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.

Dam capacity

In Mint, Narayan Ramachandran has a nice op-ed on the issue of dam capacity and damn management in the wake of the floods in Kerala last year. In that, he writes:

For dams to do their jobs in extreme situations, they should have large unfilled capacity in their reservoirs when extreme events occur

Reading this piece reminded me of Benoit Mandelbrot’s The (Mis)Behaviour of Markets, and his description of the efforts of the colonial British government in Egypt in deciding the height of the Aswan dam. The problem with the Nile was “long range dependence” – the flow in the river in a year was positively correlated with the flow in the previous few years. This meant that there would be years of high flow followed by years of low flow.

The problem was solved by a British hydrologist Harold Edwin Hurst by looking at thousands of years of data of the flooding of the Nile (yes, this data was available), and there is a nice description of it in Mandelbrot’s book.

I had taken a few insights from this chapter for my own piece on long-range dependence in stock markets that I had written for Mint a few years back.

Coming back to Narayan’s piece, one problem is that in India we have an obsession with keeping dams filled up. In Karnataka, for example, every year during the monsoons, newspapers keep track of the level of water in the major reservoirs, expressing worry in case they’re not full enough. In that sense, I guess our dams haven’t been planned for long-range water sharing, and that has contributed to problems such as sudden water release.
Also not helping matters I guess is the fact that a lot of rivers flow across states, and the level of dams is a source of negotiation between states, and this leads to further keeping them small and ill-geared to long term water management.