Mobile Shopping's Data Goldmine

It is common for organizations to recoil in horror when new technologies emerge that may transform their businesses. They feel threatened and fear the worst: that their profits will evaporate and some new entity will 'steal' their franchise.

The film and music industries scorned videocassette recorders (VCRs) and DVDs (and tapes before that). Financial institutions feared the advent of electronic banking. And now, retailers fear the mobile smartphone.

In the film, music and banking examples, the nature of the business did change dramatically. But instead of losing, in many cases the institutions won new audiences, new revenue and profit sources, and generated new ways of delivering content that increased rather than decreased their business.

We should have learned by now, one would think, that the reflexive negativity associated with new ways of buying and selling is counterproductive. But the fear of the unknown, the sense that a poorly understood power manipulated by people outside one's experience and control generates potent emotions. This is especially true for retailers in the case of mobile commerce. Not only is a new technology fearsomely effective at providing customers with alternatives to your offerings, but they can access it inside your own establishment. They are flaunting their power and your impotence as personally as possible.

The urge to surrender to the online juggernaut is compelling. But in the same way that predecessor industries learned to cope, so must those committed to the physical act of shopping. As the following article explains, embracing this change rather than rejecting it may be the smart choice. Instead of making it harder for people to access their networks, they should be encouraged to do so. The reason has to do with a fair exchange of value. Most people are happy to share information about themselves with businesses. Using that information to tailor pitches to them, remind them when opportunities arise and keep the enterprise's name in front of them can be a good way of expanding rather than reducing sales.

Data and other types of information are the keys successful commerce. Customers who are already in a store are advertising their interest in the products being sold there. Capturing information about them thus increases the likelihood that they will buy - or refer someone who will. Using the resources at one's disposal to recapture extracted value may turn out to be the best revenge - and the optimal business strategy. JL

Margarita Constantinides, Brian Gregg and Brian Salsburg report in Harvard Business Review:

Retailers shouldn't despair when shoppers whip out their smartphones among the product displays. Smartphones could be a retailer's best friend not just because they can open up new buying opportunities.

Younger Households Struggle to Achieve Gains in Net Worth

Newsflash: Americans are acting responsibly.

They are paying down debt, keeping an eye on finances, not splurging on expensive big ticket items they can hardly afford.

The news is largely good - if you are over the age of 35. If you are younger than that, the data suggest that the anecdotal evidence is matched by the economic reality. Research shows that you are, on average 40 percent below where household net worth was before the financial crisis, versus down 3 percent for those over 60.

The issue is that consumers in the younger age groups are more prone to purchase certain types of products than are older people. In a growing economy, people will take on debt which they believe they can repay in order to buy homes, cars, furnishings, clothes and all the other items that mark the establishment of a middle class life. They will build brand loyalties that may last a lifetime, adding margins to to businesses that have invested in those products in services. In sum, this is the time when the future of the consumer economy is forged for and by the next generation.

The biggest concern is that there may be no such thing as catch-up. That the income and associated revenues lost will never be regained. This weakens the enterprises already extant and may thwart the creation of new ones. And people weaned on lessons of hardship are unlikely to indulge themselves if and when times get better. It is hoped that the nascent recovery will eventually 'lift all boats.' But eventually can take a very long time and there are no guarantees, especially when those to whom the future belongs are lagging the rest of the population. JL

Floyd Norris reports in the New York Times:

THE total wealth of American households has recovered from the financial crisis and Great Recession, according to the Federal Reserve Board. But that recovery has not been enough to keep up with inflation, and many Americans, particularly younger adults

Hired By an Algorithm

What could go wrong? Computers are perfect, as are the algorithms that manage them and the people who program the algorithms. They couldnt possibly make a mistake or miss some crucial insight or fall prey to unintended consequences. Could they?

The problem that algorithmic hiring is designed to 'fix' is...well, not entirely clear. The failure rate of new hires has not spiked (to the extent there are that many new hires to begin with), the sources of potential hires is not exactly a secret no matter how obscure the location and the information about individuals on the job market has never been more extensive or the details more intrusive.

The issue seems to be tied to an increasingly popular but largely delusional notion that 'perfect' candidates for various positions can be identified, thereby increasing effectiveness, productivity and innovative output.

The problems with this mindset are manifest. First, the notion that more meticulous matching of education, training, experience and skills development with available positions somehow optimizes the efficacy of the process is largely spurious. Skills and background are certainly part of the equation. But so is personality, work ethic, determination and a bunch of other intangibles that may defy statistical logic. Anyone who has ever worked in an office can tell you how utterly incomplete skills-matching is in assessing whether someone will be a good co-worker or not. Secondly, the belief that an algorithm can be written to eliminate all of the mistakes made by human search experts and interviewers defies logic. The world is changing too fast and the line between 'need' and 'want' grows ever thinner.

There may well be a role for the sort of data-aggregation software to assist organizations find the people they need. But it is a tool, not a substitute for good judgment. JL

Jeff Roberts reports in GigaOm:

Professionals are generating an ever-growing pool of public data that sends signals about their skills — and their availability. A start-up has made a business of parsing that data for tech firms, and now wants to expand to academe and other professions.

Why Your Insurance Company Wants to Be Friends on Social Media

Dont take this the wrong way. You may be a wonderful person; kind, understanding, generous. And you may enjoy the respect of all who know you. Who wouldn't want to be your friend?

But that is not why your insurance company wants to get up close and personal.

The reality is that their margins are eroding. Too many people, too many claims, too many costs. So the more information they have about you the more accurately they may be able to set your premiums. Which means you will become a more profitable asset to them, if not to yourself and your loved ones. But this means that the more you share on social media about the way you live your life, as warm, funny, engaging and largely innocent as that may be, the more they will be able to feed your behavioral characteristics into their data bases. Your inclinations may provide them with indicators that suggest a slight uptick in your payment is warranted. Not because you have done anything wrong, per se, but just because whatever individualistic and idiosyncratic ticks you display may, across the full scope of the insured universe, mean that you are statistically more likely to do something that ends up costing them money. Or not. But maybe they will learn that you have the wherewithal to pay a tad more.

So that instinct to friend every brand, product and offer in sight because, hey, who knows, I might qualify for a discount, could in all likelihood, end up costing you far more than whatever that day's promotion is worth. JL

Basil Enan reports in Venture Beat:

Unless your insurance company does a great job determining your premium, they are likely to lose a lot of money on you because there’s not much margin for error. And they could do a better job determining your premium if they had extra information about you — say, how much you drive and who else regularly drives your car.

Aging Nations Prefer Low Prices to High Income

Maybe the Boomers really are to blame.

For the tepid economic recovery, that is. Whichever demographic segment dominates sets the tone for policy. In the developed west, the aging population is clearly in control. And what they want is low inflation accompanied by a high return on their investments, to the extent they have any. The reason is that that makes their diminished earning power go further.

This, in case you hadn't noticed, is not good news for job creation, innovation and anything else that smacks of risk, uncertainty and the normal give-and-take usually essential to economic growth. Corporation leadership and elected governments can be as sclerotic as the shareholders and voters to whom they ostensibly report. Cutting R&D or stimulus programs or school services, anything that isnt 'essential' especially to those in power, is a response to that sort of demand. Even when such short-sightedness will make it much harder to generate profits and tax income a few years hence, the time when it will really be needed as the population becomes older, poorer and even less able to care for itself.

Historically the conflict between the two competing sets of needs was mediated by politicians and corporate executives who had the wherewithal to make some choices and attempted to give each group at least some of what they wanted. But years of budget cuts and the increasing ferocity of the fight over diminished resources has eliminated many of those options.

The Boomers can whine all they want about the younger generation moving back home - if they ever left - but as that old mantra from the Sixties had it, if you're not part of the solution, you're part of the problem. JL

Simon Kennedy and Shamin Adam report in Bloomberg:

Because the young initially don’t have many assets, wages are their main source of income. The young are therefore comfortable with relatively high wages and the resulting inflation.
By contrast, because older generations work less and prefer higher rates of returns on their savings, they are averse to inflation eating away at their assets.

The Success Trap: Kodak the Cautionary Tale

Letting go is hard under any circumstances.  But letting go of success, especially spectacularly profitable and innovative success, is even more difficult.

For much of the past 130 years the name Kodak defined photography. We may all click away with phone cameras now, but we learned the rudiments, as did our parents and grandparents, with Kodak Instamatics. We figured out how to frame a shot, calculate the light, ask for the pose or arrange the background with those little boxes we could originally mail in - like Netflix! - or then drop off at a nearby by photo shop. The ease, simplicity and reward of something so memorable captured so personally changed the way we look at the world.

Kodak, as the following article explains, made something like a 700 percent markup on each roll of film. And we were grateful, even giddy, at the thought of paying it given what we received in return. There are those who say you cant put a price on memories, but Kodak sure came close.

And in that success lay the company's downfall. Because when the digital era arrived, no one wanted in a position of authority at Kodak wanted to let go. The future was uncertain. The profits couldnt be guaranteed. The margins that had funded growth, jobs, buildings, an entire city, might never again be realized. So they experimented while trying to double down on the hundred year old innovation that had created their company, their identity and their life.

Sometimes 20 percent of a market that's growing is better than 99 percent of a market that's dying. Which is the harsh lesson Kodak learned. Its patents, the key to that golden century, have now sold for cents on the dollar, fetching even less than the most pessimistic estimates. That's what happens when you're on the ropes and the whole world is watching. It would be comforting to think that with the distributive power of the internet, we have learned these lessons and are too smart and disciplined to let them happen again. But we would be foolish to believe that. JL

Kenny Suleimanagich reports in Medium:

A roll of film that cost one dollar to produce was marked up 700 percent, which allowed the company to generate its enormous profits. This drove the company’s growth but eventually it turned into a trap when managers, addicted to the revenue, ignored clear signs that the market was shifting to digital and the end of the old way was in sight.

Inside Game: Securities Traders Pay for Early Access to Key Data

The technical phrase is 'information asymmetry.' Bloodless. Bureaucratic. Unfreighted with common meaning. Could be a reference to mathematical formulae. Or some arcane phrase only an academic could love. How perfect. 

Because what it actually refers to is the situation in which one group  has more information than another. Which gives it a distinct advantage in negotiations, investments or any other aspect of managerial decision-making.

Aren't there supposed to be laws against that when it affects securities, we hear you ask. Well, yes. Sort of. But as the following article explains, when securities exchanges became public corporations they became concerned with generating revenues, especially increases in same. Customers looking for information potentially relevant to the movement of securities prices are willing to pay for advantage, sometimes significantly. Government data is protected. But similarly impactful data from universities, news organizations, researchers and other private sources are free to sell it under generally flexible legal circumstances. The result is that some people gain benefits unavailable to others.

The situation has been exacerbated by the growth of high frequency or algorithmic traders who use trading programs to generate huge gains off miniscule movements in securities prices, sometimes provided by early access of one to three seconds to newly released data. While there is increasing awareness of the disparities, investors and regulators appear powerless to overcome the self-reinforcing financial and legislative advantage that hedge funds, private equity firms and other institutions are able to purchase with their excess margins. This has contributed to the decline in scope of securities ownership and reinforced concerns about the efficacy of the capital markets. Unfortunately, one suspects that this will only change not due to the affect of public outrage or a heightened sense of right and wrong, but when an institution with the power to act finally feels sufficiently violated by the outcome of one trade or another to take action. JL

Brody Mullins, Michael Rothfeld, Tom McGinty and Jenny Strasburg report in the Wall Street Journal:

Unlike government reports, where pains are taken to make certain no one gets them ahead of time, few rules control release of nongovernmental economic reports. Unknown to many investors, selling early access is routine.