Joel E Lewis

Incentives Are Overdone

2013-01-08T01:10:29Z

We read a lot about situations where incentives lead to “bad” or less than ideal behavior (my current favorite example is every morning on my way to work, the exit to the subway is only two people wide – there is a huge line at the bottom as one or two people ignore the “NO ENTRY” sign and trickle in anyway). But I think we overemphasize the importance of incentives – paying people only gets you so much

I see this a lot at work. We design compensation plans for call center associates, and after you add 5-7 elements, any additional elements are too small a piece of the pie to matter that much. Good incentives are notoriously hard to design. That said, at some point, you need to depend on something other than compensation to get people to behave the way you want to. That’s where culture and environment come in. If you want people to do more than the bare minimum at their job, you need to give them a reason to do it. An environment where they have to try hard not to do it is one way, a strong culture that puts emphasis on a behavior regardless of the actual benefits (think of Yelp, Amazon, and Wikipedia users, all of which create content like reviews for free, while allowing the companies to profit off them) is another.

Don’t get me wrong, getting pay for performance right is important – but it’s not the end all be all we often make it out to be.

Groupon’s Worst Nightmare

2011-04-13T21:52:18Z

Groupon is wildly successful, a market leader, generating incredible growth, revenue, attention, and market valuations. However, Groupon’s founders and executives shouldn’t be sleeping well at night. Look no further than the Flip: in two years, they became massively succesful and dominated their category. Two years later, flip was scrapped because the whole category was dead.

Groupon went live in 2009, and in about a year, created and dominated the daily deal market, garnering all the attention afforded a beauty pageant winner and sky high valuations. But with success, comes copycats, and while imitation is flaterring, its not profitable. Success in the category will depend on giving the best deal to companies. That means balancing what you charge (your cut of the deal, or 50% of the sale price at Groupon) with how many people you can get to buy.

Groupon has three big assets: it’s email list (~roughly 60 million subscribers), it’s sales force recruiting businesses (unknown, but likely far and away the largest in the space), and it’s brand (“groupon” is to daily deals what “google” is to search). But the storm cloud is on the horizon. Sites like livingsocial, facebook, google, are players on the national level, and a bevy of competitors are entering the market with a niche focus or with a mobile/location based twist. That doesn’t even include sites like yipit, which aggregates all of those other sites into one place to simplify your search or simply send you less emails.

All that competition means that daily deals are being commoditized – as a business owner, if I can go to a competitor who will give me a larger cut, or an audience more likely to buy, or both, I will. As a consumer, it’s worth checking the other sites (or an aggregator) to see what other deals might be out there. Because of commoditization, it’s likely that Groupon’s revenue growth potential is maxed out or peaking.

Bottom line

Daily deals are probably here to stay, and groupon is too, but it’s value is probably peaking right now. It will always be a big brand in the space, but as that space gets more and more competitive, margins will shrink and good deals will be listed by competitors. Also, as businesses use daily deals more and more, they will probably use them in more targeted, focused, and less costly (aka less profitable for groupon) ways: offering deals on tacos the day before the meat goes bad, tax prep in January and February before the season hits up, lunch deals before 11:30 and after 1, discounts for people with no tattoos only). If I were them I would sell/IPO now. They can always keep some stock or options to capture the upside, but the downside is so great.

Not Just A Pay Wall

2011-03-25T16:45:44Z

The internet has been abuzz about the NYT’s new pay wall. Basically, after reading 20 articles in a month, you need to pay for a subscription to keep on reading. But there is one big exception: You can read 5 articles a day from Google searches and an unlimited number of articles from social media, blog, and news outlet links. This exception seems like a smart loophole to put in so that good content can be widely read, but it may be the lynchpin of the entire strategy.

Say you write an entertainment blog and post 1 original article every day and 3 interesting links. You get a lot of readers who come to you for your interesting writing style and insightful take on events in entertainment, and because you comb through a lot of different news media to find interesting stories/articles other people wrote for your readers to read.

To find 3 really good articles to share every day, you need to read 15 articles a day (this is probably a low estimate). Some of those articles will help come up with a topic for your original article and educate you enough to write about it, but say you need to find 5 older articles for background material. So you need to read ~600 articles a month total.

Where do you find this content? You probably have a daily list of news sites that you check for the latest stories, and you probably follow a couple of other blogs related to entertainment in case they find something you didn’t see, so that you don’t get left out of industry buzz. After seeing a short press report about Lindsay Lohan’s latest trail appearance, you decide to write about the challenges of growing up in Hollywood.

In checking your usual sites you see that the New York Times just did an excellent profile of Miranda Cosgrove that touches on that issue and will give you a lot of background material to use and react to. You see they have a bunch of archived original reporting on Lindsay for you to quickly check your facts with, and a slideshow of her court outfits for you to grab a picture from. In total you click through 5 articles.

If that was a typical day, you would read ~150 articles a month (about 25% of what you need to read in total in a month to publish good blog content and keep your readers coming back).

Those articles save you a lot of time and help you create a great product. So even though your readers might never be willing to pay the New York Times for content, you are, because it is an essential ingredient in your own content creation process.

But that’s just the beginning. Because the pay wall keeps your readers from seeing more than a fraction of the content you see, you create even more value for your readers in a pay wall world when you select articles to link to. In essence, you are using your subscription to skim and filter the New York Times for articles worth reading (like you always have) AND then giving your readers free access to that good content by linking to it.

Therein lays the potential brilliance. The New York Times created a strategy where the heaviest users, the ones who most need or want news pay for it. For everyone else, you only get little bit of news, unless one of the heavy users points you to an article. As a casual reader, you are even more tied to services like bloggers and aggregators to point you to articles so that not only are you only reading the best articles, but you are reading them for free. As a heavy user, that increased reliance on you means you are even more willing to pay. The pay wall only makes the most diehard customers pay, and gives them even more reason to pay. Smart.

Good Time to Be Great

2011-03-07T18:01:43Z

The interactive chart featured here is making the rounds on the web, because it tells a story about how the rich are getting richer and the poor are getting poorer, or it at least it seems to.

The problem with that interpretation is that it is about income, not wealth. Each year, the people in the top 10% of earners can change. For instance, in the 1970′s Cher was in the top 1% Today, Lady Gaga is instead. So instead of the rich getting richer, we are actually seeing the highest paid each year gettting paid increasingly more than the average.

The right message to take away is that over time, our economy has changed to be more winner take all, which makes sense. In a knowledge economy, the best at something can get rididculous pay and the rest get near average, because the work of the best can easily be reproduced and extended to most everyone, reducing the need for anything but the best and concentrating a large markets worth of payments in fewer hands.

In the 1920′s, bands and entertainers of all kinds still performed throughout the nation, touring around to provide entertainment. Today, we record the best performers and replay them constantly over TV and club sound systems. Think how many comedy acts Seinfeld reruns alone has crushed demand for.

At the height of the financial crisis, I posted about how finance salaries would stay the same, because modern tools allow a small group of people to manage huge amounts of money. It also allows a small group of people to entertain huge amounts of people, give legal advice to huge amounts or people, and write news articles read by huge amounts of people. In other words, because best in class work can reach or impact more people, best in class workers (the top 1%) can earn more. The decline in wages for everyone else is a corresponding symptom of that – we need less bad, average, and good entertainers, journalists, and lawyers when the great ones can do more of the work.

Welcome to the brave new world, where greatness is lavishly rewarded with outsized earnings and everyone else is clustered close around the median. Only a small number of people will be able to earn an outsize salary, and an even smaller number will be able to do it year after year. The flip side of that is you only need to do something great once to have an incredible year and change your life. So think like a reality star and cash in big if and when you can, because the days of making big money over and over again are over.

Battle of the Bulging Middle Class

2010-09-09T17:00:07Z

The mainstream media is starting to spread the narrative about rising income inequality in America:

[In 1915]King was somewhat troubled to find that the richest 1 percent possessed about 15 percent of the nation’s income. (A more authoritative subsequent calculation puts the figure slightly higher, at about 18 percent.) This was the era in which the accumulated wealth of America’s richest families—the Rockefellers, the Vanderbilts, the Carnegies—helped prompt creation of the modern income tax, lest disparities in wealth turn the United States into a European-style aristocracy. The socialist movement was at its historic peak, a wave of anarchist bombings was terrorizing the nation’s industrialists, and President Woodrow Wilson’s attorney general, Alexander Palmer, would soon stage brutal raids on radicals of every stripe. In American history, there has never been a time when class warfare seemed more imminent… Today, the richest 1 percent account for 24 percent of the nation’s income.

Via Introducing the Great Divergence

One thing that amazes me about America is that almost everyone considers themselves middle class. Well at least everyone in the top half of the income distribution. To put some numbers to this discussion, median household income in the US in 2008 was $52,175 and 33% of households made between $35,000 and $74,999. That said, President Obama defines the middle class’s upper bound at $250,000/year (which excludes ~2% of households, which is not near the middle by any definition of middle I’ve ever heard). Obama comes off as reasonable compared to Walter Kiechel III, author of Lords of Strategy:

One can make a decent living as a senior partner at a major consulting firm – these days… upward of $3 million to $4 million a year – but as a few of the breed complain privately, it’s no way to become wealthy. [Emphasis added]

A decent living?! That’s roughly 70 times median income (for a household, let alone an individual earner)!!! As a country, we have lost all sense of proportion about what middle class means. It’s defined by a images from TV sitcoms rather than reality. I understand that people anchor their expectations based on their peer group, but this is ridiculous. The American middle class is ballooning bigger than American middle sections!

As I’ve started to look into business school I’ve also started to do a lot of soul searching about my career goals and lifestyle expectations. I recently decided on a bottom line income I want to be earning by the time I’m 30, which has been extremely helpful in focusing my goals. I think we need to do same sort of thing as a country by deciding on what we consider a “fair” middle class.

Like it or not, government policy is an exercise in social engineering. We decide who gets extra help and who pays for it. When we set our goals about health care, welfare, social security, taxes, and deficit reduction we make tough choices. Can we make good choices with an unreasonable definition of middle class/average? Won’t bloated definitions lead to unrealistic expectations and overly generous, expensive polices? Doesn’t that sound a lot like the situation we are in today?

In the postwar era when the U.S. economy exploded to global dominance unlike anything ever before seen, we could afford to make unreasonable choices and count on growth to fix our mistakes. As we enter an era of slower growth, we need our expectations to come down from the clouds and or decision making to be calculated and error free. The time of tough choices is upon us, what do you think is fair?

A Rising Tide Lifts Earning and Spending

2010-07-07T17:19:36Z

CBO’s bottom line is thus simple: tax revenues will rise faster than the economy even if Congress does nothing new. Indeed, revenues may rise faster than the economy even if Congress enacts substantial tax cuts. Our long-run fiscal dilemma exists because the scheduled growth in future spending is even larger than the scheduled growth in future revenues.

via Why Taxes Are Going Up « Donald Marron [emphasis added].

The problem isn’t raising more or spending less, it’s doing enough of both and living within our means. People says deficits don’t matter, but at some inestimable point, they do. It’s systemically safer to live within our means (bring our deficit spending and debt closer to zero,) than to approach that catastrophic, unknown number somewhere north of where we are now.

Place Your Bets: Lebron is Leaving

2010-06-28T14:15:22Z

The most talked about issue of the year, it’s been dissected more than the captured alien in Independance Day – it’s gotten to the point where you don’t want to hear more about it but can’t stand to not talk about it. I’m by no means a basketball expert, but I think I know enough to place a bet: Sorry Ohio, Lebron is gone.

Lebron might be the best basketball player in the NBA – but he and his team are definitely the best sports PR people in the world. They want to grow his name till its bigger than his game, and they carefully cultivate how he appears in public.

“LeBron is not going on a tour. He never planned to go on a tour and has not been a part of any team’s plans for a recruiting trip.” – Maverick Carter (James’s Friend/Bussiness Partner)

Why not go and get wined and dined? Why play it low key in the press? Let’s imagine how a couple different versions of this play out in the press when it’s all over.

Scenario 1: Lebron Brings Team’s to Ohio, signs with the Cavs.

After closed door meetings at his home with several NBA teams, Lebron James has decided to re-sign with the Cavs and finish the mission at home. Talking head discussion of loyalty follows, gradually replaced by discussion of what the Cavs do now to put a winning team and coach around Lebron that they haven’t already done.

Scenario 2: Lebron Get’s Wined and Dined, signs with another team.

After a whirlwind cross country tour, Lebron James has signed with [enter team name here]. cue photo/video montage of Lerbon with celebrities, mayors, expensive dinners. Talking heads discuss the end of Lerbon as champion of the common people of ohio, savior of their sports hopes, etc. etc.

Scenario 3: Lebron Get’s wined and dined, signs with the Cavs.

After a whirlwind cross country tour, Lebron James has signed with [enter team name here]. cue photo/video montage of Lerbon with celebrities, mayors, expensive dinners. Talking head discussion of loyalty follows – juxtaposed with the video of all that eletist craip, Lerbon is heralded as the first and second coming of basketball Jesus, both saving Ohio from sports mediocrity and sacrificing his sure[r] shot at championships for the sake of his people.

Scenario 4: Lebron Brings teams to Ohio, signs with another team.

After closed door meetings at his home with several NBA teams, Lebron James has decided to sign with [insert team here]. In the absence of celebrity photos and video montage, talking heads discuss how Lebron carefully considered his options, and just had to make the best decision for him and his family.

1 is the most boring. 2 is a great story, but Lebron could become the villain. 3 & 4 make for the most media attention with the most compelling (positive) stories. In 3, he cements himself as Ohio’s first son, by giving them that video montage to rub in everyone else’s faces. In 4, he has not betrayed Ohio, he has not rubbed that same montage in his biggest fans faces. He bows out of the state with grace. He is not going for the whirlwind tour, so I think he’s gone.

Maybe that’s a little too simple, but lets add a little detail on top. The Cavs organization has spent a ton of money, signed everyone Lebron wanted, and they still didn’t make it happen. They currently have no coach, no GM, and an aging roster that couldn’t get it done. His other options have been over discussed, but I think you can narrow it done. The Clippers are the second team in LA and the Nets are the Cavs with an eventual NY address (Jay-z is not a factor – James is reportedly meeting with them first, aka showing respect before he blows them off) – they are both out. The Knicks are the Bulls without the talent already on the team, but they do have NY going for them.

That leaves the Bulls and the Heat. The Bulls have talent and room for two max contracts. They have the shadow of Jordan, but that also means continuing and embellishing that championship legacy and international brand recognition. The Heat have money for Wade and Lebron + 1, or Wade and Lebron + money to go out and get depth. Miami is also much nicer place to be in the Winter than Ohio or Chicago, and has international appeal. The Bulls would have the talent and youth to contend for years, the Heat would probably only have a few years to make it happen. As for odds on a final destination, I say 55% Bulls, 35% Heat, 10% Knicks.

Here’s hoping this all is over with quick.

Redefining Success

2010-06-04T17:42:49Z

From an article about AT&T’s new pricing policy, with a bunch of comments about moving to Verizon for their unlimited data plan:

Verizon, the largest U.S. wireless carrier, declined to comment on whether it will scrap its advertised unlimited plan, which carries extra charges if customers use more than 5 gigabytes of data a month.

via AT&T Sparks User Backlash With End to Unlimited Plans Update1 – Bloomberg.com. [Emphasis added]

Did the definition of unlimited? When did unlimited begin to mean that the limit is 5 gigabytes?

Comcast offers users who rent a cable modem from them a free wireless router – you just have to pay for shipping. Banks routinely lower the interest rate they charge on loans by re-lacing interest with fixed fees, which mathematically earns them the same profit. BP puts out charts like this. When did it become OK for companies to treat people like idiots? When did people start acting the way they are being treated?

AT&T is trying to be transparent – they have decided to stop making everyone pay for the 2% of data-hogs, and people are up in arms. Go online to AT&t’s website and look how much data you use; if it’s less than 2 gigabytes a month, you will save at least 5 dollars a month. That’s money you were paying for someone else’s internet use, that’s now back in your pocket.

It’s sad that we can’t even recognize when a company does the right thing anymore. I don’t know if I’m more upset at the shell games companies play, or my fellow consumers who keep getting sucked in by the PR spin.

Steroids for Your Brain

2010-06-02T15:42:33Z

Absolutely amazing:

The scientists had volunteers move a cursor horizontally across a screen by pinching a device called a force transducer between thumb and index finger. The harder each subject squeezed, the faster the cursor moved. Each player was asked to move the cursor back and forth between a series of targets, trying to travel the course as quickly as possible without overshooting. The group trained 45 minutes a day for five days. By the end of training, the players were making far fewer errors.

The scientists also trained another group of people on the same game, but with a twist. They put a battery on top of the head of each subject, sending a small current through the surface of the brain toward a group of neurons in the primary motor cortex. The electric stimulation allowed people to learn the game better. By the end of five days of training, the battery-enhanced players could move the cursor faster and make fewer errors than the control group.

And the advantage was not fleeting. For three months Krakauer and Celnik had their subjects come back into the lab from time to time to show off their game-playing skills. Everyone got rusty over time, but at the end of the period, the people who had gotten the electrode boost remained superior to the others.

via The Brain: Why Athletes Are Geniuses | Memory, Emotions, & Decisions | DISCOVER Magazine. [Emphasis added].

This raises some ethical questions about sports and “brain doping” but it also would be an astounding way to increase the speed of learning new things if it works for more than just physical tasks. Now they need to start selling those ab stimulating electric belts in a headband size.

See (Only) What You Want to See

2010-06-01T19:10:13Z

The internet has opened a torrent of information sources to us. Over the course of the week I read selected articles from several newspapers, pipe posts form about 50 different blogs on topics ranging form finance to marketing, to what my friends did last week , not to mention all the linking and Wikipedia reading that comes from all that reading. That said, this past week I’ve gotten worried that despite all the seeming diversity of sources I get news and analysis from, I”ve just built the illusion of depth, a house of mirrors where I see a thousand versions of my own interests and thoughts refelcted back at me over the web.

This past week three things happened in the world:

Israel raided a supply resulting ind deaths and controversy
Wildfires in Canada blew smoke all over the NE US, including Boston
A massive sinkhole opened up in Guatemala

I only heard about #1 through FaceBook. I guessed there was a fire from the smoke in the air, but I didn’t realize how big the wildfires were until I looked it up on a whim today. One of the blogs I read made a reference to the sinkhole in passing and I looked it up out of confusion.

These were all straightforward events, that I learned about almost accidental. I wonder how much news I miss. How many interesting thoughts I don’t stumble upon. How I’ve curated my own garden of sources, but am losing out on some of the crazy ideas out there in the untamed wilds beyond the walls I’ve built. Realistically, there is too much out there to keep up with everything, so I will have to accept that I can’t read it all; but when I don’t hear about fairly big news stories, I have to wonder if I’m building my news diet over unstable ground.