Windows. By combining R with a software technique known as MapReduce, you can easily split your program into portions that are run on multiple computers and have the results aggregated back elegantly. Here is a good example of using R with MapReduce by Stephen Barr, and another by Jeffrey Breen. I will be looking more into using more of this in my projects.
3. Cloud-based programming
Instead of running mathematical or analytical programs on your desktop, you can run it in the cloud. This works best if you can partition the problem into little chunks that can be worked upon independently. For example we use Perl for text processing of patent data. I know of people who code in Fortran/IMSL or C and generate binaries for optimization and numerical simulations. It is nice to be able to activate a dozen machines to process the data quickly instead of waiting a week for the results.
Other considerations
A side benefit of this approach is a quiet office. Some years back, I had a powerful workstation in my office with an 8-disk RAID array, multiple CPUs and dual power supply units. It was really noisy! Also, the cleaner had a habit of switching it off, ruining my calculations. Migrating my data analysis into the cloud allows me to now have a quiet and peaceful office, where I can think and write.
If you have any thoughts/comments about cloud based solutions, or know of other useful resources or tips, please share them in the comments below. Thanks.
Core Economics 
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