Commenting on social media

While I’m more off than on in terms of my consumption of social media nowadays, I find myself commenting less and less nowadays.

I’ve stopped commenting on blogs because I primarily consume them using an RSS reader (Feedly) on my iPad, and need to click through and use my iPad keyboard to leave comments, a hard exercise. And comments on this blog make me believe that it’s okay to not comment on blogs any more.

On Facebook, I leave the odd comment but find that most comments add zero value. “Oh, looking so nice” and “nice couple” and things like that which might flatter some people, but which make absolutely no sense once you start seeing through the flattery.

So the problem on Facebook is “congestion”, where a large number of non-value-adding comments may crowd out the odd comment that actually adds value, so you as a value-adding-commentor decide to not comment at all.

The problem on LinkedIn is that people use it mostly as a medium to show off (that might be true of all social media, but LinkedIn is even more so), and when you leave a comment there, you’re likely to attract a large number of show-offers who you are least interested in talking to. Again, there’s the Facebook problem here in terms of congestion. There is also the problem that if you leave a comment on LinkedIn, people might think you’re showing off.

Twitter, in that sense, is good in that you can comment and selectively engage with people who reply to your comment (on Facebook, when all replies are in one place, such selective engagement is hard, and you can offend people by ignoring them). You can occasionally attract trolls, but with a judicious combination of ignoring, muting and blocking, those can be handled.

However, in my effort to avoid outrage (I like to consume news but don’t care about random people’s comments on it), I’ve significantly pruned my following list. Very few “friends”. A few “twitter celebrities”. Topic-specific studs. The problem there is that you can leave comments, but when you see that nobody is replying to them, you lose interest!

So it’s Jai all over the place.

No comments.

InMails and the LinkedIn backfire

A few months back I cleaned up my connections list on LinkedIn. Basically I removed people who I don’t “know”. I defined “know” as knowing someone well enough to connect them to someone else on my network (the trigger for a cleanup was when someone asked me to connect them to someone else on my network who I hardly knew).

The interesting thing about the cleanup was that a lot of the spurious connections I had on LinkedIn were headhunters. Thinking back at how they got in touch with me, in most cases it was with respect to a specific opportunity for which they were finding candidates. Once the specific opportunity had been discussed there was no value of us being connected on LinkedIn, and were effectively deadweight on each other’s networks.

Over the last couple of days, ever since I wrote this piece for Mint on valuation of startup ratchets, I’ve got several connection requests, all from people I don’t know. Normally I wouldn’t accept these invitations, but what is different is that most requests have come with non-standard messages attached. Most have mentioned that they liked my Mint piece and so want to either connect or discuss it.

When you want to simply exchange messages with someone, there is no need to really add them as a “friend”. Except that LinkedIn’s pricing policy makes this kind of behaviour rational.

LinkedIn offers a small number of “InMails” which you can send to people who you aren’t directly connected to. Beyond this number, each InMail costs you money. So if you want to have a discussion with someone you’re not connected with, there’s an element on friction.

There’s a loophole, however. You can send messages for free as long as they go along with a connection request. And if that request is accepted, then you can have a “free” conversation with that person.

So given the current price structure, if you want to have a conversation with someone, you simply send your initial message as part of a friend request. If the person wants to continue the conversation, the request will get accepted. If not you haven’t lost anything!

Then again, there are mitigating features – an InMail won’t get charged unless there is a reply, and LinkedIn’s UI is so bad that it takes effort to read messages attached to connection requests. So this method is not foolproof.

Still, it appears that LinkedIn’s pricing practice (of charging for InMails) is destroying the quality of the network by including spurious links. I guess they’ve done a cost-benefit analysis and believe that the cost of spurious connections is far lower than the revenue they make from InMails!

 

Revisiting IPOs

I’ve written several times (here, here and here) that the IPO pop is unfair to existing shareholders since they end up selling the stock cheaper than necessary. Responses I’ve received to this (not all on the blog comments) have mostly been illogical and innumerate, talking about how the pop “increases the value of the entrepreneurs’ holdings”, and that the existing shareholder “should be happy that the value has gone up” rather than wondering why he sold his shares at the low value.

Thinking about this in the context of the impending Cafe Coffee Day IPO, I realised that a pop is necessary (though not maybe to the extent of the MakeMyTrip and LinkedIn pops), because investors need some incentive to invest in the IPO rather than buying the stock in the secondary market after listing.

Secondary markets have superior price discovery compared to primary markets since the former have several (close to infinite) attempts at price discovery, while the latter have only one attempt. Also, prices in the secondary market change “slowly” (compared to the price difference between primary and secondary market), so even if someone has invested at a price they later have dissonance with, they can reverse the investment without incurring a high cost.

For this reason, if you want to invest in a company and want to know that you are paying a “fair price”, investing in secondary markets is superior to investing in primary markets. In other words, you need a higher incentive in order to buy in primary markets. And this incentive is provided to you in the form of the IPO pop.

In other words, the IPO pop is an incentive paid to the IPO buyer in exchange for investing at a time when the price discovery is in a sense incomplete and cannot be particularly trusted. Rather than pricing the IPO at what bankers and bookbuilders think is the “fair price”, they will price it at a discount, which offers IPO investors insurance against the bankers having made a mistake in their pricing of the IPO.

And how much to underprice it (relative to any “fair price” that the bankers have discovered) is a function of how sure the bankers are about the fair price they have arrived at. The greater their confidence in such a price, the smaller the pop they need to offer (again, this is in theory since investors need not know what fair price bankers have arrived at).

The examples I took while arguing that the IPO pop is unfair to existing shareholders were MakeMyTrip and LinkedIn, both pioneers in some sense. LinkedIn was the first major social network to go public, much before Facebook or Twitter, and thus there was uncertainty about its valuation, and it gave a big pop.

MakeMyTrip was a travel booking site from India listing on NASDAQ, and despite other travel sites already being public, the fact that it was from an “emerging market” possibly added to its uncertainty, and the resulting high pop.

So I admit it. I was wrong on this topic of IPO pops. They do make sense, but from a risk perspective. Nothing about “wealth of existing shareholders increases after the pop”.

Pricing likes and the facebook algorithm

There is a good friend of mine who is a compulsive “LinkedIn liker”. Anything anyone in his network writes (either a LinkedIn blog or a status update or a job announcement), he is extremely likely to “like” them. While that helps the authors of such updates in getting their messages across to this guy’s networks also, the thing is that such likes add little value. If an update has come on my timeline because this guy has liked it, I’ll take it with salt since I know that this guy’s likes are “cheap”.

I don’t want to single out this guy, but there are several others on my Facebook friend list who are also compulsive likers. They like just about everything that they see, but the Facebook algorithm (by which not all of your updates are shared with all of your friends) means that their incidence is less than that of the LinkedIn liker. Then I have this one follower on Twitter who unfailingly likes each tweet of mine with a link. He engages in conversation very very sporadically, but like he does all the time!

So this got me thinking on the value of people’s likes, and what would happen if likes were to be rationed. I know it’s going to be hard to implement, but if you wee told that you had a quota of 10 likes that you could dole out in a day, how would you then ration your likes? Would such a cap make likes more valuable?

The reason this matters is that the number of likes has now become a metric that social media marketers track, and if some people’s likes are less valuable than others’, it is essentially a useless metric (and I know the problem is with the metric, not with likes). Even otherwise, from an information perspective, knowing the value of each person’s likes is useful for you in making up your mind on something!

So if say facebook decides that you get 10 free likes a day and have to pay for any more, how does that change your liking behaviour? For your 11th like, will you pay or go unlike something you’ve already liked? As a thought experiment, it is fascinating!

And while we are discussing Facebook, I must mention that I absolutely loathe its algorithm. I don’t know how it works, but it seems to me that the better updates that I put there just never get carried to my network, but some random updates that I sometimes put get propagated like crazy. I’ve been trying to reduce the number of updates there so that each update has a greater probability of getting propagated, but it just doesn’t seem to help!

And I was thinking about Facebook’s algorithm, and Twitter’s non-algorithm where every tweet you put gets carried to all your followers. Since Twitter doesn’t filter, all your followers have an opportunity to see all that you say. But the problem there is that since your followers see tweets of everyone on their timelines, your tweet is likely to get lost in the competition for attention.

So basically Twitter is like a free market where you have everyone’s tweets that get shown and compete for a follower’s attention. Facebook is like a more regulated market where there is no clutter, so every update gets undivided attention, but there is a Big Brother which decides who should see what!

I wonder if Facebook has considered making its algorithm public, and if it does, if it will have any impact on how people share. The value it will have for me is that at least I will know whether an update will get carried or not, and time and space my updates properly. But considering that one of Facebook’s revenue sources is to be paid by users to propagate their updates further, revelation of the algorithm will result in lower revenues for Facebook, so they’ll never do that.

I might just get all disgusted with the algorithm and quit Facebook some day.

More on IPOs

In the past I’ve written on this blog that IPOs that open with a pop are actually unfair to the existing shareholders of the company, and are not as “successful” as reported by the media. To this, people from the industry have pointed out that the “pop” (increase in share price on the day of listing) actually increases the value of the shares held by the existing shareholders and hence this is a good deal.

I’ve always been unsure about this kind of analysis, and have held it suspiciously as one of those views held by people who accept “received wisdom” without much questioning and so much of such wisdom gets received that it becomes a thing. While investment bankers are usually incentivised on a percentage of the money raised by the IPO, considering that they are a platform for trading, they choose to forego some of that income by transferring money to the other side of the market – the “buy side” who are their more consistent customers.

In the aftermath of the LinkedIn IPO which I had written about in a similar context a few years back,  Facebook went public and it seems like they had put immense pressure on their bankers (Morgan Stanley if I’m not wrong) to “not leave money on the table”. And the IPO had opened rather flat. Not great for investors but excellent for Mark Zuckerberg and other old shareholders in Facebook.

Anyway, the reason I revisit this topic is this IPO by this Chinese company called Beijing Baofeng. Check out its share price movement:

The reason you see the neat step graph is that on each trading day following its IPO the share has hit the upper circuit breaker (at which point trading in the security is closed for the day). The inimitable Matt Levine has mentioned in his daily newsletter (which I subscribe to, and you should, too) that the stock has gained 1600% after the IPO, which makes LinkedIn’s doubling of share price on IPO day look like child’s play!

A takeaway from this is that investment banking remains strong as an industry, and bankers continue to shaft their hapless clients (or, if we should give them more credit, are so inept that they consistently underprice IPOs). It would be a great industry to get into except that they’re not hiring (a straw poll I conducted in the IIMB class I taught showed that hardly anyone had got a banking job)!

I continue to wonder how the IPO industry can be disrupted!

Useless LinkedIn

I’m not a big fan of LinkedIn. I mean, I use it, and fairly regularly at that (check it at least once a day), and I think conceptually it’s quite useful. However, in practice, I think there are a number of sticking points about the service, which makes it quite useless.

For starters its apps (iPad and Android) are quite lousy, and offer nowhere close to the kind of experience that the web interface offers. Things are extremely unintuitive (down to the tabbing order – you compose message, hit tab and enter, and you don’t send the message. It takes you to the profile of the person you’re messaging instead) on the website. Sometimes the apps show notifications even after you’ve checked them on the web, and so on.

In other words it’s an extremely poorly engineered product, but which is surviving (and thriving) thanks to network effects!

I might have commented on this in the past but there is this thing on endorsements. This was something that coincided with the time when LinkedIn went public (if I’m not wrong), and you could endorse people for their “skills” on LinkedIn. For a while I played along with the game. But then I completely lost it when a distant uncle who I’m sure has never traded derivatives endorsed me for “derivatives”. I quickly deleted my skills.

Then there are the LinkedIn recommendations, which has inherent selection bias and hence adds no value. And then you have the “say goncrats” feature, where LinkedIn prompts you to “say congrats” on people changing jobs or hitting job anniversaries. I’ve found this mildly useful (dropping a note when someone switches jobs is a good way to stay in touch), but there are the bugs in terms ofjob downgrades and people getting fired.

And of late, there has been serious spam in terms of people’s status updates. I don’t know when it became popular to post silly puzzles on professional networking sites, yet I find several of them popping up on my timeline every day, and the number of people who have shared each is not funny. Then you have these cartoons (Dilbert and the copycats), and “guru quotes” that appear in the form of images that further spam your timelines! The only way I can think of these being useful is that they act as a negative indicator when you’re checking out the profile of someone you are looking to hire or do business with!

To summarise, LinkedIn seems to be an extremely badly engineered product on several counts, but thanks to network effects (so many people are already on it that entry barriers for competitors are really high) the site still manages to do well! I wonder what it will take to disrupt it. Facebook for business is not the answer for sure – the potential havoc caused by a breach in chinese walls there will scare people enough to not sign up.

What do you think? Here is their stock price movement for reference:

 

 

LinkedIn, WhatsApp and Freaky Contact Lists

So one of the things I do when I’m bored is to open the “new conversation” (plus sign) thing on my WhatsApp and check which of my contacts are there in my WhatsApp social network. I do this periodically, without any particular reason. On the upside, I see people who I haven’t spoken to for a long time, and this results in a conversation. On the downside, this is freaky.

The problem with WhatsApp is that it automatically assumes that everyone in your phone book is someone you want to keep in touch with. And more likely than not, people make their WhatsApp profile pictures visible to all. And sometimes these profile pictures have to do with something personal, rather than a simple mugshot. Some people have pictures of their homes, of their kids, and of better halves. And suddenly, everyone who has their number on their phone book gets a peek into the part of their lives they’ve chosen to make public by way of their WhatsApp profile pictures!

Some examples of people on my phone book into whose lives I’ve thus got a peek includes a guy who repairs suitcases, a guy who once repaired my refrigerator, a real estate broker whose services I’d engaged five years back to rent out my house, and so forth. And then there are business clients – purely professional contacts, but who have chosen to expose through their WhatsApp profile pictures aspects of their personal lives! Thus, through the picture function (of course you can choose to not make your picture public), you end up knowing much more about random contacts in your phone book than you need to!

The next level of freakiness comes from people who have moved on from the numbers that they shared with you. So you see in the photo associated with an old friend someone who looks very very different and who is definitely not that friend! And thanks to their having put pictures on WhatsApp, you now get an insight into their personal lives (again I tell you that people put intensely personal pictures as their WhatsApp profile pictures). I haven’t tried messaging one of these assuming they are still the person who is my friend and used to once own their number!

Then there are friends who live abroad who gave you the numbers of close relatives when they were in town so that you could get in touch with them. These numbers have now duly passed back on to the said relatives (usually a parent or a sibling) of your overseas friends, and thanks to the pictures that they put on WhatsApp, you now get an insight into their lives! Then you start wondering why you still have these contacts in your phonebook, but then it’s so unintuitive to delete contacts that you just let it be.

The thing with Android is that it collects your contacts from all social media and puts them into your phone book – especially Facebook and LinkedIn. On Facebook people are unlikely to give out their phone numbers, and everyone on my facebook friends list is my friend anyway (today I began a purge to weed out unknown people from my friends list) it’s not freaky to see them on your whatsapp. But then thanks to the Android integration, you have your LinkedIn contacts popping up in your address books, and consequently whatsapp!

Again, LInkedIn has a lot of people who are known to you, though you have no reason to get to know their personal lives via the photos they put on WhatsApp. But on LinkedIn you also tend to accept connection requests from people you don’t really know but think might benefit from associating with them at a later date. And thanks to integration with WhatsApp, and profile pics, you now get an insight into the lives of your headhunters! It’s all bizarre.

So yes, you can conclude that I might be jobless enough to go through my full WhatsApp contacts list periodically. Guilty as charged. The problem, though, is that people don’t realise that their WhatsApp profile pictures are seen by just about anyone who has their number, irrespective of the kind of relationship. And thus people continue to put deeply personal pictures as their WhatsApp profile pictures, and thus bit by bit give themselves away to the world!

The solution is simple – put a mugshot or a “neutral” photo as your WhatsApp profile picture. You don’t know how many people can see that!

The Risk of Overspecialization

A couple of months back i got an upgrade to my LinkedIn account that allows me to write essays there, which I occasionally use to spout management level gyaan. While it leads to fragmentation of my writing (there are already three blogs, including this one, and Mint), it helps create conversations on LinkedIn and in personal brand building.

So today I wrote a post on LinkedIn on the risk of overspecialization. The basic concept is that when you work at a large company you run the risk of specializing in something so narrow (which makes sense in the large company) that you are unable to transfer this skill to another job, and that leads to reduced job hunting opportunities.

Go ahead and read the whole post.

Job upgrades and downgrades, and LinkedIn

I think I’ve ranted about LinkedIn here before. I’ve talked about the pointlessness of LinkedIn recommendations (due to selection bias), the further pointlessness of skill endorsement (a desperate attempt by now-public LinkedIn to get users to interact more with each other) and the seemingly ungrammatical “say congrats” (some of these rants might have been on twitter, so not bothering to pull up links).

This post is again about the “say congrats” feature on LinkedIn. When you change your job (or, change your job title on LinkedIn), your contacts see the change on their timeline, with a helpful “say congrats on the new job” hint.

Now, the problem is that not all job changes are upgrades! Sometimes, you might get fired and change your headline from “XXX at YYY” to “ZZZ industry professional”, and LinkedIn asks your contacts to “say congrats”. Another time, you might get tired of your old job, and boldly state on your LinkedIn headline that you are looking for new opportunities (eg. “Software Engineer at XXX, looking for new opportunities”), and LinkedIn again jumps the gun and asks your friends to “say congrats”. At other times, you might make a job switch which looks eminently like a downgrade (especially for people who understand both your old and new jobs). And LinkedIn rubs it in and asks your contacts to “say congrats”.

It seems like LinkedIn needs better data scientists. And people who can make better sense of how to get their users to talk to each other and create value out of a network that is well past its fast growth phase.

IPOs Revisited

I’ve commented earlier on this blog about investment bankers shafting companies that want to raise money from the market, by pricing the IPO too low. While a large share price appreciation on the day of listing might be “successful” from the point of view of the IPO investors, it’s anything but that from the point of view of the issuing companies.

The IPO pricing issue is in the news again now, with LinkedIn listing at close to 100% appreciation of its IPO price. The IPO was sold to investors at $45 a share, and within minutes of listing it was trading at close to $90. I haven’t really followed the trajectory of the stock after that, but assume it’s still closer to $90 than to $45.

Unlike in the Makemytrip case (maybe that got ignored since it’s an Indian company and not many commentators know about it), the LinkedIn IPO has got a lot of footage among both the mainstream media and the blogosphere. There have been views on both sides – that the i-banks shafted LinkedIn, and that this appreciation is only part of the price discovery mechanism, so it’s fair.

One of my favourite financial commentators Felix Salmon has written a rather large piece on this, in which he quotes some of the other prominent commentators also. After giving a summary of all the views, Salmon says that LinkedIn investors haven’t really lost out too much due to the way the IPO has been priced (I’ve reproduced a quote here but I’d encourage you to go read Salmon’s article in full):

But the fact is that if I own 1% of LinkedIn, and I just saw the company getting valued on the stock market at a valuation of $9 billion or so, then I’m just ecstatic that my stake is worth $90 million, and that I haven’t sold any shares below that level. The main interest that I have in an IPO like this is as a price-discovery mechanism, rather than as a cash-raising mechanism. As TED says, LinkedIn has no particular need for any cash at all, let alone $300 million; if it had an extra $200 million in the bank, earning some fraction of 1% per annum, that wouldn’t increase the value of my stake by any measurable amount, because it wouldn’t affect the share price at all.

Now, let us look at this in another way. Currently Salmon seems to be looking at it from the point of view of the client going up to the bank and saying “I want to sell 100,000 shares in my company. Sell it at the best price you can”. Intuitively, this is not how things are supposed to work. At least, if the client is sensible, he would rather go the bank and say “I want to raise 5 million dollars. Raise it by diluting my current shareholders by as little as possible”.

Now you can see why the existing shareholders can be shafted. Suppose I owned one share of LinkedIn, out of a total 100 shares outstanding. Suppose I wanted to raise 9000 rupees. The banker valued the current value at $4500, and thus priced the IPO at $45 a share, thus making me end up with 1/300 of the company.

However, in hindsight, we know that the broad market values the company at $90 a share, implying that before the IPO the company was worth $9000. If the banker had realized this, he would have sold only 100 fresh shares of the company, rather than 200. The balance sheet would have looked exactly the same as it does now, with the difference that I would have owned 1/200 of the company then, rather than 1/300 now!

1/200 and 1/300 seem like small numbers without much difference, but if you understand that the total value of LinkedIn is $9 billion (approx) and if you think about pre-IPO shareholders who held much larger stakes, you know who has been shafted.

I’m not passing a comment here on whether the bankers were devious or incompetent, but I guess in terms of clients wanting to give them future business, both are enough grounds for disqualification.