Details and structure matters: lessons from Facebook’s foundation in 2004

Continuing on the same theme as yesterday’s article on the winner-takes-all effect and the structure of network effects, today I dive deeper into the very early days of Facebook. By early, I mean the very week of Facebook’s launch on Harvard campus in Feb 2004. The early history of Facebook is interesting because when it launched Myspace and Friendster already had millions of engaged users.

Any explanation of the success of Facebook as a company that it is today will fall short. There are so many factors that explain Facebook’s current valuation of $500Bn that I’m not sure if a comprehensive account of that is even possible.  ...  Read the entire post →

The winner takes all fallacy and the structure of network effects

The winner-takes-all phenomenon in business is appealing. All entrepreneurs dream of their products being used by everyone in the market. Large tech companies such as Microsoft, Facebook, Uber, Amazon, and Netflix derive their massive valuations by dominating their respective markets. How did they achieve this dominance, and do new startups have a chance against them?

The primary cause of this massive growth of large tech companies in a short period is network effects. Many tech products grow more useful as more users use them, so larger the user base gets the more benefit each user is able to derive. This kicks in a positive feedback cycle whereby the tech product’s value increases exponentially (and becomes hard to dislodge by competitors). This increase in benefits with numbers of users is unprecedented in history. In the non-tech products world, if you use a particular brand of toothpaste, you do not make it more likely for a random stranger to pick up that brand of toothpaste. (Yes, word of mouth exists for non-tech products but that’s about it.)  ...  Read the entire post →

The long (psychological) guide to achieving your new year resolutions

It’s that time of the year when people set their new year resolutions. Most of these are health-related: losing weight, quitting smoking, reducing alcohol dependence, eating better or meditating. Everyone knows that failure rate of such personal goals is high. But psychologists are a curious bunch and wanted to be sure of that. In an experiment, they tracked people’s new year resolutions and discovered that only 40% reported sticking to their yearly goals by the end of six months.

I find this high failure rate for new year resolutions utterly fascinating. How can someone fail at achieving a goal that depends solely on their own actions? If your goal is to lose weight, why not simply start eating foods with less carbohydrates? Of course, intuitively we know that achieving personal goals isn’t as simple as that. Even the staunchest believers in free will fail at quitting smoking.  ...  Read the entire post →

Why you shouldn’t set prices based on value created

I was talking to a friend who has subscribed to an online publication called The Ken. This subscription costs him around Rs. 2000 per year and he gets access to hundreds of exclusive in-depth, well-researched articles on Indian startups. I asked him if he’ll renew, and he said probably not as he didn’t think that he got worth his money from the 15-20 articles that he had read. This conversation was happening at a bar where the average bill per person comes to be about Rs. 1500. I pointed this to him and we wondered why he was willing to pay Rs 1500 for a 3-hour sitdown at a bar but doesn’t find it worth Rs 2000 to read 15-20 well research articles.  ...  Read the entire post →

Endowment effect in business

We value things we own much more than the things we don’t own. It’s called the endowment effect. This goes well with our intuition that other people don’t value our things as much as we do. But it isn’t just that other people devalue what we have. Experiments show that if we reverse the roles, our willingness to pay is much less for the same product that we were earlier owning (and were demanding a high price for).

How does this disparity in selling price and purchase price occur? It occurs because buyers don’t have perfect information about a product and cognitively what “jumps” in the mind of a seller is benefits of the product or service (while seller focuses on costs). ...  Read the entire post →

What food delivery companies can learn from Netflix

It’s in the news today. Ola, India’s largest on-demand taxi service, has acquired FoodPanda India (from its parent company Delivery Hero) in a stock-swap transaction. FoodPanda is in food delivery business (like GrubHub in US or Delivery Hero in Europe).

Ola’s Founder and CEO said the usual acquisition-related things in a press release.

I’m excited about our partnership with Delivery Hero as we team up to take Foodpanda India to the next level. As one of India’s pioneers in the food delivery space, Foodpanda has come to be a very efficient and profit focused business over the last couple of years. Our commitment to invest $200mn in Foodpanda India will help the business be focused on growth by creating value for customers and partners. With Delivery Hero’s global leadership and Ola’s platform capabilities with unique local insights, this partnership is born out of strength.  ...  Read the entire post →

Librarians make more money than scientists

Post-docs (people with PhDs who aren’t professors yet) get an average of $52k of salary per year. Librarians and postal service works get $55k and $57k respectively. I came across these figures on an angry blog post where the author concluded:

The hard truth is academic postdocs are not valuable.

Why are intelligent people who’ve spent five or more years making an original contribution to the world (PhDs) paid less than people who’ve done short vocational training (librarians, mailmen)? ...  Read the entire post →

Don’t go where the puck is going

Making predictions about future is more than a fun past time. Gartner, Forrester, and many other research companies justify their existence by predicting where technology industry is going. Other organizations (like PwC, below) once in a while go crazy and release predictions decades ahead of now.

Do we even know if these countries will remain by 2050? (original source)

Such long-range predictions are ironic because we can’t even get short-range predictions right. For example, from this news report:

While projecting a more optimistic picture of the global economy, the International Monetary Fund (IMF) on Tuesday slashed India’s growth forecast by 0.5 percentage points to 6.7 percent in 2017. ...  Read the entire post →

Revenue requires investment, profit requires creativity

The purpose of a business is to generate over its lifetime a higher return for its shareholders than what they would have gotten by investing in risk-free options (such as government bonds). This is a slightly technical definition but an example will illustrate what I mean.

Imagine there is an entrepreneur with a business proposal and he requires a $100 of investment for it. He reaches out to you and pitches his idea to seek your investment. To make a decision, you’ll probably analyze and estimate how much return you’d get in return of money you give to him. If you usually get 6% interest annually in a savings bank account, you would expect a higher return from the entrepreneur (given there’s a risk of losing your entire $100 while your money in the bank is virtually risk-free). In fact, you’d expect an unjustifiedly high rate of return because like all humans you’re risk averse and hence demand more upside than what seems fair. Absurdly high expectations is what makes entrepreneurship so hard.  ...  Read the entire post →

Nobody likes using technology

If you are an engineer, the title of this article may shock (or even offend) you. But if I rephrase, I’ll merely state what’s immediately obvious: people are motivated towards achieving their goals and technology is simply the means towards that end (and not an end in itself). This holds true even for engineers. When they get excited about new technology (say, a new programming language), they’re responding to their intrinsic motivations of exploration, competence, social acceptance (or even aesthetic appreciation).  ...  Read the entire post →