Freebies and Misers

Recently the wife and I were having a bitching session about some of our relatives and friends, about how despite being rather wealthy they’re rather miserly, both in terms of spending on themselves and spending on others.

While we were wondering why people with so much money are so stingy, the wife noticed a pattern – they are all people who are used to getting freebies in their professional lives.

There are consultants on expense accounts whose every expense on tour is paid for by their clients. There are doctors who are routinely provided “expense accounts” by medical representatives. There are people who work for the government who get a lot of “perks” in addition to the (rather meagre) salaries they make. There are journalists, who when on PR jaunts, are again used to living on an expense account.

The point with all of them is that they are so used to getting others to pay for their expenses that they are simply not used to spending themselves. And so when it is time for them to spend, they spend like they used to in the time before any of these expense account taps opened up for them.

This, for most of the above referred to people, refers to time when they were either students or they were entry level employees – times when they didn’t have much money in life at all. And they end up living the rest of their non-professional (non-expense account) lives spending like they used to as students or entry level employees.

Back when I was a banker making lots of money, I remember having this conversation with a then medical student who was excited that once she became a “big doctor” she would have medical representatives at her beck and call, who would fund her life. I had replied that I would rather make all my money in cash and have the discretion on what I wanted to spend on, rather than have someone else make the decisions on what I should be splurging on.

I guess there are other benefits as well to spending your own money, rather than living on an expense account.

PS: I just remembered that I haven’t “filed expenses” to my client for a business trip I took a couple of weeks ago.

Television and interior design

One of the most under-rated developments in the world of architecture and interior design has been the rise of the flat-screen television. Its earlier avatar, the Cathode Ray Tube version, was big and bulky, and needed special arrangements to keep. One solution was to keep it in corners. Another was to have purpose-built deep “TV cabinets” into which these big screens would go.

In the house that I grew up in, there was a purpose-built corner to keep our televisions. Later on in life, we got a television cabinet to put in that place, that housed the television, music system, VCR and a host of other things.

For the last decade, which has largely coincided with the time when flat-screen LCD/LED TVs have replaced their CRT variations, I’ve seen various tenants struggle to find a good spot for the TVs. For the corner is too inelegant for the flat screen television – it needs to be placed flat against the middle of a large wall.

When the flat screen TV replaced the CRT TV, out went the bulky “TV cabinets” and in came the “console” – a short table on which you kept the TV, and below which you kept the accompanying accessories such as the “set top box” and DVD player. We had even got a purpose-built TV console with a drawer to store DVDs in.

Four years later, we’d dispensed with our DVD player (at a time when my wife’s job involved selling DVDs and CDs, we had no device at home that could play any of these storage devices!). And now we have “cut the cord”. After we returned to India earlier this year, we decided to not get cable TV, relying on streaming through our Fire stick instead.

And this heralds the next phase in which television drives interior design.

In the early days of flat screen TVs, it became common for people to “wall mount” them. This was usually a space-saving device, though people still needed a sort of console to store input devices such as set top boxes and DVD players.

Now, with the cable having been cut and DVD player not that common, wall mounting doesn’t make sense at all. For with WiFi-based streaming devices, the TV is now truly mobile.

In the last couple of months, the TV has nominally resided in our living room, but we’ve frequently taken it to whichever room we wanted to watch it in. All that we need to move the TV is a table to keep it on, and a pair of plug points to plug in the TV and the fire stick.

In our latest home reorganisation we’ve even dispensed with a permanent home for the TV in the living room, thus radically altering its design and creating more space (the default location of the TV now is in the study). The TV console doesn’t make any sense, and has been temporarily converted into a shoe rack. And the TV moves from room to room (it’s not that heavy, either), depending on where we want to watch it.

When the CRT TV gave way to the flat screen, architects responded by creating spaces where TVs could be put in the middle of a long wall, either mounted on the wall or kept on a console. That the TV’s position in the house changed meant that the overall architecture of houses changed as well.

Now it will be interesting to see what large-scale architectural changes get driven by cord-cutting and the realisation that the TV is essentially a mobile device.

Gamification and finite and infinite games

Ok here I’m integrating a few concepts that I learnt via Venkatesh Guru Rao. The first is that of Finite and Infinite games, a classic if hard to read book written by philosopher James Carse (which I initially discovered thanks to his Breaking Smart Season 1 compilation). The second is of “playflow”, which again I discovered through a recent edition of his newsletter.

A lot of companies try to “gamify” the experiences for their employees in order to make work more fun, and to possibly make them more efficient.

For example, sales organisations offer complicated incentives (one of my historically favourite work assignments has been to help a large client optimise these incentives). These incentives are offered at multiple “slabs”, and used to drive multiple objectives (customer acquisition, retention, cross-sell, etc.). And by offering employees incentives for achieving some combination of these objectives, the experience is being “gamified”. It’s like the employee is gaining points by achieving each of these objectives, and the points together lead to some “reward”.

This is just one example. There are several other ways in which organisations try to gamify the experience for their employees. All of them involve some sort of award of “points” for things that people do, and then a combination of points leading to some “reward”.

The problem with gamification is that the games organisations design are usually finite games. “Sell 10 more widgets in the next month”. “Limit your emails to a maximum of 200 words in the next fifteen days”. “Visit at least one client each day”. And so on.

Running an organisation, however, is an infinite game. At the basic level, the objective of an organisation is to remain a going concern, and keep on running. Growth and dividends and shareholder returns are secondary to that – if the organisation is not a going concern, none of that matters.

And there is the contradiction – the organisation is fundamentally playing an infinite game. The employees, thanks to the gamified experience, are playing finite games. And they aren’t always compatible.

Of course, there are situations where finite games can be designed in a way that their objectives align with the objectives of the overarching infinite game. This, however, is not always possible. Hence, gamification is not always a good strategy for organisations.

Organisations have figured out the solution to this, of course. There is a simple way to make employees play the same infinite game as the organisation – by offering employees equity in the company. Except that employees have the option of converting that to a finite game by selling the said equity.

Whoever said incentive alignment is an easy task..

 

Gruffaloes and Finite Games

One story that my daughter knows well, rather too well, is the story of the Gruffalo. This is a story of a mouse told in two parts.

In the first part, the mouse fools a fox, an owl and a snake from eating him by convincing them that he’s having lunch, tea and dinner respectively with a supposedly imaginary creature named “Gruffalo”. And when they each ask him what the Gruffalo is like, he makes up stuff fantastically (terrible teeth in terrible jaws, turned out paws, etc.).

Except that midway through the story there is a kahaani mein twist, and the mouse actually encounters the gruffalo. In the second part of the story, the mouse tells the gruffalo that he is going to have lunch, tea and dinner with the fox, owl and snake, and prevents the gruffalo from eating him. And the mouse lives another day.

It is evidently a nice story, and the rhyme means that the daughter had mugged up the entire story enough when she was barely two years old that she could “read” it when shown the book (she can’t read a word yet). However, I don’t like it because I don’t like the plot.

One of the most influential books I’ve read is James Carse’s Finite and Infinite Games. Finite Games are artificial games where we play to “win”. There is a defined finish, and there is a set of tasks that we need to achieve that constitutes “victory”. Most real-life games are on the other hand are “infinite games” where the objective is to simply ensure that the game simply goes on.

From the point of stories, the best stories are ones which represent finite games, where there is a clear objective, and the story ends in “victory” or “lack of victory” (in the case of a tragedy). The Good, The Bad and the Ugly has the finite aim of finding the treasure buried in the graveyard. Ganeshana Maduve has the finite aim of YG Rao marrying “Shruti”. Gangs of Wasseypur has the finite aim of the Khan family taking revenge on Ramadhir Singh. Odyssey has the finite aim of Odysseus returning home to Penelope. And so forth.

Putting it another way, finite games make for nice stories, since stories are themselves finite, with a beginning and an end. A story that represents an infinite game is necessarily left incomplete, and you don’t know what happens just outside the slice of action that the story covers. So infinite games, which is how life is lived, make for lousy stories.

And the gruffalo story is an infinite game, since the “game” that the mouse is playing in the story is survival – by definition an infinite game. There is no “victory” by being alive at the end of the day the story covers – like there is no she-mouse to marry, or a baby mouse to see for the first time, or a party to go to. It is just another day in the life of the mouse, and the events of the day are unlikely to be that much more spectacular than the days not covered by the story.

That is what makes the gruffalo story so unsatisfying. Yes, the mouse played off the fox, owl and snake against the gruffalo to ensure his survival, but what about the next day? Would he have to invent another creature to ensure his survival? Would the predators buy the same story another time?

I don’t know, and so the story rings hollow. But the rhyme is good, and so my daughter loves the story!

Tourist experiences

The big trend nowadays is to do tourism without doing “touristy stuff”. What counts for social currency is to do “authentic stuff” and to avoid things that are “made for tourists”. So tourists try to not visit places with too many other tourists, and go out of their way to find “authentic experiences”.

However, our recent holiday in Lisbon showed us that not all “touristy things” are the same. There were  tourist experiences we liked, and those that we abhorred. Marginal differences made a huge difference in how we experienced places, and not all “tourist experiences” were bad.

For example, on each of the three days we had breakfast in restaurants that seemed to almost wholly cater to tourists. It was possibly a function of living in a part of town (Alfama) that is now host to a lot of tourists. Each day we would check on google for places to have breakfast at, pick one and go.

All of these places had brunch menus, which were pretty good. All of them seemed overpriced given what I’d heard of Lisbon’s price levels. Waiters all spoke very good English. And people at other tables seemed to be tourists. But the food was generally of a good quality, though coffee was bad.

On the other hand, there were these restaurants where we ended up for lunch at clearly touristy places, where you knew very quickly that the food wasn’t up to the mark. One Asian restaurant we went to (we’d been walking for a while and went in desperation) served Indian Chinese food – not something you’d expect in Europe. The pork belly was cooked excellently, but then slathered with sriracha! The previous day, a restaurant close to the Cathedral had charged a fortune for a bottle of water after denying tap water. The food there was rather ordinary as well.

The contrast in tourist experiences wasn’t just about food. As I mentioned earlier, we were in a touristy part of town called Alfama, but it was a nice touristy part of town. Lines (at the castle, for example) were never too long. No place was that crowded (admittedly we went in the off season, and on weekdays). You never got intimidated. And there was the occasional smile or nod to people you came across.

On the middle day of our trip, though, we headed to Belem (another touristy part of town), to Jeronimo’s Monastery. The tourist experience there was something else. The crowds were massive everywhere. Lines to buy tickets were long. The feeling one got was that if we weren’t careful we might be robbed. There were lots of beggars around. The entire atmosphere was intimidating. It was as if we were longing for “our touristy places”. And in very quick time we had made our way back towards Alfama.

So through the trip I decided that avoiding “touristy places” isn’t a good strategy during holidays – touristy places are touristy for a reason, and the effort to avoid them can be significant. Instead, what we should avoid are tourist traps. We need to do some research and go to places that are well rated. There is nothing wrong in doing touristy stuff. All we need to do is to do the “good touristy stuff”.

Mass marketing and objective journalism

This is a fascinating essay by Antonio García Martinez on the history and future of journalism (possibly paywalled). The money paragraph is this:

The bigger switch happened as a national market for consumer goods opened after the Civil War, when purveyors like department stores wanted to reach large urban audiences. Newspapers responded by increasing the number of ads relative to content, and switched to models that went light on the political partisanship in the interest of expanding circulation. This move was driven not exclusively by lofty ideals but also by mercenary greed. And it worked. Newspapers used to make lots of money. Mountains of money.

Basically, the move to objective journalism came in the late 1800s when advertisers such as Macy’s wanted to take out full page ads, and wanted to do so in newspapers that served the largest sections of the market. And when a newspaper had to reach a large section of the market, it inevitably had to tone down the partisanship, and become more objective.

Over the last decade, we have been witnessing (across the world) the decline of objective media. All media is “#paidmedia” based on which side of the political spectrum you stand on. There aren’t that many truly objective papers around, and social media is bombarded left and right by extremely politicised reporting that goes as “news”.

It is perhaps no coincidence that this period has coincided with a time when print circulation has been dropping steadily (in the developed world at least), and where online advertising can be highly targeted.

In theory, mass marketing is inefficient. When you pay to put up a hoarding somewhere, you’re possibly paying a small amount for each person who sees the hoarding, but not all of them might find it interesting. Consequently, this reflects in a depressed per-person price of the hoarding implying the owner of that real estate can’t make as much as she could if the hoarding were to be more “targeted”.

When you can target your advertisements more precisely, everybody wins. You as the marketer know that your advertisement is only being shown to your intended audience. The owner of the real estate where you put your advertisement can thus charge you more for your advertisement. Even the customer will be less pained by the advertisement if it is highly relevant to her.

Another way of seeing it is – an advertisement shown to a customer who doesn’t want to see it is wasted. The monetary cost of this waste are borne by the owner of the real estate and the advertiser, and the non-monetary cost is borne by the customer (being forced to see something she didn’t want to see). And so one of the biggest technological problems of today is on how we can target advertisements better so that we can minimise such costs – and in the last decade and half, we’ve made significant progress on that front.

The problem with greater efficiency, however, is that it comes with the side-effect of biased media. When Nike knows that it can precisely target an advertisement at American leftwingers, it makes an ad with Colin Kaepernick and shows them to American leftwingers to sell them more shoes.

This doesn’t however, mean that Nike only sells to left-wingers. The same company can make another advertisement targeted precisely at right-wingers and use it to sell shoes to them!

So now that you can make left-wing and right-wing ads, and you have the ability to target them, you want to cut the waste and place the ads so that you can target as best as possible. In other words, you want to place your left-wing ads in places that only left-wingers want to see, and right-wing ads only in places that right-wingers will see. And so you prefer to advertise in CNN and Fox rather than in a hypothetical “broad market” media outlet.

And the reason you created the politically charged ads in the first place was because there were some outlets (Facebook, for example) where you could precisely target people based on their political orientation. And so you see the vicious cycle – that you can target in some places means you want other places where you can target and that creates demand for more polarised media.

It was the opposite cycle that took effect in the late 1800s and early 1900s. There was no way brands could target (also, when you make physical advertisements, with 1900s technology, each advertisement is costly and you don’t want to make one per segment) too effectively, and so they went mass market in their communication.

And this meant advertising in the outlets that could get them the maximum number of eyeballs. When you can’t discriminate between a “right” and a “wrong” eyeball, you pay based on the number of eyeballs. And the way for media organisations to grow then was to cater to everyone. Which meant less less bias and more objectivity and more “features”.

Sadly that cycle is now behind us.

Caffeine kick

Until June or July this year, I firmly believed that well-made South Indian filter coffee was the best form of coffee ever. This belief possibly had to do with my conditioning, having been exposed this to this coffee form from an extremely early age, and the belief sustained even in the face of pretty excellent coffees from quite a few artisanal “Aussie style” cafes here in London.

Then, around then, I decided to embark on “intermittent fasting”, which meant no calorie consumption from 8 in the night to the next noon (each day). The diet permitted me to drink coffee or tea in the mornings as long as no milk or sugar was added to it, and that presented a problem.

For South Indian filter coffee can’t be drunk black. The addition of the chicory, which slows down the pace through which water/steam filters through the beans in order to maximise flavour, adds its own flavour, which when unmasked by milk can be pretty revolting. Though I must mention that chicory powder is sold as a separate “health drink” here in the UK (maybe it needs to be marketed such because its taste is most revolting).

That I couldn’t add milk to my coffee meant that I needed to explore other ways of making good black coffee. Counter top space (or the lack of it) ruled out contraptions such as an espresso machine or even a Nespresso machine. There was an old Braun “coffee maker” (which my mother-in-law reportedly procured two decades ago) at home, but that dished out pretty bad coffee (which only Americans might appreciate).

And so I started exploring, asking around coffee-geek friends (not to be confused with the cafe of a similar name in Victoria). The French Press was quickly ruled out on account of taste. I strongly considered the Aeropress and the Hario V60, and in the spirit of “try before you buy” or even “learn before you buy”, I asked baristas at my favourite local artisanal cafe to show me how to brew in these methods.

I quite liked the output of both methods, but found the aeropress apparatus a bit cumbersome and hard to clean (one reason I didn’t want to use my trusty Bialetti Moka Pot to make non-South Indian coffee as well). The V60 on the other hand offered simplicity of making process as well as extreme ease of cleaning. So quickly after I had tried, I had bought the pourover cup from Amazon, and a bag of beans from Electric (they ground it for me) and I was ready to go.

I’ve since fallen in love with this form of coffee, though when I go to a cafe I order an espresso-based drink (Cortado/Piccolo or Flat White depending on the cafe). And though I gave up on intermittent fasting a month and half after I started it, I continue to make this (I’m sipping on one such cup as I type this). And this is because of the caffeine kick.

I think I had this realisation for the first time back when I was still fasting – I drank a cup of pourover coffee just before I hit the gym (on an otherwise empty stomach), and I was astounded by my own energy levels that day. And I have since tested this in several other situations – before meetings, while doing an important piece of work or simply to stay awake. The caffeine kick from pourover coffee is simply unparalleled compared to any other kind of coffee I’ve had (though espresso-based coffees in cafes come very close).

South Indian filter coffee optimises for flavour at the cost of the caffeine. The decoction is frequently stored for a long time, even overnight. The large amount of milk added means that a given amount of beans can be used to make several more cups. And the chicory addition means that brewing is slower and more flavour gets extracted from the beans, though it’s unlikely that the amount of caffeine extracted is proportionally large.

And all this together means you get incredibly tasty coffee, but not something you can get that much of a caffeine kick out of. And that is possibly why we are conditioned to drinking so many cups of coffee a day – you need so many cups to get the level of caffeine your body “needs” to function.

And this explains why South Indian filter coffee in the evenings has never interfered with my sleep, buy any coffee bought in a good cafe after 5pm has invariably led to sleepless nights!

Do you have anything else to add to this theory?

PS: The first time I made pourover coffee, I used Indian beans from Chickmaglur (that I bought here in the UK), so it’s not to do with the beans. It’s the extraction method.

The Crane-Mongoose Theory of Public Policy

I have several favourite stories from the Panchatantra (which perhaps explains my lack of appreciation of modern children’s fiction). One of them involves a crane and a mongoose. And I think it is a good lesson on when and where to call for regulation, and government or legal intervention.

So the story goes like this. A snake lives at the bottom of the tree where a crane has built its nest. Each time the crane lays eggs, the snake slithers up the tree and devours them. And the crane doesn’t know what to do. Ultimately it receives some “brilliant advice”.

There is a mongoose living somewhere nearby, and the crane lays out a Hansel-and-Gretel like path of fish from the mongoose’s house to the snake’s house. The mongoose duly follows the trail of fish and finishes off the snake. The next day, the mongoose is hungry again, and it climbs up the tree and devours the crane’s eggs.

It is common political discourse nowadays to call for the government’s or court’s intervention to solve what seems to be private problems. The governments and courts are of course happy to oblige – any new source for intervention and rent-seeking are good news for the people involved. And then you get a solution that temporarily solves the problem (slaughtering the snake). And then in the long term, what you get is a bigger problem (mongoose eating the crane’s eggs). The only difference is that in real life it is not just the crane that gets negatively affected – the regulations hurt everyone.

The examples that come to my mind at this point in time are all “local”. Some residents in Indiranagar in Bangalore weren’t happy about the noise from nearby pubs. They asked the government to “do something”. And the government “did something” – it banned the playing of live music in restaurants, killing off what was then a budding industry in Bangalore.

Some other residents somewhere else in Bangalore were unhappy that their neighbours had dogs that barked. They asked the government to do something. The government did something – coming up with an elaborate document to regulate dogs that people can own.

And there are more involved (and dangerous) examples of this as well.

Don’t be like the crane.

Acceptable forms of help

I was reading this note by Kunal Bahl, CEO and co-founder of Snapdeal on the company’s turnaround after the failed acquisition by Flipkart last year. It’s a very interesting note – while I’ve never been a fan of the company (never considered buying from them), this story seems rather interesting, especially given the deep shit it was in a year ago.

What caught my eye is this little note about getting help from a small network of mentors. Bahl writes:

I was able to get the guidance and counsel from some of the most respected and leading business persons in the country. […] In our time of need, it was those who had the least to gain, and most to give, that came to our help. Not with money. But with their wisdom and encouragement. I recall sitting in the room with one of the above persons in August 2017, staring down the barrel with only months of money left in the bank. The gentleman, probably seeing how dire our situation was, picked up the phone and called six of the top business people in the country in quick succession explaining our situation to them – that we were good guys stuck in a bad situation – and requesting them to meet me to see if there were any synergies with their businesses[…]

(emphasis added)

What this got me thinking was about why it’s considered okay to give or take help in the form of intangibles, but not in terms of money. It’s rather common that people help each other out by way of providing advice, making introductions and sometimes just hearing them out. It’s not that common, though, that people help each other out with money.

To take a personal example, if someone asks to talk to me to get some advice, or asks for some connections, it’s very likely that I’ll help them out. On the other hand, if someone were to ask me for money I’ll start seeing them suspiciously.

One quick reason as to why intangibles is okay is that it is sometimes “cheap”. Making introductions doesn’t cost you much as long as you think it’s mutually beneficial for both parties (and in that, it seriously helps if you do double consent introductions – talk to both parties independently before introducing). Advice costs you maybe half an hour or an hour of your time, and if you feel like your time is being wasted, it’s not hard to cut losses. And the value that the recipient gets from this can far exceed the cost incurred by the “giver”.

Another reason is that intangibles are intangible – they’re hard to measure. And by that measure, you don’t rack up some sort of debt. If I take money from you, then what I owe you becomes precisely measurable. And until I repay you, things between us can be awkward. Introductions or advice, on the other hand, keep the value of the “debt” fuzzy, and in most case it gets “written off” any way, permitting the two parties to continue their relationship normally.

Anything else that I might have missed out?

Revenue management and transaction costs

So I just sent off a letter to India. To be precise, it is a document I had to sign and send to my accountant there – who sends regular “letters” any more?

The process at the post office (which, in my suburb, is located inside a large bookstore) was simple. In the first screen of the touch screen kiosk, there was an option for “worldwide < 20 grams”. A conveniently placed scale told me my letter weighed 18 grams, and one touch and one touch of my debit card later, I had my stamp. Within a minute, my letter was in the letterbox.

The story of how we pay the same amount for sending mail over large areas (“worldwide” in my case today) is interesting. Earlier, mail rates were based on distance, but as new roads kept being built in the 19th century America, and distances kept changing, figuring out how much to charge for a letter became “expensive”. A bright fellow figured out that the cost (in terms of time) of figuring out how much to charge for mail was of the same order of magnitude as the cost of the mail itself. And so the flat rate scheme for mail, that is prevalent worldwide today, was born.

Putting it in technical terms, transaction costs trumped price discrimination in this case. Price discrimination is the art (yes, it’s an art) of charging different amounts to different people based on their differential willingness to pay. Uber surge pricing is one example (I have a chapter in my book on this). Airline fares are another common example.

Until the late 18th century (well after mail prices had gone “flat”), price discrimination was rather common everywhere, a concept I have devoted a chapter to in the book. In fact, the initial motivation for fixed price retail was religious – Quakers, who owned many departmental stores in the US North-East, thought “all men are created equal before God” and so it was incorrect to charge different amounts to different people.

Soon other benefits of fixed prices became apparent (faster billing; less training for staff; in fact it was fixed prices that permitted the now prevalent supermarket format), and it took off. The concept is the same as stamps – the transaction cost of figuring out how much to charge whom is higher than the additional revenue you can make with such price differentiation (not counting possible loss of reputation, and fairness issues). Price discrimination at the shop is now confined to high value high margin businesses such as cars.

And it works in other high gross margin businesses such as airlines, hotels and telecom. These are all businesses with high fixed costs and low marginal costs for the suppliers. Low marginal costs has meant that price discrimination ha been termed as “revenue management” in the airline industry.

During the launch function of my book last year, I got asked if Uber’s practice of personalising fares for passengers is fair (I had given a long lecture on how Uber’s surge pricing is a necessary component of keeping average prices low and boosting liquidity in the taxi market). I had answered that a marketplace needs to ensure that its pricing is perceived as being “fair”, else they might lose customers to competitors. But what if all players in a market practice extreme price discrimination?

Thinking about it, transaction costs will take care of price discrimination before businesses and marketplaces start thinking of fairness. Beyond a point (the point varies by industry), the marginal revenues from price discrimination will fall below the transaction cost of executing this discrimination. And that poses a natural limit to how much price discrimination a business can practice.