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Archive for 2010|Yearly archive page

Multipliers and diminishers

In leadership on July 19, 2010 at 1:19 am

An elegant way to put it.  Management styles run the full spectrum.  We can all identify people we have worked with on both extremes and likely we can precisely pinpoint that one manager that was the ultimate multiplier, drawing out talents we did not know we had and catapulting our career.  I know I would not be where I am today had it not been for such a manager I had almost 10 years ago.

The book is well researched and practical, aiming to spot and correct diminishing behaviors we all are guilty of at one point or another.  Self-awareness as always is half the answer.  Bringing attention to behaviors that will bring out the intelligence in others in a culture dominated by superhuman CEOs , is in itself a welcome addition to the conversation about what makes a good leader.

Some of her tips I found to be particularly practical:

– On restraint: If you tend to talk a lot in meetings and put forth too many strong opinions, two practical tips:

1. Give yourself a few virtual talk time chips, each worth between 30 seconds and 2 minutes of talk time.  Use one up each time you make a point.

2. Label your opinions: soft opinions where you have a perspective to offer and ideas for someone to consider; hard opinions where you have a clear and potentially emphatic point of view.  This gives others an opportunity to disagree with your soft opinions and establish their own views, while reserving the right to have “hard opinions” to where it really matters.

– On leading discussion: three simple ground rules (b-school case method suddenly makes sense !)

1. the discussion leader only asks questions and cannot answer own questions

2. participants asked to supply evidence for the views put forth

3. everyone participates; the role of the discussion leader is to make sure everyone gets airtime, restraining the stronger voices and calling on the quiet ones

– On asking hard questions: multipliers ask big questions that create “gaps” for the organization: between the answers they have and the ones that they don’t, a creative tension that inspires the search for the answer instead of being handed the solution.

“The number one difference between a Nobel prize winner and others is not IQ or work ethic, but that they ask bigger questions” – Peter Drucker

– On ownership: when the leader steps in to get the team unstuck, that is the scope of their intervention, not solving the entire problem. Give the pen back.  This ensures ownership, the leader of the task knows they are still in the lead and accountable for delivering the final solution.

Find out if you are an “accidental diminisher” and more on the book website here.


What can be free will be free & Quo vadis Social Graph?

In technology on July 12, 2010 at 9:15 pm

As mobile distribution platforms grow, cost of smartphones drops (Mediatek/Android targeting $70 smartphones!), and competition for paid apps increases, mobile advertising will eventually gain the critical mass needed to fund more and more mobile apps. Like on the desktop, once there is enough advertising money to cover the opportunity cost of charging for apps, what can be free will be free. By 2014, Pyramid Research predicts 80% of mobile apps will be free compared to 30% in 2008.

Similarly, as the capabilities of web browsers increase to match fully capable desktop browser, the bar for what can be charged for on mobile goes up.  Media companies that are able to charge for their content on premium platforms like iPhone or iPad, will need to evolve their apps to offer functionality and services that are uniquely tailored to the mobile use case, and that deliver value beyond an optimized, high-touch display of the same content they make available for free online.

This should unleash a new wave a innovation in paid mobile apps, both by traditional and new media companies.  Magazines whose print revenues are under pressure can retain their consumer base and monetize it both by extending the value they provide them on mobile through extra functionality particularly designed for the mobile experience and by maximizing the distribution of their ad-supported content on the web accessed by mobile browsers.

Similarly, new media companies extending to mobile must go beyond delivering a mobile optimized version of their site in their mobile apps and mobile web sites.  There is still a lot missing in enabling social networking in the context of the mobile experience (ie not being in front of a desktop, meeting new people or looking to socialize in a mobile context).  And speaking of which and fast forwarding a little – how far away can a “Facebook phone” be?  Will the Social Graph do for Facebook what Android is doing for Google? It may just be the mobile app marketing engine needed to navigate the coming onslaught of mobile apps.

UPDATE:  Interesting article on BBC deciding that paid apps will be challenged by the mobile web here

Mobile app economics: native apps vs. the mobile web, developed vs. emerging markets

In technology on July 11, 2010 at 5:13 pm

This question has come up in quite a few conversations recently. Coexistence is the obvious easy answer… but begs a closer looks at the trends currently shaping the industry.

Mobile OS platform fragmentation is increasing, developer economics are reinforcing the perceived winners’ positions as the pecking order is still in flux.  There are wide variations in relative strength by geography, as well as varying degrees of influence of operator portals vs. vendor stores.  While North America and MEA are expected to see 70%+ of downloads thru vendor stores by 2014, in APAC operators will continue to account for 60%+ of downloads, while in Latam operator portals are expected to drive over 50%, and perhaps more if cross-vendor platforms like Qualcomm Plaza are deployed by mega-operators.  Also in largely prepaid markets that are not distorted by high subsidies like the US,  there is a limit to the reach Apple can have with its current premium strategy – and where Nokia and Google have a much better chance to have significant reach, after mega-operator platforms.  Extrapolations of the US market dynamics to other regions of the world can only go so far.
Developers will likely choose the top 2-3 platforms available to them in their respective region, based on reach and monetization opportunities.  However, as mobile browsers on mobile devices evolve (like Nokia N900 powered by Maemo running a full Mozilla browser) and start supporting Html5, some of the reasons for having dedicated apps (such as access to GPS, video, etc.) go away.  Looking for example the site in a browser supporting Html5 proves the point. Of course there will continue to be specific apps such as games, that will always work better as native apps as opposed to web apps, but as powerful browsers will be widely available in smartphones by 2014, the mobile web will definitely provide the broadest reach of any platform, taking some of the heat off the current “who has more apps” race between the various app stores.  (N.B.: Not to be underestimated here is the discoverability / marketing element app stores and operator portals provide – this will continue to be an important role they play, even as mobile web broadens its reach and app download volumes explode, from 5.7B in 2009 to an estimated 41B in 2014 or 6.5 apps/user/year.  A flurry of start-ups like Flurry, Yappler, etc. have already sprung up to capitalize on the app retailing opportunity and provide recommendations, voting systems, etc.  Attracting and targeting consumers will become increasingly important as multiple app stores will likely coexist on the handset together with a fully powered mobile web – Mobile operators could play a key role here as marketers of apps and solution bundles with data !)

So to skate where the puck is going, mobile web apps and their promotion, discovery and monetization, particularly mobile micropayments should be the next area of exploration, in addition to the much discussed mobile advertising opportunity which will finally deliver on its high expectations. And there, operators, particularly in emerging markets with low levels of credit card penetration, will continue to play a key role, not only as distribution partners but as mobile payment providers.  It is a pretty safe bet that between the growth in emerging markets and the growing power of the mobile web, mobile app economics 5 years from now will likely be quite different from what they are today.

Mobile services in an increasingly prepaid world

In economics, technology on June 28, 2010 at 5:41 pm

Prepaid accounted for 71.9% of total subscriptions in 2009 and it is expected to grow to 75.7% by the end of 2014, with growth driven mainly by developing markets in Asia-Pacific.  The most notable exceptions to this are the US, where prepaid penetration is only 11%, Japan and Korea where prepaid is virtually non-existent.

However, even in the developed markets where prepaid is not as prevalent, as the price of handsets is falling, the relative value of a post-paid contract subsidy decreases. This, combined with what appears to be a prolonged recessionary environment, can only further boost the penetration of prepaid in both emerging and developed markets, making prepaid the predominant business model behind mobile services for years to come.

Given that in emerging markets more than 75% of all transactions are cash-based, and that operators in those markets have developed a very extensive network for converting physical cash into virtual currency in the form of prepaid mobile credits, it is likely that mobile and prepaid mobile credits will be for emerging markets what the fixed web and credit cards have been for developed markets.

Furthermore, consumers in those emerging markets are far more comfortable with SMS and are likely to adopt SMS-based services much faster than any other mobile internet based services, which is far more appealing to consumers with a much longer tenure on the fixed web and who are trying to access that same experience over the mobile.

Utility focused services, such as bill payments, P2P transfers, etc. that solve a daily need and help the consumer avoid high transaction costs, whether in the form of money or time spent, delivered over SMS, are far more interesting for these markets than entertainment focused services, as the alternatives for these services are far more scarce as they are in developed markets, and in much more dire need of innovation.  And judging by the above mentioned statistics, SMS-based mobile services geared towards the prepaid consumer, this is a far larger business opportunity than the often frivolous iPhone apps that much electronic ink is currently being spent on.

Good presentation on this, albeit slightly dated, from Warid Telecom, here.

Prepaid business models migrating to other industries

In economics on May 15, 2010 at 12:37 am

The prepaid business model has been long assumed to be a solution for low-income consumers in emerging markets.  However, the success of prepaid in both developing and developed markets warrants a re-evaluation of the mobile business model.  Prepaid operators are as profitable as their peers and often more profitable.  Cash flow is an obvious benefit – the operator gets paid upfront and the customer acquisition cost is low, as there is no upfront subsidy for the handset, and as long as churn is not significant, this model can be a lot more profitable than the subscription-based subsidy model.

Prepaid is growing faster than the alternative post-paid/subscription based model, even in developed markets, including the US, where prepaid operators like Tracphone are growing faster than ever.

Furthermore, the prepaid business model that has been so successful for mobile operators, is finding adoption in other industry sectors that have been affected by the downturn, such as the auto industry.  The FT had an interesting piece earlier this month, about car-sharing schemes using a very similar model. These are being tested by car-makers themselves, after start-ups like Zipcar have proven the feasibility of the model in urban centers in the US.  Mercedes-Benz and Peugeot have both launched prepaid car-sharing pilots that have proven successful in appealing particularly to younger consumers and that are using a very similar concept to the prepaid model these consumers are accustomed to for their mobile phone. Peugeot’s service dubbed “Mu by Peugeot” is particularly interesting, as it allows consumers to use the prepaid “mobility units” purchased for anything from cars to scooters and even bicycles.  The service can be used of course directly from your mobile phone. The postpaid, subsidy-driven model however, will likely be more suitable for companies like Shai Agassi’s Better Place, that are looking to deploy an expensive infrastructure and subsidize part of the cost of the car in exchange for a monthly commitment.

Interesting to see what other industries would benefit from adopting the prepaid business model from the mobile world, and alternatively, if any of the established prepaid players in telecom will in the future look to extend their competence in managing this business model to other services targeted at the same consumer.

Hiring the right people

In leadership on May 12, 2010 at 8:58 am

Orange Code the story behind ING Direct is a great read through and through.  CEO Arkadi Kuhlmann tells the story of how he started ING Direct, from creating the company’s famous 12 point “orange code” to how he built the team at ING Direct.

His hiring advice resonated most with me, as it centers on motivation, which I believe is the single most important predictor of future performance, once capabilities and skills have been ascertained.  Kuhlmann’s advice:

Motivation and character are the things that separate loyal, enthusiastic workers from paycheck-collecting journeymen. Demand competence but look for character.

Hire people who have experienced rejection and have something to prove to the world. Real heart and commitment come from someone who has tasted failure and injustice.

The need to achieve something is imprinted on one’s personality. If you have it, you can easily recognize it in one another. The best want to leave a mark that says: “We were here and we made a difference”

Another interesting point is on building a team vs. hiring an individual.

Don’t just hire – assemble a cast. Competence is a commodity. Sure, you need everyone in an organization to be able to do his or her job reliably and efficiently. But competence is table stakes for any employable candidate, and that means that it’s equally available to your competitors. Companies will look at resumes and decide that the more years you’ve gone without screwing up, the more valuable you mustbe. But there’s no profit in that. Not losing isn’t the same as winning.

A great summary of the book can be found here.

Also Arkadi Kuhlmann and his branding consulting Bruce Phillip, talked at Google about the book – great video to watch to get a sense of Kuhlmann as a person.

ebooks and amazon publishing

In technology on April 27, 2010 at 12:08 am

One of my favorite journalists Ken Auletta of the New Yorker and author of a great book on Google, wrote another well-researched article on ebooks. He gets beyond the superficial iPad vs Kindle debate and looks at the dynamics the 2007 Kindle launch  has set in motion in the publishing industry:

1) Cost efficiency

The economics of traditional publishing are enlightening:

A simplified version of a publisher’s costs might run as follows. On a new, $26 hardcover, the publisher typically receives $13. Authors are paid royalties at a rate of about 15% of the cover price; this accounts for $3.90. Perhaps $1.80 goes to the costs of paper, printing, and binding, a $1 to marketing, and $1.70 to distribution. The remaining $4.60 must pay for rent, editors, a sales force, and any write-offs of unearned author advances. Bookstores return about 35% of the hardcovers they buy, and publishers write off the cost of producing those books.”

With no more returns, warehouse fees, printing expenses, or shipping costs, ebooks generate obvious savings.

2) Access to the long tail / back catalog of books

The Kindle, much like Netflix or iTunes, has enabled backlist titles to be sold. For example in a 3 months period, online vendors typically sell copies of 2,500 Simon & Schuster titles that bookstores don’t stock.

3) Amazon publishing

Some best-selling authors are choosing to publish directly thru Amazon, in exchange for 50% of the net proceeds.

“What Amazon really wanted to do was make the price of e-books so low that people would no longer buy hardcover books. Then the next shoe to drop would be to cut publishers out and go right to authors.” said a close associate of Bezos

Amazon has been willing to sell some ebooks at a loss in order to capitalize on the strong network effects enabled by proprietary standards to make Kindle the platform of choice.  Recently, it offered authors who sold electronic rights directly to Amazon a royalty of seventy per cent, provided they agreed to prices between $2.99 and $9.99.

Apple with the iPad has wooed publishers with an agency model which lets them set the price of each book, with Apple taking a set percentage. This led to a well publicized stand-off between Amazon and Macmillan, a large US publisher, which ended with Amazon raising prices on some of its ebooks and acquiescing the agency model.

Clearly both Amazon and Apple have the same goal. Apple is wise to take a different approach from both a hardware and biz model perspective to challenge Amazon; it will be interesting to see whether Amazon’s current 80% market share in ebooks can be substantially challenged. To that end, one has to wonder how much longer the Kindle app will continue to be available in the AppStore?

Bubbles, fundamentals and risk models

In economics on April 25, 2010 at 4:29 pm

Reading Gregory Zuckerman‘s Greatest trade ever, you get a good glimpse of the characters making news headlines these days.

On one side you have the bearish players like Mike Burry (who recently wrote an excellent letter to Allan Greenspan in the NYT) and the now famous John Paulson who were looking at the fundamentals and betting against the housing market with little downside, thanks to new financial instruments like credit default swaps.  On the other side you had the insurers like AIG, big corporations with reputed risk analysis departments that were using risk models based past performance to predict the future. These models showed housing prices would continue rising, just because they had done so, predictably, since the Great Depression and did not account for the off-chance of a correction.

Nassim Taleb, one of my favorite authors (despite the fact that he is often long on critique and short on solutions), described this fallacy at length in the Black Swan well before the financial crisis started to unravel. Risk models predicated on past performance are flawed as the one-off negative event may not have happened yet. However, my personal favorite is Fooled by Randomness which talks more about our personal understanding of risk and why human beings are so prone to mistake dumb luck for consummate skill.  Which ties back to the Kahneman and Lehrer notes in earlier posts, as well as the soul searching amongst economists these days. As Taleb says in an interview with Edge magazine

A lot of insight that comes from behavioral and cognitive psychology — particularly with the work of Daniel Kahneman, Amos Tversky, and, of course, Daniel Gilbert — which shows that we don’t have good introspective ability to see and understand what makes us tick. This has implications on why we don’t know what makes us happy — affective forecasting — why we don’t quite understand how we make our choices, and why we don’t learn from our own experiences. We think we’re better at forecasting than we actually are. Viciously, this applies particularly in full force to categories of social scientists”

Perhaps the obvious answer is that we are far too complex beings to be perfectly predicted in our choices, motivations and happiness by any social science model. Which leaves us with the option of further refining and understanding the limitations of these models.  As far as the Paulson vs Goldman controversy, Paulson was looking at the fundamentals and took a bet on the market. Nothing wrong with that. He understood more than risk models would predict. However, the instruments created to facilitate this, with little downside and unlimited upside and the regulatory environment that allowed it are clearly at issue.

David Brooks writes a great summary of this in today’s NYT.

Happiness & behavioral economics

In economics on April 24, 2010 at 9:27 pm

On a related note, it was interesting to watch a talk by Nobel prize winner in behavioral economics David Kahneman about Happiness.

He makes a distinction between experience and the memory of that experience.  Between the experiencing self  and the remembering self, it seems that the remembering self drives our decision making and measures our happiness.  We think of our future as future memories.  An interesting thought.

Another interesting finding:  when researching the correlation between happiness and income levels, he found that above the 60,000 USD per year mark in the US, the correlation was a flat line, whereas below a steep declining curve.  So statistically speaking, that’s all you need to be happy.  Makes one wonder about the wisdom of getting an MBA :-).

Another interesting bit from Kahneman’s happiness research: the Danes are amongst the happiest nations in the world. Here is why:

“To explain why the Danes nevertheless top the rankings, Kahneman refers to the strong impact of social determinants in the personal happiness equation. One of the most important dimensions here is the level of mutual trust that pervades a society. From an economic viewpoint, this can be measured with the aid of the level of corruption in a country. Where corruption is rife, people will rarely trust one another and are unlikely to trust strangers at all. This of course impacts on their overall mood. The Danes, by contrast, in a country where corruption is rare, are very trusting of their fellow countrymen and generally assume that strangers are benevolent, which in turn enhances their mood.”

This seems to set a fairly straight-forward agenda for increasing standards of living, beyond the GDP: mutual trust. Given the latest immigration law passed in Arizona, the Goldman Sachs hearings and tea parties, it would seem that Americans are not at the top of the happiness list.

How we decide

In economics on April 24, 2010 at 9:20 pm

As economists are rethinking the rational expectations hypothesis, an interesting read is  How we decide by Wired contributing editor Jonah Lehrer.

Many great examples about how emotions drive our decision-making and cognitive traps we routinely fall into.

One such trap is loss aversion which apparently explains why we invest more in bonds than stocks, even when stocks show to have a higher return over time, and why we sell stocks that have increased in value, holding on to loss making ones. Additionally, framing also drives emotions that alter decisions with the same expected outcome depending on whether the outcome was framed in a positive way, focusing on the potential gain or negative, as a potential loss.

Another interesting experiment shows that immediate gratification activates parts of the brain associated with emotion, the amygdala, whereas rewards further into the future activates a different part of the brain associated with rational planning, such as the prefrontal cortex. So our decisions are the result of the battle between the amygdala and the prefrontal cortex.  But there is an interesting twist: the prefrontal cortex al­lows us to contemplate our own mind, a talent psychologists call metacognition. Every emotional state comes with self-awareness attached, so that an individual can try to figure out why he’s feeling what he’s feeling. The prefrontal cortex can deliberately choose to ignore the emotional brain.

Thanks to my friend Samppa for recommending this book.

Other good reads on this topic: Blink by Malcolm Gladwell, Sources of Power: How People Make Decisions by Gary Klein.

Good list of cognitive biases on Wikepdia.