The Jasmine Revolution that has affected many of the Arab countries showed how big a role the Internet in general and social networks in particular can play in promoting political freedom. Social networks promoted the free flow of information and also helped people organize spontaneous demonstrations against oppressive regimes.
Yet, on second thought, it is not entirely clear that the Internet automatically guarantees free speech. The fact that user-generated content is recorded on Internet servers makes it easier for authorities to track contributors and punish them if the promoted information and ideas are not supporting the regime. The Chinese government, for example, has just introduced regulation that requires people to setup their accounts on microblogging sites and social networks with their true identities. Foreign sites (e.g. Twitter) are banned and local sites (SinaWeibo, Tencent Weibo, Renren, etc.) are constrained by such regulation. Enforcing the law is not a trivial task (the trade of bogus IDs is very liquid) but still the recorded information makes it easier for authorities to track down individuals who disseminate undesirable information.
But the government can be more subtle in the control of information by actually influencing it. In a recent Economist article ("The power of microblogs", March 17, 2012, p.55) it is reported that "... [Chinese] government agencies, party organs and individual officials have set up more than 50,000 weibo accounts" to influence the public debate about current issues and controversies that are massively affected by the rumors circulating on the Internet. This environment is particularly interesting and it is not clear who - the uncoordinated individual citizens or their coordinated government counterparts - are at a disadvantage in building consensus from the noisy cacophony humming on the Web. Maybe, with a sophisticated government the Internet is a more dangerous threat for freedom than traditional media....
Tuesday, 27 March 2012
Saturday, 24 March 2012
Credit Rating Agencies
Last week has been rich in news about Credit Rating Agencies (CRAs). Both the Financial Times (March 23, 2012) and The Economist (March 17, 2012) had articles on CRAs commenting on how the industry is being reshaped after the scandals triggered by the global credit and fiscal crises. I have followed this industry for over a decade now but I keep being surprised how little progress has been achieved in fixing it.
The Financial Times reports Europe's efforts to regulate the big three CRAs (Standard & Poor's, Moody's and Fitch). European governments are angry because CRAs have downgraded their debt. It doesn't really help the regulatory effort, of course, that its leader is Michel Barnier, a french carrier politician who knows little about economics and probably even less about information markets. His idea of regulation is to put a straight jacket on CRAs, e.g. by making them liable for their decisions or forcing issuers to rotate CRAs. Obviously, simply introducing more competition (e.g. reducing the barriers to entry) would be far more effective in making the industry more careful with the ratings, without mentioning the cost effectiveness of implementing such 'deregulation'.
The Economist reports on the evolution of CRAs in India. It praises the local industry wondering what might explain its success given that local CRAs use the exact same model observed in the US, i.e. exhibiting massive conflict of interest, which, of course, has been in big part responsible for the global financial crisis. One argument advanced is that in India, agencies have been better regulated by the local financial supervisor (SEBI) and India'd central bank. Of course, we all trust Indian government agencies in doing a good job at overseeing and regulating the economy. Is this a joke - really?
The other argument raised is that the CRAs in India have done a better job at diversifying their businesses. I am not sure I understood this argument. Essentially, incompetence and conflict of interest are going to be spread to other sectors of the economy and we should cheer about this? The article mentions one agency moving into hospital ratings, for example...
When evaluating threats to the industry, The Economist mentions that new entrants might represent a danger. Presumably, these would provide soft ratings to gain market share. Of course, we don't expect that conflict of interest will lead to biased ratings from the incumbents who are comfortable in controlling the market (?). Again, I am lost in the reasoning.... Reading between the lines, the picture gets even grimmer. India has 6 licensed agencies with three large 'local' agencies (CRISIL, CARE and ICRA) leading the pack. Reading on, we discover that CRISIL, the largest (worth $1.3 billion) is 52% owned by Standard & Poor's. In turn, Moody's owns 29% of ICRA. Given the uncertainty surrounding India's economic institutions and the devastating climate of corruption the apparent health of the local CRA oligopoly is rather depressing.
The Financial Times reports Europe's efforts to regulate the big three CRAs (Standard & Poor's, Moody's and Fitch). European governments are angry because CRAs have downgraded their debt. It doesn't really help the regulatory effort, of course, that its leader is Michel Barnier, a french carrier politician who knows little about economics and probably even less about information markets. His idea of regulation is to put a straight jacket on CRAs, e.g. by making them liable for their decisions or forcing issuers to rotate CRAs. Obviously, simply introducing more competition (e.g. reducing the barriers to entry) would be far more effective in making the industry more careful with the ratings, without mentioning the cost effectiveness of implementing such 'deregulation'.
The Economist reports on the evolution of CRAs in India. It praises the local industry wondering what might explain its success given that local CRAs use the exact same model observed in the US, i.e. exhibiting massive conflict of interest, which, of course, has been in big part responsible for the global financial crisis. One argument advanced is that in India, agencies have been better regulated by the local financial supervisor (SEBI) and India'd central bank. Of course, we all trust Indian government agencies in doing a good job at overseeing and regulating the economy. Is this a joke - really?
The other argument raised is that the CRAs in India have done a better job at diversifying their businesses. I am not sure I understood this argument. Essentially, incompetence and conflict of interest are going to be spread to other sectors of the economy and we should cheer about this? The article mentions one agency moving into hospital ratings, for example...
When evaluating threats to the industry, The Economist mentions that new entrants might represent a danger. Presumably, these would provide soft ratings to gain market share. Of course, we don't expect that conflict of interest will lead to biased ratings from the incumbents who are comfortable in controlling the market (?). Again, I am lost in the reasoning.... Reading between the lines, the picture gets even grimmer. India has 6 licensed agencies with three large 'local' agencies (CRISIL, CARE and ICRA) leading the pack. Reading on, we discover that CRISIL, the largest (worth $1.3 billion) is 52% owned by Standard & Poor's. In turn, Moody's owns 29% of ICRA. Given the uncertainty surrounding India's economic institutions and the devastating climate of corruption the apparent health of the local CRA oligopoly is rather depressing.
Wednesday, 29 February 2012
The currency of social media is INFLUENCE
Here is a great summary of the kind of practical research we have done in the domain of social network analysis or 'social network marketing.
It is by Zsolt Katona from Berkeley's Haas School of Business,
Friday, 24 February 2012
Are Telecom service providers social networks?
My recent interaction with Telecom service providers has been frustrating - to say the least. Telecoms face the very typical situation of declining industry life cycle. Their revenue model is "fee for service" and the service is becoming a commodity. They are under intense pressure to become more efficient in their traditional business, which makes it hard for them to concentrate on revolutionary change in their business models. In essence they spend all their energy on process innovation instead of business model innovation.
There are a few guidelines on what one should do in this situation. First, build a new team responsible for exploring revolutionary new ideas and isolate them from the existing business. This is what IBM did when they needed to respond to the PC revolution: they have built a small team (I think located in Texas) whose job was to invent a modular design for a PC. Second, identify booming new industries where your core competences matter. To stay with IBM, this is what they did when they decided to experiment and finally move into management consulting. Third, once a new direction is identified, mark the transition with a strong move (create a new company/subsidiary, acquire a new brand, launch a new product line etc.). Essentially, commit strongly to the new strategy.
Where should Telecoms search for a new business model? The answer is clear: media. New media is the booming industry within the tech sector where Telecoms definitely have great core competences and assets. New media is all about consumer networks, where success depends on identifying and exploiting consumer influence. While nobody has really found the magic formula yet, there is intense experimentation (see previous entry on the value of Facebook). Telecoms own and manage large networks of customers in which influence can be estimated and acted upon. Location-based social networking is booming and has incredible potential for advertising. The explosion of smart-phones allows for high quality interactions. All the conditions are in place for a revolution in advertising or more generally in 'network marketing'. Who is better placed to profit from this than Telecoms? They have access to millions of customers, know their demographics and payment history. Most importantly, Telecoms see consumers' communication patterns and their physical locations. Essentially, Telecoms are running large social networks, but instead of treating them as social media, they treat them as a fee for service business. For how long is this sustainable?
There are a few guidelines on what one should do in this situation. First, build a new team responsible for exploring revolutionary new ideas and isolate them from the existing business. This is what IBM did when they needed to respond to the PC revolution: they have built a small team (I think located in Texas) whose job was to invent a modular design for a PC. Second, identify booming new industries where your core competences matter. To stay with IBM, this is what they did when they decided to experiment and finally move into management consulting. Third, once a new direction is identified, mark the transition with a strong move (create a new company/subsidiary, acquire a new brand, launch a new product line etc.). Essentially, commit strongly to the new strategy.
Where should Telecoms search for a new business model? The answer is clear: media. New media is the booming industry within the tech sector where Telecoms definitely have great core competences and assets. New media is all about consumer networks, where success depends on identifying and exploiting consumer influence. While nobody has really found the magic formula yet, there is intense experimentation (see previous entry on the value of Facebook). Telecoms own and manage large networks of customers in which influence can be estimated and acted upon. Location-based social networking is booming and has incredible potential for advertising. The explosion of smart-phones allows for high quality interactions. All the conditions are in place for a revolution in advertising or more generally in 'network marketing'. Who is better placed to profit from this than Telecoms? They have access to millions of customers, know their demographics and payment history. Most importantly, Telecoms see consumers' communication patterns and their physical locations. Essentially, Telecoms are running large social networks, but instead of treating them as social media, they treat them as a fee for service business. For how long is this sustainable?
Tuesday, 14 February 2012
Facebook's value again
My colleague, Hernan Bruno did a great job (see http://blog.insead.edu/2012/02/what-does-a-100bn-valuation-for-facebook-mean/) estimating Facebook's value from data broadly available on the company as well as sensible assumptions about growth, retention, discount rates and other relevant parameters. The calculation is simple and considers wide and reasonable intervals. The conclusion of Hernan's blog is, to say the least, depressing. His estimates are far from the broadly mentioned $75-100 billion dollars, somewhere below $50 billion.
So where are the other $50 billion? I think they are in the yet undiscovered media technology that social networking reserves to us. The pattern is not new and over 100 years of (modern) media history has taught us that it takes decades before a new medium finds its killer application that allows a media format to extract value from the market. If you are skeptical, then check the early ads on radio in the 1920s or TV ads at the end of 1940s. They are a far cry from today's snappy ads. It took a long time for broadcast media to understand which advertising format would work for which category. With social networks we face the same situation: we all feel that there is huge potential in connecting a billion consumers and allowing them to share literally everything in their lives. The $50 billion question is: how can this social graph be turned useful for third parties who want to sell products to this population.
So where are the other $50 billion? I think they are in the yet undiscovered media technology that social networking reserves to us. The pattern is not new and over 100 years of (modern) media history has taught us that it takes decades before a new medium finds its killer application that allows a media format to extract value from the market. If you are skeptical, then check the early ads on radio in the 1920s or TV ads at the end of 1940s. They are a far cry from today's snappy ads. It took a long time for broadcast media to understand which advertising format would work for which category. With social networks we face the same situation: we all feel that there is huge potential in connecting a billion consumers and allowing them to share literally everything in their lives. The $50 billion question is: how can this social graph be turned useful for third parties who want to sell products to this population.
Friday, 10 February 2012
Media bias
Tuesday, 7 February 2012
Facebook on The Economist's frontpage
It is quite remarquable to see Facebook on the front page of The Economist. As usual there is some good data presented on Facebook's crazy growth over the last 5 years. The simple explanation provided for this success is 'network effects', which are well-known for creating market dominance by only one leading firm (the so-called 'winner-take-all' outcome). We have seen this before with Microsoft dominating the OS market or Intel winning on the market of microprocessors.
But as usual, the world is more complex. Facebook was a late-comer to social networks with powerful incumbents already dominant in many national markets. In some of these (e.g. Russia or Vietnam - see map in the article) other social networks still dominate. Moreover, it is also not clear that Facebook's social networking formula was better from the start. MySpace continued to grow fast well after Facebook's appearance and other social networks (e.g. Cyworld in Korea) dominated for a really long time in certain markets. Moreover, in the last few years hundreds of new social networks opened not least Google+ from a firm who has already been beaten by Facebook (while Orkut dominated in Brazil and India for a long time, Facebook recently overtook it in both countries). Moreover, what matters in social media is local network effects as opposed to global network effects: "I don't care about the number of people on Facebook, I just want to interact with my friends." For most people within a national culture there is no need to interact with the world.
Yet, it seems that network effects are global after all. Part of the story is that social media became platforms for much more than just checking in with friends. People use it to upload (store) their photos and videos, they use it to play casual games (e.g. the famous Farmville) and many other things. In fact, since Facebook opened the platform to third party developers, the attractiveness of Facebook also comes from the broad set of applications available (the same way apps help the iPhone). In fact, an interesting observation in The Economist article is that revenues other than advertising have grown much faster in the last year. Most of these revenues come from third party developers who need to share their revenues with Facebook (30% or so). This definitely changes the game to a traditional network industry. It also means however, that Google+ has a chance if it manages to leverage Google's other rich platforms that hundreds of millions use today. Interesting times ahead!
But as usual, the world is more complex. Facebook was a late-comer to social networks with powerful incumbents already dominant in many national markets. In some of these (e.g. Russia or Vietnam - see map in the article) other social networks still dominate. Moreover, it is also not clear that Facebook's social networking formula was better from the start. MySpace continued to grow fast well after Facebook's appearance and other social networks (e.g. Cyworld in Korea) dominated for a really long time in certain markets. Moreover, in the last few years hundreds of new social networks opened not least Google+ from a firm who has already been beaten by Facebook (while Orkut dominated in Brazil and India for a long time, Facebook recently overtook it in both countries). Moreover, what matters in social media is local network effects as opposed to global network effects: "I don't care about the number of people on Facebook, I just want to interact with my friends." For most people within a national culture there is no need to interact with the world.
Yet, it seems that network effects are global after all. Part of the story is that social media became platforms for much more than just checking in with friends. People use it to upload (store) their photos and videos, they use it to play casual games (e.g. the famous Farmville) and many other things. In fact, since Facebook opened the platform to third party developers, the attractiveness of Facebook also comes from the broad set of applications available (the same way apps help the iPhone). In fact, an interesting observation in The Economist article is that revenues other than advertising have grown much faster in the last year. Most of these revenues come from third party developers who need to share their revenues with Facebook (30% or so). This definitely changes the game to a traditional network industry. It also means however, that Google+ has a chance if it manages to leverage Google's other rich platforms that hundreds of millions use today. Interesting times ahead!
Subscribe to:
Posts (Atom)