Clubhouse and Reputation Building

For a couple of weeks after I joined Clubhouse (about a couple of months back, I think), I was enthusiastic about the platform. Every evening, when I was bored, I would log on to see if there was some interesting conversation happening. I participated in a few. I even blocked one (particularly obnoxious) guy.

Now I’m beyond it. I still check the app out of habit to see if something interesting is happening, but most of the time nothing interesting is. I don’t know if people are using Clubhouse the way they used to.

In any case, I was just thinking of Clubhouse in the context of reputation building. The thing with Clubhouse is that it is truly a “social network” – to create anything you need a “society” to create it with.

Blog is individual – everything that comes here is pretty much my own effort. Twitter as well. Even Instagram. And TikTok. All these mediums allow solo creators to create stuff, get following based on that and then build a reputation.

A few months back I had written about “credentialed and credential free network“, in terms of whether “external credentials” are useful in making someone successful on a particular social network.

Blogging, as it grew through the noughties, was largely credential-free, and most people built reputations through the sheer quality of their content. TikTok is similar as well. As for Instagram and Twitter, while people have managed to build a following and reputation through their content alone, having credentials outside of the social network has provided a big step up. So the people with the most following on these platforms aren’t necessarily the best at the art of these platforms.

As I think about it, Clubhouse represents one extreme of credentialing – it is virtually impossible to build your own reputation on the platform.

It has to do with the way content is created. Clubhouse content is 1. ephemeral (conversations are not recorded); 2. socially created (you need to get into a room with people who invite you to speak to create content).

The combination of the two means that it is virtually impossible for a newbie to make an impression on the platform. Yes, you can create your own rooms and deliver fantastic monologues  there (that’s a great use case for clubhouse). However, unless you are already connected with the “right people” (in which case you’re “importing credentials”), there is no way for people to discover your awesome content.

The other way to get noticed on Clubhouse is if you are seen talking in rooms where other popular people are speaking. However, the format of Clubhouse means that you need to be invited to speak. If you don’t already have credentials, the likelihood that you’ll be “admitted on stage” when you raise your hand is low, and you get a small number of short intervals to make an impact.

Thus, if you are a “nobody”, unless you are incredibly lucky (and say some spectacular things in the few opportunities when you’re allowed to speak in popular rooms), there is NO WAY you can become a somebody. And that is a problem. And that means that Clubhouse will forever remain a “circlejerk” for people who have built their reputations elsewhere.

I’m not surprised that it has stopped holding my attention.

Confusing with complications

I’m reading this awesome article by Srinivas Bhogle (with Rajeeva Karandikar) on election forecasting. To be fair, not much of the article is new to me – it’s just a far more readable version of Karandikar’s seminal presentation on the topic made at IIT Kanpur all those years back.

However, as with all good retellings, this story also has some nice tidbits. This one has to do with “index of opposition unity”. The voice here is Bhogle’s:

It is easy to understand why the IOU becomes so critical in such situations. But, and here’s the rub, the exact mathematical formula connecting IOU to the seat count prediction is not easy to find. I searched through the big and small print of The Verdict by Dorab Sopariwala and Prannoy Roy, but the formula remained elusive.

Rajeeva suggests that it was likely based on simple heuristics: something like ‘if the IOU is less than 25%, give the first-placed party 75% of the seats.’ It may also have involved intelligent tweaking based on current survey data, historical data, informal feedback, expert opinion, gut feeling, and so on.

I first came across the IOU in Prannoy Roy and Dorab Sopariwala’s book. The way they had presented in the book, it seemed like it is a “major concept”. It seems, like I did, Bhogle also looked through the book trying to find a precise formula, and failed to do so.

And then Karandikar’s insight above is crucial – that the IOU may not be a precise mathematical formula, but just an intelligent set of heuristics, involving intelligent tweaking.

Sometimes putting a fancy name (or, even better, an acronym) on something can help lend credibility to the concept. For example, IOU is something that has been championed by Roy and Sopariwala for years, and they have done so to a level where it has become a self-fulfilling prophecy, and a respected scientist for Bhogle has gone searching for its formula!

Also, sometimes, telling people that you “used an intelligent heuristic” to come up with a conclusion can lead you to be taken less seriously. Put on a fancy name (even if it is something that you have yourself come up with), and the game changes. You suddenly start to be taken more seriously, like Ganesha assumed when he started sending fan mail under the name “YG Rao”.

And like they say in The Usual Suspects, sometimes the greatest trick that the devil ever pulled was to convince you that he exists. It is the same with “concepts” such as IOU – you THINK they must be sound because they come with a fancy name, when all that they apeear to represent is a set of fancy heuristics.

I must say this is excellent marketing.

IPOs and right to match

Long time readers of the blog might know that I’m not a big fan of the IPO pop. I’ve traditionally belonged to the party (led by Bill Gurley) that says that a big IPO pop is akin to “leaving money on the table” for the company.

And so as my party has grown, the IPO process itself has also changed. Way back in 2004, Google allocated shares using a simple Dutch auction. Facebook pushed its bankers hard enough on the IPO price that the IPO “pop” in that case was negative. Spotify and Slack and a few other companies went public in a direct listing. Nowadays you have SPACs. It’s all very interesting stuff for anyone interested in market design.

Over the last few years, though, Matt Levine has been trying hard (and sort of succeeding), in getting to move me to the side that says IPO pops are okay. His first compelling argument was the demand-supply (and market depth) one – in an IPO there is a large offload of shares, and so an IPO buyer can expect to get a discount on the shares. Another is that since the IPO is the first time the stock will be traded, buyers in the IPO are taking risk, and need to be compensated for it in the form of a lower price. Fair enough again.

Matt has outdone himself in his latest newsletter on the topic, where he talks about the IPOs of Roblox and Coupang. About Roblox, he wrote:

I mean, I’ll tell you the answer[1]: Roblox sold stock to venture capitalists at $45, and then it traded up in public markets to $70. In a traditional initial public offering, a company sells stock to mutual funds at $45, and then it trades up in public markets to $70. Venture capitalists are not happy when mutual funds get underpriced stock: It dilutes existing shareholders and “leaves money on the table.” Venture capitalists are of course perfectly happy when venture capitalists get underpriced stock; that’s the business they are in.

This served the purpose of moving me more to his side.

This blogpost, however, is about the Coupang IPO.

All normal enough. But here’s the unusual thing about Coupang. Apparently, of the hundreds of investors who put in orders to buy shares in the IPO—many of whom did roadshow meetings and put in work to understand the company and come up with a price—fewer than 100 were allocated any shares, with most of those shares going to about 25 accounts handpicked by Coupang. Coupang apparently kept tight control over the allocation, choosing its investors itself rather than deferring to its underwriters (led by Goldman Sachs Group Inc.). Now those favored investors—investors favored by Coupang, not investors favored by Goldman—will benefit from the IPO pop. Everyone else, who put in the work and decided they wanted to own Coupang, will have to buy in the aftermarket, from those initial investors, and pay up to do so.

Obviously Coupang has left money on the table, but who cares? Coupang underpriced its IPO, but the beneficiaries of the underpricing are the existing investors that it wanted to benefit.

Basically Coupang announced an IPO at a $27-30 price range. It did a roadshow to gauge investor demand. Demand was strong. And then the price range was upped to $31-34. Demand was strong once again. And then, instead of letting its banker Goldman Sachs price the IPO at 34, and allocate the shares to who Goldman thought would make the best investors, Coupang went to its existing investors and told them “we have a bunch of investors willing to buy our stock at $34. What do you think?”

And the existing investors, finding validation, said “Oh, in that case we can pay $35 for it”. In IPL auction parlance, Coupang’s existing investors basically had a “right to match option”. All the other potential investors were asked, and then the existing investors were “more equal” than the others.

The stock duly popped.

Now, right to match in an IPO might be an interesting structure, but I highly doubt that it will sustain. Basically banks won’t like it. Put yourself in Goldman’s shoes for a moment.

They have done all the hard work of pricing the IPO and taking it to potential clients and doing all the paperwork, and at the end of it, their buy side clients are a mostly pissed of bunch – they’ve again done all the hard work of deciding whether the IPO was worth it and then told that they were cut out of the deal.

The least Goldman’s buy side clients would have wanted is the right to match Coupang’s original investors’ offer ($35). Having done all the hard work, and then being forced to buy the stock (if at all) at the popped price of $49, they will be a totally miffed lot. And they would have conveyed their displeasure to Goldman.

One thing about IPOs is that the companies selling the stock play a one-time game, while the bankers (and IPO investors) play a repeated game, participating in IPOs regularly. And because of this, the incentive structure of IPOs is that bankers tend to favour buy side clients than sell side, and so the big pop. And so bankers will not regularly want to do things that will piss off the buy side, such as offering “right to match” to the selling company’s chosen investors.

So will we see more such IPOs?

My take is that inspired by Coupang, some more companies might insist on a right to match while selling their shares in an IPO. And this right to match will piss off the buy side, who will push back against the bankers and demand a right to match for themselves.

And what happens when both sides (company’s favourite investors and bank’s favourite investors) insist on a mutual right to match? We get an auction of course.

I don’t think anyone will have that much of a problem if IPO share allocation gets resolved by a Dutch auction, like Google did way back in 2004.

Finite and infinite games, and questioning elections

I came across this snippet of an interview of Dr. S Jaishankar, India’s foreign minister.

 

In this, among other things, he says that “in India, nobody questions an election” (in the context of some reports that India is not really a democracy).

This can be simply explained by the concept of finite and infinite games, something I’ve spoken here about for a long time now, ever since I read the book of the same name by James Carse.

In general, in a stable democracy, parties don’t question election results because they know that the only way they can get back to power at a later point in time is by winning a similar election. In other words, if a party that loses an election were to question its legitimacy, it’s own victory in a subsequent election can be similarly undermined.

In other words, in a stable democracy, parties play an infinite game, where the potential short-term benefit of questioning an election gets trumped by the long-term benefit of using the same apparatus for winning subsequent elections.

So what explains America and Donald Trump’s questioning of the elections?

Notice that above, I said that “parties play an infinite game”. Individual politicians, on the other hand, can also play finite games. Given his age, Trump pretty much knew that the 2020 election (that he lost to Biden) was likely going to be his last. If he lost these elections (as he did), he would be out of power for the rest of his life. And so it made sense to him to question the results.

I’m pretty sure that the Republican party establishment (or whatever is left of it) wouldn’t have wanted to question the election, because as a party they are playing an infinite game, and what they need is the same election apparatus to come back to power next time round, or some time in the future.

The difference, in this regard, between India and the US, is the form of government. In a parliamentary system (at least in theory), and one with anti-defection laws, the party is supreme. However much a leader tries, he can never be superior to the party. And so the party’s incentives (infinite game) trump’s the leader’s (possibly finite game), and elections are not questioned.

The presidential system in the US means the leader trumps the party, at least within an election cycle, and so Trump’s finite game trumped the Republican party’s infinite game, and the results were questioned.

Shopping for girls

Maybe this can be my “international women’s day” post.

We went shopping yesterday, after a very long time. We had to shop for all three of us (wife, daughter and I). And we went to a few large stores in Mantri Mall and ended up shopping in the men’s section, women’s section, girls’ section and boys’ section.

You read that right. We shopped in the boys’ section. And no, we didn’t buy anything for gifting. The reason we shopped in the boys’ section was to buy our daughter nice clothes.

Last week, union minister Smriti Irani made this statement somewhere:

The problem is that even if we as parents want to be progressive and want to bring up our daughter without creating gender biases, the world conspires to reinforce gender biases into her. We find that visiting relatives and friends gift her Barbie dolls. There is “pattern recognition” from things she sees around her (last year she shocked us by saying that it was OK for a boy to hit others but not for a girl). Boys her age are not beyond making sexist comments.

But the biggest reinforcer of childhood gender norms, we’ve seen, are clothes shops, and this is a thing we’ve seen both in the UK and in India.

For some reason, clothes manufacturers have collectively decided that the only thing little girls want to wear is bling – every shirt, and skirt, and pair of shorts, and shoes, inevitably have some frills or some bling attached to them. Beyond a point, as we are shopping, it becomes unbearable to even consider such clothes. And we naturally gravitate towards the boys’ section.

Where, for whatever reason, the selection is far more palatable. No-frill (pun intended) T-shirts and comfortable trousers are conspicuous by their abundance. The design on the printed T-shirts are far better (like last year we got her a T-shirt with the nine (clearly a pre-2005 design) planets on it, which she loves wearing). Shoes are comfortable and you can actually run in them.

At pretty much any given point of time in her entire lifetime, the daughter has owned at least half a dozen pieces of clothing that have been shopped from boys’ sections of clothes shops.

There are limitations, of course – that women’s shirts have buttons on the left means that it is easy to identify “cross-dressing” when it comes to polos and button-down shirts. A lot of boys’ clothes are franchise driven, and not the sort of franchises that my wife or I would endorse (there is an overabundance of Disney stuff, such as Marvel, and not enough heavy metal).

And we were worried that once the daughter learnt to read, she would herself start objecting to wearing clothes bought from boys’ section – thankfully, until now at least, that fear hasn’t borne out. She happily selected clothes from boys’ sections yesterday, and even bought a cute T-shirt that said “King of … “.

I really don’t know when children’s clothes designers and merchandisers realise that girls want nice clothes as well – and not just frills and bling. Until then, as long as the daughter approves that is, we’ll be shopping in the boys’ section.

ISAs and Power Laws

There are a number of professions where incomes are distributed according to a power law. The most successful people in the professions corner a very large share of the income that people in the profession make, and unless you reach that very high level of success, you might even struggle to make a living wage.

Professions of this nature include the arts (movies, music, drama, standup comedy, painting, sculpture, etc.), sports, writing and entrepreneurship. The thing with such professions is that it needs some degree of “socialism” – if people are left to their own devices, then the 99% confidence payoffs will mean that few people will enter the profession, and when fewer people enter the profession, the overall quality of the profession goes down.

So what is required in this case is some sort of a safety net – people who are reasonably competent at the profession get paid a sort of regular basic income (could either be one-time, periodic or output-based) by “investors” in exchange for a cut of the upside. And this, for a talented but struggling beginner, is usually a good deal – they are assured a basic income to pursue what they love and think they are good at, and anything they have to pay in return is only probabilistic – contingent upon a heavy degree of success.

And in order for this kind of safety net to work, it is important that the investment be of the nature of “equity” rather than “debt” – the extreme power law nature of these professions is that only a small proportion of the people who get the safety net will be able to pay back, and those that are able to pay back will be able to pay disproportionately large amounts.

Entrepreneurship and film acting have sort of done well in terms of providing these safety net. Entrepreneurs get venture capital investment, which allows them to fund their business and take (nominal) salaries, while working on the thing they hope to make it big in. The venture capitalists make money even when a small proportion of their investments don’t fail.

The model in acting is a little different- studios hire actors on long term contracts at negotiated salaries. These salaries give actors the safety net to continue in the profession. And in case the actors become popular, the studios cash out essentially by “encashing the option” of using the actor at the pre-negotiated rate for the duration of the contract.

There are other examples of these safety nets as well – artist studios pay their artists a basic wage, in exchange for a cut on the sale of their paintings. However, the model is not as popular as it seems.

For sportspersons, for example, apart from things like the Ranji Trophy increasing match fees in a big way in the late noughties, this kind of a safety net has been absent. The studio model in acting hasn’t held on. Writers get advances but that doesn’t represent much of a “living wage”.

The good news is that this is changing. Investment in athletes in exchange for a cut of future earnings is gaining traction. And now we have this deal ($):

Taxes will cut into his new 14-year agreement with the Padres, of course. But Tatis also must pay off a previous obligation, a deal he made during the 2017-18 offseason, when he was turning 19 years old and preparing for his first full season at Double A.

It was then that Tatis entered into a contract with Big League Advance (BLA), a company that offers select minor leaguers upfront payments in exchange for a percentage of their future earnings in Major League Baseball. Neither Tatis nor BLA has revealed the exact percentage he owes the company.

The company’s president and CEO, former major-league pitcher Michael Schwimer, told The Athletic in April 2018 that BLA uses a proprietary algorithm to value every player in the minors. Players who receive offers can accept a base-level payout in return for 1 percent of their earnings, with the chance to receive greater incremental payouts and pay back a maximum of 10 percent. If a player never reaches the majors, he keeps the cash advance, with no obligation to pay it back.

This is an awesome thing. For a struggling potential sportsperson, a minor investment (in exchange for equity) can provide a huge boost in their chances of making it – hiring coaches, for example, or eating better food, or living more comfortably.

While the media attention will go to the small proportion of investments that do pay off (like how tech media gives disproportionate coverage, and quite rightly so, to startups that do well), arrangements like this mean that more people will play the sport, and the overall standard in the sport will improve.

We need to see if such arrangements start making a mark in the rest of the arts and writing as well.

Oh, and much has been made of income sharing agreements for professional colleges and “tuition centres”. I’m not sure that is the right model there – the thing is that if you are studying to be a software engineer, your payoffs don’t follow a power law. Yes, if you are successful, you make a few orders of magnitude more money than the less successful ones, but even an average software engineer can expect to make a fairly decent income.

From that perspective, selling equity in your future earnings to get paid to study engineering is not a great idea, and can lead to adverse selection on the part of the candidates (the better ones will prefer to get funding through debt, which their average salaries can help pay off). In that sense I prefer what the likes of MountBlue are doing, where the “training fees” get paid off by simply working for the company for a certain period of time.

 

 

More on Diversity and Inclusion

Diversity and Inclusion are words that are normally thrown around by people of a certain persuasion. In fact, they were among the key principles espoused by one of my earlier employers as well (to their credit, some of their diversity and inclusion sessions did a lot of help broaden my worldview).

However, as I’ve argued earlier on this blog, in a lot of cases, arguments on diversity and inclusion are (literally) only skin deep – people go big on diversity of sex, sexuality, skin colour, nationality and so on while giving short shrift to things like diversity of thought, which in my opinion plays a larger role in building a more successful team.

I’ve also mentioned earlier on this blog about how some simple acts of inclusion can go a long way – for example, I’d mentioned about how building a pedestrian walkway, or pedestrian crossing with signals, would help make one of the roads in Bangalore more inclusive towards pedestrians (a class of people the usual proponents of diversity and inclusion don’t care about).

I was reminded of diversity and inclusion when the recent hoopla about messaging apps happened. A number of my contacts said they were leaving WhatsApp and moving to Telegram or Signal. Others said they weren’t going anywhere and were sticking to WhatsApp, and that Facebook’s new privacy rules were nothing new.

From my personal point of view, since I didn’t have a view on this messaging apps issue, the best solution turned out to be “inclusion”.

I’m on all apps. I’m on Signal, and Telegram, and WhatsApp, and iMessage, and good old SMS. However you choose to reach me, I’m there to receive your message and respond to you. In that sense, when you don’t have a strong opinion, the best thing to do is to be inclusive.

Of late I’ve realised it’s the same with language. Since I now work for a company that is headquartered in Gurgaon, a number of colleagues instinctively speak in Hindi. Initially I used to be a bit snobbish, and tell them that my Hindi sucked, and when they spoke Hindi, I would reply in English.

Over time, however, I’ve realised that I’m only being an asshole by refusing to be inclusive. Since I know Hindi (I got more marks in Hindi in Class 10 board exams than I did in English – not that that says anything), I should let the people decide whether I’m worth talking to in Hindi at all. I’ll talk to them in my broken Hindi, and if they think it’s too broken they can choose to switch to a language I’m more comfortable in.

And a week ago, Pranay and Saurabh of the Puliyabaazi podcast asked me if I’m willing to go on their (Hindi) podcast to talk about logical fallacies and “how not to use data”. I immediately accepted, not only because it’s a great podcast to be on (they’re fun to talk to), but it also gives me an opportunity to show off my broken Hindi.

The episode dropped on Thursday. You can listen to it here:

I realised while I was recording that my Hindi has become really rusty, and I found myself struggling for words many times. I also realised after the episode dropped that I don’t even understand what the title means, yet I’ve been happily sharing it around in my office! (a colleague kept asking me if I knew this word and that word, and I realised the answer to all that was no. Yet I had made assumptions and gone on with the podcast – another example of my own “inclusiveness”!)

Henceforth I’m never telling a colleague that I don’t know Hindi. However, if I find that someone overestimates my level of Hindi I might inflict this podcast on them. Even then, if they choose to speak to me in Hindi, so be it! I’m going to make an attempt to be more inclusive, after all.

 

Apolitical fake news

For the last 4-5 years, the ills of “political fake news” have been well documented – documented well enough that I don’t even need to link to them (I think). However, there is another kind of fake news that doesn’t get the sort of (negative) attention it deserves – unbiased or apolitical fake news.

Before we describe such news, a couple of frameworks. Firstly, there are two kinds of media publications – periodicals and perennial. Periodicals deliver news at a certain periodicity – daily or weekly or monthly or whatever. Their job is to tell the reader what happened in the world (or the subset of the world that the publication focuses on) since the previous edition. Examples of periodicals include newspapers and magazines and the 9 o’clock (or whenever) news on Doordarshan.

The other side is perennials, which are “always on”. When some news breaks, their mandate is to break it to their audience as quickly as possible. When there is no breaking news, they need to make up something, or analyse, or have talk shows and shouting matches, or whatever. Examples of perennial publications include 24×7 TV channels and twitter.

The second framework is something I’ve written about a fair bit – on finite and infinite games. This was introduced by the late NYU philosopher James Carse. The basic concept is that the objective of a finite game is to win. There is a particular end point. In an infinite game, there is no concept of “winning”. The objective is to just continue playing. I think it’s a rather profound theory, and has consequences in lots of facets of life.

Including media. My argument is that periodicals play a finite game and perennials play an infinite game.

The objective of a periodical is to make each issue good enough that the reader/viewer continues the subscription until the next issue. This might, at face value, appear like an infinite game, but from the point of view of a single edition, it is a finite game. If the reader/viewer continues subscription (however you define it) till the next issue, you have “won”.

It is different with perennials because there is no discrete “next edition”. The next edition of a next edition is the next minute. And that makes the “game” mentioned in the earlier paragraph hard to play. Instead, running a perennial media house is like playing an infinite game, where your objective is to make sure that the viewer/reader “continues to play the game”, or continues to watch without switching channels or diverting attention.

In other words, the objective of a perennial media house (like a 24×7 media channel, or twitter) is to make sure users stay on the platform. Which is good.

Except that, over a period of time, some of these media houses have figured out that one surefire way of retaining viewership and viewer interest is by stoking viewer anxiety. When a viewer is anxious about something, they want to get as much information as possible about the thing they are anxious about, and continue to hunt for information. This means that they are going to continue to hang around the channel (or social media platform) in the hope of resolving their anxieties. Which means that these channels or platforms “win” the infinite game of retaining audience attention.

And how do these channels create anxiety? By creating outrage. By creating sensationalism. By resorting to fake news, of the kind that is certain to cause anxiety among viewers, in the hope that they will continue to watch (and consume the intervening ads).

I clearly remember the Kaveri riots in Bangalore in 2016 (the week my daughter was born), when Kannada 24×7 news channels took to showing the riots and arson live on TV. And giving reports in a rather sensational voice on how the riots were only going to increase and things are going to get worse. This wasn’t “fake” per se, but sensational and anxiety causing (we kept the TV on one whole afternoon wondering if it was safe to go to the obstetrician’s clinic (300m away from home) ).

And the Kannada 24×7 channels were at it again in 2020 during the covid-19 induced lockdown. One day (in May) suddenly one of them claimed that “all of Bangalore would get sealed down because of increasing cases”. It turned out that two small neighbourhoods were “sealed down” because of a high density of cases there. The rumours of “seal down” were clearly fake news, that clearly created anxiety among the viewers.

I’m only quoting one such instance from this period, but news channels kept at this business of fostering anxiety by saying things that weren’t true (I don’t normally watch these channels, but kept getting informed about these fake “news” by elderly relatives who as a rule keep watching news all the time).

What I’m disappointed by is that this kind of fake news gets no attention at all, compared to the more political sort of fake news which is easy to see through for someone with an iota of brain cells. Then again, the platforms that give footage to the ills of political fake news (twitter, some whatsapp groups, etc) are also perennial news sources themselves and so it doesn’t make sense to call out people of their own ilk.

Monetising volatility

I’m catching up on old newsletters now – a combination of job and taking my email off what is now my daughter’s iPad means I have a considerable backlog – and I found this gem in Matt Levine’s newsletter from two weeks back  ($; Bloomberg).

“it comes from monetizing volatility, that great yet under-appreciated resource.”

He is talking about equity derivatives, and says that this is “not such a good explanation”. While it may not be such a good explanation when it comes to equity derivatives itself, I think it has tremendous potential outside of finance.

I’m reminded of the first time I was working in the logistics industry (back in 2007). I had what I had thought was a stellar idea, which was basically based on monetising volatility, but given that I was in a company full of logistics and technology and operations research people, and no other derivatives people, I had a hard time convincing anyone of that idea.

My way of “monetising volatility” was rather simple – charge people cancellation fees. In the part of the logistics industry I was working in back then, this was (surprisingly, to me) a particularly novel idea. So how does cancellation fees equate to monetising volatility?

Again it’s due to “unbundling”. Let’s say you purchase a train ticket using advance reservation. You are basically buying two things – the OPTION to travel on that particular day using that particular train, sitting on that particular seat, and the cost of the travel itself.

The genius of the airline industry following the deregulation in the US in the 1980s was that these two costs could be separated. The genius was that charging separately for the travel itself and the option to travel, you can offer the travel itself at a much lower price. Think of the cancellation charge as as the “option premium” for exercising the option to travel.

And you can come up with options with different strike prices, and depending upon the strike price, the value of the option itself changes. Since it is the option to travel, it is like a call option, and so higher the strike price (the price you pay for the travel itself), the lower the price of the option.

This way, you can come up with a repertoire of strike-option combinations – the more you’re willing to pay for cancellation (option premium), the lower the price of the travel itself will be. This is why, for example, the cheapest airline tickets are those that come with close to zero refund on cancellation (though I’ve argued that bringing refunds all the way to zero is not a good idea).

Since there is uncertainty in whether you can travel at all (there are zillions of reasons why you might want to “cancel tickets”), this is basically about monetising this uncertainty or (in finance terms) “monetising volatility”. Rather than the old (regulated) world where cancellation fees were low and travel charges were high (option itself was not monetised), monetising the options (which is basically a price on volatility) meant that airlines could make more money, AND customers could travel cheaper.

It’s like money was being created out of thin air. And that was because we monetised volatility.

I had the same idea for another part of the business, but unfortunately we couldn’t monetise that. My idea was simple – if you charge cancellation fees, our demand will become more predictable (since people won’t chumma book), and this means we will be able to offer a discount. And offering a discount would mean more people would buy this more predictable demand, and in the immortal jargon of Silicon Valley, “a flywheel would be set in motion”.

The idea didn’t fly. Maybe I was too junior. Maybe people were suspicious of my brief background in banking. Maybe most people around me had “too much domain knowledge”. So the idea of charging for cancellation in an industry that traditionally didn’t charge for cancellation didn’t fly at all.

Anyway all of that is history.

Now that I’m back in the industry, it remains to be seen if I can come up with such “brilliant” ideas again.

The Office!

For the first time in nearly ten years, I went to an office where I’m employed to work. I’m not going to start going regularly, yet. This was a one off since I had to meet some people who were visiting. On the evidence of today, though, I think i once again sort of enjoy going to an office, and might actually look forward to when I start going regularly again.

Metro

I had initially thought I’d drive to the office, but white topping work on CMH Road means I didn’t fancy driving. Also, the office being literally a stone’s throw away from the Indiranagar Metro Station meant that taking the Metro was an easy enough decision.

The walk to South End Metro station was uneventful, though I must mention that the footpath close to the metro station works after a very long time! However, they’ve changed the gate that’s kept open to enter the station which means that the escalator wasn’t available.

The first order of business upon entering the station was to show my palm to one reader which took my temperature and let me go past. As someone had instructed me on twitter, I put my phone, wallet and watch in my bag as I got it scanned.

Despite not having taken the metro for at least 11 months, the balance on my card remained, and as I swiped it while entering, I heard announcements of a train to Peenya about to enter the station. I bounded up the stairs, only to see that the train was a little distance away.

In 2019, when I had just moved back to Bangalore from London, I had declared that the air conditioning in the Bangalore Metro is the best ever in the city. Unfortunately post-covid protocols mean that the train is kept at a much warmer temperature than usual. So on the way to the office, I kept sweating like a pig.

The train wasn’t too crowded, though. On the green line (till Majestic), everyone was comfortably seated  (despite every alternate seat having been blocked off). I panicked once, though, when a guy seated two seats away from me sneezed. I felt less worried when I saw he was wearing a mask.

The purple line from Majestic was another story. It felt somewhat silly that every alternate seat remained blcoked off when plenty of people were crowding around standing. I must mention, though, that the crowd was nothing like what it normally is. In any case, most of the train emptied out at Vidhana Soudha, and it was a peaceful ride from there on.

40 minute from door to door. Once office starts regularly, I plan to take the metro every day.

The Office

While the office was thinly populated, it felt good being back there. I was meeting several of my colleagues for the first time ever, and it was good to see them in person. We sat together for lunch (ordered from Thai House), and spoke about random things while eating. There was an office boy who, from time to time, ensured that my water glass and bottle were always filled up.

In the evening, one colleague and I went for coffee to the darshini next door. That the coffee was provided in paper cups meant we could safely socially distance from the little crowd at that restaurant. The coffee at this place is actually good – which again bodes well for my office.

And then some usual office-y things happened. I was in a meeting room doing a call with my team when someone else knocked asking if he could use the room. I got into a constant cycle of “watering and dewatering”, something I always do when I’m in an office. The combination of the thin attendance and the office boy, though, meant that there was no need to crowd around the water cooler.

I guess this is what 2020 has done to us. Normally, going to office to work should be the “most normal and boring thing ever”. However, 2020 means that it is now an event worth blogging about. Then again, I don’t need much persuasion to write about anything, do I?